Sec. 7. Automatic deferral IRAs
1,227 words·~6 min read·
/bill/114/hr/4067/ih/section-7·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
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: An automatic deferral IRA shall be treated for purposes of this title in the same manner as an individual retirement plan. An automatic deferral IRA may also be treated as a Roth IRA for purposes of this title if it meets the requirements of section 408A. For purposes of this section, the term automatic deferral IRA means an individual retirement plan (as defined in section 7701(a)(37)) with respect to which contributions are made under an arrangement which satisfies the requirements of paragraphs
(1)through
(4)of subsection (c). The requirements of this paragraph are met if each employee eligible to participate in the arrangement is treated as having elected to have the employer make payments as elective contributions to an automatic deferral IRA on behalf of such employee (which would have otherwise been made to the employee directly in cash) in an amount equal to so much of a qualified percentage of compensation of such employee as does not exceed the deductible amount for such year (within the meaning of section 219(b)). For purposes of subparagraph (A), an employee is eligible to participate if such employee has at least $5,000 of compensation from the employer for the preceding year. The election treated as having been made under subparagraph
(A)shall cease to apply with respect to any employee who makes an affirmative election— to not have such elective contributions made, or not later than the close of the 30-day period beginning on the date of the first contribution with respect to such employee, to make elective contributions at a level specified in such affirmative election. For purposes of this paragraph, the term qualified percentage means, with respect to any employee, any percentage determined under the arrangement if such percentage is applied uniformly, does not exceed 15 percent, and is at least— 3 percent during the period ending on the last day of the first plan year which begins after the date on which the first elective contribution described in subparagraph
(A)is made with respect to such employee, and during any subsequent plan year, a percentage equal to— 3 percent, plus 1 percent multiplied by the number of plan years (but not more than 12) beginning after the plan year described in clause (i). The requirements of this paragraph are met if, within a reasonable period before the first day an employee is eligible to participate in the arrangement, the employee receives written notice of the employee’s rights and obligations under the arrangement which— is sufficiently accurate and comprehensive to apprise the employee of such rights, and is written in a manner calculated to be understood by the average employee to whom the arrangement applies. A notice shall not be treated as meeting the requirements of subparagraph
(A)with respect to an employee unless— the notice explains the employee’s right to elect not to have elective contributions made on the employee's behalf (or to elect to have such contributions made at a different percentage), the notice explains how contributions made under the arrangement will be invested in the absence of any investment election by the employee, and the employee has a reasonable period of time after receipt of the notice described in clauses
(i)and
(ii)and before the first elective contribution is made to make either such election. The requirements of this paragraph are met if— in the absence of an investment election by the employee with respect to the employee’s interest in the trust, such interest is invested as provided in regulations prescribed pursuant to subparagraph
(A)of section 404(c)(5) of the Employee Retirement Income Security Act of 1974, and the employer provides each employee who has an interest in the trust, notice which meets the requirements of subparagraph
(B)of such section. The requirements of this paragraph are met if— an employer must make— the elective contributions under paragraph (1)(A) not later than the close of the 30-day period following the last day of the month with respect to which the contributions are to be made, and a payment of interest at the overpayment rate (as determined under section 6621(a)) on any such elective contribution made after the end of the period specified in clause (i), an employee may elect to terminate participation in the arrangement at any time during the year, except that if the employee so terminates, the arrangement may provide that the employee may not elect to resume participation until the beginning of the next year, and each employee eligible to participate may elect, during the 30-day period before the beginning of any year, or to modify the amount subject to such arrangement, for such year. . Chapter 43 of such Code is amended by adding at the end the following: If at any time during any taxable year an employer maintains an automatic deferral IRA which is part of a plan to which section 408B applies, there is hereby imposed on the employer for the taxable year a tax equal to 10 percent of the aggregate required contributions to such automatic deferral IRA for all plan years that are not paid by the date specified in section 408B(c)(4)(A)(i) and that remain unpaid as of the end of any plan year ending with or within the taxable year. If a tax is imposed under subsection
(a)on any unpaid required contribution and such amount remains unpaid as of the close of the taxable period, there is hereby imposed a tax equal to 100 percent of the unpaid required contribution to the extent not so paid or corrected. 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 did not know, and exercising reasonable diligence would not have known, that such failure existed. No tax shall be imposed by subsection
(a)on any failure if— such failure was due to reasonable cause and not to willful neglect, and such failure is corrected during the 30-day period beginning on the 1st date the employer knew, or exercising reasonable diligence would have known, that such failure existed. 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. . Any law of a State shall be superseded if it would directly or indirectly prohibit or restrict an employer from creating or maintaining an automatic deferral IRA (as defined in section 408B of the Internal Revenue Service of 1986). 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 408A the following new item: Sec. 408B. Automatic deferral IRAs. . The table of sections for chapter 43 of such Code is amended by adding at the end the following new item: Sec. 4980J. Failure to make timely contributions under automatic deferral IRAs. . The amendments made by this section shall apply to taxable years beginning after December 31, 2015.