Title: Automatic IRA Act of 2017
Policy area: Taxation

Summary:
Automatic IRA Act of 2017
This bill amends the Internal Revenue Code to: (1) require certain employers who do not maintain qualifying retirement plans or arrangements to make available to their eligible employees a payroll deposit individual retirement account (IRA) arrangement (automatic IRA arrangement) which grants such employees the right to opt-out of participation; (2) require the Department of the Treasury to provide employers with a model notice for notifying employees of their opportunity to participate in an automatic IRA arrangement and for providing details regarding the election period; (3) impose a penalty on employers who fail to provide eligible employees access to an automatic IRA arrangement; (4) allow employers who do not have more than 100 employees a tax credit for costs associated with establishing an automatic IRA arrangement; and (5) increase the dollar limitation on the tax credit for small employer pension plan startup costs.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[S. 1861 Introduced in Senate (IS)]

<DOC>






115th CONGRESS
  1st Session
                                S. 1861

 To amend the Internal Revenue Code of 1986 to expand personal saving 
 and retirement savings coverage by enabling employees not covered by 
 qualifying retirement plans to save for retirement through automatic 
               IRA arrangements, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 26, 2017

Mr. Whitehouse introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to expand personal saving 
 and retirement savings coverage by enabling employees not covered by 
 qualifying retirement plans to save for retirement through automatic 
               IRA arrangements, 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; REFERENCE.

    (a) Short Title.--This Act may be cited as the ``Automatic IRA Act 
of 2017''.
    (b) Amendment of 1986 Code.--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 provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. QUALIFYING AUTOMATIC IRA ARRANGEMENTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 408A the following new section:

``SEC. 408B. QUALIFYING AUTOMATIC IRA ARRANGEMENTS.

