I
106TH CONGRESS
1ST SESSION
H. R. 352
To amend the Internal Revenue Code of 1986 to provide additional retirement
savings opportunities for small employers, including self-employed individuals.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 19, 1999
Mr. BLUNT (for himself, Mr. BENTSEN, Mr. HILL of Montana, Mr. FROST,
Mr. MCCOLLUM, Mr. TAYLOR of North Carolina, Mr. SCHAFFER, Mr.
MORAN of Kansas, Mrs. KELLY, Mrs. MYRICK, Mr. THUNE, Mr.
LATOURETTE, Mr. SANDLIN, Mr. DELAHUNT, Mr. PETERSON of Penn-
sylvania, Mr. PITTS, Mr. HUTCHINSON, Mrs. EMERSON, Mr. COOK, Mr.
METCALF, Mr. HINCHEY, Mr. YOUNG of Alaska, Mr. PASCRELL, Mr.
SKEEN, Mr. BRADY of Texas, Mrs. CUBIN, Mr. MCCRERY, Mr. RILEY,
Mr. KANJORSKI, Mr. MCINTYRE, Mr. TALENT, Mr. PAUL, Mr.
LOBIONDO, Mr. HULSHOF, Mr. PICKERING, Mr. MORAN of Virginia, Mr.
MANZULLO, Mr. DEAL of Georgia, Mr. ALLEN, Ms. MCCARTHY of Mis-
souri, Mr. BALDACCI, Ms. HOOLEY of Oregon, Mr. NORWOOD, Mr.
PEASE, Mr. POMEROY, Ms. KILPATRICK, Mr. SUNUNU, Mr. ENGLISH,
Mr. DICKEY, Mr. WATKINS, Mr. COOKSEY, and Mr. WELLER) introduced
the following bill; which was referred to the Committee on Ways and
Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
additional retirement savings opportunities for small em-
ployers, including self-employed individuals.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
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SECTION 1. REFERENCE.
Except as otherwise expressly provided, whenever in
this Act an amendment or repeal is expressed in terms
of an amendment to, or repeal of, a section or other provi-
sion, the reference shall be considered to be made to a
section or other provision of the Internal Revenue Code
of 1986.
SEC. 2. QUALIFIED SMALL EMPLOYER PLAN.
(a) IN GENERAL.—Section 401 is amended by redes-
ignating subsection (o) as subsection (p) and by inserting
after subsection (n) the following new subsection:
‘‘(o) QUALIFIED SMALL EMPLOYER PLAN.—
‘‘(1) IN GENERAL.—A trust created or orga-
nized in the United States and forming part of a
small employer plan of a small employer for the ex-
clusive benefit of its employees or their beneficiaries
constitutes a qualified trust under subsection (a) if
such plan meets the requirements of paragraph (2).
‘‘(2) REQUIREMENTS.—A plan meets the re-
quirements of this paragraph if—
‘‘(A) such plan is the only qualified retire-
ment plan of a small employer,
‘‘(B) the plan year for such plan is the cal-
endar year,
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‘‘(C) as of the 1st day of the plan year,
such plan covers all eligible employees of the
employer,
‘‘(D) such plan meets the contribution re-
quirements of paragraph (4),
‘‘(E) such plan meets the vesting require-
ments of paragraph (5),
‘‘(F) such plan meets the funding require-
ments of section 412, if applicable, and
‘‘(G) such plan meets the other require-
ments specified in paragraph (6).
‘‘(3) ELIGIBLE
EMPLOYEE.—For purposes of
paragraph (2)(C), the term ‘eligible employee’ means
an individual who—
‘‘(A) has attained age 21, and
‘‘(B) has completed not less than 1,000
hours of service for the employer during the cal-
endar year preceding the plan year.
‘‘(4) CONTRIBUTIONS.—A plan meets the re-
quirements of this paragraph if—
‘‘(A) employer contributions to the plan—
‘‘(i) are not less than 3 percent, and
do not exceed 10 percent, of compensation
of all participants in the plan, and
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‘‘(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.—
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‘‘(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.
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‘‘(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.
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‘‘(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 succes-
sor plan.
‘‘(B) PLAN MAY NOT BE ESOP.—A small
employer plan does not meet the requirements
of paragraph (1) if such plan is—
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‘‘(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:
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striking ‘‘and’’ at the end of paragraph (6), by striking
the period at the end of paragraph (7) and inserting ‘‘,
and’’, and by adding after paragraph (7) the following new
paragraph:
‘‘(8) the qualified small employer retirement
plan credit determined under section 45D.’’.
(f) DENIAL OF DOUBLE BENEFIT.—Section 280C is
amended by adding at the end thereof the following new
subsection:
‘‘(d) CREDIT FOR QUALIFIED SMALL EMPLOYER RE-
TIREMENT PLAN EXPENSEES.—No deduction shall be al-
lowed for that portion of the expenses referred to in sec-
tion 45D(c)(1) otherwise allowable as a deduction for the
taxable year which is equal to the amount of the credit
determined for such taxable year under section 45D(a).’’.
(g) CLERICAL AMENDMENT.—The table of sections
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. Expenses in establishing qualified small employer retirement plans.’’.
(h) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 4. IMPLEMENTATION.
(a) MODEL PLAN.—Not later than 6 months after
the date of the enactment of this Act, the Secretary of
the Treasury shall issue a model small employer retire-