I
107TH CONGRESS
1ST SESSION
H. R. 1498
To amend the Internal Revenue Code of 1986 to allow individuals a refund-
able credit for elective deferrals and IRA contributions and to allow
small employers credits for pension plan startup costs and for pension
plan contributions.
IN THE HOUSE OF REPRESENTATIVES
APRIL 4, 2001
Mr. NEAL of Massachusetts (for himself, Mr. RANGEL, Mr. MATSUI, Mr.
COYNE, and Mr. ANDREWS) introduced the following bill; which was re-
ferred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to allow indi-
viduals a refundable credit for elective deferrals and IRA
contributions and to allow small employers credits for
pension plan startup costs and for pension plan contribu-
tions.
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 ‘‘Retirement Security
Act of 2001’’.
SEC. 2. REFUNDABLE CREDIT TO CERTAIN INDIVIDUALS
FOR ELECTIVE DEFERRALS AND IRA CON-
TRIBUTIONS.
(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. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS
BY CERTAIN INDIVIDUALS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eli-
gible individual, there shall be allowed as a credit against
the tax imposed by this subtitle for the taxable year an
amount equal to the applicable percentage of so much of
the qualified retirement savings contributions of the eligi-
ble individual for the taxable year as do not exceed $2,000.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
this section, the applicable percentage is the percentage
determined in accordance with the following table:
Adjusted Gross Income
Applica-
ble per-
centage
Joint return
Head of a household
All other cases
Over
Not over
Over
Not over
Over
Not over
$0
$25,000
$0
$18,750
$0
$12,500
25,000
35,000
18,750
26,250
12,500
17,500
35,000
45,000
26,250
33,750
17,500
22,500
45,000
55,000
33,750
41,250
22,500
27,500
55,000
75,000
41,250
56,250
27,500
37,500
75,000
56,250
37,500
‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘eligible indi-
vidual’ means any individual if—
‘‘(A) such individual has attained the age
of 18 as of the close of the taxable year, and
‘‘(B) the compensation (as defined in sec-
tion 219(f)(1)) includible in the gross income of
the individual (or, in the case of a joint return,
of the taxpayer) for such taxable year is at least
$5,000.
‘‘(2) DEPENDENTS AND FULL-TIME STUDENTS
NOT ELIGIBLE.—The term ‘eligible individual’ shall
not include—
‘‘(A) any individual with respect to whom
a deduction under section 151 is allowable to
another taxpayer for a taxable year beginning
in the calendar year in which such individual’s
taxable year begins, and
‘‘(B) any individual who is a student (as
defined in section 151(c)(4)).
‘‘(3) INDIVIDUALS RECEIVING CERTAIN RETIRE-
MENT DISTRIBUTIONS NOT ELIGIBLE.—
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ shall not include, with respect to a
taxable year, any individual who received during
the testing period—
‘‘(i) any distribution from a qualified
retirement plan (as defined in section
4974(c)), or from an eligible deferred com-
pensation plan (as defined in section
457(b)), which is includible in gross in-
come, or
‘‘(ii) any distribution from a Roth
IRA which is not a qualified rollover con-
tribution (as defined in section 408A(e)) to
a Roth IRA.
‘‘(B) TESTING PERIOD.—For purposes of
subparagraph (A), the testing period, with re-
spect to a taxable year, is the period which
includes—
‘‘(i) such taxable year,
‘‘(ii) the preceding taxable year, and
‘‘(iii) the period after such taxable
year and before the due date (without ex-
tensions) for filing the return of tax for
such taxable year.
‘‘(C) EXCEPTED
DISTRIBUTIONS.—There
shall not be taken into account under subpara-
graph (A)—
‘‘(i) any distribution referred to in
section 
72(p), 
401(k)(8), 
401(m)(6),
402(g)(2), 404(k), or 408(d)(4),
‘‘(ii) any distribution to which section
408A(d)(3) applies, and
‘‘(iii) any distribution before January
1, 2002.
‘‘(D) TREATMENT OF DISTRIBUTIONS RE-
CEIVED BY SPOUSE OF INDIVIDUAL.—For pur-
poses of determining whether an individual is
an eligible individual for any taxable year, any
distribution received by the spouse of such indi-
vidual shall be treated as received by such indi-
vidual if such individual and spouse file a joint
return for such taxable year and for the taxable
year during which the spouse receives the dis-
tribution.
