Automatic IRA Act of 2024

Bill: 118-hr-7293
Sponsor: full_name: Rep. Neal, Richard E. [D-MA-1]
Introduced: 2024-02-07
Policy area: Taxation
Latest action: action_date: 2024-02-07
text: Referred to the House Committee on Ways and Means.

Summaries:

tv_txt: I 118th CONGRESS 2d Session H. R. 7293 IN THE HOUSE OF REPRESENTATIVES February 7, 2024 Mr. Neal 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 rules for automatic contribution retirement plans and arrangements.

1. Short title; table of contents, etc (a) Short title This Act may be cited as the Automatic IRA Act of 2024 . (b) Table of contents The table of contents for this Act is as follows: Sec. 1. Short title; table of contents, etc. Sec. 2. Automatic contribution plan or arrangement. Sec. 3. Credit for certain small employer automatic IRA arrangements. Sec. 4. Treatment of automatic IRA arrangements under State law. (c) Amendment of 1986 Code Except as otherwise expressly provided, whenever in this subtitle 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. 2. Automatic contribution plan or arrangement (a) Automatic contribution plan or arrangement (1) In general Section 414 is amended by adding at the end the following: (dd) Automatic contribution plan or arrangement For purposes of this title— (1) In general The term automatic contribution plan or arrangement means— (A) a defined contribution plan that— (i) is described in clause (i), (ii), or (iv) of section 219(g)(5)(A), (ii) includes a qualified cash or deferred arrangement or a salary reduction arrangement, and (iii) meets the notice, eligibility, contribution, fee, and lifetime income requirements of paragraphs (2), (3), (4), (6), and (7), respectively, (B) an automatic IRA arrangement described in paragraph (8), (C) an arrangement described in section 408(p) that meets the notice, contribution, investment, and fee requirements described in paragraphs (2), (4), (5), (6), respectively, and (D) a plan described in clause (i), (ii), (iv), (v), or (vi) of section 219(g)(5)(A) that is established and maintained by an employer as of the date of enactment of the Automatic IRA Act of 2024 , or a plan described in section 219(g)(5)(A)(iv) that is not subject to title I of the Employee Retirement Income Security Act of 1974 and offers annuity contracts, or makes custodial accounts available to employees, as of such date. (2) Notice requirements A plan or arrangement shall be treated as meeting the notice requirements of this paragraph with respect to an employee if the plan or arrangement meets notice requirements similar to the notice requirements of section 401(k)(13)(E). (3) Eligibility requirements (A) In general The requirements of this paragraph shall be treated as met if all employees of the employer are eligible to participate in an automatic contribution plan or arrangement maintained or facilitated by the employer. (B) Certain exclusions The following employees may be excluded from consideration in determining whether the requirements of this paragraph are met: (i) Individuals less than 21 years old Any employee who has not attained age 21. (ii) Certain other employees Any employee described in section 410(b)(3). (iii) Service requirements Any employee who has completed neither of the following periods of service with the employer maintaining or facilitating the plan or arrangement: (I) The period permitted under section 410(a)(1) (determined without regard to subparagraph (B)(i) thereof). (II) A period of 2 consecutive 12-month periods during each of which the employee has at least 500 hours of service. For purposes of subclause (II), 12-month periods shall be determined in the same manner as under the last sentence of section 410(a)(3)(A). (iv) Certain students in case of a 403(b) plans In the case of an annuity contract described in section 403(b), employees who are students, but only to the extent such employees may be excluded under the last sentence of 403(b)(12)(A). (C) Special rules for controlled groups All eligible employees of an employer need not be eligible to participate in the same automatic contribution plan or arrangement. For purposes of this subsection, the term employer shall include all employers treated as a single employer under subsection (b), (c), (m), or (o) of section 414. (D) Entry dates Rules similar to the rules of section 410(a)(4) shall apply with respect to employees who have satisfied the age and service requirements referenced in subparagraph (B) and who are otherwise entitled to participate in a plan or arrangement. (E) Automatic IRAs for non-employees The Secretary shall by regulation or other guidance provide for making available automatic IRAs to individuals who provide services that do not constitute employment. (4) Contribution requirements (A) In general The requirements of this paragraph shall be treated as met if, under the plan or arrangement, each employee eligible to participate in the plan or arrangement is treated as having elected to have