I
104TH CONGRESS
2D SESSION
H. R. 2971
To amend the Internal Revenue Code of 1986 and the Social Security Act
to reduce social security taxes and to provide for social security individual
retirement accounts funded by social security payroll deductions.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 23, 1996
Mr. THOMAS introduced the following bill; which was referred to the Commit-
tee on Ways and Means, and in addition to the Committee on Economic
and Educational Opportunities, for a period to be subsequently deter-
mined by the Speaker, in each case for consideration of such provisions
as fall within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 and the Social
Security Act to reduce social security taxes and to pro-
vide for social security individual retirement accounts
funded by social security payroll deductions.
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 ‘‘Social Security Individ-
ual Retirement Act of 1996’’.
SEC. 2. REDUCTION OF SOCIAL SECURITY TAXES.
(a) TAX ON EMPLOYEES.—Subsection (a) of section
3101 of the Internal Revenue Code of 1986 (relating to
OASDI tax on employees) is amended—
(1) by striking the last item in the table and in-
serting the following:
‘‘1990, 1991, 1992, 1993, 1994, 1995, or 1996 ......................
6.20 percent
‘‘1997 or thereafter ..................................................................
6.06 percent;’’;
and
(2) by adding after and below the table the fol-
lowing:
‘‘except that, in the case of an eligible employee (as de-
fined in section 255(3) of the Social Security Act), the
rate of tax under this subsection shall be 0.0 percent with
respect to wages paid after December 31, 1996, for pay
periods ending after such date.’’
(b) TAX ON EMPLOYERS.—Subsection (a) of section
3111 of such Code (relating to OASDI tax on employers)
is amended by striking the last item in the table and in-
serting the following:
‘‘1990, 1991, 1992, 1993, 1994, 1995, or 1996 ......................
6.20 percent
‘‘1997 or thereafter ..................................................................
6.06 percent.’’
(c) SELF-EMPLOYMENT TAX.—Subsection (a) of sec-
tion 1401 of such Code (relating to OASDI tax on self-
employment income) is amended—
(1) by striking the last item in the table and in-
serting the following:
‘‘December 31, 1989 .............
January 1, 1997 ...................
12.40
‘‘December 31, 1996 .............
................................................
12.12;’’
and
(2) by adding after and below the table the fol-
lowing:
‘‘except that, in the case of an eligible self-employed indi-
vidual (as defined in section 255(4) of the Social Security
Act), the rate of tax under this subsection shall be 6.6
percent of the amount of the self-employment income in
the case of a taxable year after December 31, 1996.’’
(d) EFFECTIVE DATES.—
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by
this section shall apply to remuneration paid after
December 31, 1996.
(2) SELF-EMPLOYMENT
TAX.—The amend-
ments made by subsection (c) shall apply to taxable
years beginning after December 31, 1996.
SEC. 3. INDIVIDUAL RETIREMENT PROGRAM AND SOCIAL
SECURITY 
INDIVIDUAL 
RETIREMENT 
AC-
COUNTS.
(a) IN GENERAL.—Title II of the Social Security Act
is amended—
(1) by inserting before section 201 the follow-
ing:
‘‘PART A—INSURANCE BENEFITS’’;
and
(2) by adding at the end the following new part:
‘‘PART B—INDIVIDUAL RETIREMENT PROGRAM
‘‘SOCIAL SECURITY PAYROLL DEDUCTION PLANS
‘‘SEC. 251. (a) IN GENERAL.—Each person who is
a covered employer for a calendar year shall have in effect
a social security payroll deduction plan for such calendar
year for such person’s eligible employees.
‘‘(b) REQUIREMENTS.—For purposes of this part, the
term ‘social security payroll deduction plan’ means a writ-
ten plan of an employer if—
‘‘(1) the plan applies only with respect to wages
of eligible employees,
‘‘(2) under such plan, the prescribed social se-
curity contributions will be deducted from the em-
ployee’s wages and paid to a social security individ-
ual retirement account designated in accordance
with section 252(a),
‘‘(3) under such plan, the employer is required
to pay the amount so deducted to the specified social
security individual retirement account within 10
business days after the payment of the wages from
which the amount was deducted,
‘‘(4) the employer receives no compensation for
the cost of administering such plan, and
‘‘(5) in the case of a plan under which there is
more than 1 social security individual retirement ac-
count, the employer does not make any endorsement
with respect to any such accounts.
