II 118th CONGRESS 2d Session S. 5422 IN THE SENATE OF THE UNITED STATES December 4, 2024 Mr. Merkley 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 provide a contribution limit and increased minimum distributions for certain retirement plans with large account balances.

1. Short title This Act may be cited as the Retirement Fairness Act . 2. Contribution limit and increased minimum distributions for certain retirement plans with large account balances (a) Contribution limit (1) In general Subpart A of part I of subchapter D of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following: 409B. Contribution limit on certain retirement plans with large account balances (a) General rule Notwithstanding any other provision of this title, no applicable annual additions shall be made by, or on behalf of, an individual for the taxable year to any applicable retirement plan to the extent such applicable annual additions exceed the excess (if any) of— (1) the applicable dollar amount for the taxable year, over (2) the aggregate balances to the credit of the individual (whether as a participant, owner, or beneficiary) in all applicable retirement plans (determined as of the close of the calendar year preceding the calendar year in which the taxable year begins). (b) Rules relating to contribution limitations (1) Plans other than certain IRAs (A) In general Except as provided in paragraph (2), applicable annual additions in excess of the limitation under subsection (a) shall be treated for purposes of this title in the same manner as excess deferrals are treated under section 402(g). (B) Special rule for after tax contributions If, without regard to this paragraph, any portion of an applicable annual addition to which subparagraph (A) applies with respect to an individual is not excludable from gross income of the individual (or no deduction is allowable to the individual with respect to such portion), such portion shall not be— (i) includible in gross income by reason of the application of subparagraph (A), or (ii) taken into account in computing the investment in the contract for purposes of section 72. (2) Special rule for IRAs (A) In general In the case of an applicable retirement plan which is an individual retirement plan (other than a simplified employee pension under section 408(k) or a simple retirement account under section 408(p)), any applicable annual addition to such plan in excess of the limitation under subsection (a) shall be treated for purposes of sections 408 and 408A as a contribution for the taxable year in excess of the maximum amount allowable as a deduction under section 219 for the taxable year. (B) After tax contributions In the case of applicable annual additions in excess of the limitation under subsection (a)— (i) rules similar to the rules of paragraph (1)(B) shall apply to any such additions which are treated as designated nondeductible contributions under section 408(o), and (ii) section 408A(d)(2)(C) shall apply to any such additions which are to a Roth IRA (and to any net income allocable to such additions). For purposes of clause (ii), distributions from a Roth IRA shall be treated as first made from amounts described in clause (ii) and section 408A(d)(2)(C) shall be applied in the same manner as if there were a distribution of a contribution described in section 408(d)(4) (without regard to whether such distribution is timely made). (3) Allocation of excess applicable annual additions If the applicable dollar amount for a taxable year exceeds the amount described in subsection (a)(2), the taxpayer may, in such form and manner as the Secretary may prescribe, allocate such excess to applicable annual additions to each applicable retirement plan in such manner as the taxpayer chooses. (c) Definitions and special rules For purposes of this section— (1) Applicable annual addition (A) In general The term applicable annual addition means any of the following made to or on behalf of an individual: (i) An annual addition (within the meaning of section 415(c)(2)). (ii) Any contribution to an individual retirement plan, including any employer or employee contribution to a simplified employee pension under section 408(k) or a simple retirement account under section 408(p). (iii) Any deferral under an eligible deferred compensation plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A). (B) Rollover contributions disregarded A rollover contribution under section 402(c), 403(b)(8), 408(d)(3)(A)(ii), or 457(e)(16) shall not be treated as an annual addition. (2) Applicable dollar amount (A) In general The term applicable dollar amount means $4,000,000. (B) Adjustment for inflation In the case of any taxable year beginning after 2025, the $4,000,000 amount under subparagraph (A) shall be increased by an amount equal to the product of— (i) such amount, and (ii) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which such taxable year begins, determined by substituting calendar year 2024 for calendar year 2016 in subparagraph (A)(ii) thereof. (C) Rounding If any amount as adjusted under subparagraph (B) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000. (3) Applicable retirement plan The term applicable retirement plan means— (A) a defined contribution plan to which section 401(a) or 403(a) applies, (B) an annuity contract under section 403(b), (C) an eligible deferred compensation plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A), or (D) an individual retirement plan. (d) Regulations The Secretary shall prescribe such regulations and guidance as are necessary or appropriate to