SIMPLE Plan Modernization Act

II 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 SIM- PLE 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 ac- counts 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 Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘SIMPLE Plan Mod- 4 ernization Act’’. 5 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 2 •S 1272 IS SEC. 2. CONTRIBUTION LIMIT FOR SIMPLE IRAS. 1 (a) IN GENERAL.—Subparagraph (E) of section 2 408(p)(2) of the Internal Revenue Code of 1986 is amend- 3 ed— 4 (1) by striking ‘‘amount is’’ and all that follows 5 in clause (i) and inserting ‘‘dollar amount is— 6 ‘‘(I) $16,500 in the case of an el- 7 igible employer described in clause 8 (iii) which had not more than 25 em- 9 ployees who received at least $5,000 10 of compensation from the employer 11 for the preceding year, 12 ‘‘(II) $16,500 in the case of an 13 eligible employer described in clause 14 (iii) which is not described in sub- 15 clause (I) and which elects, at such 16 time and in such manner as pre- 17 scribed by the Secretary, the applica- 18 tion of this subclause for the year, 19 and 20 ‘‘(III) $10,000 in any other 21 case.’’; 22 (2) by striking ‘‘ADJUSTMENT.—In the case of’’ 23 in clause (ii) and inserting ‘‘ADJUSTMENT.— 24 ‘‘(I) CERTAIN LARGE EMPLOY- 25 ERS.—In the case of’’; 26 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 3 •S 1272 IS (3) by striking ‘‘clause (i)’’ in clause (ii) and in- 1 serting ‘‘clause (i)(III)’’; and 2 (4) by adding at the end of clause (ii) the fol- 3 lowing new subclause: 4 ‘‘(II) OTHER EMPLOYERS.—In 5 the case of a year beginning after De- 6 cember 31, 2022, the Secretary shall 7 adjust annually the $16,500 amount 8 in subclauses (I) and (II) of clause (i) 9 in the manner provided under sub- 10 clause (I) of this clause, except that 11 the base period taken into account 12 shall be the calendar quarter begin- 13 ning July 1, 2021.’’. 14 (b) CATCH-UP CONTRIBUTIONS.—Paragraph (2) of 15 section 414(v) of the Internal Revenue Code of 1986 is 16 amended— 17 (1) in subparagraph (B)— 18 (A) by striking ‘‘the applicable’’ in clause 19 (ii) and inserting ‘‘except as provided in clause 20 (iii), the applicable’’; and 21 (B) by adding at the end the following new 22 clause: 23 ‘‘(iii) In the case of an applicable em- 24 ployer plan— 25 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 4 •S 1272 IS ‘‘(I) which is maintained by an 1 eligible employer described in section 2 408(p)(2)(E)(i)(I), or 3 ‘‘(II) to which an election under 4 section 408(p)(2)(E)(i)(II) applies for 5 the year (including a plan described in 6 section 401(k)(11) which is main- 7 tained by an eligible employer de- 8 scribed in section 408(p)(2)(E)(i)(II) 9 and to which such election applies by 10 reason of subparagraphs (B)(i)(I) and 11 (E) of section 401(k)(11)), 12 the applicable dollar amount is $4,750.’’; 13 and 14 (2) in subparagraph (C), by striking ‘‘the 15 $5,000 amount in subparagraph (B)(i) and the 16 $2,500 amount in subparagraph (B)(ii)’’ and insert- 17 ing ‘‘each of the dollar amounts in subparagraph 18 (B)’’. 19 (c) EMPLOYER MATCH.—Clause (ii) of section 20 408(p)(2)(C) of the Internal Revenue Code of 1986 is 21 amended— 22 (1) by striking ‘‘The term’’ in subclause (I) and 23 inserting ‘‘Except as provided in subclause (IV), the 24 term’’; 25 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 5 •S 1272 IS (2) by adding at the end the following new sub- 1 clause: 2 ‘‘(IV) SPECIAL RULE FOR ELECT- 3 ING LARGER EMPLOYERS.—In the 4 case of an employer which had more 5 than 25 employees who received at 6 least $5,000 of compensation from the 7 employer for the preceding year, and 8 which makes the election under sub- 9 paragraph (E)(i)(II) for any year, 10 subclause (I) shall be applied for such 11 year by substituting ‘4 percent’ for ‘3 12 percent’.’’; and 13 (3) by striking ‘‘3 percent’’ each place it ap- 14 pears in subclauses (II) and (III) and inserting ‘‘the 15 applicable percentage’’. 16 (d) INCREASE IN NONELECTIVE EMPLOYER CON- 17 TRIBUTION FOR ELECTING LARGER EMPLOYERS.—Sub- 18 paragraph (B) of section 408(p)(2) of the Internal Rev- 19 enue Code of 1986 is amended by adding at the end the 20 following new clause: 21 ‘‘(iii) SPECIAL RULE FOR ELECTING 22 LARGER EMPLOYERS.