‘‘(i) are not less than 3 percent, and
do not exceed 10 percent, of compensation
of all participants in the plan, and
‘‘(ii) are allocated to all participants
in the plan on a uniform basis without re-
gard to subsection (l), and
‘‘(B) in the case of discretionary employer
contributions—
‘‘(i) such contributions made to the
plan do not exceed 15 percent of com-
pensation 
and 
are 
allocated 
to 
all
participants—
‘‘(I) as a level percentage of com-
pensation, or
‘‘(II) under a formula that meets
the requirements of subsection (l)(2)
(relating to permitted disparity), or
‘‘(ii) are made to the same plan under
an arrangement that meets the require-
ments of subsection (k), in which case the
minimum 3 percent contribution referred
to in subparagraph (A)(i) shall be applied
against the nonelective contributions of
subsection (k)(12)(C).
Nothing in subparagraph (B)(ii) shall be construed
to exempt such plan from any other requirement of
subsection (k)(12).
‘‘(5) VESTING.—
‘‘(A) IN GENERAL.—A plan satisfies the
requirements of this paragraph if it satisfies the
requirements of either of the following clauses:
‘‘(i) 3-YEAR VESTING.—A plan satis-
fies the requirements of this clause if an
employee who has completed at least 3
years of service with the employer or em-
ployers maintaining the plan has a non-
forfeitable right to 100 percent of his ac-
crued benefit derived from employer con-
tributions.
‘‘(ii) 6-YEAR
GRADED
VESTING.—A
plan satisfies the requirements of this
clause if an employee has a nonforfeitable
right to a percentage of his accrued benefit
derived from employer contributions deter-
mined under the following table:
The nonforfeitable
‘‘Years of service:
percentage is:
2 ...............................................................................................
3 ...............................................................................................
4 ...............................................................................................
5 ...............................................................................................
6 or more .................................................................................
100.
‘‘(B) CERTAIN
RULES
MADE
APPLICA-
BLE.—Except to the extent inconsistent with
the provisions of this paragraph, the rules of
section 411 shall apply for purposes of this sub-
section.
‘‘(C) YEAR OF SERVICE.—For purposes of
subparagraph (A), years of service shall be de-
termined under the last sentence of section
410(a)(3)(A).
‘‘(6) OTHER REQUIREMENTS.—
‘‘(A) ARRANGEMENT MAY BE ONLY PLAN
OF EMPLOYER.—
‘‘(i) IN
GENERAL.—An arrangement
shall not be treated as a qualified small
employer plan for any year if the employer
(or any predecessor employer) maintained
a qualified plan with respect to which con-
tributions were made, or benefits were ac-
crued, for service in any year in the period
beginning with the year such arrangement
became effective and ending with the year
for which the determination is being made.
If only individuals other than employees
described in subparagraph (A) or (B) of
section 410(b)(3) are eligible to participate
in such arrangement, then the preceding
sentence shall be applied without regard to
any qualified plan in which only employees
so described are eligible to participate.
‘‘(ii) QUALIFIED PLAN.—For purposes
of this subparagraph, the term ‘qualified
plan’ means a plan, contract, pension, or
trust described in subparagraph (A) or (B)
of section 219(g)(5).
‘‘(iii) GRACE PERIOD.—In the case of
an employer who establishes and maintains
a plan under this subsection for 1 or more
years and who fails to meet any require-
ment of this subsection for any subsequent
year due to any acquisition, disposition, or
similar transaction involving another such
employer, rules similar to the rules of sec-
tion 410(b)(6)(C) shall apply for purposes
of this subsection.
‘‘(iv) RULE
OF
CONSTRUCTION.—
Clauses (i), (ii), and (iii) shall not be con-
strued to prevent a rollover contribution
that meets the requirements of section
402(c) or to prevent the adoption of the
qualified small employer plan as a suc-
cessor plan.
‘‘(B) PLAN MAY NOT BE ESOP.—A small
employer plan does not meet the requirements
of paragraph (1) if such plan is—
‘‘(i) a tax credit employee stock own-
ership plan (as defined in section 409(a)),
or
‘‘(ii) an employee stock ownership
plan (as defined in section 4975(e)(7)).
‘‘(C) OTHER APPLICABLE PROVISIONS.—A
plan shall not be treated as a qualified small
employer plan unless the plan meets the re-
quirements of—
‘‘(i) paragraphs (1), (2), (9), (11),
(12), (13), (14), (15), (16), (17), (19),
(20), (22), (23), (27), (30), and (31) of
subsection (a), and
‘‘(ii) subsections (b), (c), and (d).
‘‘(7) TOP-HEAVY RULES INAPPLICABLE.—
Section 416 shall not apply to a trust that
meets the requirements of this subsection.
‘‘(8) COMPENSATION DEFINED.—For pur-
poses of this subsection, the term ‘compensa-
tion’ has the meaning given such term by sec-
tion 404(a)(3)(A)(v).’’.