‘‘(c) AMOUNTS DEDUCTED MAY BE ACCUMULATED
BY EMPLOYER IN CERTAIN CASES.—If, under the terms
of a social security individual retirement account des-
ignated under section 252(a), contributions below a speci-
fied amount will not be accepted, the requirements of sub-
section (b)(2) shall be treated as met if amounts deducted
from the wages of such employee are accumulated by the
employer and paid to such plan not later than 10 business
days after the first day on which the accumulated amount
exceeds such specified amount.
‘‘DESIGNATION OF ACCOUNTS UNDER PAYROLL
DEDUCTION PLAN
‘‘SEC. 252. (a) IN GENERAL.—Except as provided in
subsection (b), the social security individual retirement ac-
count to which the prescribed social security contributions
with respect to any employee are required to be paid under
section 251 shall be a social security individual retirement
account designated by the employee to the employer not
later than the later of—
‘‘(1) 10 business days after the date on which
the employee becomes an employee of such employer,
or
‘‘(2) December 31, 1996.
Any such designation shall be made in such form and
manner as may be prescribed in regulations of the Com-
missioner of Social Security.
‘‘(b) DESIGNATION IN ABSENCE OF TIMELY DES-
IGNATION BY EMPLOYEE.—In any case in which no timely
designation of the social security individual retirement ac-
count is made, the employer shall make the designation
of the social security individual retirement account in ac-
cordance with regulations of the Commissioner of Social
Security.
‘‘PARTICIPATION BY SELF-EMPLOYED INDIVIDUALS
‘‘SEC. 253. (a) IN GENERAL.—Each eligible self-em-
ployed individual who receives self-employment income for
any taxable year beginning after December 31, 1996,
shall, in such form and manner as shall be prescribed in
regulations of the Commissioner of Social Security, de-
posit in a social security individual retirement account
maintained by such individual the prescribed social secu-
rity contribution for such taxable year. Such deposit shall
be made within 10 business days after the receipt by such
individual of such self-employment income.
‘‘(b) AMOUNTS PAYABLE MAY BE ACCUMULATED IN
CERTAIN CASES.—If, under the terms of a social security
individual retirement account maintained under subsection
(a), contributions below a specified amount will not be ac-
cepted, the requirements of subsection (a) shall be treated
as met if amounts otherwise payable under subsection (a)
are accumulated by the individual and paid to such ac-
count not later than 10 business days after the first day
on which the accumulated amount exceeds such specified
amount.
‘‘DESIGNATION OF ACCOUNTS OF SURVIVING SPOUSES
AND SURVIVING DIVORCED SPOUSES
‘‘SEC. 254. (a) IN GENERAL.—Except as provided in
subsection (b), in the case of a deceased individual with
respect to whom a social security individual retirement ac-
count was established and maintained pursuant to section
252 or 253, the trustee of such account shall transfer the
balance in such account to a social security individual re-
tirement account maintained by an eligible survivor if such
account is designated by the eligible survivor to the trustee
not later than 20 business days after the date of such indi-
vidual’s death. Any such designation shall be made in such
form and manner as may be prescribed in regulations of
the Commissioner of Social Security.
‘‘(b) DESIGNATION IN ABSENCE OF TIMELY DES-
IGNATION BY ELIGIBLE SURVIVOR.—In any case in which,
upon the expiration of such 20-day period, there is an eli-
gible survivor but no timely designation of a social security
individual retirement account is made by the eligible survi-
vor under subsection (a), the trustee shall make the des-
ignation of the social security individual retirement ac-
count under subsection (a) on behalf of such eligible survi-
vor, in accordance with regulations of the Commissioner
of Social Security.
