SIMPLE Plan Modernization Act
Bill: S.1272 | Sponsor: Sen. Collins, Susan M. (R-ME)
Policy area: Taxation

Summary:
SIMPLE Plan Modernization Act
This bill modifies the requirements for SIMPLE (Savings Incentive Match Plan for Employees) Individual Retirement Accounts (IRAs), which are tax-favored retirement accounts that small businesses may provide to employees. The bill increases the contribution limits for certain SIMPLE IRAs and modifies the requirements for replacing SIMPLE IRAs with 401(k) plans.

To amend the Internal Revenue Code of 1986 to promote retirement 
savings on behalf of small business employees by making improvements to 
SIMPLE retirement accounts and easing the transition from a SIMPLE plan 
               to a 401(k) plan, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``SIMPLE Plan Modernization Act''.

SEC. 2. CONTRIBUTION LIMIT FOR SIMPLE IRAS.

    (a) In General.--Subparagraph (E) of section 408(p)(2) of the 
Internal Revenue Code of 1986 is amended--
            (1) by striking ``amount is'' and all that follows in 
        clause (i) and inserting ``dollar amount is--
                                    ``(I) $16,500 in the case of an 
                                eligible employer described in clause 
                                (iii) which had not more than 25 
                                employees who received at least $5,000 
                                of compensation from the employer for 
                                the preceding year,
                                    ``(II) $16,500 in the case of an 
                                eligible employer described in clause 
                                (iii) which is not described in 
                                subclause (I) and which elects, at such 
                                time and in such manner as prescribed 
                                by the Secretary, the application of 
                                this subclause for the year, and
                                    ``(III) $10,000 in any other 
                                case.'';
            (2) by striking ``adjustment.--In the case of'' in clause 
        (ii) and inserting ``adjustment.--
                                    ``(I) Certain large employers.--In 
                                the case of'';
            (3) by striking ``clause (i)'' in clause (ii) and inserting 
        ``clause (i)(III)''; and
            (4) by adding at the end of clause (ii) the following new 
        subclause:
                                    ``(II) Other employers.--In the 
                                case of a year beginning after December 
                                31, 2022, the Secretary shall adjust 
                                annually the $16,500 amount in 
                                subclauses (I) and (II) of clause (i) 
                                in the manner provided under subclause 
                                (I) of this clause, except that the 
                                base period taken into account shall be 
                                the calendar quarter beginning July 1, 
                                2021.''.
    (b) Catch-Up Contributions.--Paragraph (2) of section 414(v) of the 
Internal Revenue Code of 1986 is amended--
            (1) in subparagraph (B)--
                    (A) by striking ``the applicable'' in clause (ii) 
                and inserting ``except as provided in clause (iii), the 
                applicable''; and
                    (B) by adding at the end the following new clause:
                            ``(iii) In the case of an applicable 
                        employer plan--
                                    ``(I) which is maintained by an 
                                eligible employer described in section 
                                408(p)(2)(E)(i)(I), or
                                    ``(II) to which an election under 
                                section 408(p)(2)(E)(i)(II) applies for 
                                the year (including a plan described in 
                                section 401(k)(11) which is maintained 
                                by an eligible employer described in 
                                section 408(p)(2)(E)(i)(II) and to 
                                which such election applies by reason 
                                of subparagraphs (B)(i)(I) and (E) of 
                                section 401(k)(11)),
                        the applicable dollar amount is $4,750.''; and
            (2) in subparagraph (C), by striking ``the $5,000 amount in 
        subparagraph (B)(i) and the $2,500 amount in subparagraph 
        (B)(ii)'' and inserting ``each of the dollar amounts in 
        subparagraph (B)''.
    (c) Employer Match.--Clause (ii) of section 408(p)(2)(C) of the 
Internal Revenue Code of 1986 is amended--
            (1) by striking ``The term'' in subclause (I) and inserting 
        ``Except as provided in subclause (IV), the term'';
            (2) by adding at the end the following new subclause:
                                    ``(IV) Special rule for electing 
                                larger employers.--In the case of an 
                                employer which had more than 25 
                                employees who received at least $5,000 
                                of compensation from the employer for 
                                the preceding year, and which makes the 
                                election under subparagraph (E)(i)(II) 
                                for any year, subclause (I) shall be 
                                applied for such year by substituting 
                                `4 percent' for `3 percent'.''; and
            (3) by striking ``3 percent'' each place it appears in 
        subclauses (II) and (III) and inserting ``the applicable 
        percentage''.
    (d) Increase in Nonelective Employer Contribution for Electing 
Larger Employers.--Subparagraph (B) of section 408(p)(2) of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new clause:
                            ``(iii) Special rule for electing larger 