(b) DEFINITION OF SMALL EMPLOYER.—
(1) IN
GENERAL.—Section 414 (relating to
definitions and special rules) is amended by adding
at the end the following new subsection:
‘‘(v) SMALL EMPLOYER.—For purposes of this part,
the term ‘small employer’ means an employer (including
a professional service organization) that, on the 1st day
of the plan year, has 100 or fewer employees.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsections (b) and (c) of section 414
are each amended by inserting ‘‘subsection (v)
and’’ after ‘‘For purposes of’’.
(B) Paragraph (3) of section 414(n) is
amended by striking ‘‘and’’ at the end of sub-
paragraph (B), by striking the period at the
end of subparagraph (C) and inserting ‘‘, and’’,
and by adding at the end the following new sub-
paragraph:
‘‘(D) subsection (v).’’.
(c) DEDUCTION
FOR
CONTRIBUTIONS
OF
EM-
PLOYER.—Clause (i) of section 404(a)(3)(A) is amended
by striking ‘‘or’’ at the end of subclause (I), by striking
the period at the end of subclause (II) and inserting ‘‘,
or’’, and by adding at the end the following new subclause:
‘‘(III) the amount such employer is al-
lowed to contribute to such trust under
section 401(o) for such year, but not more
than 25 percent of aggregate compensa-
tion.’’.
(d) SINGLE ANNUAL ENTRY DATE.—
(1) DEFINITION OF YEAR OF SERVICE.—Sub-
paragraph (A) of section 410(a)(3) (relating to gen-
eral rule for definition of year of service) is amended
by adding at the end the following: ‘‘In the case of
service for an employer who has in effect a qualified
small employer plan under section 401(o), computa-
tion of any 12-month period shall be made with ref-
erence to the first day of the calendar year in which
employment of the employee commenced.’’.
(2) TIME OF PARTICIPATION.—Paragraph (4)
of section 410(a) (relating to time of participation)
is amended by adding at the end the following: ‘‘In
the case of a qualified small employer plan under
section 401(o), the preceding sentence shall be ap-
plied without regard to subparagraph (B).’’.
(e) COMPENSATION.—Subparagraph (A) of section
404(a)(3) (relating to stock bonus and profit-sharing
trusts) is amended by redesignating clause (v) as clause
(vi) and by inserting after clause (iv) the following new
clause:
‘‘(v) COMPENSATION
DEFINED.—For
purposes of this paragraph, the term ‘com-
pensation’ means a participant’s com-
pensation 
(as 
defined 
by 
section
415(c)(3))’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to years beginning after December
31, 2000.
SEC. 3. CREDIT FOR EMPLOYER EXPENSES IN ESTAB-
LISHING QUALIFIED SMALL EMPLOYER RE-
TIREMENT PLANS.
(a) GENERAL RULE.—Subpart D of part IV of sub-
chapter A of chapter 1 is amended by adding at the end
the following new section:
‘‘SEC. 45E. EXPENSES IN ESTABLISHING QUALIFIED SMALL
EMPLOYER RETIREMENT PLANS.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the qualified small employer retirement plan credit deter-
mined under this section for the taxable year is an amount
equal to 50 percent of the qualified retirement plan ex-
penses paid or incurred in the taxable year by an eligible
small employer.
‘‘(b) LIMITATION.—The credit allowed under sub-
section (a) shall not exceed—
‘‘(1) $2,000 for the taxable year in which the
qualified small employer retirement plan is adopted,
and
‘‘(2) $1,000 for each of the 4 years following
the year in which such plan was adopted and zero
thereafter.
‘‘(c) DEFINITIONS.—For purposes of subsection
(a)—
‘‘(1) 
QUALIFIED
RETIREMENT
PLAN
EX-
PENSE.—The term ‘qualified retirement plan ex-
pense’ means an expense—
‘‘(A) for establishing, maintaining, and ad-
ministering a qualified small employer retire-
ment plan, and
‘‘(B) for educating employees with respect
to such plan.
‘‘(2) ELIGIBLE SMALL EMPLOYER.—The term
‘eligible small employer’ means a small employer (as
defined in section 414(v)) who establishes a qualified
plan on or after January 1, 2000, and on or before
December 31, 2002.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 is amended by
striking ‘‘plus’’ at the end of paragraph (12), by striking
the period at the end of paragraph (13) and inserting ‘‘,
plus’’, and by adding at the end thereof the following new
paragraph:
‘‘(14) the qualified small employer retirement
plan credit determined under section 45E(a).’’.
(c) CREDIT ALLOWED AGAINST REGULAR AND MIN-
IMUM TAX.—
(1) IN GENERAL.—Subsection (c) of section 38
(relating to limitation based on amount of tax) is
amended by redesignating paragraph (3) as para-
graph (4) and by inserting after paragraph (2) the
following new paragraph:
‘‘(3) SPECIAL
RULES
FOR
QUALIFIED
SMALL
EMPLOYER RETIREMENT PLAN CREDIT.—
‘‘(A) IN
GENERAL.—In the case of the
qualified 
small 
employer 
retirement 
plan
credit—
‘‘(i) this section and section 39 shall
be applied separately with respect to the
credit, and
‘‘(ii) in applying paragraph (1) to the
credit—
‘‘(I) subparagraph (A) thereof
shall not apply, and