Sec. 131101. Tax imposed on employers failing to maintain or facilitate automatic contribution plan or arrangement
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/bill/117/hr/5376/rh/section-131101·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
Section 414 is amended by adding at the end the following: For purposes of this title— The term automatic contribution plan or arrangement means— a defined contribution plan that— is described in clause (i), (ii), or
(iv)of section 219(g)(5)(A), includes a qualified cash or deferred arrangement or a salary reduction arrangement, and meets the notice, eligibility, contribution, investment, fee, and lifetime income requirements of paragraphs (2), (3), (4), (5), (6), and (7), respectively, an automatic IRA arrangement described in paragraph (8), an arrangement described in section 408(p) that meets the notice, contribution, investment, and fee requirements described in paragraphs (2), (4), (5), and (6), and 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 Act to provide for reconciliation pursuant to title II of S. Con. Res. 14 , 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. 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 the notice requirements of, or similar to, the notice requirements of section 401(k)(13)(E), excluding any such notice requirements that are not applicable or relevant to the such plan or arrangement. 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. The following employees may be excluded from consideration in determining whether the requirements of this paragraph are met: 21 years old Any employee who has not attained age 21. Any employee described in section 410(b)(3). Any employee who has not completed at least one of the following periods of service with the employer maintaining or facilitating the plan or arrangement: The period permitted under section 410(a)(1) (determined without regard to subparagraph (B)(i) thereof). A period of 2 consecutive 12-month periods during each of which the employee has at least 500 hours of service. Eligible employees within 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. 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. 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. 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— not to have such contributions made, or to make elective contributions at a level specified in such affirmative election. 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— 6 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, 7 percent during the first plan year following the plan year described in clause (i), 8 percent during the first plan year following the plan year described in clause (ii), 9 percent during the first plan year following the plan year described in clause (iii), and 10 percent during any subsequent plan year. IRA arrangements For purposes of this paragraph— In the case of an automatic IRA arrangement, the term qualified percentage means, with respect to an employee for any plan year, a percentage equal to the minimum percentage described for such plan year under subparagraph (C). 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. 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). 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 also allows the participant to invest in any of the class of assets or funds described in subparagraph (B), (C), (D), or (E), and provides for no other investment options. 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)(i). 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. 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). Any other class of assets or funds determined by the Secretary to be a qualified investment for purposes of this section. 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 may be charged unreasonable fees or expenses. 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). This paragraph shall not apply with respect to any participant whose vested account balance is $200,000 or less at the time of distribution. 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). 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 eligibility, contribution, investment, and fee requirements of paragraphs (3), (4), (5), and (6), and under which an employee— may elect— to have the employer make payroll deduction deposits on behalf of the individual as payroll deduction contributions to an individual retirement account, or to have such payments paid to the employee directly in cash, 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 may elect to modify the manner in which such amounts are invested for such plan year. The requirements of this subparagraph are met with respect to any automatic IRA arrangement if 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. The requirements of this paragraph shall be treated as met with respect to any year if 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— the opportunity to elect to have contributions made, or to be treated as so electing, under clause (i)(I), or (ii), of subparagraph (A), 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 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. An employer shall not be treated as failing to satisfy the requirements of this section or any other provision of this title merely because— 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 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. 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 so designated. 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). 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 (F)(iii). The preceding sentence shall not apply unless each participant is notified in writing that the participant’s balance may 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. 