I
106TH CONGRESS
1ST SESSION
H. R. 3462
To amend title I of the Employee Retirement Income Security Act of 1974
to establish certain requirements enforceable under such title relating
to certain stock purchase arrangements maintained by employers for
employees, and to amend the Internal Revenue Code of 1986 to provide
favorable treatment for such arrangements meeting such requirements,
subject to certain restrictions on disposition of transferred shares.
IN THE HOUSE OF REPRESENTATIVES
NOVEMBER 18, 1999
Mr. BOEHNER (for himself, Mr. OXLEY, and Mr. PORTMAN) introduced the
following bill; which was referred to the Committee on Education and the
Workforce, and in addition to the Committee on Ways and Means, for
a period to be subsequently determined by the Speaker, in each case for
consideration of such provisions as fall within the jurisdiction of the com-
mittee concerned
A BILL
To amend title I of the Employee Retirement Income Secu-
rity Act of 1974 to establish certain requirements en-
forceable under such title relating to certain stock pur-
chase arrangements maintained by employers for employ-
ees, and to amend the Internal Revenue Code of 1986
to provide favorable treatment for such arrangements
meeting such requirements, subject to certain restrictions
on disposition of transferred shares.
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 ‘‘Wealth Through the
Workplace Act of 1999’’.
SEC. 2. STOCK PURCHASE ARRANGEMENTS.
(a) IN GENERAL.—Section 3 of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 1002) is
amended by adding at the end the following new para-
graph:
‘‘(42) The term ‘stock purchase arrangement’, as
used in paragraph (1) and sections 105(e) and 414, means
any arrangement which—
‘‘(A) is maintained by an employer corporation
for the purpose of transferring, directly or indirectly,
to the employees covered under the arrangement
shares of stock pursuant to the exercise by the em-
ployee of an option granted under the terms of the
arrangement to the employee, and
‘‘(B) is expressly designated in the terms gov-
erning the arrangement as a stock purchase ar-
rangement intended to meet the requirements of sec-
tion 414(b).’’.
(b) TREATMENT AS EMPLOYEE WELFARE BENEFIT
PLAN.—Paragraph (1) of section 3 of such Act (29 U.S.C.
1002(1)) is amended by adding at the end the following
new sentence: ‘‘Solely for purposes of sections 105(e) and
414 and part 5 (as applicable with respect to such sec-
tions), a stock purchase arrangement shall be deemed to
be an employee welfare benefit plan and any employee cov-
ered under such an arrangement shall be deemed to be
a participant thereunder.’’.
SEC. 3. STOCK PURCHASE ARRANGEMENTS.
(a) IN GENERAL.—Part 4 of subtitle B of title I of
the Employee Retirement Income Security Act of 1974 is
amended—
(1) by redesignating section 414 (29 U.S.C.
1114) as section 415; and
(2) by inserting after section 413 (29 U.S.C.
1113) the following new section:
‘‘STOCK PURCHASE ARRANGEMENTS
‘‘SEC. 414. (a) IN GENERAL.—A transaction which
constitutes an option or transfer described in section 3(42)
under a stock purchase arrangement shall be treated, sole-
ly for purposes of paragraph (5) of section 502(a) (and
part 5 as it relates to such paragraph), as a practice in
violation of the requirements of this title, unless such
stock purchase arrangement meets the requirements of
subsection (b).
‘‘(b) REQUIREMENTS.—An allowable stock purchase
arrangement meets the requirements of this subsection if
the following requirements are met thereunder with re-
spect to options and transfers described in section 3(42):
‘‘(1) EMPLOYMENT STATUS REQUIRED IN RELA-
TION TO EXERCISE OF OPTION.—Under the terms of
the arrangement—
‘‘(A) options are to be granted only to em-
ployees of the employer corporation or of its
parent or subsidiary corporation (including
members of the board of directors of any such
corporation) to purchase stock in the employer
corporation or any other such corporation, and
‘‘(B) no option that has been granted to an
employee can be exercised unless, at all times
during the period beginning with the date of the
granting of the option to the employee and end-
ing on the day 6 months before the date of the
exercise of such option by the employee, the em-
ployee is an employee of the employer corpora-
tion, of a parent or subsidiary corporation of
the employer corporation, or of a corporation
(or a parent or subsidiary corporation of such
corporation) issuing or assuming a stock option
in a transaction to which subsection (c) applies.