‘‘(c) DISPOSITION OF ACCOUNT BALANCE WHERE
NO ELIGIBLE SURVIVOR EXISTS.—In any case in which,
upon the expiration of such 20-day period no timely des-
ignation under subsection (b) has been made and there
is no eligible survivor, the trustee of the deceased individ-
ual’s account shall transfer the balance in such account
to the Federal Old-Age and Survivors Insurance Trust
Fund within the period of 20 business days following the
expiration of such 20-day period.
‘‘DEFINITIONS
‘‘SEC. 255. For purposes of this part—
‘‘(1) SOCIAL
SECURITY
INDIVIDUAL
RETIRE-
MENT ACCOUNT.—The term ‘social security individ-
ual retirement account’ means any individual retire-
ment account (as defined in section 408(a) of the
Internal Revenue Code of 1986) which is adminis-
tered or issued by a bank (as defined in section
408(n) of such Code) under terms which restrict de-
posits to prescribed social security contributions
made to the account pursuant to section 251 or 253
and transfers made to the account pursuant to sec-
tion 254.
‘‘(2) COVERED EMPLOYER.—The term ‘covered
employer’ means, for any calendar year, any person
on whom an excise tax is imposed under section
3111 of the Internal Revenue Code of 1986 with re-
spect to having an individual in his employ to whom
wages are paid by such person during such calendar
year.
‘‘(3) ELIGIBLE EMPLOYEE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the term ‘eligible employee’ means,
in connection with any person who is a covered
employer for any calendar year, any individ-
ual—
‘‘(i) with respect to whose employment
by such employer during such calendar
year there is imposed an excise tax under
section 3111 of the Internal Revenue Code
of 1986, and
‘‘(ii) who, as of January 1, 1997, has
not been credited under part A with any
quarters of coverage (within the meaning
of section 213(a)(2)).
‘‘(B) ELECTION OF PARTICIPATION.—
‘‘(i) IN GENERAL.—The requirements
of subparagraph (A)(ii) shall be deemed
satisfied in the case of an individual who
does not otherwise meet such requirements
if such individual files with the employer
and the Commissioner of Social Security,
in such form and manner as shall be pre-
scribed in regulations of the Commissioner,
a written and signed declaration of such
individual’s intention to be treated as an
eligible employee for purposes of this title
and such election meets the requirements
of clause (ii).
‘‘(ii) REQUIREMENTS.—Any election
under clause (i) must be so filed not later
than December 15, 1996, and must des-
ignate the social security individual retire-
ment account to which the prescribed so-
cial security contributions with respect to
such individual are to be paid.
‘‘(iii) IRREVOCABILITY.—Any election
under clause (i) shall be irrevocable and
shall be effective with respect to wages
paid after December 31, 1996, for pay pe-
riods ending after such date.
‘‘(4) ELIGIBLE SELF-EMPLOYED INDIVIDUAL.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the term ‘eligible self-employed indi-
vidual’ means any individual—
‘‘(i) on whose self-employment income
for a taxable year beginning after Decem-
ber 31, 1996, there is imposed a tax under
section 1401(a) of the Internal Revenue
Code of 1986, and
‘‘(ii) who, as of January 1, 1997, has
not been credited under part A with any
quarters of coverage (within the meaning
of section 213(a)(2)).
‘‘(B) ELECTION OF PARTICIPATION.—
‘‘(i) IN GENERAL.—The requirements
of subparagraph (A)(ii) shall be deemed
satisfied in the case of an individual who
does not otherwise meet such requirements
if such individual files with the Commis-
sioner of Social Security, in such form and
manner as shall be prescribed in regula-
tions of the Commissioner, a written and
signed declaration of such individual’s in-
tention to be treated as an eligible self-em-
ployed individual for purposes of this title
and such election meets the requirements
of clause (ii).
‘‘(ii) REQUIREMENTS.—Any election
under clause (i) must be so filed not later
than December 15, 1996, and must des-
ignate the social security individual retire-
ment account to which the prescribed so-
cial security contributions with respect to
such individual are to be paid.
