I
105TH CONGRESS
1ST SESSION
H. R. 1656
To amend the Internal Revenue Code of 1986 to provide small business
employees with a simple, secure, and fully portable defined benefit plan.
IN THE HOUSE OF REPRESENTATIVES
MAY 16, 1997
Mrs. JOHNSON of Connecticut (for herself, Mr. POMEROY, and Mr. FAWELL)
introduced the following bill; which was referred to the Committee on
Ways and Means, and in addition to the Committee on Education and
the Workforce, for a period to be subsequently determined by the Speak-
er, in each case for consideration of such provisions as fall within the ju-
risdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to provide
small business employees with a simple, secure, and fully
portable defined benefit plan.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Secure Assets For Em-
ployees (SAFE) Plan Act of 1997’’.
SEC. 2. SAFE ANNUITIES AND TRUSTS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 of the Internal Revenue Code of 1986 is
amended by inserting after section 408 the following new
section:
‘‘SEC. 408A. SAFE ANNUITIES AND TRUSTS.
‘‘(a) EMPLOYER ELIGIBILITY.—
‘‘(1) IN GENERAL.—An employer may establish
and maintain a SAFE annuity or a SAFE trust for
any year only if—
‘‘(A) the employer is an eligible employer
(as defined in section 408(p)(2)(C)), and
‘‘(B) the employer does not maintain (and
no predecessor of the employer maintains) a
qualified plan (other than a permissible plan)
with respect to which contributions were made,
or benefits were accrued, for service in any year
in the period beginning with the year such an-
nuity or trust became effective and ending with
the year for which the determination is being
made.
‘‘(2) DEFINITIONS.—For purposes of paragraph
(1)—
‘‘(A) QUALIFIED PLAN.—The term ‘quali-
fied plan’ has the meaning given such term by
section 408(p)(2)(D)(ii).
‘‘(B) PERMISSIBLE PLAN.—The term ‘per-
missible plan’ means—
‘‘(i) a plan under which only elective
deferrals described in section 402(g)(3),
deferred compensation described in section
457, or employer matching contributions
may be made, and
‘‘(ii) any collectively bargained plan.
‘‘(b) SAFE ANNUITY.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘SAFE annuity’ means an individual retire-
ment annuity (as defined in section 408(b) without
regard to paragraph (2) thereof and without regard
to the limitation on aggregate annual premiums con-
tained in the flush language of section 408(b)) if—
‘‘(A) such annuity meets the requirements
of paragraphs (2) through (6), and
‘‘(B) the only contributions to such annu-
ity are employer contributions.
Nothing in this section shall be construed as pre-
venting an employer from using a group annuity
contract which is divisible into individual retirement
annuities for purposes of providing SAFE annuities.
‘‘(2) PARTICIPATION REQUIREMENTS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met for any year only if all
employees of the employer who—
‘‘(i) received at least $5,000 in com-
pensation from the employer during any 2
consecutive preceding years, and
‘‘(ii) received at least $5,000 in com-
pensation during the year,
are entitled to the benefit described in para-
graph (5) for such year.
‘‘(B) EXCLUDABLE EMPLOYEES.—An em-
ployer may elect to exclude from the require-
ments under subparagraph (A) employees de-
scribed in section 410(b)(3).
‘‘(3) VESTING.—The requirements of this para-
graph are met if the employee’s rights to any bene-
fits are nonforfeitable.
‘‘(4) BENEFIT
FORM.—The requirements of
this paragraph are met if the only form of benefit
is—
‘‘(A) a benefit payable annually in the
form of a single life annuity with monthly pay-
ments (with no ancillary benefits) beginning at
age 65, or
‘‘(B) any other form of benefit which is the
actuarial equivalent (based on the assumptions
specified in the SAFE annuity) of the benefit
described in subparagraph (A).
‘‘(5) AMOUNT
OF
ANNUAL
ACCRUED
BENE-
FIT.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met for any plan year if the
accrued benefit of each participant derived from
employer contributions for such year, when ex-
pressed as a benefit described in paragraph
(4)(A), equals the applicable percentage of the
participant’s compensation for such year.
‘‘(B) 
APPLICABLE
PERCENTAGE.—For
purposes of this paragraph—
‘‘(i) IN GENERAL.—The term ‘applica-
ble percentage’ means 3 percent.
‘‘(ii) ELECTION OF LOWER PERCENT-
AGE.—An employer may elect to apply an
applicable percentage of 1 percent, 2 per-
cent or zero percent for any year for all
employees eligible to participate in the plan
for such year if the employer notifies the
employees of such percentage within a rea-
sonable period before the beginning of such
year.