‘‘(d) QUALIFIED RETIREMENT SAVINGS CONTRIBU-
TIONS.—For purposes of this section, the term ‘qualified
retirement savings contributions’ means the sum of—
‘‘(1) the amount of the qualified retirement
contributions (as defined in section 219(e)) made by
the eligible individual,
‘‘(2) the amount of—
‘‘(A) any elective deferrals (as defined in
section 402(g)(3)) of such individual, and
‘‘(B) any elective deferral of compensation
by such individual under an eligible deferred
compensation plan (as defined in section
457(b)) of an eligible employer described in sec-
tion 457(e)(1)(A), and
‘‘(3) the amount of voluntary employee con-
tributions by such individual to any qualified retire-
ment plan (as defined in section 4974(c)).
‘‘(e) ADJUSTED GROSS INCOME.—For purposes of
this section, adjusted gross income shall be determined
without regard to sections 911, 931, and 933.
‘‘(f) INVESTMENT
IN
THE CONTRACT.—Notwith-
standing any other provision of law, a qualified retirement
savings contribution shall not fail to be included in deter-
mining the investment in the contract for purposes of sec-
tion 72 by reason of the credit under this section.
‘‘(g) TRANSITIONAL RULES.—In the case of taxable
years beginning before January 1, 2008—
‘‘(1) CONTRIBUTION
LIMIT.—Subsection (a)
shall be applied by substituting for ‘$2,000’—
‘‘(A) $600 in the case of taxable years be-
ginning in 2002, 2003, or 2004, and
‘‘(B) $1,000 in the case of taxable years
beginning in 2005, 2006, or 2007.
‘‘(2) APPLICABLE PERCENTAGE.—The applica-
ble percentage shall be determined under the fol-
lowing table (in lieu of the table in subsection (b)):
Adjusted Gross Income
Applica-
ble per-
centage
Joint return
Head of a household
All other cases
Over
Not over
Over
Not over
Over
Not over
$0
$20,000
$0
$15,000
$0
$10,000
20,000
25,000
15,000
18,750
10,000
12,500
25,000
30,000
18,750
22,500
12,500
15,000
30,000
35,000
22,500
26,250
15,000
17,500
35,000
40,000
26,250
30,000
17,500
20,000
40,000
30,000
20,000
0.’’
(b) CONFORMING AMENDMENTS.—
(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 last item and inserting the
following new items:
‘‘Sec. 35. Elective deferrals and IRA contributions by certain indi-
viduals.
‘‘Sec. 36. Overpayments of tax.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2001.
‘‘(2) EMPLOYERS
MAINTAINING
QUALIFIED
PLANS
DURING
1998
NOT
ELIGIBLE.—Such term
shall not include an employer if such employer (or
any predecessor employer) maintained a qualified
plan (as defined in section 408(p)(2)(D)(ii)) with re-
spect to which contributions were made, or benefits
were accrued, for service in 1998. If only individuals
other than employees described in subparagraph (A)
or (B) of section 410(b)(3) are eligible to participate
in the qualified employer plan referred to in sub-
section (d)(1), then the preceding sentence shall be
applied without regard to any qualified plan in
which only employees so described are eligible to
participate.
‘‘(d) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) QUALIFIED STARTUP COSTS.—
‘‘(A) IN
GENERAL.—The term ‘qualified
startup costs’ means any ordinary and nec-
essary expenses of an eligible employer which
are paid or incurred in connection with—
‘‘(i) the establishment or administra-
tion of an eligible employer plan, or
‘‘(ii) the retirement-related education
of employees with respect to such plan.
‘‘(B) PLAN MUST HAVE AT LEAST 2 PAR-
TICIPANTS.—Such term shall not include any
expense in connection with a plan that does not
have at least 2 individuals who are eligible to
participate.
‘‘(C) PLAN
MUST
BE
ESTABLISHED
BE-
FORE JANUARY 1, 2010.—Such term shall not
include any expense in connection with a plan
established after December 31, 2009.