‘‘(2) APPROVAL.—Such arrangement is ap-
proved by the board of directors of the granting cor-
poration (or, if required by the bylaws of such cor-
poration, by its shareholders), in writing indicating
that the arrangement is intended to meet the re-
quirements of this section, within 12 months before
or after the date such arrangement is adopted.
‘‘(3) LARGER
SHAREHOLDERS
EXCLUDED.—
Under the terms of the arrangement, no employee
can be granted an option if such employee, imme-
diately after the option is granted, owns stock pos-
sessing 5 percent or more of the total combined vot-
ing power or value of all classes of stock of the em-
ployer corporation or of its parent or subsidiary cor-
poration. For purposes of this paragraph, the rules
of subsection (d) shall apply in determining the
stock ownership of an employee, and stock which the
employee may purchase under outstanding options
shall be treated as stock owned by the employee.
‘‘(4) PARTICIPATION.—
‘‘(A) GENERAL RULE.—Such options are
granted during each fiscal year of the arrange-
ment to at least 50 percent of all individuals
who are employees of the employer corporation
and, if any employee of a parent or subsidiary
corporation of the employer corporation is cov-
ered under the arrangement, 50 percent of the
individuals who are employees of such parent or
subsidiary corporation.
‘‘(B) EXCEPTION.—If the arrangement
provides for the exclusion of individuals—
‘‘(i) who have been employed less than
2 years,
‘‘(ii) whose customary employment is
20 hours or less per week,
‘‘(iii) whose customary employment is
for not more than 5 months in any cal-
endar year, or
‘‘(iv) who are not United States citi-
zens or lawful permanent residents of the
United States (as defined in section
7701(b)(6) of the Internal Revenue Code
of 1986),
then subparagraph (A) shall be applied after
first disregarding all such excluded individuals.
‘‘(5) UNIFORM RIGHTS AND PRIVILEGES.—All
employees granted such options shall have the same
rights and privileges, except that the amount of
stock which may be purchased by any employee
under such option may bear a uniform relationship
to the total compensation, or the basic or regular
rate of compensation, of such employee, and the ar-
rangement may provide that no employee may pur-
chase more than a maximum amount of stock fixed
under the arrangement.
‘‘(6) VALUATION REQUIREMENTS.—Under the
terms of the arrangement, the option price is not
less than the lesser of—
‘‘(A) an amount equal to 85 percent of the
fair market value of the stock at the time such
option is granted, or
‘‘(B) an amount which under the terms of
the arrangement may not be less than 85 per-
cent of the fair market value of the stock at the
time such option is exercised.
‘‘(7) LIMITED
TRANSFERABILITY.—Under the
terms of the arrangement, such option is not trans-
ferable by the employee otherwise than by will or the
laws of descent and distribution, and is exercisable,
during his lifetime, only by him.
‘‘(8) PUBLICLY
TRADED
AND
REGULATED
STOCK.—The class of shares of stock with respect to
which the option is granted is a class of shares of
stock which are publicly traded on an exchange reg-
ulated by the Securities and Exchange Commission.
‘‘(9) RATE OF CASH COMPENSATION MUST BE
UNAFFECTED.—The grant of any options under the
arrangement may not be directly linked with a sys-
tematic reduction in the annual rate at which basic
or regular cash compensation is paid to employees
under the arrangement, as determined under regula-
tions prescribed by the Secretary of the Treasury.