the employer make elective contributions in an amount equal to the qualified percentage of compensation. (B) Election out The election treated as having been made under subparagraph (A) shall cease to apply with respect to any employee if such employee makes an affirmative election— (i) not to have such contributions made, or (ii) to make elective contributions at a level specified in such affirmative election. (C) Qualified percentage For purposes of this paragraph, and except as provided in subparagraph (D)(i), the term qualified percentage means, with respect to any employee, any percentage determined under the plan or arrangement if such percentage is applied uniformly, does not exceed 15 percent (10 percent during the period described in clause (i)), and is at least— (i) 6 percent during the period beginning on the date on which the first elective contribution described in subparagraph (A) is made with respect to such employee and ending on the last day of the first plan year which begins after such date, (ii) 7 percent during the first plan year following the plan year described in clause (i), (iii) 8 percent during the first plan year following the plan year described in clause (ii), (iv) 9 percent during the first plan year following the plan year described in clause (iii), and (v) 10 percent during any subsequent plan year. (D) Rules relating to automatic IRA arrangements For purposes of this paragraph— (i) Qualified percentage In the case of an automatic IRA arrangement, the term qualified percentage means, with respect to an employee for any taxable year, a percentage equal to the minimum percentage described for the taxable year under subparagraph (C) determined by substituting taxable year of the employee for the plan year each place it appears. (ii) Payroll deduction contributions In the case of an automatic IRA arrangement, any reference in this paragraph to elective contributions shall be treated as including a reference to payroll deduction contributions. (5) Investment requirements (A) In general (i) Default investments A plan or arrangement shall be treated as meeting the requirements of this paragraph if in the absence of an investment election by a participant or beneficiary, amounts are invested only in the class of assets or funds described in subparagraph (B). (ii) Required investment options in automatic IRA arrangement In addition to the default investment requirement of clause (i), an automatic IRA arrangement shall be treated as meeting the requirements of this paragraph if the arrangement provides the option of investing in each of the classes of assets or funds described in subparagraphs (B), (C), (D), and (E), and no other investment options. (B) Target date/lifecycle option The class of assets or funds described in this clause is the class of assets or funds that constitutes an investment fund product or model portfolio described in Department of Labor regulation section 2550.404c–5(e)(4)(i). (C) Principal preservation The class of assets or funds described in this clause is the class of assets or funds that is designed to protect the principal of the individual on an ongoing basis. (D) Balanced option The class of assets or funds described in this clause is the class of assets or funds that constitutes a qualified default investment alternative under Department of Labor regulation section 2550.404c–5(e)(4)(ii). (E) Other Any other class of assets or funds determined by the Secretary to be a qualified investment for purposes of this section. (6) Fee requirements In the case of any plan or arrangement not otherwise subject to title I of the Employee Retirement Income Security Act of 1974, under the fee requirements of this paragraph, no participant, beneficiary, employer, individual retirement account, plan, or arrangement may be charged unreasonable fees or expenses. (7) Lifetime income requirements (A) In general Except in the case of a plan maintained by an eligible employer (as defined in section 408(p)(2)(C)(i)), a plan or arrangement shall be treated as meeting the lifetime income requirement described in this paragraph if the plan or arrangement permits participants to elect to receive at least 50 percent of their vested account balance in a form of distribution described in section 401(a)(38)(B)(iii). (B) Exception (i) In general This paragraph shall not apply with respect to any participant whose vested account balance is $200,000 or less at the time of distribution. (ii) Not treated as discriminatory in favor of highly compensated employees A plan shall not be treated as failing to meet the requirements of section 401(a)(4) solely by reason of applying the exception of clause (i) to the requirements of subparagraph (A). (8) Automatic IRA arrangement (A) In general For purposes of this paragraph, the term automatic IRA arrangement means, with respect to an employer (and trustee or issuer designated by the employer), an arrangement facilitated by the employer which meets the