‘‘(2) ELIGIBLE
EMPLOYER
PLAN.—The term
‘eligible employer plan’ means a qualified employer
plan within the meaning of section 4972(d), or a
qualified payroll deduction arrangement within the
meaning of section 408(q)(1) (whether or not an
election is made under section 408(q)(2)). A quali-
fied payroll deduction arrangement shall be treated
as an eligible employer plan only if all employees of
the employer who—
‘‘(A) have been employed for 90 days, and
‘‘(B) are not described in subparagraph
(A) or (C) of section 410(b)(3),
are eligible to make the election under section
408(q)(1)(A).
‘‘(3) FIRST
CREDIT
YEAR.—The term ‘first
credit year’ means—
‘‘(A) the taxable year which includes the
date that the eligible employer plan to which
such costs relate becomes effective, or
‘‘(B) at the election of the eligible em-
ployer, the taxable year preceding the taxable
year referred to in subparagraph (A).
‘‘(e) 
SPECIAL
RULES.—For 
purposes 
of 
this
section—
‘‘(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 eligible employer
plans shall be treated as 1 eligible employer plan.
‘‘(2) DISALLOWANCE OF DEDUCTION.—No de-
duction shall be allowed for that portion of the quali-
fied startup costs paid or incurred for the taxable
year which is equal to the credit 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) of such Code (defining cur-
rent year business credit) 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 the following new paragraph:
‘‘(14) in the case of an eligible employer (as de-
fined in section 45E(c)), the small employer pension
plan startup cost credit determined under section
45E(a).’’
(c) CONFORMING AMENDMENTS.—
(1) Section 39(d) of such Code is amended by
adding at the end the following new paragraph:
‘‘(10) NO
CARRYBACK
OF
SMALL
EMPLOYER
PENSION PLAN STARTUP COST CREDIT BEFORE JAN-
UARY 1, 2002.—No portion of the unused business
credit for any taxable year which is attributable to
the small employer pension plan startup cost credit
determined under section 45E may be carried back
to a taxable year beginning before January 1,
2002.’’
(2) Subsection (c) of section 196 of such Code
is amended by striking ‘‘and’’ at the end of para-
graph (8), by striking the period at the end of para-
graph (9) and inserting ‘‘, and’’, and by adding at
the end the following new paragraph:
‘‘(10) the small employer pension plan startup
cost credit determined under section 45E(a).’’
(3) The table of sections for subpart D of part
IV of subchapter A of chapter 1 of such Code is
amended by adding at the end the following new
item:
‘‘Sec. 45E. Small employer pension plan startup costs.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to costs paid or incurred in taxable
years beginning after December 31, 2001.
SEC. 4. CREDIT FOR QUALIFIED PENSION PLAN CONTRIBU-
TIONS OF SMALL EMPLOYERS.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to business related credits) is amended by
adding at the end the following new section:
‘‘SEC. 45F. SMALL EMPLOYER PENSION PLAN CONTRIBU-
TIONS.
‘‘(a) GENERAL RULE.—For purposes of section 38,
in the case of an eligible employer, the small employer pen-
sion plan contribution credit determined under this section
for any taxable year is an amount equal to 50 percent
of the amount which would (but for subsection (f)(1)) be
allowed as a deduction under section 404 for such taxable
year for qualified employer contributions made to any
qualified retirement plan on behalf of any nonhighly com-
pensated employee.
‘‘(b) CREDIT LIMITED TO 3 Years.—The credit allow-
able by this section shall be allowed only with respect to
the period of 3 taxable years beginning with the taxable
year in which the qualified retirement plan becomes effec-
tive.
‘‘(c) QUALIFIED EMPLOYER CONTRIBUTION.—For
purposes of this section—
‘‘(1) DEFINED CONTRIBUTION PLANS.—In the
case of a defined contribution plan, the term ‘quali-
fied employer contribution’ means the amount of
nonelective and matching contributions to the plan
made by the employer on behalf of any nonhighly
compensated employee to the extent such amount
does not exceed 3 percent of such employee’s com-
pensation from the employer for the year.
‘‘(2) DEFINED BENEFIT PLANS.—In the case of
a defined benefit plan, the term ‘qualified employer
contribution’ means the amount of employer con-
tributions to the plan made on behalf of any non-
highly compensated employee to the extent that the
accrued benefit of such employee derived from such
contributions for the year do not exceed the equiva-
lent (as determined under regulations prescribed by
the Secretary and without regard to contributions
and benefits under the Social Security Act) of 3 per-