    ``(a) In General.--For purposes of this section, a qualifying 
automatic IRA arrangement is an automatic IRA arrangement which is 
offered by a covered employer to each qualifying employee of the 
employer.
    ``(b) Covered Employer.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection or subsection (c)(2), the term `covered employer' 
        means, with respect to any year, an employer which does not 
        maintain a qualifying plan or arrangement described in section 
        219(g)(5) for the calendar year.
            ``(2) Excluded plans.--A qualifying plan or arrangement 
        shall not be taken into account for purposes of paragraph (1) 
        if--
                    ``(A) the plan or arrangement is frozen as of the 
                first day of the preceding calendar year, or
                    ``(B) in the case of a plan or arrangement under 
                which the only contributions are discretionary on the 
                part of the employer or other plan sponsor--
                            ``(i) no employer contribution has been 
                        made to the plan or arrangement for the 3-plan-
                        year period ending with the last plan year 
                        ending in the preceding calendar year, and
                            ``(ii) it is not reasonable to assume that 
                        an employer contribution will be made for the 
                        last plan year ending in the preceding calendar 
                        year.
            ``(3) Exception for certain small and new employers.--
                    ``(A) In general.--The term `covered employer' does 
                not include an employer for a calendar year if the 
                employer--
                            ``(i) did not employ more than 10 employees 
                        who received at least $5,000 of compensation 
                        (as defined in section 3401(a)) from the 
                        employer for the preceding calendar year,
                            ``(ii) did not normally employ more than 10 
                        employees on a typical business day of the 
                        preceding calendar year, or
                            ``(iii) was not in existence at all times 
                        during the calendar year and the preceding 
                        calendar year.
                    ``(B) Operating rules.--In determining the number 
                of employees for purposes of subparagraph (A)--
                            ``(i) rules consistent with any rules 
                        applicable in determining the number of 
                        employees for purposes of section 408(p)(2)(C) 
                        and section 4980B(d) shall apply,
                            ``(ii) all members of the same family 
                        (within the meaning of section 318(a)(1)) shall 
                        be treated as 1 individual, and
                            ``(iii) any reference to an employer shall 
                        include a reference to any predecessor 
                        employer.
            ``(4) Exception for governments and churches.--The term 
        `covered employer' does not include--
                    ``(A) a government or entity described in section 
                414(d), or
                    ``(B) a church or a convention or association of 
                churches which is exempt from tax under section 501.
            ``(5) Aggregation rule.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52 or 
        subsection (m) or (o) of section 414 shall be treated as a 
        single employer.
    ``(c) Qualifying Employee.--For purposes of this section--
            ``(1) In general.--The term `qualifying employee' means any 
        employee of the employer who is not an excluded employee.
            ``(2) Plan sponsor's employees.--If--
                    ``(A) an employer maintains one or more qualifying 
                plans or arrangements described in section 219(g)(5),
                    ``(B) the employees of any subsidiary, division, or 
                other major business unit of the employer are generally 
                not eligible to participate in any such qualifying plan 
                or arrangement, and
                    ``(C) the number of employees of the employer 
                described in subparagraph (B) for a calendar year is--
                            ``(i) at least 50, and
                            ``(ii) at least 10 percent of the employees 
                        of the employer (other than excludable 
                        employees),
        then, for purposes of this section, the employer shall be 
        treated as a covered employer with respect to such employees 
        (other than excluded employees) for the calendar year, and such 
        employees (other than excluded employees) shall be treated as 
        qualifying employees.
            ``(3) Excluded employees.--
                    ``(A) In general.--The term `excluded employee' 
                means an employee of the employer who is an excludable 
                employee and who is in a class or category that the 
                employer elects to exclude from treatment as qualifying 
                employees.
                    ``(B) Excludable employee.--The term `excludable 
                employee' means--
                            ``(i) any employee described in section 
                        410(b)(3),
                            ``(ii) any employee who has not attained 
                        the age of 18 before the first day of the 
                        calendar year,
                            ``(iii) any employee who has not completed 
                        at least 3 months of service with the employer,
                            ``(iv) in the case of an employer that 
                        maintains a qualifying plan or arrangement 
                        which excludes employees who have not satisfied 
                        the minimum age and service requirements for 
                        participation in the plan, any employee who has 
                        not satisfied such requirements,
                            ``(v) in the case of an employer that 
                        maintains a section 403(b) annuity contract 
                        (including a custodial account or retirement 
                        income account), any employee who is permitted 
                        to be excluded from any salary reduction 
                        arrangement under the contract pursuant to 
                        section 403(b)(12),
                            ``(vi) in the case of an employer that 
                        maintains an arrangement described in section 
                        408(p), any employee who is not required to be 
                        eligible to participate in the arrangement 
                        under section 408(p)(4), and
                            ``(vii) in the case of an employer that 
                        maintains a simplified employee pension 
                        described in section 408(k), any employee who 
                        is permitted to be excluded from participation 
                        under section 408(k)(2).
            ``(4) Guidance.--The Secretary shall issue regulations or 
        other guidance to carry out this subsection, including--
                    ``(A) guidelines for determining the classes or 
                categories of employees to be covered by an automatic 
                IRA arrangement,
                    ``(B) if an employer excludes employees from the 
                automatic IRA arrangement, guidelines providing that 
                the employer shall specify the classification or 
                categories of employees who are so excluded, and
                    ``(C) rules to prevent avoidance of the 
