HR 874 IH

To reform Social Security by creating individual Social Security retirement accounts.

February 25, 1999

Mr. PORTER (for himself, Mr. BACHUS, Mr. SANFORD, Mr. ISTOOK, Mr. SHAYS, and Mr. SMITH of Michigan) introduced the following bill; which was referred to the Committee on Ways and Means

To reform Social Security by creating individual Social Security retirement accounts.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Individual Social Security Retirement Accounts Act of 1999'.

SEC. 2. REDUCTION AND ELIMINATION OF SOCIAL SECURITY TAXES ON INDIVIDUALS ELECTING TO PARTICIPATE IN INDIVIDUAL RETIREMENT PROGRAM.

(a) TAX ON EMPLOYEES- Subsection (a) of section 3101 of the Internal Revenue Code of 1986 (relating to OASDI tax on employees) is amended to read as follows:

`(a) OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE-

`(1) INDIVIDUALS COVERED UNDER PART A OF TITLE II OF THE SOCIAL SECURITY ACT- In addition to other taxes, there is hereby imposed on the income of every individual who is not a part B eligible individual a tax equal to 6.2 percent of the wages (as defined in section 3121(a)) received by him with respect to employment (as defined in section 3121(b)).

`(2) TRANSITIONAL TAX FOR PART B ELIGIBLE INDIVIDUALS- In addition to other taxes, there is hereby imposed on the income of every individual who is a part B eligible individual a tax equal to 1.2 percent with respect to wages (as defined in section 3121(a)) received by him with respect to employment (as defined in section 3121(b)), in the case of wages received during the period of 10 years beginning with the first calendar year for which such individual is a part B eligible individual.'

(b) TAX ON EMPLOYERS- Subsection (a) of section 3111 of the Internal Revenue Code of 1986 (relating to OASDI tax on employers) is amended to read as follows:

`(a) OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE-

`(1) INDIVIDUALS COVERED UNDER PART A OF THE SOCIAL SECURITY ACT- In addition to other taxes, there is hereby imposed on every employer, with respect to having in the employer's employ individuals who are not part B eligible individuals, an excise tax equal to 6.2 percent of the wages (as defined in section 3121(a)) paid by him with respect to employment (as defined in section 3121(b)).

`(2) TRANSITIONAL TAX FOR PART B ELIGIBLE INDIVIDUALS- In addition to other taxes, there is hereby imposed on every employer an excise tax, with respect to having in the employer's employ individuals who are part B eligible individuals, equal to 1.2 percent of the wages (as defined in section 3121(a)) paid by him with respect to employment (as defined in section 3121(b)), in the case of wages received during the period of 10 years beginning with the first calendar year for which such individual is a part B eligible individual.'

(c) SELF-EMPLOYMENT TAX- Subsection (a) of section 1401 of such Code (relating to OASDI tax on self-employment income) is amended to read as follows:

`(a) OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE-

`(1) INDIVIDUALS COVERED UNDER PART A OF THE SOCIAL SECURITY ACT- In addition to other taxes, there shall be imposed for each taxable year, on the self-employment income of every individual who is not a part B eligible individual for the calendar year ending with or during such taxable year, a tax equal to 12.40 percent of the amount of the self-employment income for such taxable year.

`(2) TRANSITIONAL TAX FOR PART B ELIGIBLE INDIVIDUALS- In addition to other taxes, there shall be imposed for each taxable year, on the self-employment income of every part B eligible individual for the calendar year ending with or during such taxable year, a tax equal to 2.40 percent of the amount of the self-employment income for such taxable year, in the case of a taxable year ending during the period of 10 years beginning with the first

calendar year for which such individual is a part B eligible individual.'

(d) PART B ELIGIBLE INDIVIDUAL-

(1) TAXES ON EMPLOYEES AND EMPLOYERS- Section 3121 of such Code (relating to definitions) is amended by inserting after subsection (s) the following new subsection:

`(t) PART B ELIGIBLE INDIVIDUAL- For purposes of this chapter, the term `part B eligible individual' means, for any calendar year, an individual who is an eligible individual (as defined in section 257(3) of the Social Security Act) for such calendar year.'.

(2) SELF-EMPLOYMENT TAX- Section 1402 of such Code (relating to definitions) is amended by adding at the end the following new subsection:

`(k) PART B ELIGIBLE INDIVIDUAL- The term `part B eligible individual' means, for any calendar year, an individual who is an eligible individual (as defined in section 257(3) of the Social Security Act) for such calendar year.'.