‘‘(C) COMPENSATION
LIMIT.—The com-
pensation taken into account under this para-
graph for any year shall not exceed the limita-
tion in effect for such year under section
401(a)(17).
‘‘(D) CREDIT FOR SERVICE BEFORE PLAN
ADOPTED.—
‘‘(i) IN GENERAL.—An employer may
elect to take into account a specified num-
ber of years of service (not greater than
10) performed before the adoption of the
plan (each hereinafter referred to as a
‘prior service year’) as service under the
plan if the same specified number of years
is available to all employees eligible to par-
ticipate in the plan for the first plan year.
‘‘(ii) ACCRUAL
OF
PRIOR
SERVICE
BENEFIT.—Such an election shall be effec-
tive for a prior service year only if the re-
quirements of this paragraph are met for
an eligible plan year (with respect to em-
ployees entitled to credit for such prior
service year) by doubling the applicable
percentage (if any) for such plan year. For
purposes of the preceding sentence, an eli-
gible plan year is a plan year in the period
of consecutive plan years (but not more
than the number specified under clause (i))
beginning with the first plan year that the
plan is in effect.
‘‘(iii) ELECTION MAY NOT APPLY TO
CERTAIN
PRIOR
SERVICE
YEARS.—This
subparagraph shall not apply with respect
to any prior service year of an employee
if—
‘‘(I) for any part of such prior
service year such employee was an ac-
tive participant (within the meaning
of section 219(g)(5) under any de-
fined benefit plan of the employer (or
any predecessor thereof), or
‘‘(II) such employee received dur-
ing such prior service year less than
$5,000 in compensation from the em-
ployer.
‘‘(6) FUNDING.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met only if the employer is
required to contribute to the annuity for each
plan year the amount necessary (determined in
accordance with subparagraph (B)) to fund the
accrued benefit for each participant entitled to
such benefit for such year.
‘‘(B) ACTUARIAL ASSUMPTIONS.—In deter-
mining the amount required to be contributed
under subparagraph (A)—
‘‘(i) the assumed interest rate shall be
5 percent per year,
‘‘(ii) the assumed mortality shall be
determined under the applicable mortality
table (as defined in section 417(e)(3), as
modified by the Secretary so that it does
not include any assumption for preretire-
ment mortality),
‘‘(iii) the assumed retirement age
shall be 65, and
‘‘(iv) an assumption for reasonable ex-
penses shall be permitted consistent with
State law.
‘‘(C) 
TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—For purposes of this para-
graph, any contribution made for a plan year
during the 81⁄2-month period beginning on the
day after the last day of such plan year shall
be deemed to have been made on such last day.
‘‘(D) PENALTY FOR FAILURE TO MAKE RE-
QUIRED CONTRIBUTION.—The taxes imposed by
section 4971 shall apply to a failure to make
the contribution required by this paragraph in
the same manner as if the amount of the failure
were an accumulated funding deficiency to
which such section applies.
‘‘(7) DEFINITIONS AND SPECIAL RULE.—
‘‘(A) DEFINITIONS.—The definitions in
section 408(p)(6) shall apply for purposes of
this subsection.
‘‘(B) USE OF DESIGNATED FINANCIAL IN-
STITUTIONS.—A rule similar to the rule of sec-
tion 408(p)(7) (without regard to the last sen-
tence thereof) shall apply for purposes of this
subsection.
‘‘(c) SAFE TRUST.—
‘‘(1) IN GENERAL.—For purposes of this title,
the term ‘SAFE trust’ means a trust forming part
of a defined benefit plan if—
‘‘(A) such trust meets the requirements of
section 401(a) as modified by subsection (d),
‘‘(B) a participant’s benefits under the
plan are based solely on the balance of a sepa-
rate account in such plan of such participant,
‘‘(C) such plan meets the requirements of
paragraphs (2) through (8), and
‘‘(D) the only contributions to such trust
are employer contributions.
‘‘(2) PARTICIPATION REQUIREMENTS.—A plan
meets the requirements of this paragraph for any
year only if the requirements of subsection (b)(2)
are met for such year.
‘‘(3) VESTING.—A plan meets the requirements
of this paragraph for any year only if the require-
ments of subsection (b)(3) are met for such year.
‘‘(4) BENEFIT FORM.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a plan meets the require-
ments of this paragraph only if the require-
ments of subsection (b)(4) are met for purposes
of this subparagraph, a plan may satisfy the re-
quirements of subsection (b)(4) by purchasing
an annuity contract which meets the require-
ments of subsection (b)(4).