‘‘(iii) IRREVOCABILITY.—Any election
under clause (i) shall be irrevocable and
shall be effective with respect to self-em-
ployment income for taxable years begin-
ning after December 31, 1996.
‘‘(5) PRESCRIBED SOCIAL SECURITY CONTRIBU-
TION.—The term ‘prescribed social security con-
tribution’ means—
‘‘(A) with respect to wages paid to an em-
ployee, an amount equal to the amount of tax
payable by the employer based on such wages
under section 3111 of the Internal Revenue
Code of 1986 with respect to having such em-
ployee in his employ, and
‘‘(B) with respect to self-employment in-
come received by an individual, an amount
equal to the amount of tax payable by the indi-
vidual based on such self-employment income
under section 1401(a) of such Code.
‘‘(6) ELIGIBLE SURVIVOR.—The term ‘eligible
survivor’ of a deceased individual means such indi-
vidual’s widow or, if there is no such widow, such in-
dividual’s last surviving divorced wife or surviving
divorced husband. Such term shall not include any
such surviving divorced wife or surviving divorced
husband who is married on the date of the deceased
individual’s death.
‘‘(7) BUSINESS DAY.—The term ‘business day’
means any day other than a Saturday, Sunday, or
legal holiday in the area involved.
‘‘PENALTIES
‘‘SEC. 256. (a) FAILURE TO ESTABLISH INDIVIDUAL
RETIREMENT PAYROLL DEDUCTION PLAN.—Any covered
employer who fails to meet the requirements of section
251 for any calendar year shall be subject to a civil penalty
of not to exceed the greater of—
‘‘(1) $5,000, or
‘‘(B) in the case of a transfer required to
be made to the Federal Old-Age and Survivors
Insurance Trust Fund, to such Trust Fund,
for interest on the balance at the underpayment rate
determined under section 6621 of the Internal Reve-
nue Code of 1986 from the last day by which such
balance was required to be so transferred to the date
on which such balance is transferred to the des-
ignated social security individual retirement account.
‘‘(f) RULES FOR APPLICATION OF SECTION.—
‘‘(1) PENALTIES ASSESSED BY COMMISSIONER
OF SOCIAL SECURITY.—Any civil penalty assessed by
this section shall be imposed by the Commissioner of
Social Security and collected in a civil action.
‘‘(2) COMPROMISES.—The Commissioner may
compromise the amount of any civil penalty imposed
by this section.
‘‘(3) AUTHORITY TO WAIVE PENALTY IN CER-
TAIN CASES.—The Commissioner may waive the ap-
plication of this section with respect to any failure
if the Commissioner determines that such failure is
due to reasonable cause and not to intentional dis-
regard of rules and regulations.’’
(b) AMOUNTS DEDUCTED TO BE SHOWN ON W–2
STATEMENTS.—Subsection (a) of section 6051 of the In-
ternal Revenue Code of 1986 (relating to receipts for em-
ployees) is amended—
(1) by striking ‘‘and’’ at the end of paragraph
(9);
(2) by striking the period at the end of para-
graph (10) and inserting ‘‘, and’’; and
(3) by adding at the end the following new
paragraph:
‘‘(11) the total amount deducted from the em-
ployee’s wages under a social security payroll deduc-
tion plan established under part B of title II of the
Social Security Act.’’
(c) EXEMPTION FROM ERISA REQUIREMENTS.—
Subsection (b) of section 4 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1003(b)) is
amended—
(1) by striking ‘‘or’’ at the end of paragraph
(4);
(2) by striking the period at the end of para-
graph (5) and inserting ‘‘; or’’; and
(3) by adding at the end the following new
paragraph:
‘‘(6) such plan is a social security payroll de-
duction plan established under part B of title II of
the Social Security Act and does not provide for em-
ployer contributions.’’
(d) EFFECTIVE
DATE
AND
NOTICE
REQUIRE-
MENTS.—
(1) EFFECTIVE DATE.—The amendments made
by subsection (a) (and any social security payroll de-
duction plan required thereunder) shall apply with
respect to wages paid after December 31, 1996, for
pay periods ending after such date and self-employ-
ment income for taxable years beginning after such
date.