(e) EFFECTIVE DATES-

(1) IN GENERAL- Except as otherwise provided in this subsection, the amendments made by this section shall apply to remuneration paid after December 31, 2001.

(2) SELF-EMPLOYMENT TAX- The amendments made by subsections (c) and (d)(2) shall apply to taxable years ending after December 31, 2001.

SEC. 3. INDIVIDUAL SOCIAL SECURITY RETIREMENT ACCOUNTS FUNDED BY SOCIAL SECURITY PAYROLL DEDUCTION PLANS AND CONTRIBUTIONS BY SELF-EMPLOYED INDIVIDUALS.

(a) IN GENERAL- Title II of the Social Security Act is amended--

(1) by inserting before section 201 the following:

`Part A--Insurance Benefits';

and

(2) by adding at the end the following new part:

`Part B--Individual Retirement Program

`SOCIAL SECURITY PAYROLL DEDUCTION PLANS

`SEC. 251. (a) IN GENERAL- Each person who is a covered employer for any calendar year shall have in effect throughout such calendar year a social security payroll deduction plan for such person's employees who are eligible individuals and with respect to whose employment by such employer during such calendar year there is, or would be (but for the amendments made by section 2 of the Individual Social Security Retirement Accounts Act of 1999), imposed an excise tax under section 3111 of the Internal Revenue Code of 1986.

`(b) REQUIREMENTS- For purposes of this part, the term `social security payroll deduction plan' means a written plan of a covered employer if--

`(1) under such plan, 5 percent of the employee's wages is deducted by the employer and paid to the employee's individual social security retirement account within 10 business days after the date of payment of such wages,

`(2) under such plan, the covered employer pays to the individual social security retirement account, together with the contribution paid pursuant to paragraph (1), an additional amount equal to 5 percent of the employee's wages, and

`(3) the employer receives no compensation for the cost of administering such plan.

`DESIGNATION OF INDIVIDUAL SOCIAL SECURITY RETIREMENT ACCOUNTS

`SEC. 252. (a) IN GENERAL- Except as provided in subsection (b), the individual social security retirement account to which contributions with respect to any eligible individual are required to be paid by a covered employer under section 251 shall be such an account designated by such individual to such employer not later than 10 business days after the date on which such individual becomes an employee of such employer. Each employer of an eligible individual shall require the individual to designate such account as provided under this subsection as a prerequisite for continued employment. Any such designation shall be made in such form and manner as shall be prescribed in regulations of the Commissioner of Social Security.

`(b) SUBSEQUENT DESIGNATION OF OTHER ACCOUNTS- The Commissioner shall provide by regulation for subsequent designation from time to time of another individual social security retirement account of an eligible individual in lieu of the account previously designated under this section.

`SELF-EMPLOYED INDIVIDUALS

`SEC. 253. (a) IN GENERAL- Not later than 30 days after the close of any taxable year for which an eligible individual has self-employment income, such individual shall pay to an individual social security retirement account designated by such individual an amount equal to at least 10 percent of such income.

`(b) DESIGNATION OF ACCOUNT- The designation of an individual social security retirement account for payment of contributions under this section shall be made in such form and manner as shall be prescribed in regulations of the Commissioner of Social Security.

`ELECTION TO BECOME AN ELIGIBLE INDIVIDUAL

`SEC. 254. (a) IN GENERAL- An individual--

`(1) who has attained age 18 and has not attained age 62, and

`(2) who is not entitled to disability insurance benefits under section 223,

may elect to become an eligible individual for purposes of this part. An election under this section is an election filed in such form and manner as shall be prescribed in regulations of the Commissioner, consisting of a written and signed declaration of such individual's intention to become an eligible individual for purposes of this part.

`(b) REQUIREMENTS- Any election under subsection (a) may take effect for any calendar year after 2001 and must be so filed not later than December 15 preceding the calendar year for which the election is to take effect (or December 31 preceding such calendar year in the case of an individual attaining age 18 after such December 15 and before such calendar year).

`(c) IRREVOCABILITY- Any election under subsection (a) shall be irrevocable and shall be effective with respect to wages paid in calendar years following the election and with respect to self-employment income for taxable years ending during such calendar years.

`DISABILITY INSURANCE AND PRERETIREMENT SURVIVOR BENEFITS

`SEC. 255. (a) IN GENERAL- A trustee of an individual social security retirement account shall purchase, from amounts available in the account, disability insurance and preretirement survivor benefits for each account holder in accordance with this section.