‘‘(B) DIRECT TRANSFERS TO INDIVIDUAL
RETIREMENT PLAN OR SAFE ANNUITY.—A plan
shall not fail to meet the requirements of this
paragraph by reason of permitting, at the elec-
tion of the employee, a trustee-to-trustee trans-
fer of the entire balance to the credit of the em-
ployee to an individual retirement account de-
scribed in section 408(a), an individual retire-
ment annuity described in section 408(b) (other
than an endowment contract), or a SAFE an-
nuity.
‘‘(5) AMOUNT
OF
ANNUAL
ACCRUED
BENE-
FIT.—A plan meets the requirements of this para-
graph for any year only if the requirements of sub-
section (b)(5) are met for such year.
‘‘(6) FUNDING.—
‘‘(A) IN GENERAL.—A plan meets the re-
quirements of this paragraph for any year only
if—
‘‘(i) the requirements of subsection
(b)(6) are met for such year, and
‘‘(ii) in the case of a plan which has
an unfunded prior year liability as of the
close of such plan year, the plan requires
that the employer make an additional con-
tribution to such plan for such year equal
to the amount of such unfunded prior year
liability.
‘‘(B) UNFUNDED
PRIOR
YEAR
LIABIL-
ITY.—For purposes of this paragraph, the term
‘unfunded prior year liability’ means, with re-
spect to any plan year, the excess (if any) of—
‘‘(i) the aggregate of the accrued li-
abilities under the plan as of the close of
the prior plan year, over
‘‘(ii) the value of the plan’s assets de-
termined under section 412(c)(2) as of the
close of the plan year (determined without
regard to any contributions for such plan
year).
Such accrued liabilities shall be determined
using the assumptions specified in subsection
(b)(6)(B).
‘‘(C) CHANGES IN MORTALITY TABLE.—If
the applicable mortality table under section
417(e)(3) for any plan year is not the same as
such table for the prior plan year, the Secretary
shall prescribe regulations which phase in the
effect of the changes over a reasonable period
of plan years determined by the Secretary.
‘‘(D) DISREGARD ASSUMPTIONS FOR EX-
PENSES.—For purposes of this paragraph, the
assumption specified in subsection (b)(6)(B)(iv)
shall be disregarded.
‘‘(7) 
SEPARATE
ACCOUNTS
FOR
PARTICI-
PANTS.—A plan meets the requirements of this
paragraph for any year only if the plan provides—
‘‘(A) for an individual account for each
participant, and
‘‘(B) for benefits based solely on—
‘‘(i) the amount contributed to the
participant’s account, and
‘‘(ii) any income, expenses, gains and
losses, and any forfeitures of accounts of
other participants which may be allocated
to such participant’s account.
‘‘(8) TRUST MAY NOT HOLD SECURITIES WHICH
ARE NOT READILY TRADABLE.—A plan meets the
requirements of this paragraph only if the plan pro-
hibits the trust from holding directly or indirectly se-
curities which are not readily tradable on an estab-
lished securities market or otherwise. Nothing in
this paragraph shall prohibit the trust from holding
insurance company products regulated by State law.
‘‘(9) DEFINITIONS
AND
SPECIAL
RULE.—The
definitions and special rule applicable under sub-
section (b)(7) shall apply for purposes of this sub-
section.
‘‘(d) SPECIAL RULES FOR SAFE ANNUITIES AND
TRUSTS.—
‘‘(1) CERTAIN
REQUIREMENTS
TREATED
AS
MET.—For purposes of section 401(a), a SAFE an-
nuity and a SAFE trust shall be treated as meeting
the requirements of the following provisions:
‘‘(A) Section 401(a)(4) (relating to non-
discrimination rules).
‘‘(B) Section 401(a)(26) (relating to mini-
mum participation).
‘‘(C) Section 410 (relating to minimum
participation and coverage requirements).
‘‘(D) Section 411(b) (relating to accrued
benefit requirements).
‘‘(E) Paragraphs (6) and (7) of section
412(c) (relating to full funding limitation).
‘‘(F) Section 415 (relating to limitations
on benefits and contributions under qualified
plans).
‘‘(G) Section 416 (relating to special rules
for top-heavy plans).
‘‘(2) CONTRIBUTIONS
NOT
TAKEN
INTO
AC-
COUNT IN APPLYING LIMITS TO OTHER PLANS.—
Contributions to a SAFE annuity or a SAFE trust
shall not be taken into account in applying sections
404 and 415 to other plans maintained by the em-
ployer.’’
(b) DEDUCTION LIMITS NOT TO APPLY TO EM-
PLOYER CONTRIBUTIONS.—