(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
SEC. 2. EMPLOYEES NOT COVERED BY QUALIFYING RE-
TIREMENT PLANS OR ARRANGEMENTS ENTI-
TLED TO PARTICIPATE IN AUTOMATIC IRA 
ARRANGEMENTS. 
(a) IN GENERAL.—Subpart A of part I of subchapter 
D of chapter 1 (relating to pension, profit-sharing, stock 
bonus plans, etc.) is amended by inserting after section 
408A the following new section: 
‘‘SEC. 408B. RIGHT TO AUTOMATIC IRA ARRANGEMENTS AT 
WORK. 
‘‘(a) REQUIREMENT TO PROVIDE AUTOMATIC IRA 
ARRANGEMENT.—Each covered employer shall make 
available to each qualifying employee of the employer for 
the calendar year an automatic IRA arrangement. 
‘‘(b) COVERED EMPLOYER.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection or subsection (c)(2), the 
term ‘covered employer’ means, with respect to any 
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year, an employer which does not maintain a quali-
fying plan or arrangement described in section 
219(g)(5) for the calendar year. 
‘‘(2) EXCLUDED PLANS.—A qualifying plan or 
arrangement shall not be taken into account for pur-
poses of paragraph (1) if— 
‘‘(A) the plan or arrangement is frozen as 
of the first day of the preceding calendar year, 
or 
‘‘(B) in the case of a plan or arrangement 
under which the only contributions are discre-
tionary on the part of the employer or other 
plan sponsor, no employer contribution has 
been made to the plan or arrangement for the 
2-plan-year period ending with the last plan 
year ending in the second preceding calendar 
year and it is not reasonable to assume that an 
employer contribution will be made for the last 
plan year ending in the preceding calendar 
year. 
‘‘(3) EXCEPTION
FOR
CERTAIN
SMALL
AND 
NEW EMPLOYERS.— 
‘‘(A) IN GENERAL.—The term ‘covered em-
ployer’ does not include an employer for a cal-
endar year if the employer either— 
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‘‘(i) did not employ more than 10 em-
ployees who received at least $5,000 of 
compensation 
(as 
defined 
in 
section 
3401(a)) from the employer for the pre-
ceding calendar year, 
‘‘(ii) did not normally employ more 
than 10 employees on a typical business 
day of the preceding calendar year, or 
‘‘(iii) was not in existence at all times 
during the calendar year and the preceding 
calendar year. 
‘‘(B) OPERATING RULES.—In determining 
the number of employees for purposes of sub-
paragraph (A)— 
‘‘(i) rules consistent with any rules 
applicable in determining the number of 
employees 
for 
purposes 
of 
section 
408(p)(2)(C) and section 4980B(d) shall 
apply, 
‘‘(ii) all members of the same family 
(within the meaning of section 318(a)(1)) 
shall be treated as 1 individual, and 
‘‘(iii) any reference to an employer 
shall include a reference to any predecessor 
employer. 
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‘‘(4) EXCEPTION
FOR
GOVERNMENTS
AND 
CHURCHES.—The term ‘covered employer’ does not 
include— 
‘‘(A) a government or entity described in 
section 414(d), or 
‘‘(B) a church or a convention or associa-
tion of churches which is exempt from tax 
under section 501. 
‘‘(5) AGGREGATION RULE.—All persons treated 
as a single employer under subsection (a) or (b) of 
section 52 or subsection (m) or (o) of section 414 
shall be treated as a single employer. 
‘‘(c) QUALIFYING EMPLOYEE.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘qualifying em-
ployee’ means any employee of the employer who is 
not an excluded employee. 
‘‘(2) PLAN SPONSOR’S EMPLOYEES.—If— 
‘‘(A) an employer maintains one or more 
qualifying plans or arrangements described in 
section 219(g)(5), and 
‘‘(B) the employees of a subsidiary, divi-
sion, or other major business unit are generally 
not eligible to participate in any such qualifying 
plan or arrangement, 
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then, for purposes of this section, the employer shall 
be treated as a covered employer with respect to 
such employees (other than excluded employees), 
and such employees (other than excluded employees) 
shall be treated as qualifying employees, but only if 
there are 50 or more ineligible employees of such 
subsidiary, division or other major business unit con-
stituting at least 10 percent of the employees of the 
employer (other than excludable employees). 
