Automatic IRA Act of 2019

II 116TH CONGRESS 1ST SESSION S. 2370 To amend the Internal Revenue Code of 1986 to expand personal saving and retirement savings coverage by enabling employees not covered by qualifying retirement plans to save for retirement through automatic IRA arrangements, and for other purposes. IN THE SENATE OF THE UNITED STATES JULY 31, 2019 Mr. WHITEHOUSE 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 expand personal saving and retirement savings coverage by ena- bling employees not covered by qualifying retirement plans to save for retirement through automatic IRA ar- rangements, 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; REFERENCE. 3 (a) SHORT TITLE.—This Act may be cited as the 4 ‘‘Automatic IRA Act of 2019’’. 5 (b) AMENDMENT OF 1986 CODE.—Except as other- 6 wise expressly provided, whenever in this Act an amend- 7 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 2 •S 2370 IS ment or repeal is expressed in terms of an amendment 1 to, or repeal of, a section or other provision, the reference 2 shall be considered to be made to a section or other provi- 3 sion of the Internal Revenue Code of 1986. 4 SEC. 2. QUALIFYING AUTOMATIC IRA ARRANGEMENTS. 5 (a) IN GENERAL.—Subpart A of part I of subchapter 6 D of chapter 1 of the Internal Revenue Code of 1986 is 7 amended by inserting after section 408A the following new 8 section: 9 ‘‘SEC. 408B. QUALIFYING AUTOMATIC IRA ARRANGEMENTS. 10 ‘‘(a) IN GENERAL.—For purposes of this section, a 11 qualifying automatic IRA arrangement is an automatic 12 IRA arrangement which is offered by a covered employer 13 to each qualifying employee of the employer. 14 ‘‘(b) COVERED EMPLOYER.—For purposes of this 15 section— 16 ‘‘(1) IN GENERAL.—Except as otherwise pro- 17 vided in this subsection or subsection (c)(2), the 18 term ‘covered employer’ means, with respect to any 19 year, an employer which does not maintain a quali- 20 fying plan or arrangement described in section 21 219(g)(5) for the calendar year. 22 ‘‘(2) EXCLUDED PLANS.—A qualifying plan or 23 arrangement shall not be taken into account for pur- 24 poses of paragraph (1) if— 25 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 3 •S 2370 IS ‘‘(A) the plan or arrangement is frozen as 1 of the first day of the preceding calendar year, 2 or 3 ‘‘(B) in the case of a plan or arrangement 4 under which the only contributions are discre- 5 tionary on the part of the employer or other 6 plan sponsor— 7 ‘‘(i) no employer contribution has 8 been made to the plan or arrangement for 9 the 3-plan-year period ending with the last 10 plan year ending in the preceding calendar 11 year, and 12 ‘‘(ii) it is not reasonable to assume 13 that an employer contribution will be made 14 for the last plan year ending in the pre- 15 ceding calendar year. 16 ‘‘(3) EXCEPTION FOR CERTAIN SMALL AND 17 NEW EMPLOYERS.— 18 ‘‘(A) IN GENERAL.—The term ‘covered em- 19 ployer’ does not include an employer for a cal- 20 endar year if the employer— 21 ‘‘(i) did not employ more than 10 em- 22 ployees who received at least $5,000 of 23 compensation (as defined in section 24 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 4 •S 2370 IS 3401(a)) from the employer for the pre- 1 ceding calendar year, 2 ‘‘(ii) did not normally employ more 3 than 10 employees on a typical business 4 day of the preceding calendar year, or 5 ‘‘(iii) was not in existence at all times 6 during the calendar year and the preceding 7 calendar year. 8 ‘‘(B) OPERATING RULES.—In determining 9 the number of employees for purposes of sub- 10 paragraph (A)— 11 ‘‘(i) rules consistent with any rules 12 applicable in determining the number of 13 employees for purposes of section 14 408(p)(2)(C) and section 4980B(d) shall 15 apply, 16 ‘‘(ii) all members of the same family 17 (within the meaning of section 318(a)(1)) 18 shall be treated as 1 individual, and 19 ‘‘(iii) any reference to an employer 20 shall include a reference to any predecessor 21 employer. 22 ‘‘(4) EXCEPTION FOR GOVERNMENTS AND 23 CHURCHES.—The term ‘covered employer’ does not 24 include— 25 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 5 •S 2370 IS ‘‘(A) a government or entity described in 1 section 414(d), or 2 ‘‘(B) a church or a convention or associa- 3 tion of churches which is exempt from tax 4 under section 501. 5 ‘‘(5) COORDINATION WITH QUALIFYING STATE- 6 FACILITATED AUTOMATIC IRA PROGRAMS.— 7 ‘‘(A) IN GENERAL.