carry out the purposes of this section, including regulations or guidance that provide for the application of this section and section 4974(e) in the case of plans with a valuation date other than the last day of a calendar year. . (2) Conforming amendments (A) The table of contents for subpart A of part I of subchapter D of chapter 1 of such Code is amended by adding after the item relating to section 409A the following new item: Sec.409B. Contribution limit on certain retirement plans with large account balances. . (B) Section 402(g) of such Code is amended by adding at the end the following new paragraph: (9) Aggregate limitation For additional limitation on contributions to certain plans with large account balances, see section 409B. . (C) Section 403(b)(1) of such Code is amended by adding at the end the following new sentence: For additional limitation on contributions to certain plans with large account balances, see section 409B. (D) Section 408(r) of such Code is amended by adding at the end the following new paragraph: (3) For additional limitation on contributions to certain plans with large account balances, see section 409B. . (E) Section 457(c) of such Code is amended by adding at the end the following new sentence: For additional limitation on contributions to certain plans with large account balances, see section 409B. . (b) Excise tax on excess annual additions (1) In general Subsection (a) of section 4973 of the Internal Revenue Code of 1986 is amended— (A) by striking or at the end of paragraph (5), (B) by inserting or after the comma at the end of paragraph (6), and (C) by inserting after paragraph (6) the following new paragraph: (7) an applicable retirement plan (within the meaning of section 409B(c)(3)), . (2) Excess contributions to applicable retirement plans Section 4973 of such Code is amended by adding at the end the following new subsection: (i) Excess contributions to applicable retirement plans For purposes of this section, in the case of applicable retirement plans (within the meaning of section 409B(c)(3)), the term excess contributions means, with respect to any taxable year, the sum of— (1) the excess of the applicable annual additions (within the meaning of section 409B(c)(1)) to such plans over the limitation under section 409B(a) for such taxable year, and (2) the lesser of— (A) the amount determined under this subsection for the preceding taxable year, reduced by the aggregate distributions from such plans for the taxable year (including distributions required under section 4974(e)) to the extent not contributed in a rollover contribution to another eligible retirement plan in accordance with section 402(c), 403(b)(8), 457(e)(16), 408(d)(3), or 408A(d)(3), or (B) the amount (if any) by which the amount determined under section 409B(a)(2) for the taxable year exceeds the applicable dollar amount under section 409B(c)(2) for the taxable year. . (3) Conforming amendments Subsection (a) of section 4973 of such Code is amended— (A) by striking accounts or annuities and inserting accounts, annuities, or plans , and (B) by striking account or annuity and inserting account, annuity, or plan . (c) Increase in minimum required distributions (1) In general Section 4974 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (f) Increase in minimum required distributions for payees with large aggregate account balances (1) In general If this subsection applies to a payee for any taxable year— (A) all qualified retirement plans and eligible deferred compensation plans of the payee which are applicable retirement plans taken into account in computing the excess described in paragraph (2)(A) shall be treated as 1 plan solely for purposes of applying this section to the increase in minimum required distributions for the taxable year described in subparagraph (B), and (B) the minimum required distributions under this section for all plans treated as 1 plan under subparagraph (A) with respect to such payee for the taxable year shall be increased by the excess (if any) of— (i) the excess described in paragraph (2)(A), over (ii) the sum of the minimum required distributions (determined without regard to this subsection) for all such plans. (2) Application This subsection shall apply to a payee for a taxable year— (A) if the aggregate balances to the credit of the payee (whether as a participant, owner, or beneficiary) in all applicable retirement plans (determined as of the close of the calendar year preceding the calendar year in which the taxable year begins) exceed the applicable dollar amount for the calendar year in which the taxable year begins, and (B) without regard to whether amounts with respect to the payee are otherwise required to be distributed under section 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), or 457(d)(2). (3) Coordination and allocation (A) Minimum distribution requirements If this subsection applies to a payee for any taxable year— (i) this section shall apply first to minimum required distributions determined without regard to this subsection and then to any increase in minimum required distributions by reason of this subsection, and (ii) nothing in this subsection shall be construed to affect the amount of any minimum required distribution determined without regard to this subsection or the plan or plans from which it is required to be distributed from. (B) Allocation of increase in minimum required distributions The taxpayer may, in such form and manner as the Secretary may prescribe, allocate any increase in minimum required distributions by reason of this