‘‘(3) EXCLUDED EMPLOYEES.— 
‘‘(A) IN
GENERAL.—The term ‘excluded 
employee’ means an employee of the employer 
who is an excludable employee and who is in a 
class or category that the employer excludes 
from treatment as qualifying employees. 
‘‘(B) EXCLUDABLE EMPLOYEE.—The term 
‘excludable employee’ means— 
‘‘(i) any employee described in section 
410(b)(3), 
‘‘(ii) any employee who has not at-
tained the age of 18 before the beginning 
of the calendar year, 
‘‘(iii) any employee who has not com-
pleted at least 3 months of service with the 
employer, 
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‘‘(iv) in the case of an employer that 
maintains a qualifying plan or arrange-
ment which excludes employees who have 
not satisfied the minimum age and service 
requirements for participation in the plan, 
any employee who has not satisfied such 
requirements, 
‘‘(v) in the case of an employer that 
maintains a section 403(b) annuity con-
tract (including a custodial account or re-
tirement income account), any employee 
who is permitted to be excluded from any 
salary reduction arrangement under the 
contract pursuant to section 403(b)(12), 
‘‘(vi) in the case of an employer that 
maintains an arrangement described in 
section 408(p), any employee who is not 
required to be eligible to participate in the 
arrangement under section 408(p)(4), and 
‘‘(vii) in the case of an employer that 
maintains a simplified employee pension 
described in section 408(k), any employee 
who is permitted to be excluded from par-
ticipation under section 408(k)(2). 
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‘‘(4) GUIDANCE.—The Secretary shall issue 
regulations or other guidance to carry out this sub-
section, including— 
‘‘(A) guidelines for determining the classes 
or categories of employees to be covered by an 
automatic IRA arrangement, 
‘‘(B) if an employer excludes employees 
from the automatic IRA arrangement, guide-
lines providing that the employer shall specify 
the classification or categories of employees who 
are so excluded, and 
‘‘(C) rules to prevent avoidance of the re-
quirements of this section. 
‘‘(d) AUTOMATIC IRA ARRANGEMENT.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘automatic IRA 
arrangement’ means an arrangement of an employer 
(determined without regard to whether the employer 
is required to maintain the arrangement)— 
‘‘(A) which covers each qualifying employee 
of the covered employer for the calendar year, 
‘‘(B) under which a qualifying employee— 
‘‘(i) may elect— 
‘‘(I) to contribute to an indi-
vidual retirement plan, or to purchase 
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a qualified retirement bond on behalf 
of the employee, by having the em-
ployer 
deposit 
payroll 
deduction 
amounts or make other periodic direct 
deposits (including electronic pay-
ments) to the plan or to be invested in 
retirement bonds (whether to the Sec-
retary of the Treasury or to a des-
ignated trustee or other agent for that 
purpose), or 
‘‘(II) to have such payments paid 
to the employee directly in cash, 
‘‘(ii) is treated as having made the 
election under clause (i)(I) in the amount 
specified in paragraph (4) until the indi-
vidual specifically elects not to have such 
contributions or purchases made (or spe-
cifically elects to have such contributions 
or purchases made at a different percent-
age or in a different amount), and 
‘‘(iii) may elect to modify the manner 
in which such amounts are invested for 
such year, 
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‘‘(C) which meets the administrative re-
quirements of paragraph (2), including the no-
tice requirement of paragraph (2)(C), and 
‘‘(D) which does not charge unreasonable 
additional fees solely on the basis that the bal-
ance in an automatic IRA is small. 
‘‘(2) ADMINISTRATIVE REQUIREMENTS.— 
‘‘(A) PAYMENTS.—The requirements of 
this paragraph are met with respect to any 
automatic IRA arrangement if the employer 
makes the payments elected or treated as elect-
ed under paragraph (1)(B)— 
‘‘(i) on or before the last day of the 
month following the month in which the 
compensation otherwise would have been 
payable to the employee in cash, or 
‘‘(ii) before such later deadline pre-
scribed by the Secretary for making such 
payments, but not later than the due date 
for the deposit of tax required to be de-
ducted and withheld under chapter 24 (re-
lating to collection of income tax at source 
on wages) for the payroll period to which 
such payments relate. 
