[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 1272 Introduced in Senate (IS)]
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117th CONGRESS
1st Session
S. 1272
To amend the Internal Revenue Code of 1986 to promote retirement
savings on behalf of small business employees by making improvements to
SIMPLE retirement accounts and easing the transition from a SIMPLE plan
to a 401(k) plan, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
April 21, 2021
Ms. Collins (for herself and Mr. Warner) 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 promote retirement
savings on behalf of small business employees by making improvements to
SIMPLE retirement accounts and easing the transition from a SIMPLE plan
to a 401(k) plan, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``SIMPLE Plan Modernization Act''.
SEC. 2. CONTRIBUTION LIMIT FOR SIMPLE IRAS.
(a) In General.--Subparagraph (E) of section 408(p)(2) of the
Internal Revenue Code of 1986 is amended--
(1) by striking ``amount is'' and all that follows in
clause (i) and inserting ``dollar amount is--
``(I) $16,500 in the case of an
eligible employer described in clause
(iii) which had not more than 25
employees who received at least $5,000
of compensation from the employer for
the preceding year,
``(II) $16,500 in the case of an
eligible employer described in clause
(iii) which is not described in
subclause (I) and which elects, at such
time and in such manner as prescribed
by the Secretary, the application of
this subclause for the year, and
``(III) $10,000 in any other
case.'';
(2) by striking ``adjustment.--In the case of'' in clause
(ii) and inserting ``adjustment.--
``(I) Certain large employers.--In
the case of'';
(3) by striking ``clause (i)'' in clause (ii) and inserting
``clause (i)(III)''; and
(4) by adding at the end of clause (ii) the following new
subclause:
``(II) Other employers.--In the
case of a year beginning after December
31, 2022, the Secretary shall adjust
annually the $16,500 amount in
subclauses (I) and (II) of clause (i)
in the manner provided under subclause
(I) of this clause, except that the
base period taken into account shall be
the calendar quarter beginning July 1,
2021.''.
(b) Catch-Up Contributions.--Paragraph (2) of section 414(v) of the
Internal Revenue Code of 1986 is amended--
(1) in subparagraph (B)--
(A) by striking ``the applicable'' in clause (ii)
and inserting ``except as provided in clause (iii), the
applicable''; and
(B) by adding at the end the following new clause:
``(iii) In the case of an applicable
employer plan--
``(I) which is maintained by an
eligible employer described in section
408(p)(2)(E)(i)(I), or
``(II) to which an election under
section 408(p)(2)(E)(i)(II) applies for
the year (including a plan described in
section 401(k)(11) which is maintained
by an eligible employer described in
section 408(p)(2)(E)(i)(II) and to
which such election applies by reason
of subparagraphs (B)(i)(I) and (E) of
section 401(k)(11)),
the applicable dollar amount is $4,750.''; and
(2) in subparagraph (C), by striking ``the $5,000 amount in
subparagraph (B)(i) and the $2,500 amount in subparagraph
(B)(ii)'' and inserting ``each of the dollar amounts in
subparagraph (B)''.
(c) Employer Match.--Clause (ii) of section 408(p)(2)(C) of the
Internal Revenue Code of 1986 is amended--
(1) by striking ``The term'' in subclause (I) and inserting
``Except as provided in subclause (IV), the term'';
(2) by adding at the end the following new subclause:
``(IV) Special rule for electing
larger employers.--In the case of an
employer which had more than 25
employees who received at least $5,000
of compensation from the employer for
the preceding year, and which makes the
election under subparagraph (E)(i)(II)
for any year, subclause (I) shall be
applied for such year by substituting
`4 percent' for `3 percent'.''; and
(3) by striking ``3 percent'' each place it appears in
subclauses (II) and (III) and inserting ``the applicable
percentage''.
(d) Increase in Nonelective Employer Contribution for Electing
Larger Employers.--Subparagraph (B) of section 408(p)(2) of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new clause:
``(iii) Special rule for electing larger
employers.--In the case of an employer which
had more than 25 employees who received at
least $5,000 of compensation from the employer
for the preceding year, and which makes the
election under subparagraph (E)(i)(II) for any
year, clause (i) shall be applied for such year
by substituting `3 percent' for `2 percent'.''.
(e) Transition Rule.--Paragraph (2) of section 408(p) of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new subparagraph:
``(F) 2-year grace period.--An eligible employer
which had not more than 25 employees who received at
least $5,000 of compensation from the employer for 1 or
more years, and which has more than 25 such employees
for any subsequent year, shall be treated for purposes
of subparagraph (E)(i) as having 25 such employees for
the 2 years following the last year the employer had
not more than 25 such employees, and not as having made
the election under subparagraph (E)(i)(II) for such 2
years. Rules similar to the second sentence of
subparagraph (C)(i)(II) shall apply for purposes of
this subparagraph.''.
(f) Amendments Apply Only if Employer Has Not Had Another Plan
Within 3 Years.--Subparagraph (E) of section 408(p)(2) of the Internal
Revenue Code of 1986, as amended by subsection (a), is amended by
adding at the end the following new clause:
``(iii) Employer has not had another plan
within 3 years.--An eligible employer is
described in this clause only if, during the 3-
taxable-year period immediately preceding the
1st year the employer maintains the qualified
salary reduction arrangement under this
paragraph, neither the employer nor any member
of any controlled group including the employer
(or any predecessor of either) established or
maintained any plan described in clause (i),
(ii), or (iv) of section 219(g)(5)(A) with
respect to which contributions were made, or
benefits were accrued, for substantially the
same employees as are eligible to participate
in such qualified salary reduction
arrangement.''.