‘‘(c) CORPORATE REORGANIZATIONS, LIQUIDATIONS,
ETC.—For purposes of this section, the term ‘issuing or
assuming a stock option in a transaction to which sub-
section (c) applies’ means a substitution of a new option
for the old option, or an assumption of the old option,
by the employer corporation, or by a parent or subsidiary
of the employer corporation, by reason of a corporate
merger, consolidation, acquisition of property or stock sep-
aration, reorganization, or liquidation, if—
‘‘(1) the excess of the aggregate fair market
value of the shares subject to the option immediately
after the substitution or assumption over the aggre-
gate option priced of such shares is not more than
the excess of the aggregate fair market value of all
shares subject to the option immediately before such
substitution or assumption over the aggregate option
price of such shares, and
‘‘(2) the new option or the assumption of the
old option does not give the employee additional ben-
efits which he did not have under the old option.
For purposes of this subsection, the parent-subsidiary re-
lationship shall be determined at the time of any such
transaction under this subsection.
‘‘(d) ATTRIBUTION
OF STOCK OWNERSHIP.—For
purposes of this section, in applying the percentage limita-
tions of subsection (b)(3)—
‘‘(1) the employee with respect to whom such
limitation is being determined shall be considered as
owning the stock owned, directly or indirectly, by or
for his brothers and sisters (whether by the whole or
half blood), spouse, ancestors, and lineal descend-
ants, and
‘‘(2) stock owned, directly or indirectly, by or
for a corporation, partnership, estate, or trust, shall
be considered as being owned proportionately by or
for its shareholders, partners, or beneficiaries.
‘‘(e) DEFINITIONS AND ADDITIONAL RULES.—
‘‘(1) PARENT CORPORATION.—For purposes of
this section, the term ‘parent corporation’ means
any corporation (other than the employer corpora-
tion) in an unbroken chain of corporations ending
with the employer corporation if, at the time of the
granting of the option, each of the corporations
other than the employer corporation owns stock pos-
sessing 50 percent or more of the total combined
voting power of all classes of stock in one of the
other corporations in such chain.
‘‘(2) SUBSIDIARY CORPORATION.—For purposes
of this section, the term ‘subsidiary corporation’
means any corporation (other than the employer cor-
poration) in an unbroken chain of corporations be-
ginning with the employer corporation if, at the time
of the granting of the option, each of the corpora-
tions other than the last corporation in the unbroken
chain owns stock possessing 50 percent or more of
the total combined voting power of all classes of
stock in one of the other corporations in such chain.
‘‘(3) SPECIAL
RULE
FOR
APPLYING
PARA-
GRAPHS (1) AND (2).—In applying paragraphs (1)
and (2) for purposes of subsection (b)(1)(B), there
shall be substituted for the term ‘employer corpora-
tion’ wherever it appears in paragraphs (1) and (2)
the term ‘grantor corporation’ or the term ‘corpora-
tion issuing or assuming a stock option in a trans-
action to which subsection (c) applies’ as the case
may be.
‘‘(f) MODIFICATION, EXTENSION, OR RENEWAL OF
OPTION.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, if the terms of any option to purchase stock are
modified, extended, or renewed, such modification,
extension, or renewal shall be considered as the
granting of a new option.
‘‘(2) SPECIAL RULES.—In the case of the trans-
fer of stock pursuant to the exercise of an option
which has been so modified, extended, or renewed,
the fair market value of such stock at the time of
the granting of such option shall be considered as
whichever of the following is the highest:
‘‘(A) the fair market value of such stock
on the date of the original granting of the op-
tion,
‘‘(B) the fair market value of such stock
on the date of the making of such modification,
extension, or renewal, or
‘‘(C) the fair market value of such stock at
the time of the making of any intervening modi-
fication, extension, or renewal.
‘‘(3) 
DEFINITION
OF
MODIFICATION.—The
term ‘modification’ means any change in the terms
of the option which gives the employee additional
benefits under the option, but such term shall not
include a change in the terms of the option—
‘‘(A) attributable to the issuance or as-
sumption of an option under subsection (c),
‘‘(B) to permit the option to meet the re-
quirements of subsection (b)(7), or
‘‘(C) in the case of an option not imme-
diately exercisable in full, to accelerate the time
at which the option may be exercised.
