reasonable opportunity to respond to a request for 
confirmation of compliance under subsection (c). 
‘‘(3) TAX NOT TO APPLY TO FAILURES COR-
RECTED WITHIN 30 DAYS.—No tax shall be imposed 
by subsection (a) on any failure if— 
‘‘(A) the employer subject to liability for 
the tax under subsection (a) exercised reason-
able diligence to meet the requirements of sub-
section (d), and 
‘‘(B) the employer provides the payroll de-
posit IRA arrangement described in section 
408B to each employee eligible to participate in 
the arrangement by the end of the 30-day pe-
riod beginning on the first date the employer 
knew, or exercising reasonable diligence would 
have known, that such failure existed. 
‘‘(4) WAIVER BY SECRETARY.—In the case of a 
failure which is due to reasonable cause and not to 
willful neglect, the Secretary may waive part or all 
of the tax imposed by subsection (a) to the extent 
that the payment of such tax would be excessive or 
otherwise inequitable relative to the failure involved. 
‘‘(c) PROCEDURES FOR NOTICE.—Not later than 6 
months after the date of the enactment of this section, 
the Secretary shall prescribe and implement procedures 
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for obtaining from employers confirmation that such em-
ployers are in compliance with the requirements of sub-
section (d). The Secretary, in the Secretary’s discretion, 
may prescribe that the confirmation shall be obtained on 
an annual or less frequent basis, and may use for this 
purpose the annual report or quarterly report for employ-
ment taxes, or such other means as the Secretary may 
deem advisable. 
‘‘(d) REQUIREMENT TO PROVIDE EMPLOYEE ACCESS 
TO PAYROLL DEPOSIT IRA ARRANGEMENTS.—The re-
quirements of this subsection are met if the employer 
meets the requirements of section 408B.’’. 
(f) COORDINATION WITH ERISA FIDUCIARY DU-
TIES.—Section 404(c)(2) of such Act (29 U.S.C. 
1104(c)(2)) is amended— 
(1) by inserting ‘‘or an individual retirement 
plan designated by the employer under section 408B 
of such Code’’ after ‘‘1986’’, 
(2) by inserting ‘‘(7 days after notice has been 
given to an employee that an individual retirement 
plan has been established on behalf of the employee 
under section 408B of such Code)’’ after ‘‘estab-
lished’’ in subparagraph (C), and 
(3) by inserting ‘‘or with respect to an indi-
vidual retirement plan designated by an employer 
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under section 408B of such Code’’ after ‘‘arrange-
ment’’ in the last sentence. 
(g) CONFORMING AMENDMENTS.— 
(1) The table of sections for subpart A of part 
I of subchapter A of chapter 1 is amended by insert-
ing after the item relating to section 408A the fol-
lowing new item: 
‘‘Sec. 408B. Right to payroll deposit IRA arrangements at work.’’. 
(2) The table of sections for chapter 43 is 
amended by adding at the end the following new 
item: 
‘‘Sec. 4980H. Requirements for employers to provide employees access to pay-
roll deposit IRA arrangements.’’. 
(h) EFFECTIVE DATE.—The amendments made by 
this section shall apply to calendar years beginning after 
December 31, 2007. 
SEC. 3. CREDIT FOR SMALL EMPLOYERS MAINTAINING 
PAYROLL DEPOSIT IRA ARRANGEMENTS. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by adding at the end the following new 
section: 
‘‘SEC. 45N. SMALL EMPLOYER PAYROLL DEPOSIT IRA AR-
RANGEMENT COSTS. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
in the case of an eligible employer maintaining a payroll 
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deposit IRA arrangement meeting the requirements of sec-
tion 408B (without regard to whether or not the employer 
is required to maintain the arrangement), the small em-
ployer payroll deposit IRA arrangement cost credit deter-
mined under this section for any taxable year is the 
amount determined under subsection (b). 