—In the case of an em- 8 ployer all of the employees of which are em- 9 ployed in a single State, if such State maintains 10 or facilitates a qualifying State-facilitated auto- 11 matic IRA program, any employer which is re- 12 quired to participate in such State program is 13 not a covered employer for purposes of this sec- 14 tion. 15 ‘‘(B) EMPLOYERS WITH EMPLOYEES IN 16 MULTIPLE STATES.—In the case of an employer 17 which employs employees in more than 1 18 State— 19 ‘‘(i) if each such State maintains or 20 facilitates a qualifying State-facilitated 21 automatic IRA program, the employer par- 22 ticipation rules of each such program (and 23 of subparagraph (A)) apply, respectively, 24 to employees employed in such State, and 25 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 6 •S 2370 IS ‘‘(ii) if one or more of such States, 1 but not all, maintain or facilitate a quali- 2 fying State-facilitated automatic IRA pro- 3 gram— 4 ‘‘(I) the employer participation 5 rules of each such program (and of 6 subparagraph (A)) apply, respectively, 7 to employees employed in such State, 8 and 9 ‘‘(II) the employer is a covered 10 employer for purposes of this section 11 with respect to qualifying employees 12 employed in States which do not 13 maintain or facilitate such a program 14 (unless otherwise excluded under 15 paragraph (3)(A)), 16 unless the employer makes an irrevocable 17 election to be treated as a covered em- 18 ployer for purposes of this section with re- 19 spect to all qualifying employees in all 20 States. 21 ‘‘(6) AGGREGATION RULE.—All persons treated 22 as a single employer under subsection (a) or (b) of 23 section 52 or subsection (m) or (o) of section 414 24 shall be treated as a single employer. 25 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 7 •S 2370 IS ‘‘(c) QUALIFYING EMPLOYEE.—For purposes of this 1 section— 2 ‘‘(1) IN GENERAL.—The term ‘qualifying em- 3 ployee’ means any employee of the employer other 4 than— 5 ‘‘(A) an excluded employee, and 6 ‘‘(B) an employee who participates in (or 7 is eligible to, and has elected not to, participate 8 in) a qualifying State-facilitated automatic IRA. 9 ‘‘(2) PLAN SPONSOR’S EMPLOYEES.—If— 10 ‘‘(A) an employer maintains one or more 11 qualifying plans or arrangements described in 12 section 219(g)(5), 13 ‘‘(B) the employees of any subsidiary, divi- 14 sion, or other major business unit of the em- 15 ployer are generally not eligible to participate in 16 any such qualifying plan or arrangement, and 17 ‘‘(C) the number of employees of the em- 18 ployer described in subparagraph (B) for a cal- 19 endar year is— 20 ‘‘(i) at least 50, and 21 ‘‘(ii) at least 10 percent of the em- 22 ployees of the employer (other than exclud- 23 able employees), 24 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 8 •S 2370 IS then, for purposes of this section, the employer shall 1 be treated as a covered employer with respect to 2 such employees (other than excluded employees) for 3 the calendar year, and such employees (other than 4 excluded employees) shall be treated as qualifying 5 employees. 6 ‘‘(3) EXCLUDED EMPLOYEES.— 7 ‘‘(A) IN GENERAL.—The term ‘excluded 8 employee’ means an employee of the employer 9 who is an excludable employee and who is in a 10 class or category that the employer elects to ex- 11 clude from treatment as qualifying employees. 12 ‘‘(B) EXCLUDABLE EMPLOYEE.—The term 13 ‘excludable employee’ means— 14 ‘‘(i) any employee described in section 15 410(b)(3), 16 ‘‘(ii) any employee who has not at- 17 tained the age of 18 before the first day of 18 the calendar year, 19 ‘‘(iii) any employee who has not com- 20 pleted at least 3 months of service with the 21 employer, 22 ‘‘(iv) in the case of an employer that 23 maintains a qualifying plan or arrange- 24 ment which excludes employees who have 25 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 9 •S 2370 IS not satisfied the minimum age and service 1 requirements for participation in the plan, 2 any employee who has not satisfied such 3 requirements, 4 ‘‘(v) in the case of an employer that 5 maintains a section 403(b) annuity con- 6 tract (including a custodial account or re- 7 tirement income account), any employee 8 who is permitted to be excluded from any 9 salary reduction arrangement under the 10 contract pursuant to section 403(b)(12), 11 ‘‘(vi) in the case of an employer that 12 maintains an arrangement described in 13 section 408(p), any employee who is not 14 required to be eligible to participate in the 15 arrangement under section 408(p)(4), and 16 ‘‘(vii) in the case of an employer that 17 maintains a simplified employee pension 18 described in section 408(k), any employee 19 who is permitted to be excluded from par- 20 ticipation under section 408(k)(2). 