‘‘In the case of any plan year
beginning in—
The applicable percentage is—
2001 .........................................................................................
165
2002 .........................................................................................
170.’’
(2) ERISA AMENDMENT.—Section 302(c)(7) of
the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1082(c)(7)) is amended—
(A) by striking ‘‘the applicable percentage’’
in subparagraph (A)(i)(I) and inserting ‘‘in the
case of plan years beginning before January 1,
2003, the applicable percentage’’, and
(B) by amending subparagraph (F) to read
as follows:
‘‘(F) APPLICABLE PERCENTAGE.—For purposes
of subparagraph (A)(i)(I), the applicable percentage
shall be determined in accordance with the following
table:
‘‘In the case of any plan year
beginning in—
The applicable percentage is—
1999 .........................................................................................
155
2000 .........................................................................................
160
2001 .........................................................................................
165
2002 .........................................................................................
170.’’
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to plan years begin-
ning after December 31, 1998.
(b) MAXIMUM CONTRIBUTION DEDUCTION RULES
MODIFIED
AND APPLIED
TO ALL DEFINED BENEFIT
PLANS.—
(1) IN GENERAL.—Section 404(a)(1)(D) (relat-
ing to special rule in case of certain plans) is
amended—
(A) by striking ‘‘which has more than 100
participants for the plan year’’,
(B) by striking ‘‘unfunded current liability
determined under section 414(l)’’ and inserting
‘‘unfunded termination liability (determined as
if the proposed termination date referred to in
section 4041(b)(2)(A)(i)(II) of the Employee
Retirement Income Security Act of 1974 were
the last day of the plan year)’’,
(C) by inserting after the first sentence the
following new sentence: ‘‘For purposes of this
subparagraph, in the case of a plan which has
less than 100 participants for the plan year,
termination liability shall not include the liabil-
ity attributable to benefit increases for highly
compensated employees (as defined in section
414(q)) brought about by plan amendment
within the last 2 years before the termination
date.’’, and
(D) by striking ‘‘(other than a multiem-
ployer plan)’’.
(2) CONFORMING AMENDMENT.—Paragraph (6)
of section 4972(c) is amended by striking the sen-
tence preceding the last sentence thereof.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to plan years begin-
ning after the date of the enactment of this Act.
SEC. 206. REPEAL OF TRANSITIONAL RULE.
(a) IN GENERAL.—Paragraph (3) of section 1114(c)
of the Tax Reform Act of 1986 is hereby repealed.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to years beginning after Decem-
ber 31, 1999.
TITLE III—SMALL BUSINESS
INCENTIVES
SEC. 301. CREDIT FOR SMALL EMPLOYER PENSION PLAN
CONTRIBUTIONS AND START-UP COSTS.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by adding at the end the following new
section:
‘‘SEC. 45D. SMALL EMPLOYER PENSION PLAN CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 38,
in the case of an eligible employer, the small employer pen-
sion plan credit determined under this section for any tax-
able year is an amount equal to the sum of—
‘‘(1) 50 percent of the qualified employer con-
tributions of the taxpayer for the taxable year, and
‘‘(2) the qualified start-up costs paid or in-
curred by the taxpayer during the taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) LIMITS
ON
CONTRIBUTIONS.—For pur-
poses of subsection (a)(1)—
‘‘(A) qualified employer contributions may
only be taken into account for each of the first
5 taxable years ending after the date the em-
ployer establishes the qualified employer plan to
which the contribution is made, and
‘‘(B) the amount of the qualified employer
contributions taken into account with respect to
any qualified employee for any such taxable
year shall not exceed 3 percent of the com-
pensation (as defined in section 414(s)) of the
qualified employee for such taxable year.
‘‘(2) LIMITS ON START-UP COSTS.—The amount
of the credit determined under subsection (a)(2) for
any taxable year shall not exceed—
‘‘(A) $500 for each of the first, second,
and third taxable years ending after the date
the employer established the qualified employer
plan to which such costs relate, and
‘‘(B) zero for each taxable year thereafter.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE EMPLOYER.—
‘‘(A) IN GENERAL.—The term ‘eligible em-
ployer’’ means, with respect to any year, an em-
ployer which has no more than—
‘‘(i) for purposes of subsection (a)(1),
50 employees, and
‘‘(ii) for purposes of subsection (a)(2),
100 employees,
who received at least $5,000 of compensation
from the employer for the preceding year.
‘‘(B) 2-YEAR GRACE PERIOD.—An eligible
employer who establishes and maintains a quali-
fied employer plan for 1 or more years and who
fails to be an eligible employer for any subse-
quent year shall be treated as an eligible em-
ployer for the 2 years following the last year
the employer was an eligible employer.