                        employers.--In the case of an employer which 
                        had more than 25 employees who received at 
                        least $5,000 of compensation from the employer 
                        for the preceding year, and which makes the 
                        election under subparagraph (E)(i)(II) for any 
                        year, clause (i) shall be applied for such year 
                        by substituting `3 percent' for `2 percent'.''.
    (e) Transition Rule.--Paragraph (2) of section 408(p) of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new subparagraph:
                    ``(F) 2-year grace period.--An eligible employer 
                which had not more than 25 employees who received at 
                least $5,000 of compensation from the employer for 1 or 
                more years, and which has more than 25 such employees 
                for any subsequent year, shall be treated for purposes 
                of subparagraph (E)(i) as having 25 such employees for 
                the 2 years following the last year the employer had 
                not more than 25 such employees, and not as having made 
                the election under subparagraph (E)(i)(II) for such 2 
                years. Rules similar to the second sentence of 
                subparagraph (C)(i)(II) shall apply for purposes of 
                this subparagraph.''.
    (f) Amendments Apply Only if Employer Has Not Had Another Plan 
Within 3 Years.--Subparagraph (E) of section 408(p)(2) of the Internal 
Revenue Code of 1986, as amended by subsection (a), is amended by 
adding at the end the following new clause:
                            ``(iii) Employer has not had another plan 
                        within 3 years.--An eligible employer is 
                        described in this clause only if, during the 3-
                        taxable-year period immediately preceding the 
                        1st year the employer maintains the qualified 
                        salary reduction arrangement under this 
                        paragraph, neither the employer nor any member 
                        of any controlled group including the employer 
                        (or any predecessor of either) established or 
                        maintained any plan described in clause (i), 
                        (ii), or (iv) of section 219(g)(5)(A) with 
                        respect to which contributions were made, or 
                        benefits were accrued, for substantially the 
                        same employees as are eligible to participate 
                        in such qualified salary reduction 
                        arrangement.''.
    (g) Conforming Amendments Relating to Simple 401(k)s.--
            (1) Subclause (I) of section 401(k)(11)(B)(i) of the 
        Internal Revenue Code of 1986 is amended by inserting ``(after 
        the application of any election under section 
        408(p)(2)(E)(i)(II))'' before the comma.
            (2) Paragraph (11) of section 401(k) of such Code is 
        amended by adding at the end the following new subparagraph:
                    ``(E) Employers electing increased contributions.--
                In the case of an employer which applies an election 
                under section 408(p)(2)(E)(i)(II) for purposes of the 
                contribution requirements of this paragraph under 
                subparagraph (B)(i)(I), rules similar to the rules of 
                subparagraphs (B)(iii), (C)(ii)(IV), and (F) of section 
                408(p)(2) shall apply for purposes of subparagraphs 
                (B)(i)(II) and (B)(ii) of this paragraph.''.
    (h) Plan Forms To Be Shared With Secretary.--Subsection (p) of 
section 408 of the Internal Revenue Code of 1986 is amended by adding 
at the end the following new paragraph:
            ``(11) Plan arrangement and notices to be shared with 
        secretary.--The trustee or issuer (in the case of an individual 
        retirement annuity) of a simple retirement account shall 
        provide to the Secretary, at the time the qualified salary 
        reduction arrangement is established (or not later than 
        December 31, 2022, in the case of arrangements in effect on the 
        date of the enactment of this paragraph), a copy of the written 
        arrangement described in paragraph (2)(A).''.
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2021.
    (j) Reports by Secretary.--
            (1) In general.--The Secretary of the Treasury shall, not 
        later than December 31, 2022, and annually thereafter, report 
        to the Committees on Finance and Health, Education, Labor, and 
        Pensions of the Senate and the Committees on Ways and Means and 
        Education and Labor of the House of Representatives on the data 
        described in paragraph (2), together with any recommendations 
        the Secretary deems appropriate.
            (2) Data described.--For purposes of the report required 
        under paragraph (1), the Secretary of the Treasury shall 
        collect data and information on--
                    (A) the number of plans described in section 408(p) 
                or 401(k)(11) of the Internal Revenue Code of 1986 that 
                are maintained or established during a year;
                    (B) the number of participants eligible to 
                participate in such plans for such year;
                    (C) median contribution amounts for the 
                participants described in subparagraph (B);
                    (D) the types of investments that are most common 
                under such plans; and
                    (E) the fee levels charged in connection with the 
                maintenance of accounts under such plans.
        Such data and information shall be collected separately for 
        each type of plan. For purposes of collecting such data, the 
        Secretary of the Treasury may use such data as is otherwise 
        available to the Secretary for publication and may use such 
        approaches as are appropriate under the circumstances, 
        including the use of voluntary surveys and collaboration on 
        studies.