—In the case of an 23 employer which had more than 25 employ- 24 ees who received at least $5,000 of com- 25 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 6 •S 1272 IS pensation from the employer for the pre- 1 ceding year, and which makes the election 2 under subparagraph (E)(i)(II) for any 3 year, clause (i) shall be applied for such 4 year by substituting ‘3 percent’ for ‘2 per- 5 cent’.’’. 6 (e) TRANSITION RULE.—Paragraph (2) of section 7 408(p) of the Internal Revenue Code of 1986 is amended 8 by adding at the end the following new subparagraph: 9 ‘‘(F) 2-YEAR GRACE PERIOD.—An eligible 10 employer which had not more than 25 employ- 11 ees who received at least $5,000 of compensa- 12 tion from the employer for 1 or more years, and 13 which has more than 25 such employees for any 14 subsequent year, shall be treated for purposes 15 of subparagraph (E)(i) as having 25 such em- 16 ployees for the 2 years following the last year 17 the employer had not more than 25 such em- 18 ployees, and not as having made the election 19 under subparagraph (E)(i)(II) for such 2 years. 20 Rules similar to the second sentence of sub- 21 paragraph (C)(i)(II) shall apply for purposes of 22 this subparagraph.’’. 23 (f) AMENDMENTS APPLY ONLY IF EMPLOYER HAS 24 NOT HAD ANOTHER PLAN WITHIN 3 YEARS.—Subpara- 25 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 7 •S 1272 IS graph (E) of section 408(p)(2) of the Internal Revenue 1 Code of 1986, as amended by subsection (a), is amended 2 by adding at the end the following new clause: 3 ‘‘(iii) EMPLOYER HAS NOT HAD AN- 4 OTHER PLAN WITHIN 3 YEARS.—An eligi- 5 ble employer is described in this clause 6 only if, during the 3-taxable-year period 7 immediately preceding the 1st year the em- 8 ployer maintains the qualified salary re- 9 duction arrangement under this paragraph, 10 neither the employer nor any member of 11 any controlled group including the em- 12 ployer (or any predecessor of either) estab- 13 lished or maintained any plan described in 14 clause (i), (ii), or (iv) of section 15 219(g)(5)(A) with respect to which con- 16 tributions were made, or benefits were ac- 17 crued, for substantially the same employees 18 as are eligible to participate in such quali- 19 fied salary reduction arrangement.’’. 20 (g) CONFORMING AMENDMENTS RELATING TO SIM- 21 PLE 401(k)S.— 22 (1) Subclause (I) of section 401(k)(11)(B)(i) of 23 the Internal Revenue Code of 1986 is amended by 24 inserting ‘‘(after the application of any election 25 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 8 •S 1272 IS under section 408(p)(2)(E)(i)(II))’’ before the 1 comma. 2 (2) Paragraph (11) of section 401(k) of such 3 Code is amended by adding at the end the following 4 new subparagraph: 5 ‘‘(E) EMPLOYERS ELECTING INCREASED 6 CONTRIBUTIONS.—In the case of an employer 7 which applies an election under section 8 408(p)(2)(E)(i)(II) for purposes of the con- 9 tribution requirements of this paragraph under 10 subparagraph (B)(i)(I), rules similar to the 11 rules of subparagraphs (B)(iii), (C)(ii)(IV), and 12 (F) of section 408(p)(2) shall apply for pur- 13 poses of subparagraphs (B)(i)(II) and (B)(ii) of 14 this paragraph.’’. 15 (h) PLAN FORMS TO BE SHARED WITH SEC- 16 RETARY.—Subsection (p) of section 408 of the Internal 17 Revenue Code of 1986 is amended by adding at the end 18 the following new paragraph: 19 ‘‘(11) PLAN ARRANGEMENT AND NOTICES TO 20 BE SHARED WITH SECRETARY.—The trustee or 21 issuer (in the case of an individual retirement annu- 22 ity) of a simple retirement account shall provide to 23 the Secretary, at the time the qualified salary reduc- 24 tion arrangement is established (or not later than 25 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 9 •S 1272 IS December 31, 2022, in the case of arrangements in 1 effect on the date of the enactment of this para- 2 graph), a copy of the written arrangement described 3 in paragraph (2)(A).’’. 4 (i) EFFECTIVE DATE.—The amendments made by 5 this section shall apply to taxable years beginning after 6 December 31, 2021. 7 (j) REPORTS BY SECRETARY.— 8 (1) IN GENERAL.—The Secretary of the Treas- 9 ury shall, not later than December 31, 2022, and 10 annually thereafter, report to the Committees on Fi- 11 nance and Health, Education, Labor, and Pensions 12 of the Senate and the Committees on Ways and 13 Means and Education and Labor of the House of 14 Representatives on the data described in paragraph 15 (2), together with any recommendations the Sec- 16 retary deems appropriate. 