‘‘(C) REQUIREMENT FOR NEW QUALIFIED
EMPLOYER
PLANS.—Such term shall not in-
clude an employer if the employer (or any pred-
ecessor employer) established or maintained a
qualified employer plan with respect to which
contributions were made, or benefits were ac-
crued, for service in the 3 taxable years ending
prior to the first taxable year in which the cred-
it under this section is allowed.
‘‘(2) QUALIFIED EMPLOYER CONTRIBUTIONS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
employer contributions’ means, with respect to
any taxable year, any employer contributions
made on behalf of a qualified employee to a
qualified employer plan for a plan year ending
with or within the taxable year.
‘‘(B) EMPLOYER
CONTRIBUTIONS.—The
term ‘employer contributions’ shall not include
any elective deferral (within the meaning of sec-
tion 402(g)(3)).
‘‘(3) QUALIFIED EMPLOYEE.—The term ‘quali-
fied employee’ means an individual who—
‘‘(A) is eligible to participate in the quali-
fied employer plan to which the employer con-
tributions are made, and
‘‘(B) is not a highly compensated employee
(within the meaning of section 414(q)) for the
year for which the contribution is made.
‘‘(4) QUALIFIED START-UP COSTS.—The term
‘qualified start-up costs’ means any ordinary and
necessary expenses of an eligible employer which are
paid or incurred in connection with—
‘‘(A) the establishment or maintenance of
a qualified employer plan in which qualified em-
ployees are eligible to participate, and
‘‘(B) providing educational information to
employees regarding participation in such plan
and the benefits of establishing an investment
plan.
‘‘(5) QUALIFIED EMPLOYER PLAN.—The term
‘qualified employer plan’ has the meaning given such
term in section 4972(d).
‘‘(d) SPECIAL RULES.—
‘‘(1) AGGREGATION RULES.—All persons treat-
ed as a single employer under subsection (a) or (b)
of section 52, or subsection (n) or (o) of section 414,
shall be treated as one person. All qualified employer
plans of an employer shall be treated as 1 qualified
employer plan.
‘‘(2) DISALLOWANCE OF DEDUCTION.—No de-
duction shall be allowable under this chapter for any
qualified start-up costs or qualified employer con-
tributions for which a credit is determined under
subsection (a).
‘‘(3) ELECTION NOT TO CLAIM CREDIT.—This
section shall not apply to a taxpayer for any taxable
year if such taxpayer elects to have this section not
apply for such taxable year.’’
(b) CREDIT ALLOWED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) (defining current year busi-
ness credit) is amended by striking ‘‘plus’’ at the end of
paragraph (11), by striking the period at the end of para-
graph (12) and inserting ‘‘, plus’’, and by adding at the
end the following new paragraph:
‘‘(13) in the case of an eligible employer (as de-
fined in section 45D(c)), the small employer pension
plan credit determined under section 45D(a).’’
(c) CONFORMING AMENDMENT.—The table of sec-
tions for subpart D of part IV of subchapter A of chapter
1 is amended by adding at the end the following new item:
‘‘Sec. 45D. Small employer pension plan credit.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to costs paid or incurred or con-
tributions made in connection with qualified employer
plans established after December 31, 1999.
SEC. 302. SAFE ANNUITIES AND TRUSTS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to deferred compensation, etc.)
is amended by inserting after section 408A the following
new section:
‘‘SEC. 408B. 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 (other than rollover contributions) are em-
ployer 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.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met if the only form of ben-
efit is—
‘‘(i) a benefit payable annually in the
form of a single life annuity with monthly
payments (with no ancillary benefits) be-
ginning at age 65, or
‘‘(ii) any other form of benefit which
is the actuarial equivalent (based on the
assumptions specified in the SAFE annu-
ity) of the benefit described in clause (i).
‘‘(B) DIRECT
TRANSFERS
AND
ROLL-
OVERS.—A plan shall not fail to meet the re-
quirements of this paragraph by reason of per-
mitting, at the election of the employee, a trust-
ee-to-trustee transfer or a rollover contribution.
‘‘(5) AMOUNT
OF
ANNUAL
ACCRUED
BEN-
EFIT.—
‘‘(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), as in effect on
the day before the date of the enact-
ment of the Retirement Savings Op-
portunity Act of 1999) 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
not less than 3 percent and not greater
than 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, an employer shall be deemed to have
made a contribution on the last day of the pre-
ceding taxable year if the payment is on ac-
count of such taxable year and is made not
later than the time prescribed by law for filing
the return for such taxable year (including ex-
tensions thereof).
‘‘(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-