requirements of this paragraph and the contribution, investment, and fee requirements of paragraphs (4), (5), and (6), respectively, and under which an employee— (i) may elect— (I) to have the employer make payroll deduction deposits on behalf of the individual as payroll deduction contributions to an individual retirement account, 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) at the level determined under paragraph (4)(D) until the individual makes an affirmative election not to have such contributions made (or to have such contributions made at a level specified in the affirmative election), and (iii) may elect to modify prospectively the level at which contributions are made and the manner in which such contributions are invested for such year. (B) Administrative requirements (i) Payments The requirements of this paragraph shall not be treated as met with respect to any automatic IRA arrangement unless the employer makes the payments elected or treated as elected under subparagraph (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) 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 beginning of such year (and, for the first year the employee is so eligible, a reasonable period of time before the first day such employee is so eligible), of— (I) the opportunity to elect to have contributions made, or to be treated as so electing, under clause (i)(I), or (ii), of subparagraph (A), (II) the opportunity to elect not to have payroll deduction contributions made or to have such contributions made at a different percentage or in a different amount, and (III) the opportunity under subparagraph (A)(iii) to modify the manner in which such amounts are invested for such year. The employer shall provide such notice in paper form or, if the employee so elects, in electronic form. (C) Eligibility requirements (i) In general The requirements of this paragraph shall not be treated as met with respect to an automatic IRA arrangement facilitated by the employer unless all employees of the employer are eligible to participate in the arrangement. (ii) Certain exclusions The following employees may be excluded from consideration in determining whether the requirements of this paragraph are met: (I) Individuals less than 18 years old Any employee who has not attained age 18. (II) Certain other employees Any employee described in section 410(b)(3). (III) Service requirements Any employee who has not completed at least 3 months of service with the employer facilitating the arrangement. (iii) Special rules for controlled groups For purposes of this subparagraph, all eligible employees of an employer need not be eligible to participate in the same arrangement. For purposes of this clause, the term employer shall include all employers treated as a single employer under subsection (b), (c), (m), or (o) of section 414. (iv) Automatic IRAs for non-employees The Secretary shall by regulation or other guidance provide for making available automatic IRAs to individuals who provide services that do not constitute employment. (D) Limits on contributions An employer shall not be treated as failing to satisfy the requirements of this section or any other provision of this title merely because— (i) aggregate payroll deduction contributions by or on behalf of an individual to individual retirement accounts of the individual exceed the deductible amount in effect under section 219(b)(5) (determined without regard to subparagraph (B) thereof) for any taxable year in which any payroll deduction contributions by the employer under an automatic IRA arrangement are made, or (ii) the employer chooses to limit the payroll deduction contributions under this subsection on behalf of an employee for any calendar year in a manner reasonably designed to avoid exceeding such deductible amount. (E) Default treatment as Roth IRA An employee on whose behalf payroll deduction contributions are made to an individual retirement account under subparagraph (A) may elect, at such time and in such manner and form as the Secretary may prescribe, whether to treat the individual retirement account as designated as a Roth IRA. If no such election is made, the account shall be treated as designated as a Roth IRA. (F) Deposits to individual retirement accounts of a designated trustee or issuer (i) In general An employer shall not be treated as failing to satisfy the requirements of this section, or any other provision of this title, merely because the employer makes all payroll deduction contributions on behalf of all employees (or all employees who do not specify an individual retirement account, trustee, or issuer to receive the contributions) to individual retirement accounts specified in clause (ii). (ii) Individual retirement accounts other than those selected by employee (I) In general An employer may elect to have payroll deduction contributions for all employees participating in an automatic IRA arrangement made to individual retirement accounts of a trustee