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. The Secretary may issue such regulations as are necessary to carry out the purposes of this subparagraph, including establishment of procedures to assist employers in connecting with certified and available providers of individual retirement accounts and to communicate to individuals the importance of investment diversification. The Secretary shall— provide a model notice, written in a manner calculated to be understandable to the average worker, that is simple for employers to use— 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 to satisfy the requirements of subparagraph (B)(ii), provide model forms for enrollment, including automatic enrollment, in an automatic IRA arrangement, 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 and investment returns in a format prescribed by the Secretary) and to obtain notices and forms, and establish a process— 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 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. An arrangement facilitated by an employer shall not fail to be treated as an automatic IRA arrangement merely because such arrangement is provided or otherwise offered, in whole or in part, by a State. 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)). . IRA arrangements Section 4975(c) is amended by adding at the end the following new paragraph: IRA arrangements For purposes of paragraph (1), if an employer is required under an automatic IRA arrangement (as defined in section 414(aa)(1)(B)) to deposit amounts withheld from an employee’s compensation into an individual retirement account (within the meaning of section 414(aa)(8)(H)) but fails to do so within the time prescribed under section 414(aa)(8)(B)(i), such amounts shall be treated as assets of the individual retirement account. . Section 72(t) is amended by adding at the end the following new paragraph: Paragraph
(1)shall not apply in the case of a distribution— to an individual from an individual retirement account (within the meaning of section 414(aa)(8)(H)) that is part of an automatic IRA arrangement (as defined in section 414(aa)(8)(A)), and made not later than 90 days after the initial election under section 414(aa)(8)(A)(ii). . IRA Advisory Group 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(aa) of the Internal Revenue Code of 1986 with respect to automatic IRA arrangements in the best financial interest of savers, including— the procedures and criteria for the periodic certification, website listing, and monitoring of investment options that meet the requirements of those paragraphs, user-friendly disclosure regarding investment returns, terms, fees, and expenses to facilitate comparison, the use of low-cost investment options, the appropriate use of electronic and paper methods to provide notice and disclosure, any possible learnings or efficiencies based on the Secretary’s procedures and experience in approving nonbank individual retirement account trustees, and such other related matters as may be determined by the Secretary. The Advisory Group shall consist of not more than 15 members and shall be composed of— such individuals as the Secretary may consider appropriate to provide expertise regarding the financial needs and challenges of lower- and middle-income households, at least one individual who is an expert in retirement-related consumer protections or who represents the general public, and at least one representative of the Department of the Treasury. The members of the Advisory Group shall serve without compensation. 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. 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. Chapter 43 is amended by adding at the end the following new section: There is hereby imposed a tax on the failure of an employer to maintain or facilitate an automatic contribution plan or arrangement. Paragraph
(1)shall not apply to an employer to the extent such employer participates in an arrangement under a qualified State law. Paragraph
(1)shall not apply to an employer with respect to any employee who is eligible to participate in a different automatic contribution plan or arrangement than one or more other employees of the employer. 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. For purposes of this section, the term noncompliance period means, with respect to any failure, the period— beginning on the date such failure first occurs, and ending on the earlier of— the date such failure is corrected, or 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. In the case of any failure relating to maintaining or facilitating a plan or arrangement in a calendar year beginning after 2023, 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 2022 for calendar year 2016 in subparagraph (A)(ii) thereof. If any amount adjusted under subparagraph
(A)is not a whole dollar amount, such amount shall be rounded to the nearest whole dollar amount. 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. 9 months ½ 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 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. In the case of failures which are due to reasonable cause and not to willful neglect— The tax imposed by subsection
(a)for failures during the taxable year of the employer shall not exceed $500,000. 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. 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. This section shall not apply in the case of— any employer with respect to a plan or arrangement that, during the prior calendar year, was maintained or facilitated only by employers each of which had no more than 5 employees receiving at least $5,000 of compensation from the employer for such year, any employer with respect to a governmental plan (within the meaning of section 414(d)), any employer with respect to a church plan (within the meaning of section 414(e)), or any employer that has been in existence for fewer than 2 years, taking into account all predecessor employers. 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). For purposes of this section— The term automatic contribution plan or arrangement has the meaning given such term under section 414(aa), and The term employer includes all employers treated as a single employer under subsection (b), (c), (m), or
(o)of section 414. The term qualified State law means a State law (as it may be amended from time to time) that— was enacted before the date of the enactment of the Act to provide for reconciliation pursuant to title II of S. Con. Res. 14 , and requires certain employers to facilitate an automatic IRA arrangement pursuant to a payroll deduction savings program of the State, or allows certain employers to contribute to, or participate in, a plan described in section 413(c) of such Code established and maintained by the State. . 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. . The amendments made by this section shall apply to plan years beginning after December 31, 2022.