(2) NOTICE REQUIREMENTS.—
(A) IN GENERAL.—Not later than October
1, 1996, the Commissioner of Social Security
shall—
(i) send to the last known address of
each eligible individual a description of the
program established by the amendments
made by this Act, which shall be written in
the form of a pamphlet in language which
may be readily understood by the average
worker,
(ii) provide for toll-free access by tele-
phone from all localities in the United
States to the Social Security Administra-
tion through which individuals may obtain
information and answers to questions re-
garding such program, and
(iii) provide information to the media
in all localities of the United States about
such program and such toll-free access by
telephone.
(B) ELIGIBLE INDIVIDUAL.—For purposes
of this paragraph, the term ‘‘eligible individual’’
means an individual who, as of the date of the
pamphlet sent pursuant to subparagraph (A), is
indicated within the records of the Social Secu-
rity Administration as—
(i) not having attained age 65, and
(ii) being credited with one or more
quarters of coverage under section 213 of
the Social Security Act.
(C) MATTERS
TO
BE
INCLUDED.—The
Commissioner of Social Security shall include
with the pamphlet sent to each eligible individ-
ual pursuant to subparagraph (A)—
(i) a statement of the number of quar-
ters of coverage indicated in the records of
the Social Security Administration as of
the date of the description as credited to
such individual under section 213 of the
Social Security Act and the date as of
which such records may be considered ac-
curate, and
(ii) the number for toll-free access by
telephone established by the Commissioner
pursuant to subparagraph (A).
SEC. 4. ADJUSTMENTS TO PRIMARY INSURANCE AMOUNTS
UNDER PART A OF TITLE II OF THE SOCIAL
SECURITY ACT.
(a) IN GENERAL.—Section 215 of the Social Security
Act (42 U.S.C. 415) is amended by adding at the end the
following new subsection:
‘‘Adjustment of Primary Insurance Amount of Eligible
Employees and Eligible Self-Employed Individuals
Under Part B
‘‘(j)(1) Except as provided in paragraph (3), in the
case of an individual who is—
‘‘(A) an eligible employee, as defined under
paragraph (3)(A) of section 255 without regard to
paragraph (3)(B) of such section, or
‘‘(B) an eligible self-employed individual, as de-
fined under paragraph (4)(A) of section 255 without
regard to paragraph (4)(B) of such section,
such individual’s primary insurance amount as determined
in accordance with this section (before adjustments made
under subsection (i)) shall be equal to 50 percent of the
amount which would be so determined if this subsection
did not apply.
‘‘(2) Except as provided in paragraph (3), in the case
of an individual who is—
‘‘(A) an eligible employee as defined in para-
graph (3) of section 255 solely by reason of an elec-
tion under paragraph (3)(B) of such section, or
‘‘(B) an eligible self-employed individual as de-
fined in paragraph (4) of section 255 solely by rea-
son of an election under paragraph (4)(B) of such
section,
such individual’s primary insurance amount as determined
in accordance with this section (before adjustments made
under subsection (i)) shall be equal to the product derived
by multiplying—
‘‘(i) the amount which would be so determined
if this subsection did not apply, by
‘‘(ii) the applicable percentage determined
under the following table:
‘‘If the number of such individual’s
quarters of coverage (within the
meaning of section 213(a)(2)) as of
The applicable
January 1, 1997, is:
percentage is:
Less than 21 .............................................................
50 percent.
More than 20 but less than 61 .................................
60 percent.
More than 60 but less than 101 ...............................
70 percent.
More than 100 but less than 141 .............................
80 percent.
More than 141 ...........................................................
90 percent.
‘‘(3)(A) In the case of an individual who is an eligible
employee as defined in paragraph (3) of section 255 or
an eligible self-employed individual as defined in para-
graph (4) of section 255 becomes entitled to disability in-
surance benefits under section 223, such individual’s pri-
mary insurance amount shall be determined without re-
gard to paragraphs (1) and (2).