or issuer under the arrangement that has been designated by the employer, but only if the provider of such accounts, and the investments therein, are identified on the website established under subparagraph (G)(iii). (II) Notice Subclause (I) shall not apply unless each participant is notified in writing that the participant may direct the participant’s balance be transferred without cost or penalty to another individual retirement account established by or on behalf of the participant. Such notice shall be in paper form or, if the employee so elects, electronic form. (iii) Employers may permit employee to choose IRA If the employer so elects, the arrangement may provide for an employee election to have payroll deduction contributions made to any individual retirement account specified by the employee. (iv) Regulations The Secretary may issue such regulations as are necessary to carry out the purposes of this subparagraph, including establishment of procedures to assist employers and individuals in connecting with certified and available providers of individual retirement accounts and to communicate to individuals the importance of investment diversification. (G) Model notice, etc The Secretary shall— (i) provide a model notice, written in a manner calculated to be understandable to the average worker, that is simple to use— (I) to notify employees of the requirement under this section for the employer to provide certain employees with the opportunity to participate in an automatic IRA arrangement, and (II) to satisfy the requirements of subparagraph (B)(ii), (ii) provide model forms for enrollment, including automatic enrollment, in an automatic IRA arrangement, (iii) establish a website or other electronic means that small employers and individuals can access and use to obtain information on automatic IRA arrangements (including clear, standardized, easy-to-compare information on fees and expenses, investment options and returns, and defaults in a format prescribed by the Secretary) and to obtain notices and forms, and (iv) establish a process— (I) for the provider of an automatic IRA arrangement to demonstrate to the Secretary that the arrangement is described in this paragraph and meets the requirements specified in paragraph (1)(B), and (II) to certify any arrangement that the Secretary determines so demonstrates, to regularly monitor compliance and update such determinations and certifications, and to list all arrangements so certified on the website described in clause (iii) as appropriate for use by employers and participants. The information referred to in clause (iii) 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 accounts, including the provider’s investment options, that are appropriate for use in automatic IRA arrangements. (H) Certain State-based arrangements An arrangement facilitated by an employer shall not fail to be treated as an automatic IRA arrangement merely because such arrangement is required, provided for, facilitated, or otherwise offered, in whole or in part, by a State (or a political subdivision, agency, or instrumentality thereof). (I) Individual retirement account For purposes of this paragraph, the term individual retirement account shall have the meaning given such term by section 408(a), except that such term shall include individual retirement annuities (as defined in section 408(b)). . (2) Other rules applicable to automatic IRA arrangements (A) Penalty for failure to timely remit contributions to automatic IRA arrangements Section 4975(c) is amended by adding at the end the following new paragraph: (7) Special rule for automatic IRA arrangements For purposes of paragraph (1), if an employer is required under an automatic IRA arrangement (as defined in section 414(dd)(1)(B)) to deposit amounts withheld from an employee’s compensation into an individual retirement account (within the meaning of section 414(dd)(8)(I)) but fails to do so within the time prescribed under section 414(dd)(8)(B)(i), such amounts shall be treated as assets of the individual retirement account. . (B) Waiver of early withdrawal penalty for certain distributions following initial election to participate in automatic IRA arrangement Section 72(t) 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— (A) to an individual from an individual retirement account (within the meaning of section 414(dd)(8)(I)) that is part of an automatic IRA arrangement (as defined in section 414(dd)(8)(A)), and (B) made not later than 90 days after the individual is first treated under clause (ii) of section 414(dd)(8)(A) as having made an election under clause (i)(I) of such section. . (C) Automatic IRA Advisory Group (i) In general Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury shall establish an Automatic IRA Advisory Group (hereinafter in this subparagraph referred to as the Advisory Group ). The purpose of the Advisory Group shall be to make recommendations, advise, and assist in the Secretary’s implementation