(g) Conforming Amendments Relating to Simple 401(k)s.--
(1) Subclause (I) of section 401(k)(11)(B)(i) of the
Internal Revenue Code of 1986 is amended by inserting ``(after
the application of any election under section
408(p)(2)(E)(i)(II))'' before the comma.
(2) Paragraph (11) of section 401(k) of such Code is
amended by adding at the end the following new subparagraph:
``(E) Employers electing increased contributions.--
In the case of an employer which applies an election
under section 408(p)(2)(E)(i)(II) for purposes of the
contribution requirements of this paragraph under
subparagraph (B)(i)(I), rules similar to the rules of
subparagraphs (B)(iii), (C)(ii)(IV), and (F) of section
408(p)(2) shall apply for purposes of subparagraphs
(B)(i)(II) and (B)(ii) of this paragraph.''.
(h) Plan Forms To Be Shared With Secretary.--Subsection (p) of
section 408 of the Internal Revenue Code of 1986 is amended by adding
at the end the following new paragraph:
``(11) Plan arrangement and notices to be shared with
secretary.--The trustee or issuer (in the case of an individual
retirement annuity) of a simple retirement account shall
provide to the Secretary, at the time the qualified salary
reduction arrangement is established (or not later than
December 31, 2022, in the case of arrangements in effect on the
date of the enactment of this paragraph), a copy of the written
arrangement described in paragraph (2)(A).''.
(i) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2021.
(j) Reports by Secretary.--
(1) In general.--The Secretary of the Treasury shall, not
later than December 31, 2022, and annually thereafter, report
to the Committees on Finance and Health, Education, Labor, and
Pensions of the Senate and the Committees on Ways and Means and
Education and Labor of the House of Representatives on the data
described in paragraph (2), together with any recommendations
the Secretary deems appropriate.
(2) Data described.--For purposes of the report required
under paragraph (1), the Secretary of the Treasury shall
collect data and information on--
(A) the number of plans described in section 408(p)
or 401(k)(11) of the Internal Revenue Code of 1986 that
are maintained or established during a year;
(B) the number of participants eligible to
participate in such plans for such year;
(C) median contribution amounts for the
participants described in subparagraph (B);
(D) the types of investments that are most common
under such plans; and
(E) the fee levels charged in connection with the
maintenance of accounts under such plans.
Such data and information shall be collected separately for
each type of plan. For purposes of collecting such data, the
Secretary of the Treasury may use such data as is otherwise
available to the Secretary for publication and may use such
approaches as are appropriate under the circumstances,
including the use of voluntary surveys and collaboration on
studies.
SEC. 3. EMPLOYERS ALLOWED TO REPLACE SIMPLE RETIREMENT ACCOUNTS WITH
SAFE HARBOR 401(K) PLANS DURING A YEAR.
(a) In General.--Section 408(p) of the Internal Revenue Code of
1986, as amended by section 2, is amended by adding at the end the
following new paragraph:
``(12) Replacement of simple retirement accounts with safe
harbor plans during plan year.--
``(A) In general.--Subject to the requirements of
this paragraph, an employer may elect (in such form and
manner as the Secretary may prescribe) at any time
during a year to terminate the qualified salary
reduction arrangement under paragraph (2), but only if
the employer establishes and maintains (as of the day
after the termination date) a safe harbor plan to
replace the terminated arrangement.
``(B) Combined limits on contributions.--The
terminated arrangement and safe harbor plan shall both
be treated as violating the requirements of paragraph
(2)(A)(ii) or section 401(a)(30) (whichever is
applicable) if the aggregate elective contributions of
the employee under the terminated arrangement during
its last plan year and under the safe harbor plan
during its transition year exceed the sum of--
``(i) the applicable dollar amount for such
arrangement (determined on a full-year basis)
under this subsection (after the application of
section 414(v)) with respect to the employee
for such last plan year multiplied by a
fraction equal to the number of days in such
plan year divided by 365, and
``(ii) the applicable dollar amount (as so
determined) under section 402(g)(1) for such
safe harbor plan on such elective contributions
during the transition year multiplied by a
fraction equal to the number of days in such
transition year divided by 365.
``(C) Transition year.--For purposes of this
paragraph, the transition year is the period beginning
after the termination date and ending on the last day
of the calendar year during which the termination
occurs.
``(D) Safe harbor plan.--For purposes of this
paragraph, the term `safe harbor plan' means a
qualified cash or deferred arrangement which meets the
requirements of paragraph (11), (12), or (13) of
section 401(k).''.
(b) Waiver of 2-Year Withdrawal Limitation in Case of Plans
Converting to 401(k) or 403(b).--
(1) In general.--Paragraph (6) of section 72(t) of the
Internal Revenue Code of 1986 is amended--
(A) by striking ``accounts.--In the case of'' and
inserting ``accounts.--
``(A) In general.--In the case of''; and
(B) by adding at the end the following new
subparagraph:
``(B) Waiver in case of plan conversion to 401(k)
or 403(b).--In the case of an employee of an employer
which terminates the qualified salary reduction
arrangement of the employer under section 408(p) and
establishes a qualified cash or deferred arrangement
described in section 401(k) or purchases annuity
contracts described in section 403(b), subparagraph (A)
shall not apply to any amount which is paid in a
rollover contribution described in section 408(d)(3)
into a qualified trust under section 401(k) (but only
if such contribution is subsequently subject to the
rules of section 401(k)(2)(B)) or an annuity contract
described in section 403(b) (but only if such
contribution is subsequently subject to the rules of
section 403(b)(11)) for the benefit of the employee.''.
(2) Conforming amendment.--Subparagraph (G) of section
408(d)(3) of such Code is amended by striking ``72(t)(6)'' and
inserting ``72(t)(6)(A)''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years beginning after December 31, 2021.
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