I
103D CONGRESS
2D SESSION
H. R. 5204
To amend the Internal Revenue Code of 1986 to provide incentives for
awards to an employee under a performance-based reward plan and
to direct the Administrator of the Small Business Administration to
establish a program to promote implementation of performance-based
reward plans and employee decisionmaking participation programs, and
for other purposes.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 6, 1994
Mr. WYDEN introduced the following bill; which was referred jointly to the
Committees on Ways and Means, Education and Labor, and Small Business
A BILL
To amend the Internal Revenue Code of 1986 to provide
incentives for awards to an employee under a perform-
ance-based reward plan and to direct the Administrator
of the Small Business Administration to establish a pro-
gram to promote implementation of performance-based
reward plans and employee decisionmaking participation
programs, and for other purposes.
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 ‘‘Employee Partnership
Reward Act of 1994’’.
TITLE I—REFUNDABLE INCOME
TAX 
CREDIT 
FOR
NONDEFERRED 
DISTRIBU-
TIONS FROM PERFORMANCE-
BASED REWARD PLANS.
SEC. 
101. 
REFUNDABLE 
INCOME 
TAX 
CREDIT 
FOR
NONDEFERRED DISTRIBUTIONS FROM PER-
FORMANCE-BASED REWARD PLANS.
(a) IN GENERAL.—Subpart C of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to refundable credits) is amended by redes-
ignating section 35 as section 36 and by inserting after
section 34 the following new section:
‘‘SEC. 35. NONDEFERRED DISTRIBUTIONS FROM PERFORM-
ANCE-BASED REWARD PLANS.
‘‘(a) GENERAL RULE.—In the case of an eligible em-
ployee, there shall be allowed as a credit against the tax
imposed by this subtitle for the taxable year an amount
equal to 10 percent of the value of the rewards received
by such employee from a qualified performance-based re-
ward plan for any plan year ending with or within such
taxable year. The preceding sentence shall not apply to
any reward with respect to a plan year which is made more
than 2 months following the close of such plan year.
‘‘(b) LIMITATIONS ON AMOUNT OF CREDIT.—
‘‘(1) MAXIMUM CREDIT.—The credit allowed by
subsection (a) for the taxable year shall not exceed
$500 with respect to each eligible employee.
‘‘(2) MINIMUM CREDIT.—The credit allowed by
subsection (a) for the taxable year shall not be less
than $100.
‘‘(3) COST-OF-LIVING
ADJUSTMENT.—In the
case of any calendar year after 1994, each dollar
amount in paragraph (1) or (2) shall be increased
by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘1993’ for ‘1992’ in sub-
paragraph (B) thereof.
If any increase under the preceding sentence is not
a multiple of $50, such increase shall be rounded to
the nearest multiple of $50.
‘‘(c) ELIGIBLE EMPLOYEE.—For purposes of this
section, the term ‘eligible employee’ means any employee
of an employer who is a participant in a qualified perform-
ance-based reward plan of such employer. Such term shall
not include any highly compensated employee (within the
meaning of section 414(q)) and shall not include any em-
ployee engaged in sales.
‘‘(d) QUALIFIED
PERFORMANCE-BASED
REWARD
PLAN.—For purposes of this section, the term ‘qualified
performance-based reward plan’ means a written plan
maintained by an employer—
‘‘(1) the principal purpose of which is to im-
prove the performance of the organization and re-
ward employees as a function of that improvement,
and
‘‘(2) which meets—
‘‘(A) the determination requirements of
subsection (e),
‘‘(B) the allocation requirements of sub-
section (f),
‘‘(C) the distribution requirements of sub-
section (g),
‘‘(D) the nondiscrimination requirements
of subsection (h), and
‘‘(E) the plan approval requirements of
subsection (i).
‘‘(e) DETERMINATION
REQUIREMENTS.—A plan
meets the requirements of this subsection if the amount
to be distributed under the plan for any year is determined
in accordance with a fixed formula set forth in the plan
which is based on a measurable and auditable indicator
of the employer’s performance or, at the election of the
employer, of the organizational unit in which the employ-
ees covered by the plan perform services.
‘‘(f) ALLOCATION REQUIREMENTS.—
‘‘(1) IN GENERAL.—A plan meets the require-
ments of this subsection if, under the plan, amounts
are distributed to employees of the employer main-
taining the plan only in accordance with a fixed for-
mula set forth in the plan.
‘‘(2) CHANGE IN FORMULA.—For purposes of
paragraph (1), a formula shall be treated as a fixed
formula only if under the plan any change in the
formula may not take effect until the plan year fol-
lowing the plan year in which the change is adopted
by the plan.
‘‘(g) DISTRIBUTION REQUIREMENTS.—
‘‘(1) IN GENERAL.—A plan meets the require-
ments of this subsection if the plan requires that,
for each year, the total value of rewards made under
the plan to nonhighly compensated employees is not
less than the lesser of—
‘‘(A) 2 percent of the total wages paid to
such employees during such year by the em-
ployer maintaining such plan, or
‘‘(B) the amount which, when added to the
total rewards made under the plan to such em-
ployees during the 2 preceding years, is equal
to 2 percent of the sum of the total wages paid
to such employees by such employer during
such year and such 2 preceding years.
‘‘(2) WAGES.—For purposes of paragraph (1),
the term ‘wages’ has the meaning given such term
by section 3306(b), except that—
‘‘(A) any dollar limitation in such section
shall be disregarded, and
‘‘(B) rewards from a qualified perform-
ance-based reward plan shall not be taken into
account.
‘‘(h) ANTIDISCRIMINATION REQUIREMENTS.—
‘‘(1) IN GENERAL.—A plan meets the require-
ments of this subsection if the plan benefits such
employees as qualify under a classification set up by
the employer and found by the Secretary not to be
discriminatory in favor of highly compensated em-
ployees (within the meaning of section 414(q)).