17 (2) DATA DESCRIBED.—For purposes of the re- 18 port required under paragraph (1), the Secretary of 19 the Treasury shall collect data and information on— 20 (A) the number of plans described in sec- 21 tion 408(p) or 401(k)(11) of the Internal Rev- 22 enue Code of 1986 that are maintained or es- 23 tablished during a year; 24 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 10 •S 1272 IS (B) the number of participants eligible to 1 participate in such plans for such year; 2 (C) median contribution amounts for the 3 participants described in subparagraph (B); 4 (D) the types of investments that are most 5 common under such plans; and 6 (E) the fee levels charged in connection 7 with the maintenance of accounts under such 8 plans. 9 Such data and information shall be collected sepa- 10 rately for each type of plan. For purposes of col- 11 lecting such data, the Secretary of the Treasury may 12 use such data as is otherwise available to the Sec- 13 retary for publication and may use such approaches 14 as are appropriate under the circumstances, includ- 15 ing the use of voluntary surveys and collaboration on 16 studies. 17 SEC. 3. EMPLOYERS ALLOWED TO REPLACE SIMPLE RE- 18 TIREMENT ACCOUNTS WITH SAFE HARBOR 19 401(k) PLANS DURING A YEAR. 20 (a) IN GENERAL.—Section 408(p) of the Internal 21 Revenue Code of 1986, as amended by section 2, is 22 amended by adding at the end the following new para- 23 graph: 24 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 11 •S 1272 IS ‘‘(12) REPLACEMENT OF SIMPLE RETIREMENT 1 ACCOUNTS WITH SAFE HARBOR PLANS DURING PLAN 2 YEAR.— 3 ‘‘(A) IN GENERAL.—Subject to the re- 4 quirements of this paragraph, an employer may 5 elect (in such form and manner as the Sec- 6 retary may prescribe) at any time during a year 7 to terminate the qualified salary reduction ar- 8 rangement under paragraph (2), but only if the 9 employer establishes and maintains (as of the 10 day after the termination date) a safe harbor 11 plan to replace the terminated arrangement. 12 ‘‘(B) COMBINED LIMITS ON CONTRIBU- 13 TIONS.—The terminated arrangement and safe 14 harbor plan shall both be treated as violating 15 the requirements of paragraph (2)(A)(ii) or sec- 16 tion 401(a)(30) (whichever is applicable) if the 17 aggregate elective contributions of the employee 18 under the terminated arrangement during its 19 last plan year and under the safe harbor plan 20 during its transition year exceed the sum of— 21 ‘‘(i) the applicable dollar amount for 22 such arrangement (determined on a full- 23 year basis) under this subsection (after the 24 application of section 414(v)) with respect 25 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 12 •S 1272 IS to the employee for such last plan year 1 multiplied by a fraction equal to the num- 2 ber of days in such plan year divided by 3 365, and 4 ‘‘(ii) the applicable dollar amount (as 5 so determined) under section 402(g)(1) for 6 such safe harbor plan on such elective con- 7 tributions during the transition year multi- 8 plied by a fraction equal to the number of 9 days in such transition year divided by 10 365. 11 ‘‘(C) TRANSITION YEAR.—For purposes of 12 this paragraph, the transition year is the period 13 beginning after the termination date and ending 14 on the last day of the calendar year during 15 which the termination occurs. 16 ‘‘(D) SAFE HARBOR PLAN.—For purposes 17 of this paragraph, the term ‘safe harbor plan’ 18 means a qualified cash or deferred arrangement 19 which meets the requirements of paragraph 20 (11), (12), or (13) of section 401(k).’’. 21 (b) WAIVER OF 2-YEAR WITHDRAWAL LIMITATION 22 IN CASE OF PLANS CONVERTING TO 401(k) OR 403(b).— 23 VerDate Sep 11 2014 04:37 May 14, 2021 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1272.IS S1272 kjohnson on DSK79L0C42PROD with BILLS 13 •S 1272 IS (1) IN GENERAL.—Paragraph (6) of section 1 72(t) of the Internal Revenue Code of 1986 is 2 amended— 3 (A) by striking ‘‘ACCOUNTS.—In the case 4 of’’ and inserting ‘‘ACCOUNTS.— 5 ‘‘(A) IN GENERAL.—In the case of’’; and 6 (B) by adding at the end the following new 7 subparagraph: 8 ‘‘(B) WAIVER IN CASE OF PLAN CONVER- 9 SION TO 401(k) OR 403(b).—In the case o [Text truncated for display. 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