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<PRE>[DOCID: f:h738ih.txt]






107th CONGRESS
  1st Session
                                H. R. 738

   To amend the Internal Revenue Code of 1986 to provide additional 
 retirement savings opportunities for small employers, including self-
                         employed individuals.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           February 27, 2001

  Mr. Blunt (for himself, Mr. Bentsen, Mr. Largent, Mr. Shadegg, Mr. 
 Riley, Mr. Shimkus, Mr. Chambliss, Mr. Radanovich, Mr. Sessions, Mr. 
 Cooksey, Mr. LaTourette, Mr. Young of Alaska, Mrs. Wilson, Mr. Allen, 
 Mr. Baldacci, Mr. Delahunt, Mr. Frost, Mr. Kanjorski, Mr. Moore, Mr. 
Sandlin, Mr. Maloney of Connecticut, Mr. Shows, Ms. Pryce of Ohio, Mr. 
   Bonilla, Mr. Hilliard, Mr. Hinchey, Mr. Stenholm, Mr. Skeen, Mr. 
  Schaffer, Mr. McHugh, Mr. Jones of North Carolina, Mr. Simpson, Mr. 
Hutchinson, Mr. Pitts, Mr. Calvert, Ms. Berkley, Mr. Hall of Texas, Mr. 
    Doolittle, Ms. Hooley of Oregon, Mr. Pascrell, Mr. Thompson of 
Mississippi, Mr. Moran of Kansas, Mr. Thune, Mr. Lewis of Kentucky, Ms. 
  McCarthy of Missouri, Mr. Hall of Ohio, Mr. Pomeroy, Mr. Walden of 
Oregon, Mr. Whitfield, Mr. Oxley, Mr. Otter, Mr. McIntyre, Mr. Peterson 
  of Pennsylvania, Mr. Sununu, Mrs. Bono, Mr. Watts of Oklahoma, Mr. 
   Gillmor, Mr. Sanders, Mr. Clement, Mr. Fossella, Mr. Hastings of 
Washington, Mr. Johnson of Illinois, Mr. Moran of Virginia, Mr. Taylor 
 of North Carolina, Mr. Lampson, Mrs. Northup, Mr. Souder, Mr. DeMint, 
   Mr. Watkins, Mr. Terry, Mr. Peterson of Minnesota) introduced the 
 following bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
   To amend the Internal Revenue Code of 1986 to provide additional 
 retirement savings opportunities for small employers, including self-
                         employed individuals.

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

SECTION 1. REFERENCE.

    Except as otherwise expressly provided, whenever in this Act an 
amendment or repeal is expressed in terms of an amendment to, or repeal 
of, a section or other provision, the reference shall be considered to 
be made to a section or other provision of the Internal Revenue Code of 
1986.

SEC. 2. QUALIFIED SMALL EMPLOYER PLAN.

    (a) In General.--Section 401 is amended by redesignating subsection 
(o) as subsection (p) and by inserting after subsection (n) the 
following new subsection:
    ``(o) Qualified Small Employer Plan.--
            ``(1) In general.--A trust created or organized in the 
        United States and forming part of a small employer plan of a 
        small employer for the exclusive benefit of its employees or 
        their beneficiaries constitutes a qualified trust under 
        subsection (a) if such plan meets the requirements of paragraph 
        (2).
            ``(2) Requirements.--A plan meets the requirements of this 
        paragraph if--
                    ``(A) such plan is the only qualified retirement 
                plan of a small employer,
                    ``(B) the plan year for such plan is the calendar 
                year,
                    ``(C) as of the 1st day of the plan year, such plan 
                covers all eligible employees of the employer,
                    ``(D) such plan meets the contribution requirements 
                of paragraph (4),
                    ``(E) such plan meets the vesting requirements of 
                paragraph (5),
                    ``(F) such plan meets the funding requirements of 
                section 412, if applicable, and
                    ``(G) such plan meets the other requirements 
                specified in paragraph (6).
            ``(3) Eligible employee.--For purposes of paragraph (2)(C), 
        the term `eligible employee' means an individual who--
                    ``(A) has attained age 21, and
                    ``(B) has completed not less than 1,000 hours of 
                service for the employer during the calendar year 
                preceding the plan year.
            ``(4) Contributions.--A plan meets the requirements of this 
        paragraph if--
                    ``(A) employer contributions to the plan--
                            ``(i) are not less than 3 percent, and do 
                        not exceed 10 percent, of compensation of all 
                        participants in the plan, and
                            ``(ii) are allocated to all participants in 
                        the plan on a uniform basis without regard to 
                        subsection (l), and
                    ``(B) in the case of discretionary employer 
                contributions--
                            ``(i) such contributions made to the plan 
                        do not exceed 15 percent of compensation and 
                        are allocated to all participants--
                                    ``(I) as a level percentage of 
                                compensation, or
                                    ``(II) under a formula that meets 
                                the requirements of subsection (l)(2) 
                                (relating to permitted disparity), or
                            ``(ii) are made to the same plan under an 
                        arrangement that meets the requirements of 
                        subsection (k), in which case the minimum 3 
                        percent contribution referred to in 
                        subparagraph (A)(i) shall be applied against 
                        the nonelective contributions of subsection 
                        (k)(12)(C).
        Nothing in subparagraph (B)(ii) shall be construed to exempt 
        such plan from any other requirement of subsection (k)(12).
            ``(5) Vesting.--
                    ``(A) In general.--A plan satisfies the 
                requirements of this paragraph if it satisfies the 
                requirements of either of the following clauses:
                            ``(i) 3-year vesting.--A plan satisfies the 
                        requirements of this clause if an employee who 
has completed at least 3 years of service with the employer or 
employers maintaining the plan has a nonforfeitable right to 100 
percent of his accrued benefit derived from employer contributions.
                            ``(ii) 6-year graded vesting.--A plan 
                        satisfies the requirements of this clause if an 
                        employee has a nonforfeitable right to a 
                        percentage of his accrued benefit derived from 
                        employer contributions determined under the 
                        following table:

                                                     The nonforfeitable
``Years of service:                                      percentage is:
    2.............................................                  20 
    3.............................................                  40 
    4.............................................                  60 
    5.............................................                  80 
    6 or more.....................................                 100.
                    ``(B) Certain rules made applicable.--Except to the 
                extent inconsistent with the provisions of this 
                paragraph, the rules of section 411 shall apply for 
                purposes of this subsection.
                    ``(C) Year of service.--For purposes of 
                subparagraph (A), years of service shall be determined 
                under the last sentence of section 410(a)(3)(A).
            ``(6) Other requirements.--
                    ``(A) Arrangement may be only plan of employer.--
                            ``(i) In general.--An arrangement shall not 
                  
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      be treated as a qualified small employer plan 
                        for any year if the employer (or any 
                        predecessor employer) maintained a qualified 
                        plan with respect to which contributions were 
                        made, or benefits were accrued, for service in 
                        any year in the period beginning with the year 
                        such arrangement became effective and ending 
                        with the year for which the determination is 
                        being made. If only individuals other than 
                        employees described in subparagraph (A) or (B) 
                        of section 410(b)(3) are eligible to 
                        participate in such arrangement, then the 
                        preceding sentence shall be applied without 
                        regard to any qualified plan in which only 
                        employees so described are eligible to 
                        participate.
                            ``(ii) Qualified plan.--For purposes of 
                        this subparagraph, the term `qualified plan' 
                        means a plan, contract, pension, or trust 
                        described in subparagraph (A) or (B) of section 
                        219(g)(5).
                            ``(iii) Grace period.--In the case of an 
                        employer who establishes and maintains a plan 
                        under this subsection for 1 or more years and 
                        who fails to meet any requirement of this 
                        subsection for any subsequent year due to any 
                        acquisition, disposition, or similar 
                        transaction involving another such employer, 
                        rules similar to the rules of section 
                        410(b)(6)(C) shall apply for purposes of this 
                        subsection.
                            ``(iv) Rule of construction.--Clauses (i), 
                        (ii), and (iii) shall not be construed to 
                        prevent a rollover contribution that meets the 
                        requirements of section 402(c) or to prevent 
                        the adoption of the qualified small employer 
                        plan as a successor plan.
                    ``(B) Plan may not be esop.--A small employer plan 
                does not meet the requirements of paragraph (1) if such 
                plan is--
                            ``(i) a tax credit employee stock ownership 
                        plan (as defined in section 409(a)), or
                            ``(ii) an employee stock ownership plan (as 
                        defined in section 4975(e)(7)).
                    ``(C) Other applicable provisions.--A plan shall 
                not be treated as a qualified small employer plan 
                unless the plan meets the requirements of--
                            ``(i) paragraphs (1), (2), (9), (11), (12), 
                        (13), (14), (15), (16), (17), (19), (20), (22), 
                        (23), (27), (30), and (31) of subsection (a), 
                        and
                            ``(ii) subsections (b), (c), and (d).
                    ``(7) Top-heavy rules inapplicable.--Section 416 