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‘‘(B) TERMINATION
OF
EMPLOYEE
PAR-
TICIPATION.—Subject to a requirement for rea-
sonable notice, an employee may elect to termi-
nate participation in the arrangement at any 
time during a calendar year, except that if an 
employee so terminates, the arrangement may 
provide that the employee may not elect to re-
sume participation until the beginning of the 
next calendar year. 
‘‘(C) NOTICE OF ELECTION PERIOD.—The 
requirements of this paragraph shall not be 
treated as met with respect to any year unless 
the employer notifies each employee eligible to 
participate, within a reasonable period of time 
before the 30th day before the beginning of 
such year (and, for the first year the employee 
is so eligible, the 30th day before the first day 
such employee is so eligible), of— 
‘‘(i) the payments that may be elected 
or treated as elected under paragraph 
(1)(B), 
‘‘(ii) the opportunity to make the elec-
tion to terminate participation in the ar-
rangement under paragraph (2)(B), 
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‘‘(iii) the opportunity to make the 
election under paragraph (1)(B)(ii) to have 
contributions or purchases made at a dif-
ferent percentage or in a different amount, 
and 
‘‘(iv) the opportunity under paragraph 
(1)(B)(iii) to modify the manner in which 
such amounts are invested for such year. 
‘‘(D) EMPLOYER MAY PERMIT EMPLOYEES 
TO CHOOSE IRA.—Subject to subsection (f), if 
the employer so elects, the arrangement pro-
vides that an employee may elect to have con-
tributions made to any individual retirement 
plan specified by the employee. 
‘‘(E) EMPLOYER MAY PERMIT EMPLOYEES 
TO
CHOOSE
RETIREMENT
BOND.—Subject to 
subsection (f), if the employer so elects, the ar-
rangement provides that an employee may elect 
to have payments applied toward the purchase 
of retirement bonds. 
‘‘(3) DEFAULT INVESTMENTS.—If an employee 
is treated under clause (ii) of paragraph (1)(B) as 
having made an election to participate in an auto-
matic IRA arrangement— 
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‘‘(A) the employee shall be deemed to have 
made an election to make contributions and 
payments in the amount determined under such 
clause, 
‘‘(B) such contributions shall— 
‘‘(i) if the employer has made an elec-
tion under subsection (f)(2), be transferred 
to an individual retirement plan of the des-
ignated trustee or issuer but only if the 
contributions are invested as provided in 
paragraph (5), or 
‘‘(ii) be applied toward the purchase 
of a retirement bond. 
‘‘(4) AMOUNT
OF
CONTRIBUTIONS
AND
PAY-
MENTS.— 
‘‘(A) IN GENERAL.—The amount specified 
in this paragraph is— 
‘‘(i) 3 percent of compensation, or 
‘‘(ii) such other percentage of com-
pensation as is specified in regulations pre-
scribed by the Secretary which is not less 
than 2 percent or more than 6 percent. 
‘‘(B) AUTHORITY TO PROVIDE FOR PERI-
ODIC INCREASES.—In the case of qualifying em-
ployees under an automatic IRA arrangement 
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for 2 or more consecutive years, the Secretary 
may by regulation provide for periodic (not 
more frequent than annual) increases in the 
percentage of compensation an employee is 
deemed to have elected under subparagraph 
(A). The considerations the Secretary shall take 
into account in issuing any regulations under 
this subparagraph and subparagraph (A) shall 
include the potential effects on lower-income 
employees as well as on adequacy of savings. 
‘‘(C) PERMITTED
ADDITIONAL
PROCE-
DURES
TO
LIMIT
CONTRIBUTIONS.—An em-
ployer— 
‘‘(i) shall have no responsibility for 
any calendar year for determining whether, 
or ensuring that, the contributions with re-
spect to any employee do not exceed the 
deductible amount in effect for taxable 
years beginning in the calendar year under 
section 219(b)(5) (determined without re-
gard to subparagraph (B) thereof), and 
‘‘(ii) shall not be treated as failing to 
satisfy the requirements of this section or 
any other provision of this title merely be-
cause the employer chooses to limit the 
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