‘‘(2) EXCLUDED EMPLOYEES.—In determining
whether the requirements of paragraph (1) are met,
there shall be excluded from consideration employees
described in section 414(q)(8).
‘‘(3) BENEFITS MAY BEAR UNIFORM RELATION-
SHIP TO COMPENSATION.—A plan shall not be con-
sidered discriminatory merely because the benefits
under the plan bear a uniform relationship to the
compensation (within the meaning of section 414(s))
of the employees.
‘‘(i) PLAN
APPROVAL
REQUIREMENTS.—A plan
meets the requirements of this subsection if the plan—
‘‘(1) is submitted to the Secretary in such form
and manner as the Secretary may provide, and
‘‘(2) is approved by the Secretary.
‘‘(j) SPECIAL RULE AND DEFINITION.—For purposes
of this subsection—
‘‘(1) PLANS WHICH ARE PART OF DEFERRED
PLAN.—A plan shall not be treated as failing to be
a qualified performance-based reward plan merely
because such plan includes a qualified cash or de-
ferred 
arrangement 
(as 
defined 
in 
section
401(k)(2)).
‘‘(2) SELF-EMPLOYED INDIVIDUALS.—The term
‘employee’ does not include an individual who is an
employee (within the meaning of section 401(c)(1)).
‘‘(k) EMPLOYEE RIGHTS.—For purposes of section
502 of Employee Retirement Income Security Act of 1974,
a qualified performance-based reward plan shall be treated
as a welfare benefit plan.’’
(b) CONFORMING AMENDMENT.—
(1) Paragraph (2) of section 1324(b) of title
31, United States Code, is amended by inserting be-
fore the period ‘‘or from section 35 of such Code’’.
(2) The table of sections for subpart C of part
IV of subchapter A of chapter 1 of such Code is
amended by striking the item relating to section 35
and inserting the following new items:
‘‘Sec. 35. Nondeferred distributions from performance-based re-
ward plans.
‘‘Sec. 36. Overpayments of tax.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 102. ADDITIONAL DEDUCTION TO EMPLOYERS FOR
PERFORMANCE-BASED REWARDS.
(a) IN GENERAL.—Section 162 of the Internal Reve-
nue Code of 1986 is amended by redesignating subsection
(o) as subsection (p) and by inserting after subsection (n)
the following new subsection:
‘‘(o) PERFORMANCE-BASED REWARDS.—In addition
to the deduction otherwise allowed under this chapter for
rewards under a performance-based reward plan (as de-
fined in section 35(c)), there shall be allowed an additional
deduction equal to 10 percent of the amount allowed as
a deduction under this chapter (other than this sub-
section) for the taxable year for such awards.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 103. STUDY OF EFFECT OF CREDIT.
The Secretary of the Treasury, in consultation with
the Secretary of Commerce and the Secretary of Labor,
shall—
(1) conduct a study of the effect of the credit
under section 35 of the Internal Revenue Code of
1986 (as added by this Act) in stimulating produc-
tivity and full employment, and
(2) report the results of such study to the Con-
gress no later than January 1, 2002.
SEC. 104. COLLECTION OF STATISTICS.
(a) PERFORMANCE-BASED REWARD PLANS.—The
Secretary of Labor and the Director of the Federal Medi-
ation and Conciliation Service each shall—
(1) collect statistics on the extent of perform-
ance-based reward plans in the United States; and
(2) prepare studies which describe the nature
and terms of these performance-based reward plans.
Such studies shall differentiate between various types of
such plans and between plans which do and do not have
fixed formulas for determining amounts payable to
employees.
(b) PROFIT-SHARING AND EMPLOYEE STOCK OWN-
ERSHIP PLANS.—The Director of the Office of Manage-
ment and Budget shall publish annually estimates of the
annual tax expenditures for deferred profit-sharing plans
and employee stock ownership plans.
TITLE II—ESTABLISHMENT OF
PROGRAM TO PROMOTE PER-
FORMANCE-BASED 
REWARD
PLANS AND EMPLOYEE DECI-
SIONMAKING PARTICIPATION
PROGRAMS
SEC. 201. EMPLOYEE PARTNERSHIP PILOT PROGRAM.
(a) ESTABLISHMENT.—The Administrator, in con-
sultation with the Secretary of Labor, shall establish and
carry out an Employee Partnership Pilot Program (in this
section referred to as the ‘‘program’’) in accordance with
the requirements of this section.
(b) GRANT AWARDS.—Under the program, the Ad-
ministrator shall make grants to not to exceed 5 eligible
entities for the purpose of promoting implementation of
performance-based reward plans and employee decision-
making participation programs.
(c) SELECTION OF GRANT RECIPIENTS.—The Ad-
ministrator shall select eligible entities to receive grants
under the program on the basis of competitive, merit-
based criteria to be established by the Administrator, in
consultation with the Secretary of Labor. Such criteria,
at a minimum, shall provide for consideration of the
following:
(1) The ability of an applicant to carry out the
purposes of the program.
(2) The ability of an applicant to integrate im-
plementation of the program with existing Federal
and State business assistance resources.
(3) The ability of an applicant to continue to
carry out the purposes of the program after termi-
nation of the program.
(d) USE
OF
GRANT
AMOUNTS.—Amounts from
grants received under the program shall be used for activi-
ties which promote the purposes of the program, including
the following:
(1) The collection and dissemination of infor-
mation regarding successful implementation of per-
formance-based reward plans and employee decision-
making participation programs.
(2) The development of best practices guidelines
concerning performance-based reward plans and em-
ployee decisionmaking participation programs.
(3) The provision of technical assistance and
training to aid firms in designing and implementing