and administration of paragraphs (5), (6), and (8) of section 414(dd) of the Internal Revenue Code of 1986 with respect to automatic IRA arrangements in the best financial interest of savers, including— (I) the procedures and criteria for the periodic certification, website listing, and monitoring of arrangements and investment options that meet the requirements of those paragraphs, (II) user-friendly disclosure regarding investment returns and risks, terms, fees, and expenses to facilitate comparison, (III) the use of low-cost investment options, (IV) the appropriate use of electronic and paper methods to provide notice and disclosure, (V) any possible learnings or efficiencies based on the Secretary’s procedures and experience in approving nonbank individual retirement account trustees, and (VI) such other related matters as may be determined by the Secretary. (ii) Membership The Advisory Group shall consist of not more than 15 members and shall be composed of— (I) such individuals as the Secretary may consider appropriate to provide expertise regarding the financial needs and challenges of lower- and middle-income households, (II) at least one individual who is an expert in retirement-related consumer protections or who represents the general public, and (III) at least one representative of the Department of the Treasury. (iii) Compensation The members of the Advisory Group shall serve without compensation. (iv) Administrative support The Department of the Treasury shall provide appropriate administrative support to the Advisory Group, including technical assistance. The Advisory Group may use the services and facilities of such Department, with or without reimbursement, as determined by such Department. (v) Report by Advisory Group Not later than 1 year after the date of the enactment of this Act, the Advisory Group shall submit to the Secretary of the Treasury a report containing its recommendations. The Secretary may request that the Advisory Group submit subsequent reports. (3) Conforming amendment relating to qualified cash or deferred arrangements Section 401(k)(15)(B)(i) is amended by inserting or section 414(dd)(3)(B)(iii)(II) after paragraph (2)(D)(ii) in the matter preceding subclause (I) thereof. (b) Excise tax for failure To maintain or facilitate automatic contribution plans or arrangements (1) In general Chapter 43 is amended by adding at the end the following new section: 4980J. Failure to maintain or facilitate automatic contribution plans or arrangements (a) General rule (1) In general There is hereby imposed a tax on the failure of an employer to maintain or facilitate an automatic contribution plan or arrangement. (2) Exception for arrangements under qualified State law Paragraph (1) shall not apply to an employer to the extent such employer facilitates an arrangement described in subsection (f)(3)(B) under a qualified State law. (b) Amount of tax (1) In general The amount of the tax imposed by subsection (a) on any failure with respect to an employee shall be $10 for each day in the noncompliance period with respect to such failure. (2) Noncompliance period For purposes of this section, the term noncompliance period means, with respect to any failure, the period— (A) beginning on the date such failure first occurs, and (B) ending on the earlier of— (i) the date such failure is corrected, or (ii) with respect to any employer, the date that is 3 months after the last date on which the employee is required to be eligible to participate in an automatic contribution plan or arrangement maintained or facilitated by such employer. (3) Adjustment for inflation (A) In general In the case of any failure relating to maintaining or facilitating a plan or arrangement in a calendar year beginning after 2026, the $10 amount under paragraph (1) shall be increased by an amount equal to such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year determined by substituting calendar year 2025 for calendar year 2016 in subparagraph (A)(ii) thereof. (B) Rounding If any amount adjusted under subparagraph (A) is not a whole dollar amount, such amount shall be rounded to the nearest whole dollar amount. (c) Limitations on amount of tax (1) Tax not to apply where failure not discovered exercising reasonable diligence 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 none of the persons referred to in subsection (e) knew, nor exercising reasonable diligence would have known, that such failure existed. (2) Tax not to apply to failures corrected within 9 ½ months No tax shall be imposed by subsection (a) on any failure if— (A) such failure was due to reasonable cause and not to willful neglect, and (B) such failure is corrected during the 9 ½ -month period beginning on the first date any of the persons referred to in subsection (e) knew that such failure existed, or exercising reasonable diligence would have known. (3) Overall limitation for unintentional failures In the case of failures which are due to reasonable