I
103D CONGRESS
2D SESSION
H. R. 4534
To amend the Internal Revenue Code of 1986 to facilitate portability, enhance
pension coverage, and provide employers an optional simplified method
of complying with certain pension requirements.
IN THE HOUSE OF REPRESENTATIVES
MAY 26, 1994
Mr. WHEAT introduced the following bill; which was referred to the Committee
on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to facilitate
portability, enhance pension coverage, and provide em-
ployers an optional simplified method of complying with
certain pension requirements.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SIMPLIFIED METHOD FOR COMPLYING WITH
PENSION REQUIREMENTS.
(a) GENERAL RULE.—Subpart B of part I of sub-
chapter D of chapter 1 of the Internal Revenue Code of
1986 is amended by adding at the end the following new
section:
‘‘SEC. 417A. SIMPLIFIED METHOD FOR COMPLYING WITH
PENSION REQUIREMENTS.
‘‘(a) GENERAL RULE.—An employer is entitled to the
benefits of this section for any year if—
‘‘(1) such employer maintains a qualified sim-
plified defined contribution plan during such year,
and
‘‘(2) such employer maintains a qualified sim-
plified defined benefit plan during such year.
‘‘(b) BENEFITS OF SECTION.—If an employer is enti-
tled to the benefits of this section for any year—
‘‘(1) INCREASE
IN
PERMITTED
COMPENSA-
TION.—In applying sections 401(a)(17) and 404(l)
to the qualified simplified defined contribution plan
and the qualified simplified defined benefit plan, the
dollar limitation contained in such sections shall be
$200,000. The Secretary shall adjust the $200,000
amount contained in the preceding sentence at the
same time and in the same manner as the adjust-
ment under section 401(a)(17)(B).
‘‘(2) MODIFICATION OF FUNDING RULES.—
‘‘(A) INCREASE IN FULL FUNDING LIMITA-
TION.—The full funding limitation for the
qualified simplified defined benefit plan shall be
determined under section 412(c)(7)(A) as if
such section did not include subclause (I) of
clause (i) thereof.
‘‘(B) WAIVER OF QUARTERLY CONTRIBU-
TION
REQUIREMENTS.—Section 412(m) shall
not apply to the qualified simplified defined
benefit plan.
‘‘(3) WAIVER
OF
CERTAIN
DISCRIMINATION
RULES.—The requirements of section 401(k)(3)
shall be treated as satisfied with respect to any cash
or deferred arrangement maintained by the employer
during such year and the requirements of section
401(m) shall be treated as satisfied with respect to
any plan maintained by the employer during such
year.
‘‘(4) COMBINED LIMIT WAIVED.—The require-
ments of section 415(e) shall be treated as satisfied
with respect to the qualified simplified defined con-
tribution plan and the qualified simplified defined
benefit plan.
‘‘(5) OTHER
REQUIREMENTS
DEEMED
SATIS-
FIED.—The requirements of the following provisions
shall be treated as satisfied with respect to the
qualified simplified defined contribution plan and the
qualified simplified defined benefit plan:
‘‘(A) Section 401(a)(4).
‘‘(B) Section 401(a)(26).
‘‘(C) Section 401(l).
‘‘(D) Subsections (a) and (b) of section
410.
‘‘(E) Subsection (b) of section 411.
‘‘(F) Section 416.
‘‘(c) SIMPLIFIED DEFINED CONTRIBUTION PLAN.—
‘‘(1) IN GENERAL.—A defined contribution plan
is a qualified simplified defined contribution plan
if—
‘‘(A) all employees of the employer (not ex-
cluded pursuant to paragraph (2)) are eligible
to participate in such plan,
‘‘(B) the employer contribution for each
year for each participant in the plan is a uni-
form percentage (which is not less than 3 per-
cent) of such participant’s compensation (within
the meaning of section 414(s)),
‘‘(C) such plan provides that each em-
ployee covered by the plan has a nonforfeitable
right to 100 percent of such employee’s accrued
benefit derived from employer contributions,
and
‘‘(D) the balance to the credit of the em-
ployee under such plan—
‘‘(A) all employees of the employer (not ex-
cluded pursuant to paragraph (3)) are eligible
to participate in such plan, and
‘‘(B) the accrued benefit derived from em-
ployer contributions for each participant, when
expressed as an annual retirement benefit, is
equal to the required benefit determined under
paragraph (2).
