To defer the tax of certain sales of employer stock and reduce certain retirement-related excise taxes, and for other purposes.

I 116TH CONGRESS 2D SESSION H. R. 8606 To defer the tax of certain sales of employer stock and reduce certain retirement-related excise taxes, and for other purposes. IN THE HOUSE OF REPRESENTATIVES OCTOBER 16, 2020 Mr. KIND (for himself, Mr. KELLY of Pennsylvania, and Mr. SMITH of Mis- souri) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Education and Labor, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdic- tion of the committee concerned A BILL To defer the tax of certain sales of employer stock and reduce certain retirement-related excise taxes, 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. DEFERRAL OF TAX FOR CERTAIN SALES OF EM- 3 PLOYER STOCK TO EMPLOYEE STOCK OWN- 4 ERSHIP PLAN SPONSORED BY S CORPORA- 5 TION. 6 (a) IN GENERAL.—Section 1042(c)(1)(A) of the In- 7 ternal Revenue Code of 1986 is amended by striking ‘‘do- 8 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 2 •HR 8606 IH mestic C corporation’’ and inserting ‘‘domestic corpora- 1 tion’’. 2 (b) EFFECTIVE DATE.—The amendment made by 3 this section shall apply to sales after the date of the enact- 4 ment of this Act. 5 SEC. 2. REDUCTION IN EXCISE TAX ON CERTAIN ACCUMU- 6 LATIONS IN QUALIFIED RETIREMENT PLANS. 7 (a) IN GENERAL.—Subsection (a) of section 4974 of 8 the Internal Revenue Code of 1986 is amended by striking 9 ‘‘50 percent’’ and inserting ‘‘25 percent’’. 10 (b) EFFECTIVE DATE.—The amendment made by 11 this section shall apply to taxable years beginning after 12 December 31, 2019. 13 SEC. 3. REDUCTION IN EXCISE TAX ON FAILURES TO TAKE 14 REQUIRED MINIMUM DISTRIBUTIONS. 15 (a) IN GENERAL.—Section 4974 of the Internal Rev- 16 enue Code of 1986, as amended by section 2 of this Act, 17 is further amended by adding at the end the following new 18 subsection: 19 ‘‘(e) REDUCTION OF TAX IN CERTAIN CASES.— 20 ‘‘(1) REDUCTION.—In the case of a taxpayer 21 who— 22 ‘‘(A) corrects, during the correction win- 23 dow, a shortfall of distributions from an indi- 24 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 3 •HR 8606 IH vidual retirement plan which resulted in imposi- 1 tion of a tax under subsection (a), and 2 ‘‘(B) submits a return, during the correc- 3 tion window, reflecting such tax (as modified by 4 this subsection), 5 the first sentence of subsection (a) shall be applied 6 by substituting ‘10 percent’ for ‘25 percent’. 7 ‘‘(2) CORRECTION WINDOW.—For purposes of 8 this subsection, the term ‘correction window’ means 9 the period of time beginning on the date on which 10 the tax under subsection (a) is imposed with respect 11 to a shortfall of distributions from an individual re- 12 tirement plan, and ending on the earlier of— 13 ‘‘(A) the date on which the Secretary initi- 14 ates an audit, or otherwise demands payment, 15 with respect to the shortfall of distributions, or 16 ‘‘(B) the last day of the second taxable 17 year that begins after the end of the taxable 18 year in which the tax under subsection (a) is 19 imposed.’’. 20 (b) EFFECTIVE DATE.—The amendment made by 21 this section shall apply to taxable years beginning after 22 the date of the enactment of this Act. 23 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 4 •HR 8606 IH SECTION 4. MULTIPLE EMPLOYER 403(b) PLANS. 1 (a) IN GENERAL.—Section 403(b) of the Internal 2 Revenue Code of 1986 is amended by adding at the end 3 the following new paragraph: 4 ‘‘(15) MULTIPLE EMPLOYER PLANS.— 5 ‘‘(A) IN GENERAL.—Except in the case of 6 a church plan, this subsection shall not be 7 treated as failing to apply to an annuity con- 8 tract solely by reason of such contract being 9 purchased under a plan maintained by more 10 than 1 employer. 11 ‘‘(B) TREATMENT OF EMPLOYERS FAILING 12 TO MEET REQUIREMENTS OF PLAN.— 13 ‘‘(i) IN GENERAL.—In the case of a 14 plan maintained by more than 1 employer, 15 this subsection shall not be treated as fail- 16 ing to apply to an annuity contract held 17 under such plan merely because of one or 18 more employers failing to meet the require- 19 ments of this subsection if such plan satis- 20 fies rules similar to the rules of section 21 413(e)(2) with respect to any such em- 22 ployer failure. 