‘‘(B) Effective upon the attainment by an individual
described in subparagraph (A) of retirement age (as de-
fined in section 216(l)(1)), such individual’s primary in-
surance amount as determined in accordance with this sec-
tion (before subsequent adjustments made under sub-
section (i)) shall be equal the product derived by multiply-
ing—
‘‘(i) the amount which would be so determined
if this subsection did not apply, by
‘‘(ii) the applicable percentage determined
under the following table:
‘‘If the number of such individual’s
quarters of coverage (within the
meaning of section 213(a)(2)) as of
the date on which such individual
The applicable
attains normal retirement age is:
percentage is:
Less than 9 ...............................................................
100 percent.
More than 8 but less than 21 ...................................
90 percent.
More than 20 but less than 61 .................................
80 percent.
More than 60 but less than 101 ...............................
70 percent.
More than 100 but less than 141 .............................
60 percent.
More than 140 ...........................................................
50 percent.’’
(b) CONFORMING AMENDMENT TO RAILROAD RE-
TIREMENT ACT OF 1974.—Section 1 of the Railroad Re-
tirement Act of 1974 (45 U.S.C. 231) is amended by add-
ing at the end the following:
‘‘(s) In applying applicable provisions of the Social
Security Act for purposes of determining the amount of
the annuity to which an individual is entitled under this
Act, such individual shall not be treated as an ‘eligible
individual’ as defined in section 253(4) of the Social Secu-
rity Act.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to months after De-
cember 1996.
SEC. 5. TAX TREATMENT OF SOCIAL SECURITY INDIVIDUAL
RETIREMENT ACCOUNTS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 of the Internal Revenue Code of 1986 (re-
lating to pension, profit-sharing, stock bonus plans, etc.)
is amended by inserting after section 408 the following
new section:
‘‘SEC. 408A. SOCIAL SECURITY INDIVIDUAL RETIREMENT
ACCOUNTS.
‘‘(a) GENERAL RULE.—A social security individual
retirement account shall be treated under this title in the
same manner as any individual retirement plan, except to
the extent otherwise provided in this section.
‘‘(b) SOCIAL SECURITY INDIVIDUAL RETIREMENT
ACCOUNT.—For purposes of this title, the term ‘social se-
curity individual retirement account’ means an individual
retirement account (as defined in section 408(a)) which
is administered or issued by a bank (as defined in section
408(n)) under terms which restrict deposits to prescribed
social security contributions made to the account pursuant
to section 251 or 253 of the Social Security Act and trans-
fers made to the account pursuant to section 254 of such
Act.
‘‘(c) TAX TREATMENT
OF DISTRIBUTIONS.—For
purposes of this title—
‘‘(1) EXCLUSION
FOR
QUALIFIED
DISTRIBU-
TIONS.—
‘‘(A) IN GENERAL.—In the case of a quali-
fied distribution from a social security individ-
ual retirement account, the amount of such dis-
tribution shall not be includable in gross in-
come.
‘‘(B) 
QUALIFIED
DISTRIBUTION.—For
purposes of subparagraph (A), the term ‘quali-
fied distribution’ means any distribution made
on or after the date on which the individual at-
tains retirement age (as defined in section
216(l)(1) of the Social Security Act).
‘‘(2) PENALTY FOR NONQUALIFIED DISTRIBU-
TIONS.—In the case of a distribution not subject to
paragraph (1), section 72(t) shall be applied—
‘‘(A) by substituting ‘50 percent’ for ‘10
percent’ in paragraph (1) thereof, and
‘‘(B) without regard to paragraph (2)
thereof.
‘‘(3) 
ROLLOVERS.—Section 
408(d)(3)(A)(i)
shall apply to any amount distributed from a social
security individual retirement account only to the ex-
tent such amount is paid into another such account
for the benefit of the individual for whom the ac-
count from which such amount is transferred was
maintained.’’
(b) CLERICAL AMENDMENT.—The table of sections
for such subpart A is amended by inserting after the item
relating to section 408 the following new item:
‘‘Sec. 408A. Social security individual retirement accounts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
Æ
HR 2971 IH——2