[10491]
November 17, 1998
TO: PENSION COMMITTEE No. 79-98
RE: REPRESENTATIVE BLUNT'S BILL ON SMALL EMPLOYER RETIREMENT
PLANS
______________________________________________________________________________
As discussed at the Pension Committee meeting on October 22, 1998, Representative Blunt (R-
MO) introduced a bill (H.R. 3870) in the last session of Congress, which would create a hybrid defined
contribution plan for small employers. This small employer plan would include features of both a profit
sharing plan and a money purchase plan. A H.R. 3870 type plan would be available to employers with
100 or fewer employees who have not previously sponsored a qualified retirement plan for their
employees. Under the plan, all employees who worked more than 1000 hours for the employer in the
previous calendar year and who were 21 years or older would be permitted to participate in the plan. An
employer would be required to make a fixed annual contribution of not less than 3 percent and not
greater than 10 percent of each participant’s compensation to the plan and the contribution would be
required to be a uniform percentage of compensation for all employees.
In addition, the plan would permit an employer to make discretionary contributions to the
participant’s account of up to 15 percent of compensation. The discretionary portion of the plan may be
structured to include a 401(k) plan. Annual contributions to the plan would be limited to the lesser of
25% of compensation or $30,000 per year. H.R. 3870 would impose a three year cliff or six year graded
vesting schedule for employer contributions. The top heavy rules under section 416 of the code would
not apply to H.R. 3870 plans.
H.R. 3870 would also provide a tax credit for the administrative cost of the plan for the first five
years of plan operation for plans implemented before December 31, 2000. The tax credit would be
limited to 50 percent of the administrative costs associated with the plan, up to $2,000 for the first year
the plan is established and up to $1,000 a year for the next four years.
Finally, H.R. 3870 would exempt “one participant” retirement plans, i.e., plans that cover only
the employer and the employer’s wife and that hold assets of $50,000 or less, from the annual return
filing requirement.
A copy of the bill is attached.
Kathryn A. Ricard
Assistant Counsel
Attachment