23 ‘‘(ii) ADDITIONAL REQUIREMENTS IN 24 CASE OF NON-GOVERNMENTAL PLANS.—A 25 plan shall not be treated as meeting the re- 26 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 5 •HR 8606 IH quirements of this subparagraph unless the 1 plan meets the requirements of subpara- 2 graph (A) or (B) of section 413(e)(1), ex- 3 cept in the case of a multiple employer 4 plan maintained solely by any of the fol- 5 lowing: A State, a political subdivision of a 6 State, or an agency or instrumentality of 7 any one or more of the foregoing.’’. 8 (b) ANNUAL REGISTRATION FOR 403(b) MULTIPLE 9 EMPLOYER PLAN.—Section 6057 of such Code is amend- 10 ed by redesignating subsection (g) as subsection (h) and 11 by inserting after subsection (f) the following new sub- 12 section: 13 ‘‘(g) 403(b) MULTIPLE EMPLOYER PLANS TREATED 14 AS ONE PLAN.—In the case of annuity contracts to which 15 this section applies and to which section 403(b) applies 16 by reason of the plan under which such contracts are pur- 17 chased meeting the requirements of paragraph (15) there- 18 of, such plan shall be treated as a single plan for purposes 19 of this section.’’. 20 (c) ANNUAL INFORMATION RETURNS FOR 403(b) 21 MULTIPLE EMPLOYER PLAN.—Section 6058 of the Inter- 22 nal Revenue Code of 1986 is amended by redesignating 23 subsection (f) as subsection (g) and by inserting after sub- 24 section (e) the following new subsection: 25 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 6 •HR 8606 IH ‘‘(f) 403(b) MULTIPLE EMPLOYER PLANS TREATED 1 AS ONE PLAN.—In the case of annuity contracts to which 2 this section applies and to which section 403(b) applies 3 by reason of the plan under which such contracts are pur- 4 chased meeting the requirements of paragraph (15) there- 5 of, such plan shall be treated as a single plan for purposes 6 of this section.’’. 7 (d) AMENDMENTS TO EMPLOYEE RETIREMENT AND 8 INCOME SECURITY ACT OF 1974.— 9 (1) TREATED AS POOLED EMPLOYER PLAN.— 10 (A) IN GENERAL.—Section 3(43)(A) of the 11 Employee Retirement and Income Security Act 12 of 1974 is amended— 13 (i) in clause (ii), by striking ‘‘section 14 501(a) of such Code or’’ and inserting 15 ‘‘501(a) of such Code, a plan that consists 16 of contracts described in section 403(b) of 17 such Code, or’’; and 18 (ii) in the flush text at the end, by 19 striking ‘‘the plan.’’ and inserting ‘‘the 20 plan, but such term shall include any pro- 21 gram (other than a governmental plan) 22 maintained for the benefit of the employees 23 of more than 1 employer that consists of 24 contracts described in section 403(b) of 25 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 7 •HR 8606 IH such Code and that meets the require- 1 ments of subparagraph (A) or (B) of sec- 2 tion 413(e)(1) of such Code.’’. 3 (B) CONFORMING AMENDMENTS.—Sec- 4 tions 3(43)(B)(v)(II) and 3(44)(A)(i)(I) of such 5 Act are each amended by striking ‘‘section 6 401(a) of such Code or’’ and inserting ‘‘401(a) 7 of such Code, a plan that consists of contracts 8 described in section 403(b) of such Code, or’’. 9 (2) FIDUCIARIES.—Section 3(43)(B)(ii) of such 10 Act is amended— 11 (A) by striking ‘‘trustees meeting the re- 12 quirements of section 408(a)(2) of the Internal 13 Revenue Code of 1986’’ and inserting ‘‘trustees 14 (or other fiduciaries in the case of a plan that 15 consists of contracts described in section 403(b) 16 of the Internal Revenue Code of 1986) meeting 17 the requirements of section 408(a)(2) of such 18 Code’’, and 19 (B) by striking ‘‘holding’’ and inserting 20 ‘‘holding (or causing to be held under the terms 21 of a plan consisting of such contracts)’’. 22 (e) REGULATIONS RELATING TO PLAN TERMI- 23 NATION.—The Secretary of the Treasury (or the Sec- 24 retary’s designee) shall prescribe such regulations as may 25 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 8 •HR 8606 IH be necessary to clarify the treatment of a plan termination 1 by an employer in the case of plans to which section 2 403(b)(15) of such Code applies. 3 (f) MODIFICATION OF MODEL PLAN LANGUAGE.— 4 (1) PLAN NOTIFICATIONS.