                requirements of this section.
    ``(d) Automatic IRA Arrangement.--For purposes of this section--
            ``(1) In general.--The term `automatic IRA arrangement' 
        means an arrangement of an employer (determined without regard 
        to whether the employer is required to maintain the 
        arrangement)--
                    ``(A) under which a qualifying employee--
                            ``(i) may elect--
                                    ``(I) to contribute to an 
                                individual retirement plan, or to 
                                purchase a qualifying retirement bond, 
                                by having the employer deposit payroll 
                                deduction amounts or make other 
                                periodic direct deposits (including 
                                electronic payments) to the plan or 
                                invest such amounts in such qualifying 
                                retirement bonds, or
                                    ``(II) to have such payments paid 
                                to the employee directly in cash,
                            ``(ii) is treated as having made the 
                        election under clause (i)(I) in the amount 
                        specified in paragraph (5) until the individual 
                        specifically elects not to have such 
                        contributions or purchases made (or 
                        specifically elects to have such contributions 
                        or purchases made at a different percentage or 
                        in a different amount), and
                            ``(iii) may elect to modify the manner in 
                        which such amounts are invested for such year,
                    ``(B) which meets the administrative requirements 
                of paragraph (3), including the notice requirement of 
                paragraph (3)(C), and
                    ``(C) which does not charge unreasonable additional 
                fees solely on the basis that the balance in an 
                automatic IRA is small.
            ``(2) Employer's option to obtain affirmative elections 
        from employees instead of automatic enrollment.--As an 
        alternative to automatic enrollment, an employer may choose to 
        comply with paragraph (1)(A)(ii) by notifying employees that 
        the employer wishes to obtain from each qualifying employee an 
        affirmative election either to contribute or not to contribute 
        to an automatic IRA, provided that any qualifying employee who 
        fails to make such an election is treated in the manner 
        provided under paragraph (1)(A)(ii).
            ``(3) Administrative requirements.--
                    ``(A) Payments.--The requirements of this paragraph 
                are met with respect to any automatic IRA arrangement 
                if the employer makes the payments elected or treated 
                as elected under paragraph (1)(A)--
                            ``(i) on or before the last day of the 
                        month following the month in which the 
                        compensation otherwise would have been payable 
                        to the employee in cash,
                            ``(ii) before such later deadline 
                        prescribed by the Secretary for making such 
                        payments, but not later than the due date for 
                        the deposit of tax required to be deducted and 
                        withheld under chapter 24 (relating to 
                        collection of income tax at source on wages) 
                        for the payroll period to which such payments 
                        relate, or
                            ``(iii) as early as administratively 
                        practicable.
                    ``(B) Termination of employee participation.--
                Subject to a requirement for reasonable notice, an 
                employee may elect to terminate participation in the 
                arrangement at any time during a calendar year, except 
                that if an employee so terminates, the arrangement may 
                provide that the employee may not elect to resume 
                participation until the beginning of the next calendar 
                year.
                    ``(C) Notice of election period.--The requirements 
                of this paragraph shall not be treated as met with 
                respect to any year unless the employer notifies each 
                employee eligible to participate, within a reasonable 
                period of time before the 30th day before the beginning 
                of such year (and, for the first year the employee is 
                so eligible, the 30th day before the first day such 
                employee is so eligible), of--
                            ``(i) the payments that may be elected or 
                        treated as elected under paragraph (1)(A),
                            ``(ii) the opportunity to make the election 
                        to terminate participation in the arrangement 
                        under subparagraph (B),
                            ``(iii) the opportunity to make the 
                        election under paragraph (1)(A)(ii) to have 
                        contributions or purchases made at a different 
                        percentage or in a different amount, and
                            ``(iv) the opportunity under paragraph 
                        (1)(A)(iii) to modify the manner in which such 
                        amounts are invested for such year.
                    ``(D) Investment options.--The requirements of this 
                paragraph shall not be treated as met with respect to 
                any year unless an employee electing to have 
                contributions made to an individual retirement plan is 
                provided with the option to choose among all investment 
                options described in subparagraphs (B), (C), (D), and 
                (E) of paragraph (6).
            ``(4) Default investments.--If an employee is treated under 
        clause (ii) of paragraph (1)(A) as having made an election to 
        participate in an automatic IRA arrangement--
                    ``(A) the employee shall be deemed to have made an 
                election to make contributions and payments in the 
                amount determined under such clause, and
                    ``(B) such contributions shall--
                            ``(i) be transferred to an individual 
                        retirement plan of the designated trustee or 
                        issuer, but only if the contributions are 
                        invested as provided in paragraph (6), or
                            ``(ii) be applied toward the purchase of a 
                        qualifying retirement bond.
            ``(5) Amount of contributions and payments.--
                    ``(A) In general.--The amount specified in this 
                paragraph with respect to any employee is--
                            ``(i) 3 percent of the compensation of the 
                        employee, or
                            ``(ii) such other percentage of 
                        compensation as is specified in regulations 
                        prescribed by the Secretary which is not less 
                        than 2 percent or more than 6 percent.
                    ``(B) Authority to provide for periodic 
                increases.--In the case of qualifying employees under 
                an automatic IRA arrangement for 2 or more consecutive 
                years, the Secretary may by regulation provide for 
                periodic (not more frequent than annual) increases in 