                shall not apply to a trust that meets the requirements 
                of this subsection.
                    ``(8) Compensation defined.--For purposes of this 
                subsection, the term `compensation' has the meaning 
                given such term by section 404(a)(3)(A)(v).''.
    (b) Definition of Small Employer.--
            (1) In general.--Section 414 (relating to definitions and 
        special rules) is amended by adding at the end the following 
        new subsection:
    ``(v) Small Employer.--For purposes of this part, the term `small 
employer' means an employer (including a professional service 
organization) that, on the 1st day of the plan year, has 100 or fewer 
employees.''.
            (2) Conforming amendments.--
                    (A) Subsections (b) and (c) of section 414 are each 
                amended by inserting ``subsection (v) and'' after ``For 
                purposes of''.
                    (B) Paragraph (3) of section 414(n) is amended by 
                striking ``and'' at the end of subparagraph (B), by 
                striking the period at the end of subparagraph (C) and 
                inserting ``, and'', and by adding at the end the 
                following new subparagraph:
                    ``(D) subsection (v).''.
    (c) Deduction for Contributions of Employer.--Clause (i) of section 
404(a)(3)(A) is amended by striking ``or'' at the end of subclause (I), 
by striking the period at the end of subclause (II) and inserting ``, 
or'', and by adding at the end the following new subclause:
                            ``(III) the amount such employer is allowed 
                        to contribute to such trust under section 
                        401(o) for such year, but not more than 25 
                        percent of aggregate compensation.''.
    (d) Single Annual Entry Date.--
            (1) Definition of year of service.--Subparagraph (A) of 
        section 410(a)(3) (relating to general rule for definition of 
        year of service) is amended by adding at the end the following: 
        ``In the case of service for an employer who has in effect a 
qualified small employer plan under section 401(o), computation of any 
12-month period shall be made with reference to the first day of the 
calendar year in which employment of the employee commenced.''.
            (2) Time of participation.--Paragraph (4) of section 410(a) 
        (relating to time of participation) is amended by adding at the 
        end the following: ``In the case of a qualified small employer 
        plan under section 401(o), the preceding sentence shall be 
        applied without regard to subparagraph (B).''.
    (e) Compensation.--Subparagraph (A) of section 404(a)(3) (relating 
to stock bonus and profit-sharing trusts) is amended by redesignating 
clause (v) as clause (vi) and by inserting after clause (iv) the 
following new clause:
                            ``(v) Compensation defined.--For purposes 
                        of this paragraph, the term `compensation' 
                        means a participant's compensation (as defined 
                        by section 415(c)(3))''.
    (f) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2000.

SEC. 3. CREDIT FOR EMPLOYER EXPENSES IN ESTABLISHING QUALIFIED SMALL 
              EMPLOYER RETIREMENT PLANS.

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

``SEC. 45E. EXPENSES IN ESTABLISHING QUALIFIED SMALL EMPLOYER 
              RETIREMENT PLANS.

    ``(a) General Rule.--For purposes of section 38, the qualified 
small employer retirement plan credit determined under this section for 
the taxable year is an amount equal to 50 percent of the qualified 
retirement plan expenses paid or incurred in the taxable year by an 
eligible small employer.
    ``(b) Limitation.--The credit allowed under subsection (a) shall 
not exceed--
            ``(1) $2,000 for the taxable year in which the qualified 
        small employer retirement plan is adopted, and
            ``(2) $1,000 for each of the 4 years following the year in 
        which such plan was adopted and zero thereafter.
    ``(c) Definitions.--For purposes of subsection (a)--
            ``(1) Qualified retirement plan expense.--The term 
        `qualified retirement plan expense' means an expense--
                    ``(A) for establishing, maintaining, and 
                administering a qualified small employer retirement 
                plan, and
                    ``(B) for educating employees with respect to such 
                plan.
  