—The Secretary of 5 the Treasury (or the Secretary’s designee) shall 6 modify the model plan language published under sec- 7 tion 413(e)(5) of the Internal Revenue Code of 1986 8 to include language which notifies participating em- 9 ployers which are exempt from tax under section 10 501(a) of such Code that the plan is subject to the 11 Employee Retirement and Income Security Act of 12 1974 and that such employer is a plan sponsor with 13 respect to its employees participating in the multiple 14 employer plan and, as such, has certain fiduciary 15 duties with respect to the plan and to its employees. 16 (2) MODEL PLANS FOR MULTIPLE EMPLOYER 17 403(b) NON-GOVERNMENTAL PLANS.—For plans to 18 which section 403(b)(15)(A) of the Internal Revenue 19 Code of 1986 applies (other than a plan maintained 20 for its employees by a State, a political subdivision 21 of a State, or an agency or instrumentality of any 22 one or more of the foregoing) the Secretary shall 23 publish model plan language similar to model plan 24 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 9 •HR 8606 IH language published under section 413(e)(5) of such 1 Code. 2 (g) NO INFERENCE WITH RESPECT TO CHURCH 3 PLANS.—Regarding any application of section 403(b) of 4 the Internal Revenue Code of 1986 to an annuity contract 5 purchased under a church plan (as defined in section 6 414(e) of such Code) maintained by more than 1 em- 7 ployer, or to any application of rules similar to section 8 413(e) of such Code to such a plan, no inference shall 9 be made from section 403(b)(15)(A) of such Code (as 10 added by this Act) not applying to such plans. 11 (h) EFFECTIVE DATE.— 12 (1) IN GENERAL.—The amendments made by 13 this section shall apply to plan years beginning after 14 December 31, 2020. 15 (2) RULE OF CONSTRUCTION.—Nothing in the 16 amendments made by subsection (a) shall be con- 17 strued as limiting the authority of the Secretary of 18 the Treasury or the Secretary’s delegate (determined 19 without regard to such amendment) to provide for 20 the proper treatment of a failure to meet any re- 21 quirement applicable under such Code with respect 22 to one employer (and its employees) in the case of 23 a plan to which section 403(b)(15) applies. 24 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 10 •HR 8606 IH SEC. 5. APPLICATION OF CREDIT FOR SMALL EMPLOYER 1 PENSION PLAN STARTUP COSTS TO EMPLOY- 2 ERS WHICH JOIN AN EXISTING PLAN. 3 (a) IN GENERAL.—Section 45E(d)(3)(A) of the In- 4 ternal Revenue Code of 1986 is amended by striking ‘‘ef- 5 fective’’ and inserting ‘‘effective with respect to the eligible 6 employer’’. 7 (b) EFFECTIVE DATE.—The amendment made by 8 this section shall apply to eligible employer plans which 9 become effective with respect to the eligible employer after 10 the date of the enactment of this Act. 11 SEC. 6. HARMONIZATION OF TREATMENT OF IRAS WITH 12 EMPLOYER PLANS. 13 (a) STATUTE OF LIMITATIONS.—Section 6501(l) of 14 the Internal Revenue Code of 1986 is amended— 15 (1) in paragraph (1), by inserting ‘‘(other than 16 with respect to an individual retirement plan)’’ after 17 ‘‘section 4975’’, and 18 (2) by adding at the end the following new 19 paragraph: 20 ‘‘(4) INDIVIDUAL RETIREMENT PLANS.—For 21 purposes of any tax imposed by section 4973, 4974, 22 or 4975 in connection with an individual retirement 23 plan, the return referred to in this section shall be 24 the income tax return filed by the person on whom 25 the tax under such section is imposed for the year 26 VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS 11 •HR 8606 IH in which the act (or failure to act) giving rise to the 1 liability for such tax occurred. In the case of a per- 2 son who is not required to file an income tax return 3 for such year— 4 ‘‘(A) the return referred to in this section 5 shall be the income tax return that such person 6 would have been required to file but for the fact 7 that such person was not required to file such 8 return, and 9 ‘‘(B) the 3-year period referred to in sub- 10 section (a) with respect to the return shall be 11 deemed to begin on the date by which the re- 12 turn would have been required to be filed (ex- 13 cluding any extension thereof).’’. 14 (b) EFFECTIVE DATE.—The amendments made by 15 this section shall apply to plan years beginning after De- 16 cember 31, 2020. 17 Æ VerDate Sep 11 2014 01:39 Nov 05, 2020 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6301 E:\BILLS\H8606.IH H8606 pamtmann on DSKBC07HB2PROD with BILLS