‘‘(b) AMOUNT OF CREDIT.— 
‘‘(1) IN GENERAL.—The amount of the credit 
determined under this section for any taxable year 
with respect to an eligible employer shall be equal to 
the lesser of— 
‘‘(A) $25 multiplied by the number of ap-
plicable employees (within the meaning of sec-
tion 408B(c)) for whom contributions are made 
under the payroll deposit IRA arrangement re-
ferred to in subsection (a) for the calendar year 
in which the taxable year begins, or 
‘‘(B) $250. 
‘‘(2) DURATION OF CREDIT.—No credit shall be 
determined under this section for any taxable year 
other than a taxable year which begins in the first 
2 calendar years in which the eligible employer 
maintains a payroll deposit IRA arrangement meet-
ing the requirements of section 408B. 
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‘‘(3) COORDINATION
WITH
SMALL
EMPLOYER 
STARTUP CREDIT.—No credit shall be allowed under 
this section for any taxable year if a credit is deter-
mined under section 45E for the taxable year. 
‘‘(c) ELIGIBLE EMPLOYER.—For purposes of this 
section, the term ‘eligible employer’ means, with respect 
to any calendar year in which the taxable year begins, an 
employer which maintains a payroll deposit IRA arrange-
ment meeting the requirements of section 408B and 
which, on each day during the preceding calendar year, 
had no more than 100 employees.’’. 
(b) CREDIT ALLOWED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) (defining current year busi-
ness credit) is amended by striking ‘‘and’’ at the end of 
paragraph (29), by striking the period at the end of para-
graph (30) and inserting ‘‘, and’’, and by adding at the 
end the following new paragraph: 
‘‘(31) in the case of an eligible employer (as de-
fined in section 45N(c)) maintaining a payroll de-
posit IRA arrangement meeting the requirements of 
section 408B, the small employer payroll deposit 
IRA arrangement cost credit determined under sec-
tion 45N(a).’’ 
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(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new item: 
‘‘Sec. 45N. Small employer payroll deposit IRA arrangement costs.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 4. ESTABLISHMENT OF AUTOMATIC IRAS. 
(a) IN GENERAL.—Subpart A of part I of subchapter 
A of chapter 1 (relating to pension, profit-sharing, stock 
bonus plans, etc.), as amended by section 2, is amended 
by inserting after section 408B the following new section: 
‘‘SEC. 408C. AUTOMATIC IRAS. 
‘‘(a) GENERAL RULE.—An automatic IRA shall be 
treated for purposes of this title in the same manner as 
an individual retirement plan. An automatic IRA may also 
be treated as a Roth IRA for purposes of this title if it 
meets the requirements of section 408A. 
‘‘(b) AUTOMATIC IRA.—For purposes of this section, 
the term ‘automatic IRA’ means an individual retirement 
plan (as defined in section 7701(a)(37)) which meets the 
investment and fee requirements under the regulations 
under subsection (c). 
‘‘(c) INVESTMENT AND FEE REQUIREMENTS.— 
‘‘(1) IN GENERAL.—The TSP II Board, in con-
sultation with the Secretary and the Secretary of 
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Labor, shall, not later than 1 year after the date of 
the enactment of this section, prescribe regulations 
which set forth the requirements of this subsection 
which an individual retirement plan must meet in 
order to be treated as an automatic IRA. 
‘‘(2) INVESTMENT
OPTIONS.—The regulations 
under paragraph (1) shall provide that an automatic 
IRA shall allow the individual on whose behalf the 
individual retirement plan is established to invest 
contributions to, and earnings of, the plan in all of 
the following investment options: 
‘‘(A) Options which are similar to all in-
vestment options which are available (at the 
time the plan is established) to a participant in 
the Thrift Savings Fund established under sub-
chapter III of chapter 84 of title 5, United 
States Code. 
‘‘(B) Any other investment option specified 
in the regulations. 
Such regulations shall specify which of the invest-
ment options shall be treated as default investment 
options for purposes of section 408B(g)(4). 
‘‘(3) INVESTMENT FEES.— 
‘‘(A) IN GENERAL.—The regulations under 
paragraph (1) shall provide that an automatic 
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IRA shall not charge any investment fees 
which, in the aggregate, are not reasonable (as 
determined under such regulations). 