subsection to applicable retirement plans treated as 1 plan under subparagraph (A) in such manner as the taxpayer chooses. (4) Treatment of Roth IRAs (A) In general Notwithstanding section 408A(c)(5)— (i) the aggregate balance to the credit of a payee of any Roth IRA shall be taken into account for purposes of this subsection, and (ii) distributions from a Roth IRA may be taken into account in determining whether the required increase in minimum required distributions by reason of this subsection has been satisfied. (B) Inclusion in income of distributed earnings If any distribution from a Roth IRA is taken into account under subparagraph (A)(ii), then, notwithstanding section 408A(d)(5), the portion of such distribution which is properly allocable to net income on contributions to the Roth IRA shall not be treated as a qualified distribution and shall be included in gross income of the payee. (5) Phase-in for taxpayers with excess balances for taxable year beginning in 2025 (A) In general If there is an excess described in paragraph (2)(A) for the first taxable year of a taxpayer beginning during 2025 (in this paragraph referred to as the historic excess ), then the amount taken into account under paragraph (1)(B)(i) for such first taxable year and each subsequent taxable year to which this paragraph applies shall, in lieu of the excess described in paragraph (2)(A) for each such taxable year, be equal to— (i) in the case of such first taxable year, 10 percent of the historic excess, and (ii) in the case of each subsequent taxable year to which this paragraph applies, the sum of— (I) 100 percent of amount (if any) by which the excess described in paragraph (2)(A) for such taxable year exceeds the adjusted historic excess for such taxable year, plus (II) 10 percent of the adjusted historic excess for such taxable year (100 percent of such adjusted historic excess for any taxable year if it is less than $1,000). (B) Adjusted historic excess For purposes of this paragraph, the term adjusted historic excess means, with respect to any taxable year, the lesser of— (i) the excess (if any) of the— (I) the historic excess, over (II) the aggregate amount of the historic excess taken into account under clauses (i) and (ii)(II) of subparagraph (A) for all preceding taxable years, or (ii) the aggregate balances to the credit of the payee (whether as a participant, owner, or beneficiary) in all applicable retirement plans (determined as of the close of the calendar year preceding the calendar year in which such taxable year begins) in excess of $4,000,000. (C) Taxable years to which paragraph applies This paragraph shall not apply to— (i) any taxable year if the aggregate amount of the historic excess taken into account under clauses (i) and (ii)(II) of subparagraph (A) for all preceding taxable years equals such historic excess, or (ii) the first taxable year in which the aggregate balances to the credit of the payee (whether as a participant, owner, or beneficiary) in all applicable retirement plans (determined as of the close of the calendar year preceding the calendar year in which such taxable year begins) are $4,000,000 or less and any subsequent taxable year. (6) Definitions For purposes of this subsection, any term used in this subsection which is also used in section 409B shall have the same meaning as when such term is used in such section. . (2) Exception from 10 percent additional tax on early distributions Section 72(t)(2) of such Code is amended by adding at the end the following new subparagraph: (O) Distributions of excess balances Distributions from applicable retirement plans (within the meaning of section 409B) to the extent such distributions during the taxable year do not exceed the amount (if any) by which— (i) the amount determined under section 409B(a)(2) for the taxable year, exceeds (ii) the applicable dollar amount under section 409B(c)(2) for the preceding taxable year. . (d) Reporting requirements Section 6047 of the Internal Revenue Code of 1986 is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following: (h) Reporting relating to aggregate contribution and balance limits on certain retirement plans The Secretary shall require the plan administrator or trustee of an applicable retirement plan (as defined in section 409B) to make such returns and reports to the Secretary and participants and beneficiaries as are necessary to apply the aggregate limits on contributions imposed by section 409B and the increases in minimum required distributions required by section 4974(e). If the account balance of a plan as of the close of a calendar year is not otherwise required under this title to be reported to a participant, a beneficiary, or the Secretary, such requirements shall include a requirement that the plan administrator or trustee shall notify the participant, the beneficiary, or the Secretary of such account balance at such time and in such manner as the Secretary may prescribe. . (e) Effective dates (1) In general The amendments made by this section shall apply to taxable years beginning after December 31, 2024. (2) Plan requirements The amendments made by subsection (d) shall apply to years beginning after December 31, 2024. 3. Transfer of amounts to trust funds There are hereby appropriated to each of— (1) the Federal Old-Age and Survivors Trust Fund, and (2) the Federal Disability Insurance Trust Fund, established under section 201 of the Social Security Act ( 42 U.S.C. 401 ) amounts equal to 50 percent of the increase in revenues to the Treasury by reason of the application of section 2.