21 ‘‘(4) GUIDANCE.—The Secretary shall issue 22 regulations or other guidance to carry out this sub- 23 section, including— 24 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 10 •S 2370 IS ‘‘(A) guidelines for determining the classes 1 or categories of employees to be covered by an 2 automatic IRA arrangement, 3 ‘‘(B) if an employer excludes employees 4 from the automatic IRA arrangement, guide- 5 lines providing that the employer shall specify 6 the classification or categories of employees who 7 are so excluded, and 8 ‘‘(C) rules to prevent avoidance of the re- 9 quirements of this section. 10 ‘‘(d) AUTOMATIC IRA ARRANGEMENT.—For pur- 11 poses of this section— 12 ‘‘(1) IN GENERAL.—The term ‘automatic IRA 13 arrangement’ means an arrangement of an employer 14 (determined without regard to whether the employer 15 is required to maintain the arrangement)— 16 ‘‘(A) under which a qualifying employee— 17 ‘‘(i) may elect— 18 ‘‘(I) to contribute to an indi- 19 vidual retirement plan, or to purchase 20 a qualifying retirement bond, by hav- 21 ing the employer deposit payroll de- 22 duction amounts or make other peri- 23 odic direct deposits (including elec- 24 tronic payments) to the plan or invest 25 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 11 •S 2370 IS such amounts in such qualifying re- 1 tirement bonds, or 2 ‘‘(II) to have such payments paid 3 to the employee directly in cash, 4 ‘‘(ii) is treated as having made the 5 election under clause (i)(I) in the amount 6 specified in paragraph (5) until the indi- 7 vidual specifically elects not to have such 8 contributions or purchases made (or spe- 9 cifically elects to have such contributions 10 or purchases made at a different percent- 11 age or in a different amount), and 12 ‘‘(iii) may elect to modify the manner 13 in which such amounts are invested for 14 such year, 15 ‘‘(B) which meets the administrative re- 16 quirements of paragraph (3), including the no- 17 tice requirement of paragraph (3)(C), and 18 ‘‘(C) which does not charge unreasonable 19 additional fees solely on the basis that the bal- 20 ance in an automatic IRA is small. 21 ‘‘(2) EMPLOYER’S OPTION TO OBTAIN AFFIRMA- 22 TIVE ELECTIONS FROM EMPLOYEES INSTEAD OF 23 AUTOMATIC ENROLLMENT.—As an alternative to 24 automatic enrollment, an employer may choose to 25 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 12 •S 2370 IS comply with paragraph (1)(A)(ii) by notifying em- 1 ployees that the employer wishes to obtain from each 2 qualifying employee an affirmative election either to 3 contribute or not to contribute to an automatic IRA, 4 provided that any qualifying employee who fails to 5 make such an election is treated in the manner pro- 6 vided under paragraph (1)(A)(ii). 7 ‘‘(3) ADMINISTRATIVE REQUIREMENTS.— 8 ‘‘(A) PAYMENTS.—The requirements of 9 this paragraph are met with respect to any 10 automatic IRA arrangement if the employer 11 makes the payments elected or treated as elect- 12 ed under paragraph (1)(A)— 13 ‘‘(i) on or before the last day of the 14 month following the month in which the 15 compensation otherwise would have been 16 payable to the employee in cash, 17 ‘‘(ii) before such later deadline pre- 18 scribed by the Secretary for making such 19 payments, but not later than the due date 20 for the deposit of tax required to be de- 21 ducted and withheld under chapter 24 (re- 22 lating to collection of income tax at source 23 on wages) for the payroll period to which 24 such payments relate, or 25 VerDate Sep 11 2014 03:16 Aug 08, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S2370.IS S2370 kjohnson on DSK79L0C42 with BILLS 13 •S 2370 IS ‘‘(iii) as early as administratively 1 practicable. 2 ‘‘(B) TERMINATION OF EMPLOYEE PAR- 3 TICIPATION.—Subject to a requirement for rea- 4 sonable notice, an employee may elect to termi- 5 nate participation in the arrangement at any 6 time during a calendar year, except that if an 7 employee so terminates, the arrangement may 8 provide that the employee may not elect to re- 9 sume participation until the beginning of the 10 next calendar year. 11 ‘‘(C) NOTICE OF ELECTION PERIOD.—The 12 requirements of this paragraph shall not be 13 treated as met with respect to any year unless 14 the employer notifies each employee eligible to 15 participat [Text truncated for display. 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