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          ``(2) Eligible small employer.--The term `eligible small 
        employer' means a small employer (as defined in section 414(v)) 
        who establishes a qualified plan on or after January 1, 2000, 
        and on or before December 31, 2002.''.
    (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 is amended by striking ``plus'' at the end of paragraph 
(12), by striking the period at the end of paragraph (13) and inserting 
``, plus'', and by adding at the end thereof the following new 
paragraph:
            ``(14) the qualified small employer retirement plan credit 
        determined under section 45E(a).''.
    (c) Credit Allowed Against Regular and Minimum Tax.--
            (1) In general.--Subsection (c) of section 38 (relating to 
        limitation based on amount of tax) is amended by redesignating 
        paragraph (3) as paragraph (4) and by inserting after paragraph 
        (2) the following new paragraph:
            ``(3) Special rules for qualified small employer retirement 
        plan credit.--
                    ``(A) In general.--In the case of the qualified 
                small employer retirement plan credit--
                            ``(i) this section and section 39 shall be 
                        applied separately with respect to the credit, 
                        and
                            ``(ii) in applying paragraph (1) to the 
                        credit--
                                    ``(I) subparagraph (A) thereof 
                                shall not apply, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by subclause 
                                (I)) shall be reduced by the credit 
                                allowed under subsection (a) for the 
                                taxable year (other than the qualified 
                                small employer retirement plan credit).
                    ``(B) Qualified small employer retirement plan 
                credit.--For purposes of this subsection, the term 
                `qualified small employer retirement plan credit' means 
                the credit allowable under subsection (a) by reason of 
                section 45E(a).''.
            (2) Conforming amendment.--Subclause (II) of section 
        38(c)(2)(A)(ii) is amended by inserting ``or the qualified 
        small employer retirement plan credit'' after ``employment 
        credit''.
    (d) Limitation on Carryback.--Subsection (d) of section 39 is 
amended by adding at the end thereof the following new paragraph:
            ``(10) No carryback of qualified small employer retirement 
        plan credit before effective date.--No portion of the unused 
        business credit for any taxable year which is attributable to 
        the credit determined under section 45E may be carried back to 
        any taxable year ending before the date of the enactment of 
        section 45E.''.
    (e) Deduction for Certain Unused Business Credits.--Subsection (c) 
of section 196 is amended by striking ``and'' at the end of paragraph 
(8), by striking the period at the end of paragraph (9) and inserting 
``, and'', and by adding after paragraph (9) the following new 
paragraph:
            ``(10) the qualified small employer retirement plan credit 
        determined under section 45E.''.
    (f) Denial of Double Benefit.--Section 280C is amended by adding at 
the end thereof the following new subsection:
    ``(d) Credit for Qualified Small Employer Retirement Plan 
Expenses.--No deduction shall be allowed for that portion of the 
expenses referred to in section 45E(c)(1) otherwise allowable as a 
deduction for the taxable year which is equal to the amount of the 
credit determined for such taxable year under section 45E(a).''.
    (g) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter (A) of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 45E. Expenses in establishing qualified small employer 
                            retirement plans.''.
    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 4. IMPLEMENTATION.

    (a) Model Plan.--Not later than 6 months after the date of the 
enactment of this Act, the Secretary of the Treasury shall issue a 
model small employer retirement plan that meets the requirements of 
section 401(o) of the Internal Revenue Code of 1986.
    (b) Simplified Annual Filing Requirement for Owners and Their 
Spouses.--
            (1) In general.--The Secretary of the Treasury shall modify 
        the requirements for filing annual returns with respect to one-
        participant retirement plans to ensure that such plans with 
        assets of $500,000 or less as of the close of the plan year 
        need not file a return for that year.
            (2) One-participant retirement plan defined.--For purposes 
        of this subsection, the term ``one-participant retirement 
        plan'' means a retirement plan that--
                    (A) on the first day of the plan year--
                            (i) covered only the employer (and the 
                        employer's spouse) and the employer owned the 
                        entire business (whether or not incorporated), 
                        or
                            (ii) covered only one or more partners (and 
                        their spouses) in a business partnership 
                        (including partners in an S or C corporation),
                    (B) meets the minimum coverage requirements of 
                section 410(b) of the Internal Revenue Code of 1986 
                without being combined with any other plan of the 
                business that covers the employees of the business,
                    (C) does not provide benefits to anyone except the 
                employer (and the employer's spouse) or the partners 
                (and their spouses),
                    (D) does not cover a business that is a member of 
                an affiliated service group, a controlled group of 
                corporations, or a group of businesses under common 
                control, and
                    (E) does not cover a business that leases 
                employees.
            (3) Other definitions.--Terms used in paragraph (2) which 
        are also used in section 414 of the Internal Revenue Code of 
        1986 shall have the respective meanings given such terms by 
        such section.
    (c) Simplified Annual Filing Requirement for Plans With Fewer Than 
25 Employees.--In the case of a retirement plan which covers less than 
25 employees on the 1st day of the plan year and meets the requirements 
described in subparagraphs (B), (D), and (E) of subsection (b)(2), the 
Secretary of the Treasury shall provide for the filing of a simplified 
annual return that is substantially similar to the annual return 
required to be filed by a one-participant retirement plan.
                                 &lt;all&gt;

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