‘‘(g) DIRECTOR OR STOCKHOLDER APPROVAL.—For
purposes of this section, if the grant of an option is subject
to approval by directors or stockholders, the date of grant
of the option shall be determined as if the option had not
been subject to such approval.
‘‘(h) LIMITED EFFECT ON TAX PROVISIONS.—The
provisions of this section shall not be construed to alter,
amend, modify, invalidate, impair, or supersede any provi-
sion of section 421 or 423 of the Internal Revenue Code
of 1986, except as provided in section 421(d) of such
Code.’’.
(b) CONFORMING AMENDMENT.—The table of con-
tents in section 1 of such Act is amended by striking the
item relating to section 414 and inserting the following
new items:
‘‘Sec. 414. Allowable stock purchase arrangements.
‘‘Sec. 415. Effective date.’’.
SEC. 4. NOTICE REQUIREMENT.
(a) IN GENERAL.—Section 105 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1025)
is amended by adding at the end the following new sub-
section:
‘‘(e) The employer corporation maintaining a stock
purchase arrangement shall provide at least annually to
employees who have been granted an option to purchase
stock under such arrangement a description of disclosure
statements regarding the stock that are available from the
Securities and Exchange Commission and the manner in
which such disclosure statements may be obtained from
such Commission. Descriptions under this subsection shall
be made in language that is easily understood by the typ-
ical employee.’’.
(b) PENALTY
OF $100 A DAY
FOR NONCOMPLI-
ANCE.—Section 502(c)(3) of such Act (29 U.S.C.
1132(c)(3)) is amended by inserting ‘‘or 105(e)’’ after
‘‘section 101(e)(2)’’.
SEC. 5. TREATMENT UNDER INTERNAL REVENUE CODE OF
1986.
Section 421 of the Internal Revenue Code of 1986
(relating to general rules for certain stock options) is
amended by adding at the end the following new sub-
section:
‘‘(d) STOCK OPTIONS UNDER SECTION 414(b) OF
EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF
1974; DEDUCTION ALLOWED TO CORPORATION.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, subsection (a) (other than
paragraph (2) thereof) shall apply to any share of
stock transferred to an individual in a transfer in re-
spect of which the requirements of section 414(b) of
Employee Retirement Income Security Act of 1974
are met.
‘‘(2) EFFECT
OF
DISQUALIFYING
DISPOSI-
TION.—If—
‘‘(A) any share of stock is transferred to
an individual in a transfer in respect of which
the requirements of section 414(b) of Employee
Retirement Income Security Act of 1974 are
met, and
‘‘(B) such individual disposes of such share
within 2 years from the date of the granting of
the option or within 1 year after the transfer of
such share to such individual,
then any increase in the income of such individual
for the taxable year in which such exercise occurred
attributable to such disposition shall be treated as
an increase in income in the taxable year of such in-
dividual in which such disposition occurred.
‘‘(3) LIMITATION ON EMPLOYER DEDUCTION.—
If—
‘‘(A) any share of stock is transferred to
an individual in a transfer in respect of which
the requirements of section 414(b) of Employee
Retirement Income Security Act of 1974 are
met, and
‘‘(B) such share is not disposed of in a dis-
position to which paragraph (2) applies,
the aggregate deduction allowed under section
162(a) to the corporations referred to in subsection
(a)(2) shall not exceed the excess (if any) of the fair
market value of such share at the time the option
is exercised over the fair market value of such share
at the time the option is granted.
‘‘(4) OTHER RULES.—References in subsection
(c) to section 423 shall be treated as references to
the corresponding provisions of section 414(b) of
Employee Retirement Income Security Act of 1974.’’
SEC. 6. EFFECTIVE DATE.
The amendments made by this Act shall take apply
with respect to options offered on or after January 1,
2000.
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