S 988

S 988 IS

To amend the Internal Revenue Code of 1986 to allow small businesses to set up simple cafeteria plans to provide nontaxable employee benefits to their employees, to make changes in the requirements for cafeteria plans, flexible spending accounts, and benefits provided under such plans or accounts, and for other purposes.

May 6, 2009

Ms. SNOWE (for herself, Mr. BOND, and Mr. BINGAMAN) introduced the following bill; which was read twice and referred to the Committee on Finance

To amend the Internal Revenue Code of 1986 to allow small businesses to set up simple cafeteria plans to provide nontaxable employee benefits to their employees, to make changes in the requirements for cafeteria plans, flexible spending accounts, and benefits provided under such plans or accounts, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

(a) Short Title- This Act may be cited as the ‘SIMPLE Cafeteria Plan Act of 2009’.

(b) Amendment of 1986 Code- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

SEC. 2. ESTABLISHMENT OF SIMPLE CAFETERIA PLANS FOR SMALL BUSINESSES.

(a) In General- Section 125 (relating to cafeteria plans) is amended by redesignating subsections (i) and (j) as subsections (j) and (k), respectively, and by inserting after subsection (h) the following new subsection:

‘(i) Simple Cafeteria Plans for Small Businesses-

‘(1) IN GENERAL- An eligible employer maintaining a simple cafeteria plan with respect to which the requirements of this subsection are met for any year shall be treated as meeting any applicable nondiscrimination requirement with respect to benefits provided under the plan during such year.

‘(2) SIMPLE CAFETERIA PLAN- For purposes of this subsection, the term ‘simple cafeteria plan’ means a cafeteria plan--

‘(A) which is established and maintained by an eligible employer, and

‘(B) with respect to which the contribution requirements of paragraph (3), and the eligibility and participation requirements of paragraph (4), are met.

‘(3) CONTRIBUTIONS REQUIREMENTS-

‘(A) IN GENERAL- The requirements of this paragraph are met if, under the plan--

‘(i) the employer makes matching contributions on behalf of each employee who is eligible to participate in the plan and who is not a highly compensated or key employee in an amount equal to the elective plan contributions of the employee to the plan to the extent the employee’s elective plan contributions do not exceed 3 percent of the employee’s compensation, or

‘(ii) the employer is required, without regard to whether an employee makes any elective plan contribution, to make a contribution to the plan on behalf of each employee who is not a highly compensated or key employee and who is eligible to participate in the plan in an amount equal to at least 2 percent of the employee’s compensation.

‘(B) MATCHING CONTRIBUTIONS ON BEHALF OF HIGHLY COMPENSATED AND KEY EMPLOYEES- The requirements of subparagraph (A)(i) shall not be treated as met if, under the plan, the rate of matching contribution with respect to any elective plan contribution of a highly compensated or key employee at any rate of contribution is greater than that with respect to an employee who is not a highly compensated or key employee.

‘(C) SPECIAL RULES-

‘(i) TIME FOR MAKING CONTRIBUTIONS- An employer shall not be treated as failing to meet the requirements of this paragraph with respect to any elective plan contributions of any compensation, or employer contributions required under this paragraph with respect to any compensation, if such contributions are made no later than the 15th day of the month following the last day of the calendar quarter which includes the date of payment of the compensation.

‘(ii) FORM OF CONTRIBUTIONS- Employer contributions required under this paragraph may be made either to the plan to provide benefits offered under the plan or to any person as payment for providing benefits offered under the plan.

‘(iii) ADDITIONAL CONTRIBUTIONS- Subject to subparagraph (B), nothing in this paragraph shall be treated as prohibiting an employer from making contributions to the plan in addition to contributions required under subparagraph (A).

‘(D) DEFINITIONS- For purposes of this paragraph--

‘(i) ELECTIVE PLAN CONTRIBUTION- The term ‘elective plan contribution’ means any amount which is contributed at the election of the employee and which is not includible in gross income by reason of this section.

‘(ii) HIGHLY COMPENSATED EMPLOYEE- The term ‘highly compensated employee’ has the meaning given such term by section 414(q).

‘(iii) KEY EMPLOYEE- The term ‘key employee’ has the meaning given such term by section 416(i).

‘(4) MINIMUM ELIGIBILITY AND PARTICIPATION REQUIREMENTS-

‘(A) IN GENERAL- The requirements of this paragraph shall be treated as met with respect to any year if, under the plan--

‘(i) all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate, and

‘(ii) each employee eligible to participate in the plan may, subject to terms and conditions applicable to all participants, elect any benefit available under the plan.

‘(B) CERTAIN EMPLOYEES MAY BE EXCLUDED- For purposes of subparagraph (A)(i), an employer may elect to exclude under the plan employees--

‘(i) who have less than 1 year of service with the employer as of any day during the plan year,

‘(ii) who have not attained the age of 21 before the close of a plan year,

‘(iii) who are covered under an agreement which the Secretary of Labor finds to be a collective bargaining agreement if there is evidence that the benefits covered under the cafeteria plan were the subject of good faith bargaining between employee representatives and the employer, or

‘(iv) who are described in section 410(b)(3)(C) (relating to nonresident aliens working outside the United States).

A plan may provide a shorter period of service or younger age for purposes of clause (i) or (ii).

‘(5) ELIGIBLE EMPLOYER- For purposes of this subsection--

‘(A) IN GENERAL- The term ‘eligible employer’ means, with respect to any year, any employer if such employer employed an average of 100 or fewer employees on business days during either of the 2 preceding years. For purposes of this subparagraph, a year may only be taken into account if the employer was in existence throughout the year.

‘(B) EMPLOYERS NOT IN EXISTENCE DURING PRECEDING YEAR- If an employer was not in existence throughout the preceding year, the determination under subparagraph (A) shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current year.

‘(C) GROWING EMPLOYERS RETAIN TREATMENT AS SMALL EMPLOYER- If--

‘(i) an employer was an eligible employer for any year (a ‘qualified year’), and

‘(ii) such employer establishes a simple cafeteria plan for its employees for such year, then, notwithstanding the fact the employer fails to meet the requirements of subparagraph (A) for any subsequent year, such employer shall be treated as an eligible employer for such subsequent year with respect to employees (whether or not employees during a qualified year) of any trade or business which was covered by the plan during any qualified year. This subparagraph shall cease to apply if the employer employs an average of 200 more employees on business days during any year preceding any such subsequent year.

‘(D) SPECIAL RULES-

‘(i) PREDECESSORS- Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer.

‘(ii) AGGREGATION RULES- All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (n) or (o) of section 414, shall be treated as one person.

‘(6) APPLICABLE NONDISCRIMINATION REQUIREMENT- For purposes of this subsection, the term ‘applicable nondiscrimination requirement’ means any requirement under subsection (b) of this section, section 79(d), section 105(h), or paragraph (2), (3), (4), or (8) of section 129(d).

‘(7) COMPENSATION- The term ‘compensation’ has the meaning given such term by section 414(s).’.

(b) Effective Date- The amendments made by this section shall apply to years beginning after December 31, 2009.

SEC. 3. MODIFICATIONS OF RULES APPLICABLE TO CAFETERIA PLANS.