‘‘(2) AMOUNT OF REQUIRED BENEFIT.—
‘‘(A) IN GENERAL.—The required benefit
determined under this paragraph is an amount
equal to the product of—
‘‘(i) the plan’s qualified accrual rate
multiplied by the number of years of serv-
ice with the employer, and
‘‘(ii) the participant’s average com-
pensation for the testing period.
‘‘(B) QUALIFIED
ACCRUAL
RATE.—For
purposes of subparagraph (A):
‘‘(i) A plan’s qualified accrual rate is
the uniform accrual rate set forth in such
plan so long as such rate exceeds 0.5 per-
cent.
‘‘(ii) A plan may provide that the ac-
crual rate with respect to so much of the
participant’s average compensation for the
testing period as does not exceed covered
compensation 
(as 
defined 
in 
section
401(l)(5)(E)) shall be less than the accrual
rate for compensation above covered com-
pensation (as so defined) so long as such
difference is not greater than 1 percentage
point. Nothing in the preceding sentence
shall be construed as permitting an accrual
rate of less than 0.5 percent.
‘‘(C) YEARS OF SERVICE.—For purposes of
this paragraph, years of service shall be deter-
mined under the rules of paragraphs (4), (5),
and (6) of section 411(a).
‘‘(D) ANNUAL
RETIREMENT
BENEFIT.—
For purposes of this paragraph, the term ‘an-
nual retirement benefit’ means a benefit pay-
able annually in the form of a single life annu-
ity (with no ancillary benefits) beginning at the
normal retirement age under the plan.
‘‘(E) TESTING PERIOD.—For purposes of
this paragraph—
‘‘(i) IN
GENERAL.—A participant’s
testing period shall be the period of years
(not less than 3 nor exceeding 5) during
which the participant has the greatest ag-
gregate compensation from the employer.
‘‘(ii) YEAR
MUST
BE
INCLUDED
IN
YEAR OF SERVICE.—The years taken into
account under clause (i) shall be properly
adjusted for years not included in a year of
service.
‘‘(3) EXCLUDED EMPLOYEES.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—The employer may ex-
clude—
‘‘(i) employees who have not com-
pleted 6 months of service,
‘‘(ii) employees who normally work
less than 171⁄2 hours per week,
‘‘(iii) employees who normally work
during not more than 6 months during the
year,
‘‘(iv) employees who have not attained
age 21, and
‘‘(v) employees who are included in a
unit of employees covered by an agreement
which the Secretary of Labor finds to be a
collective bargaining agreement between
employee representatives and the employer.
‘‘(B) EMPLOYEES COVERED BY EXISTING
DEFINED BENEFIT PLAN.—The employer may
exclude employees who are covered under an-
other defined benefit plan maintained by the
employer if—
‘‘(i) such plan was in existence on the
date of the enactment of this section, and
‘‘(ii) such plan meets the applicable
requirements of this part without regard to
this section.
The employer may exclude employees under the
preceding sentence only if all employees de-
scribed in the preceding sentence are so ex-
cluded.
‘‘(C) SPECIAL
RULE.—If accruals under
any defined benefit plan referred to in subpara-
graph (B) cease and the employees covered by
such defined benefit plan are covered by an-
other plan which would otherwise qualify under
this subsection, such other plan shall not be
treated as meeting the requirements of this sub-
section unless, in determining the annual retire-
ment benefit of each such employee under the
plan referred to in subparagraph (B), such em-
ployee’s average compensation for the testing
period (determined by treating such plans as 1
plan) is used.
‘‘(e) SPECIAL RULES.—
‘‘(1) AGGREGATION
RULES.—All employees
treated as employed by a single employer under sub-
sections (a) and (b) of section 414 shall be so treat-
ed for purposes of this section.
‘‘(2) INTEGRATION WITH SOCIAL SECURITY NOT
COMMITTED.—Except as provided in subsection
(d)(2)(B), a plan shall not be treated as meeting the
requirements of subsection (c) or (d) unless such
plan meets such requirements without taking into
account contributions or benefits under chapter 2
(relating to tax on self-employment income), chapter
21 (relating to Federal Insurance Contribution Act),
title II of the Social Security Act, or any other Fed-
eral or State law.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart B of part I of subchapter B of chapter 1 of
such Code is amended by adding at the end the following
new item:
‘‘Sec. 417A. Simplified method for complying with pension re-
quirements.’’
SEC. 2. STUDY.
(a) GENERAL RULE.—The Secretary of Labor and
the Secretary of the Treasury shall conduct a joint study