                the percentage of compensation an employee is deemed to 
                have elected under subparagraph (A). The considerations 
                the Secretary shall take into account in issuing any 
                regulations under this subparagraph and subparagraph 
                (A) shall include the potential effects on lower-income 
                employees as well as on adequacy of savings.
                    ``(C) Permitted additional procedures to limit 
                contributions.--An employer--
                            ``(i) shall have no responsibility for any 
                        calendar year for determining whether, or 
                        ensuring that, the contributions with respect 
                        to any employee do not exceed the deductible 
                        amount in effect for taxable years beginning in 
                        the calendar year under section 219(b)(5) 
                        (determined without regard to subparagraph (B) 
                        thereof), and
                            ``(ii) shall not be treated as failing to 
                        satisfy the requirements of this section or any 
                        other provision of this title merely because 
                        the employer chooses to limit the contributions 
                        under this subsection on behalf of a qualifying 
                        employee for any calendar year in a manner 
                        reasonably designed to avoid exceeding such 
                        deductible amount.
            ``(6) Required investments.--
                    ``(A) In general.--Amounts contributed under 
                paragraph (4)(B)(i) shall be invested only in the class 
                of assets or funds described in subparagraph (B) unless 
                the employee elects a class of assets or funds 
                described in subparagraph (C), (D), or (E).
                    ``(B) Target date or lifecycle option.--The class 
                of assets or funds described in this subparagraph is 
                the class of assets or funds that constitutes a 
                qualified default investment alternative under section 
                2550.404c-5(e)(4)(i) of title 29, Code of Federal 
                Regulations.
                    ``(C) Principal preservation.--The class of assets 
                or funds described in this subparagraph is the class of 
                assets or funds that is designed to protect the 
                principal of the individual on an ongoing basis, 
                including passbook savings, certificates of deposit, 
                insurance contracts, mutual funds, United States 
                savings bonds (which may be indexed for inflation), and 
                similar assets specified in regulations.
                    ``(D) Guaranteed lifetime income option or 
                equivalent.--The class of assets or funds described in 
                this subparagraph is the class of assets or funds that 
                is designed to provide an employee with the right to 
                elect to receive distributions as a defined level of 
                income annually (or more frequently) for at least the 
                remainder of the life of the employee or the joint 
                lives of the employee and the employee's designated 
                beneficiary.
                    ``(E) Other.--Any other class of assets or funds 
                determined by the Secretary to be a qualified 
                investment for purposes of this section.
            ``(7) Qualifying retirement bond.--For purposes of this 
        section--
                    ``(A) In general.--The term `qualifying retirement 
                bond' means a bond issued under chapter 31 of title 31, 
                United States Code, which by its terms, or by 
                regulations prescribed by the Secretary under such 
                chapter--
                            ``(i) provides for interest to be credited 
                        at rates that take into account the expected 
                        duration of the funds invested in such bonds 
                        and at rates determined or adjusted in a manner 
                        and with sufficient frequency to provide 
                        substantial protection from inflation,
                            ``(ii) is not transferable, and
                            ``(iii) is designed for investment for 
                        retirement under automatic IRA arrangements or 
                        other savings vehicles.
                    ``(B) Individual retirement plan rules 
                applicable.--The provisions of this title applicable to 
                an individual retirement plan (as defined in section 
                7701(a)(37)), including provisions relating to 
                contributions, holding and distributions, shall apply 
                to a qualifying retirement bond, except as determined 
                by the Secretary.
                    ``(C) Annual statement.--As soon as practicable 
                after the close of each calendar year, the Secretary 
                shall make available an annual statement to each 
                participant on behalf of whom qualifying retirement 
                bonds have been purchased, setting forth--
                            ``(i) payments made by or on behalf of the 
                        participant for such bonds during such calendar 
                        year,
                            ``(ii) amounts earned by any such bonds, 
                        whether purchased during such year or during a 
                        prior year, during such calendar year,
                            ``(iii) the value of the participant's 
                        account with respect to such bonds as of the 
                        close of such calendar year,
                            ``(iv) the importance of diversifying 
                        retirement savings,
                            ``(v) the benefits of a well-balanced and 
                        diversified investment portfolio,
                            ``(vi) a notice of the internet website of 
                        the Department of Labor for sources of 
                        information on individual investing and 
                        diversification,
                            ``(vii) the procedures for redeeming a 
                        qualifying retirement bond and directly 
                        transferring the redeemed amount into an 
                        individual retirement plan,
                            ``(viii) other factors affecting retirement 
                        savings decisions, and
                            ``(ix) such other information as the 
                        Secretary determines necessary or appropriate.
            ``(8) Treatment as roth ira.--A qualifying employee for 
        whom an automatic IRA is established under paragraph (1) may 
        elect, at such time and in such manner and form as the 
        Secretary may prescribe but not later than the due date of the 
        return for the taxable year in which such automatic IRA is 
        established, whether to treat the individual retirement plan as 
        described, or not described, in section 408A. If no such 
        election is made, the plan shall be treated as described in 
        section 408A and shall meet the requirements of section 408A 
        (including any appropriate adjustment or conversion as may be 
        provided by the Secretary).
    ``(e) Treatment of Contributions.--
            ``(1) In general.--A contribution to an individual 
        retirement plan or purchase of a retirement bond on behalf of 
        an employee under a qualifying automatic IRA arrangement shall 
        be treated for purposes of this title as if it had been made 