`(b) DISABILITY INSURANCE- Under regulations of the Commissioner of Social Security, any policy for disability insurance purchased pursuant to subsection (a) shall meet at least the same standards for eligibility and benefit levels for account holders and their spouses, surviving spouses, former spouses, and children, as are applicable for beneficiaries under the disability insurance program under part A, except that such benefits shall not terminate by reason of retirement.

`(c) PRERETIREMENT SURVIVOR BENEFITS- Under regulations of the Commissioner of Social Security, any policy for preretirement survivor benefits purchased pursuant to subsection (a) shall provide benefits to beneficiaries of the account holders in such form and in such amounts as are necessary, taking into account distributions from the account, to meet at least the same standards for eligibility and benefit levels applicable for widow's, widower's, and child's insurance benefits under part A.

`ENTITLEMENT TO SUPPLEMENTAL MINIMUM BENEFIT PAYMENT TO ACCOUNT

`SEC. 256. (a) IN GENERAL- In any case in which--

`(1) an eligible individual attains age 62,

`(2) as of the date on which the individual attains age 62, no distributions have been made by the individual from any individual social security retirement account, and

`(3) on such date, the balance in such individual's individual social security retirement account (before any distributions on such date) is less than the minimum retirement annuity amount,

such individual, upon application to the Commissioner of Social Security filed on or after such date in such form and manner as shall be prescribed by the Commissioner, shall be entitled to a supplemental minimum benefit payment to such account. Upon receipt of such application, the Commissioner shall certify to the Secretary of the Treasury the amount of such payment, and the Secretary shall pay the amount of such payment to such account in accordance with such certification from funds otherwise available in the general fund of the Treasury.

`(b) AMOUNT OF SUPPLEMENTAL MINIMUM BENEFIT PAYMENT- The amount of a supplemental minimum benefit payment payable to an eligible individual's account under subsection (a) is the excess (if any) of--

`(1) the minimum retirement annuity amount, over

`(2) the balance in such account as of such date (taking into account the present value of the future proceeds of any contribution recognition bond issued to the trustee of the individual's account pursuant to section 6 of the Individual Social Security Retirement Accounts Act of 1999).

`(c) DEFINITIONS- For purposes of this section--

`(1) MINIMUM RETIREMENT ANNUITY AMOUNT- The term `minimum retirement annuity amount' means the amount (determined under regulations of the Commissioner of Social Security) necessary to purchase a minimum retirement annuity on the date of the application filed pursuant to subsection (a).

`(2) MINIMUM RETIREMENT ANNUITY- The term `minimum retirement annuity' means an immediate annuity making payments over the life expectancy of the account holder which (on a monthly basis) are equal to the lesser of--

`(A) an amount equal to 95 percent of the account holder's initial primary insurance amount (determined under section 215 as if section 202(y) did not apply and the account holder applied for old-age insurance benefits on the date of the application filed pursuant to subsection (a)), or

`(B) 40 percent of the account holder's average indexed monthly earnings (as so determined),

`(3) IMMEDIATE ANNUITY- The term `immediate annuity' means an annuity--

`(A) which is purchased with a single premium, and

`(B) the annuity starting date (as defined in paragraph (4) of section 72(c) of the Internal Revenue Code of 1986) of which commences on the 1st day of the month beginning after the date of the purchase of the annuity.

`DEFINITIONS

`SEC. 257. For purposes of this part--

`(1) INDIVIDUAL SOCIAL SECURITY RETIREMENT ACCOUNT- The term `individual social security retirement account' means any individual social security retirement account (as defined in section 408B of the Internal Revenue Code of 1986).

`(2) COVERED EMPLOYER-

`(A) IN GENERAL- The term `covered employer' means, for any calendar year, any person on whom an excise tax is, or would be (but for the amendments made by the Individual Social Security Retirement Accounts Act of 1999), imposed under section 3111 of the Internal Revenue Code of 1986 with respect to having an individual in his employ to whom wages were paid by such person during such calendar year.

`(B) GOVERNMENTAL ENTITIES- Under regulations of the Commissioner of Social Security, in applying subparagraph (A) with respect to employment by governmental entities, each such governmental entity shall be treated as a person described in subparagraph (A) in the same manner and to the same extent as such person is treated under chapter 21 of the Internal Revenue Code of 1986 for purposes of section 3111 of such Code.