cause and not to willful neglect— (A) General rule The tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed $500,000. (B) Taxable years in the case of certain controlled groups For purposes of this subparagraph, if not all persons who are treated as a single employer for purposes of this section have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561. (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 relative to the failure involved. (d) Tax not to apply in certain cases This section shall not apply in the case of— (1) any employer that employed no more than 10 employees each of whom received at least $5,000 of compensation from the employer during the prior calendar year, (2) any employer with respect to a governmental plan (within the meaning of section 414(d)), (3) any employer with respect to a church plan (within the meaning of section 414(e)), or (4) any employer that has been in existence for fewer than 2 years, taking into account all predecessor employers. (e) Liability for tax The employer shall be liable for the tax imposed by subsection (a) on a failure. All employers, determined without regard to subsection (f)(2), shall be jointly and severally liable for the liability of any other employer with which they are aggregated under subsection (f)(2). (f) Definitions For purposes of this section— (1) Automatic contribution plan or arrangement The term automatic contribution plan or arrangement has the meaning given such term under section 414(dd), and (2) Employer The term employer includes all employers treated as a single employer under subsection (b), (c), (m), or (o) of section 414. (3) Qualified State law The term qualified State law means a State law (as it may be amended from time to time) that— (A) was enacted before January 1, 2027, and (B) requires certain employers to facilitate an automatic IRA arrangement pursuant to a payroll deduction savings program of the State. . (2) Clerical amendment The table of sections for chapter 43 is amended by adding at the end the following new item: Sec. 4980J. Failure to maintain or facilitate automatic contribution plans or arrangements. . (c) Effective date The amendments made by this section shall apply to plan years beginning after December 31, 2026. 3. Credit for certain small employer automatic IRA arrangements (a) In general Subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new section: 45BB. Credit for certain small employer automatic IRA arrangements (a) General rule For purposes of section 38, in the case of an eligible employer, the small employer automatic IRA arrangement credit determined under this section for any taxable year in the credit period is $500. (b) 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) (i) facilitates an automatic IRA arrangement (as defined in section 414(dd)(8)), or an arrangement described in 4980J(a)(2), and (ii) is described in 408(p)(2)(C)(i), and (B) did not maintain an eligible employer plan during the portion of the calendar year preceding the commencement of such arrangement and the 2 preceding calendar years. (2) Credit period The term credit period means the first 3 calendar years beginning after the date of the enactment of this section in which the eligible employer participates in the arrangement. (3) Eligible employer plan The term eligible employer plan means a qualified employer plan within the meaning of section 4972(d). (c) Other rules For purposes of this section, rules similar to the rules of section 45E(e)(2) shall apply. . (b) Credit allowed as part of general business credit Section 38(b) is amended by striking plus at the end of paragraph (40), by striking the period at the end of paragraph (41) and inserting , plus , and by adding at the end the following new paragraph: (42) the small employer automatic IRA arrangement credit determined under section 45BB(a). . (c) 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. 45BB. Credit for certain small employer automatic IRA arrangements. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2024. 4. Treatment of automatic IRA arrangements under State law (a) Preemption of State law This Act, and the amendments made thereby, shall supersede any law of a State which would directly or indirectly prohibit or restrict an automatic IRA arrangement (as defined in section 414(dd)(8) of the Internal Revenue Code of 1986). (b) Employers maintaining automatic IRA arrangement (1) In general Any employer maintaining such an arrangement shall not be subject to any requirement imposed by a State or political subdivision thereof to facilitate a payroll deduction savings program of a State or political subdivision thereof. (2) Qualified State law exception Paragraph (1) shall not apply with respect to any employer to the extent that such employer facilitates an arrangement under a qualified State law (as defined in section 4980J(f)(3) of the Internal Revenue Code of 1986) for employees with respect to whom such qualified State law applies.