        directly by the employee, including for purposes of limitations 
        on contributions to individual retirement plans.
            ``(2) Coordination with withholding.--The Secretary shall 
        modify the withholding exemption certificate under section 
        3402(f) so that, in the case of any qualifying employee covered 
        under an automatic IRA arrangement, any notice and election 
        requirements with respect to the arrangement may be met through 
        the use of an attachment to such certificate or other 
        modifications of the withholding exemption procedures.
            ``(3) Individual retirement plan rules applicable.--The 
        provisions of this title applicable to an individual retirement 
        plan (as defined in section 7701(a)(37)), including provisions 
        relating to contributions, holding and distributions, shall 
        apply to a qualifying retirement bond, except as determined by 
        the Secretary.
            ``(4) Rollover from bonds to ira.--The Secretary shall 
        provide for procedures by which an individual may periodically 
        elect to transfer qualifying retirement bonds (with their 
        proceeds) held by the individual to an individual retirement 
        account. Any such transfer shall be treated as a rollover 
        contribution for purposes of section 408(d)(3) (other than 
        subparagraph (B) thereof).
    ``(f) Model Notice.--The Secretary, in coordination with the 
Director of the Consumer Financial Protection Bureau, shall--
            ``(1) provide a model notice, written in a manner 
        calculated to be understandable to the average worker, that is 
        simple for employers to use--
                    ``(A) to notify employees of the requirement under 
                section 4980J for the employer to provide certain 
                employees with the opportunity to participate in a 
                qualifying automatic IRA arrangement, and
                    ``(B) to satisfy the requirements of subsection 
                (d)(3)(C),
            ``(2) provide uniform forms for enrollment, including 
        automatic enrollment, in an automatic IRA arrangement, and
            ``(3) establish a website or other electronic means that 
        small employers can access and use to obtain information on 
        automatic IRA arrangements and to obtain required notices and 
        forms.
The information referred to in paragraph (3) shall be provided in a 
manner designed to assist employers and providers by facilitating the 
identification by employers of private-sector providers of individual 
retirement plans and associated investment options that are appropriate 
for use in automatic IRA arrangements.
    ``(g) Cross Reference.--For provision preempting conflicting State 
laws, see section 2(j) of the Automatic IRA Act of 2017.''.
    (b) Mandatory Transfers.--Section 401(a)(31)(B)(i) of the Internal 
Revenue Code of 1986 is amended--
            (1) by inserting ``(including a plan established through a 
        qualifying automatic IRA arrangement (as defined in section 
        408B))'' after ``individual retirement plan'' each place it 
        appears, and
            (2) by adding at the end the following new sentence: ``Any 
        amount so transferred (and any earnings thereon) shall be 
        invested only in investments described in section 
        408B(d)(6).''.
    (c) Penalty for Failure To Timely Remit Contributions to Automatic 
IRA Arrangements.--Section 4975(c) of the Internal Revenue Code of 1986 
is amended by adding at the end the following new paragraph:
            ``(7) Special rule for qualifying automatic ira 
        arrangements.--For purposes of paragraph (1), if an employer is 
        required under a qualifying automatic IRA arrangement under 
        section 408B to deposit amounts withheld from an employee's 
        compensation into an individual retirement account or toward 
        the purchase of a qualifying retirement bond (as defined in 
        section 408B(d)(7)) but fails to do so within the time 
        prescribed under section 408B(d)(3)(A), such amounts shall be 
        treated as assets of the individual retirement account.''.
    (d) Coordination With Employee Retirement Income Security Act of 
1974.--
            (1) Exemption.--
                    (A) In general.--Section 3(2) of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 
                1002(2)) is amended--
                            (i) by inserting ``or (C)'' after 
                        ``subparagraph (B)'' in subparagraph (A), and
                            (ii) by adding at the end the following new 
                        subparagraph:
                    ``(C) A qualifying automatic IRA arrangement 
                described in section 408B of the Internal Revenue Code 
                of 1986 shall not be treated as an employee pension 
                benefit plan or pension plan if, under the arrangement, 
                contributions are to be made to an individual 
                retirement account the provider of which is included in 
                the website list established under section 408B(f)(3) 
                of such Code, are to be made to an individual 
                retirement plan designated by the employee, or are to 
                be invested in qualifying retirement bonds (as defined 
                in section 408B(d)(7)).''.
                    (B) Customer identification program.--
                Notwithstanding the amendment made by subparagraph (A), 
                an individual retirement plan established pursuant to 
                an automatic IRA arrangement described in section 
                408B(d) of the Internal Revenue Code of 1986 shall, for 
                purposes of any customer identification program 
                established under section 5318(l) of title 31, United 
                States Code, be treated as an account opened for the 
                purpose of participating in an employee benefit plan 
                established under the Employee Retirement Income 
                Security Act of 1974.
            (2) Fiduciary duties.--Section 404(c) of such Act is 
        amended by adding at the end the following new paragraph:
            ``(6) In the case of an individual retirement account 
        opened under a qualifying automatic IRA arrangement under 
        section 408B of such Code that is not exempt under section 
        3(2)(C), a participant or beneficiary shall, for purposes of 
        paragraph (1), be treated as exercising control over the assets 
        in the account on and after the 7th day after notice has been 
        given to an employee that such account has been established on 
        behalf of the employee. No reports, other than those required 
        under section 101(g), shall be required with respect to an 
        account opened under a qualifying automatic IRA arrangement 
        under section 408B of such Code.''.
    (e) Notice of Availability of Investment Guidelines.--
            (1) In general.--Section 408(i) of the Internal Revenue 
        Code of 1986 is amended by adding at the end the following new 
        sentence: ``Any report furnished under paragraph (2) to an 
        individual shall include notice of the Internet website of the 
        Department of Labor for sources of information on individual 
        investing and diversification.''.
            (2) Updated information.--Such information shall be 
        modified (or updated) by the Secretary of Labor in consultation 
        with the Secretary of the Treasury and the Chairman of the 
        Securities and Exchange Commission to address needed changes 
        due to the creation of automatic IRAs.
    (f) Failure To Provide Qualifying Automatic IRA Arrangements.--
Chapter 43 of the Internal Revenue Code of 1986 is amended by adding at 
the end the following new section:

``SEC. 4980J. REQUIREMENTS FOR COVERED EMPLOYERS TO PROVIDE QUALIFYING 
              AUTOMATIC IRA ARRANGEMENTS.

    ``(a) General Rule.--There is hereby imposed a tax on any failure 
by a covered employer (as defined in section 408B) to maintain a 
qualifying IRA arrangement (as defined in such section), and to meet 
the requirements under such arrangement, for a calendar year.
    ``(b) Amount.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure for any calendar year shall be 
        $100 with respect to each employee to whom such failure 
        relates.
            ``(2) Tax not to apply where failure not discovered and 
        reasonable diligence exercised.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that the 
        employer subject to liability for the tax did not know that the 
        failure existed and exercised reasonable diligence to maintain 
        a qualifying IRA arrangement and to meet the requirements under 
        such arrangement.
            ``(3) Tax not to apply to failures corrected within 90 
        days.--No tax shall be imposed by subsection (a) on any failure 
        if--
                    ``(A) the employer subject to liability for the tax 
                under subsection (a) exercised reasonable diligence to 
                maintain a qualifying IRA arrangement and to meet the 
                requirements under such arrangement, and
                    ``(B) the employer provides a qualifying automatic 
                IRA arrangement described in section 408B to each 
                qualifying employee (as defined in section 408B) by the 
                end of the 90-day period beginning on the first date 
                the employer knew, or exercising reasonable diligence 
                would have known, that such failure existed.
            ``(4) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(c) Procedures for Notice.--The Secretary may prescribe and 
implement procedures for obtaining confirmation of whether employers 
are subject to the tax imposed by subsection (a). The Secretary, in the 
Secretary's discretion, may prescribe that the confirmation shall be 
obtained on an annual or less frequent basis, and may use for this 
purpose the annual report or quarterly report for employment taxes, or 
such other means as the Secretary may deem advisable.''.
    (g) Waiver of Early Withdrawal Penalty for Certain Distributions 
Following Initial Election To Participate in Automatic IRA 
Arrangement.--Section 72(t) of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new paragraph:
            ``(11) Distribution following initial election to 
        participate in automatic ira arrangement.--Paragraph (1) shall 
        not apply in the case of a distribution to a qualifying 
        employee made not later than 90 days after the initial election 
        under section 408B(d)(1)(A)(ii).''.
    (h) Bankruptcy.--Section 522 of title 11, United States Code, is 
amended--
            (1) in subsection (d)(12), by inserting ``, 408B'' after 
        ``408A'', and
            (2) in subsection (n), by inserting ``, or in a qualifying 
        automatic IRA arrangement described in section 408B'' after 
        ``section 408(p) of such Code''.
    (i) Conforming Amendments.--
            (1) The table of sections for subpart A of part I of 
        subchapter D of chapter 1 of the Internal Revenue Code of 1986 
        is amended by inserting after the item relating to section 408A 
        the following new item:

``Sec. 408B. Qualifying automatic IRA arrangements.''.
            (2) The table of sections for chapter 43 of such Act is 
        amended by adding at the end the following new item:

``Sec. 4980J. Requirements for covered employers to provide qualifying 
                            automatic IRA arrangements.''.
    (j) Preemption of Conflicting State Laws.--The amendments made by 
this section shall supersede any law of a State that would directly or 
indirectly prohibit or restrict the establishment or operation of a 
qualifying automatic IRA arrangement meeting the requirements of 
section 408B of the Internal Revenue Code of 1986. Nothing in such 
amendments shall be construed to impair or supersede any State law to 
the extent it provides a remedy for the failure to make payroll deposit 
payments under any such automatic IRA arrangement within the period 
required under such section 408B.
    (k) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after December 31, 2018.
    (l) Regulations.--Not later than 12 months after the date of the 
enactment of this Act, the Secretary of the Treasury, in coordination 
with the Secretary of Labor, shall issue guidance defining the class of 
guaranteed lifetime income or equivalent arrangements which meet the 
requirements of section 408B(d)(5)(E) of the Internal Revenue Code of 
1986, as added by this section.

SEC. 3. CREDIT FOR SMALL EMPLOYERS MAINTAINING QUALIFYING AUTOMATIC IRA 
              ARRANGEMENTS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new section:

``SEC. 45S. SMALL EMPLOYER AUTOMATIC IRA ARRANGEMENT.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
eligible employer maintaining a qualifying automatic IRA arrangement 
meeting the requirements of section 408B (without regard to whether the 
employer is a covered employer), the small employer automatic IRA 
arrangement credit determined under this section for any taxable year 
in the credit period is the amount determined under subsection (b).
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this section for any taxable year with respect to an 
        eligible employer shall be the sum of--
                    ``(A) $25 multiplied by the number of qualifying 
                employees (within the meaning of section 408B(c)) for 
                whom contributions are made under the qualifying 
                automatic IRA arrangement referred to in subsection (a) 
                for the calendar year in which the taxable year begins, 
                plus
                    ``(B) the amount determined under paragraph (2) 
                with respect to the taxable year.
            ``(2) Amount determined.--The amount determined under this 
        paragraph is--
                    ``(A) $500 in the case of the taxable year which 
                begins in the first calendar year in which the eligible 
                employer maintains the qualifying automatic IRA 
                arrangement,
                    ``(B) $250 in the case of the taxable year which 
                begins in the second calendar year in which the 
                eligible employer maintains such arrangement, and
                    ``(C) $0 thereafter.
            ``(3) Limitation.--The amount determined under paragraph 
        (1)(A) for any taxable year shall not exceed $250.
            ``(4) Coordination with small employer startup credit.--
                    ``(A) In general.--No credit shall be allowed under 
                this section to the employer for any taxable year if a 
                credit is determined under section 45E with respect to 
                the employer for the taxable year.
                    ``(B) Extension of credit.--If the eligible 
                employer maintains a qualifying automatic IRA 
                arrangement meeting the requirements of section 408B 
                (without regard to whether the employer is a covered 
                employer) with respect to any of the first 3 calendar 
                years for which the employer could adopt such an 
                arrangement, and subsequently adopts an eligible 
                employer plan for its employees for any of those years 
                which it maintains throughout such 3-calendar-year 
                period, then section 45E(b)(1) shall be applied with 
                respect to the eligible employer by substituting `3 
                taxable years' for `2 taxable years'.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible employer.--The term `eligible employer' 
        means, with respect to the calendar year in which the taxable 
        year begins, an employer which--
                    ``(A) maintains a qualifying automatic IRA 
                arrangement meeting the requirements of section 408B 
                (without regard to whether the employer is a covered 
                employer),
                    ``(B) on each day during the preceding calendar 
                year, had no more than 100 employees, and
                    ``(C) did not maintain a qualifying plan or 
                arrangement (described in section 408B(b)) during the 
                portion of the calendar year preceding the adoption of 
                the qualifying automatic IRA arrangement and the 2 
                preceding calendar years.
            ``(2) Credit period.--The term `credit period' means the 
        first 6 calendar years in which the eligible employer maintains 
        the qualifying automatic IRA arrangement.
    ``(d) Other Rules.--For purposes of this section, the rules of 
section 45E(e) shall apply.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) of the Internal Revenue Code of 1986 is amended by striking 
``plus'' at the end of paragraph (35), by striking the period at the 
end of paragraph (36) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
            ``(37) the small employer automatic IRA arrangement credit 
        determined under section 45S(a).''.
    (c) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end the following new item:

``Sec. 45S. Small employer automatic IRA arrangement.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2018.

SEC. 4. INCREASE IN CREDIT LIMITATION FOR SMALL EMPLOYER PENSION PLAN 
              STARTUP COSTS.

    (a) In General.--Section 45E(b)(1) of the Internal Revenue Code of 
1986 is amended to read as follows:
            ``(1) for the first credit year and each of the 2 taxable 
        years immediately following the first credit year, the greater 
        of--
                    ``(A) $500, or
                    ``(B) the lesser of--
                            ``(i) $250 for each employee of the 
                        eligible employer who is not a highly 
                        compensated employee (as defined in section 
                        415(q)) and who is eligible to participate in 
                        the eligible employer plan maintained by the 
                        eligible employer, or
                            ``(ii) $5,000, and''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2017.
                                 <all>