‘‘(B) INVESTMENT FEES.—For purposes of 
this paragraph, the term ‘investment fees’ in-
cludes any fee, commission, asset management 
fee, compensation for services, or any other 
charge or fee specified in the regulations under 
paragraph (1) which is imposed with respect to 
the automatic IRA.’’. 
(b) 
MANDATORY
TRANSFERS.—Section 
401(a)(31)(B) is amended— 
(1) by inserting ‘‘(including an automatic 
IRA)’’ after ‘‘individual retirement plan’’ each place 
it appears, and 
(2) by adding at the end the following new sen-
tence: ‘‘Any amount so transferred (and any earn-
ings thereon) shall be invested in a default invest-
ment described in section 408B(g)(4).’’ 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart A of part I of subchapter A of chapter 1 is 
amended by inserting after the item relating to section 
408B the following new item: 
‘‘Sec. 408C. Automatic IRAs.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to calendar years beginning on or 
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after the date on which proposed and temporary or final 
regulations described in section 408C(c) of the Internal 
Revenue Code of 1986 (as added by this Act) are issued. 
SEC. 5. ESTABLISHMENT OF TSP II BOARD. 
(a) ESTABLISHMENT.—There is established in the ex-
ecutive branch of the Government a TSP II Board. The 
board shall be established and maintained in the same 
manner as the Federal Retirement Thrift Investment 
Board under subchapter VII of chapter 84 of title 5, 
United States Code. 
(b) EXECUTIVE DIRECTOR.—The TSP II Board shall 
appoint an Executive Director in a similar manner and 
with similar functions as the Executive Director of the 
Federal Retirement Thrift Investment Board under sec-
tion 8474 of title 5, United States Code. 
(c) DUTIES OF BOARD.—The TSP II Board shall es-
tablish policies and procedures for— 
(1) establishment and maintenance of individual 
retirement plans under the payroll tax deposit sys-
tem established under section 408B(f)(3) of the In-
ternal Revenue Code of 1986, 
(2) the investment and management of con-
tributions to such individual retirement plans, 
(3) the amount of contributions, and the invest-
ment of such contributions, under automatic con-
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tribution arrangements under section 408B(g) of 
such Code, including the designation of investment 
funds in which such contributions may be invested, 
and 
(4) the establishment of automatic IRAs under 
section 408C of such Code, including the issuance of 
regulations under subsection (c) of such section. 
(d) BEST PRACTICES.—The TSP II Board shall, on 
a continual basis, prescribe and encourage best practices 
(including cost efficiencies and innovations) in enrollment, 
investment, distribution, and other procedures or arrange-
ments relating to retirement savings and investment. In 
carrying out its responsibilities under this section, the 
TSP II Board may implement (by contract or otherwise) 
pilot projects to help assess the efficacy and workability 
of specific practices and arrangements. 
(e) EXPANSION
OF USE
OF IRAS
BY SELF-EM-
PLOYED AND OTHER INDIVIDUALS.—The TSP II Board 
shall establish procedures to disseminate information 
(through use of the Internet and other appropriate means) 
to— 
(1) facilitate and encourage the use by self-em-
ployed and other individuals of automatic debit and 
similar arrangements for investment in individual re-
tirement plans, including automatic IRAs, 
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(2) facilitate and encourage efforts by voluntary 
associations to promote savings in individual retire-
ment plans, including automatic IRAs, by their 
members and others, and 
(3) facilitate and encourage the direct deposit 
of Federal and State income tax refunds in indi-
vidual retirement plans, including automatic IRAs. 
(f) EXCLUSIVE INTEREST.—The members of the 
TSP II Board shall discharge their responsibilities solely 
in the interest of participants and beneficiaries under the 
payroll tax deposit system established under section 408B 
of the Internal Revenue Code of 1986. 
(g) OTHER PROVISIONS MADE APPLICABLE.—The 
provisions of subsections (f)(3), (g), (i), and (j) of section 
8472 of title 5, United States Code, shall apply to the 
TSP II Board. 
Æ 
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