SEC. 3. EMPLOYERS ALLOWED TO REPLACE SIMPLE RETIREMENT ACCOUNTS WITH 
              SAFE HARBOR 401(K) PLANS DURING A YEAR.

    (a) In General.--Section 408(p) of the Internal Revenue Code of 
1986, as amended by section 2, is amended by adding at the end the 
following new paragraph:
            ``(12) Replacement of simple retirement accounts with safe 
        harbor plans during plan year.--
                    ``(A) In general.--Subject to the requirements of 
                this paragraph, an employer may elect (in such form and 
                manner as the Secretary may prescribe) at any time 
                during a year to terminate the qualified salary 
                reduction arrangement under paragraph (2), but only if 
                the employer establishes and maintains (as of the day 
                after the termination date) a safe harbor plan to 
                replace the terminated arrangement.
                    ``(B) Combined limits on contributions.--The 
                terminated arrangement and safe harbor plan shall both 
                be treated as violating the requirements of paragraph 
                (2)(A)(ii) or section 401(a)(30) (whichever is 
                applicable) if the aggregate elective contributions of 
                the employee under the terminated arrangement during 
                its last plan year and under the safe harbor plan 
                during its transition year exceed the sum of--
                            ``(i) the applicable dollar amount for such 
                        arrangement (determined on a full-year basis) 
                        under this subsection (after the application of 
                        section 414(v)) with respect to the employee 
                        for such last plan year multiplied by a 
                        fraction equal to the number of days in such 
                        plan year divided by 365, and
                            ``(ii) the applicable dollar amount (as so 
                        determined) under section 402(g)(1) for such 
                        safe harbor plan on such elective contributions 
                        during the transition year multiplied by a 
                        fraction equal to the number of days in such 
                        transition year divided by 365.
                    ``(C) Transition year.--For purposes of this 
                paragraph, the transition year is the period beginning 
                after the termination date and ending on the last day 
                of the calendar year during which the termination 
                occurs.
                    ``(D) Safe harbor plan.--For purposes of this 
                paragraph, the term `safe harbor plan' means a 
                qualified cash or deferred arrangement which meets the 
                requirements of paragraph (11), (12), or (13) of 
                section 401(k).''.
    (b) Waiver of 2-Year Withdrawal Limitation in Case of Plans 
Converting to 401(k) or 403(b).--
            (1) In general.--Paragraph (6) of section 72(t) of the 
        Internal Revenue Code of 1986 is amended--
                    (A) by striking ``accounts.--In the case of'' and 
                inserting ``accounts.--
                    ``(A) In general.--In the case of''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(B) Waiver in case of plan conversion to 401(k) 
                or 403(b).--In the case of an employee of an employer 
                which terminates the qualified salary reduction 
                arrangement of the employer under section 408(p) and 
                establishes a qualified cash or deferred arrangement 
                described in section 401(k) or purchases annuity 
                contracts described in section 403(b), subparagraph (A) 
                shall not apply to any amount which is paid in a 
                rollover contribution described in section 408(d)(3) 
                into a qualified trust under section 401(k) (but only 
                if such contribution is subsequently subject to the 
                rules of section 401(k)(2)(B)) or an annuity contract 
                described in section 403(b) (but only if such 
                contribution is subsequently subject to the rules of 
                section 403(b)(11)) for the benefit of the employee.''.
            (2) Conforming amendment.--Subparagraph (G) of section 
        408(d)(3) of such Code is amended by striking ``72(t)(6)'' and 
        inserting ``72(t)(6)(A)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2021.
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