`(3) ELIGIBLE INDIVIDUAL- The term `eligible individual' means, with respect to a calendar year, an individual with respect to whom an election, filed with the Commissioner of Social Security under section 254, is in effect for such calendar year.

`(4) BUSINESS DAY- The term `business day' means any day other than a Saturday, Sunday, or legal holiday in the area involved.

`PENALTIES

`SEC. 258. (a) FAILURE TO ESTABLISH SOCIAL SECURITY PAYROLL DEDUCTION PLAN- Any covered employer who fails to meet the requirements of section 251 or 252 for any calendar year shall be subject to a civil penalty of not to exceed the greater of--

`(1) $50,000, or

`(2) $1,000 for each eligible individual of such employer as of the beginning of such calendar year.

`(b) FAILURE TO MAKE DEDUCTIONS REQUIRED UNDER PLAN- Any covered employer who fails to timely deduct in full the amount from the wages of an eligible individual required under an applicable social security payroll deduction plan shall be subject to a civil penalty of not to exceed $50 for each such failure.

`(c) FAILURE TO PAY DEDUCTED WAGES TO INDIVIDUAL SOCIAL SECURITY RETIREMENT ACCOUNT- If an amount deducted from the wages of an eligible individual under a social security payroll deduction plan is not timely paid in full to the designated individual social security retirement account in accordance with section 251--

`(1) the covered employer failing to make such payment shall be subject to a civil penalty of not to exceed 20 percent of the unpaid amount, in addition to any penalty under subsection (a), and

`(2) shall be liable to the eligible individual for interest on the unpaid amount at a rate equal to 133 percent of the Federal short-term rate under section 1274(d)(1) of the Internal Revenue Code of 1986, calculated from the last day by which such amount was required to be so paid to the date on which such amount is paid into the designated individual social security retirement account.

`(d) FAILURE BY SELF-EMPLOYED INDIVIDUALS TO PAY CONTRIBUTIONS- Any individual failing to timely pay in full a prescribed social security self-employment contribution to a designated individual social security retirement account as required under section 253 shall be subject to a civil penalty of not to exceed 20 percent of the unpaid amount, plus interest on the unpaid amount at a rate equal to 133 percent of the Federal short-term rate under section 1274(d)(1) of the Internal Revenue Code of 1986, calculated from the last day by which such amount was required to be so paid to the date on which such amount is paid into the designated individual social security retirement account.

`(e) Rules for Application of Section-

`(1) PENALTIES ASSESSED BY COMMISSIONER OF SOCIAL SECURITY- Any civil penalty assessed by this section shall be imposed by the Commissioner of Social Security and collected in a civil action.

`(2) COMPROMISES- The Commissioner may compromise the amount of any civil penalty imposed by this section.

`(3) AUTHORITY TO WAIVE PENALTY IN CERTAIN CASES- The Commissioner may waive the application of this section with respect to any failure if the Commissioner determines that such failure is due to reasonable cause and not to intentional disregard of rules and regulations.'.

(b) AMOUNTS DEDUCTED TO BE SHOWN ON W-2 STATEMENTS- Subsection (a) of section 6051 of the Internal Revenue Code of 1986 (relating to receipts for employees) is amended--

(1) by striking `and' at the end of paragraph (8),

(2) by striking the period at the end of paragraph (9) and inserting `, and', and

(3) by inserting after paragraph (9) the following new paragraph:

`(10) the total amount deducted from the employee's wages under a social security payroll deduction plan established under part B of title II of the Social Security Act.'.

(c) EXEMPTION FROM ERISA REQUIREMENTS- Subsection (b) of section 4 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1003(b)) is amended--

(1) by striking `or' at the end of paragraph (4);

(2) by striking the period at the end of paragraph (5) and inserting `; or'; and

(3) by adding at the end the following new paragraph:

`(6) such plan is a social security payroll deduction plan established under part B of title II of the Social Security Act.'.

(d) CONFORMING AMENDMENTS- Section 201(h) of such Act (42 U.S.C. 401(h)) is amended--

(1) by striking `All other' in the second sentence and inserting `Except as provided in section 256, all other'; and

(2) by adding at the end the following new sentence: `Any reference in this part to benefits under this title shall be deemed a reference to benefits entitlement to which arises under this part.'.

SEC. 4. TAX TREATMENT OF INDIVIDUAL SOCIAL SECURITY RETIREMENT ACCOUNTS.

(a) IN GENERAL- Subpart A of part I of subchapter D of chapter 1 of the Internal Revenue Code of 1986 (relating to pension, profit-sharing, stock bonus plans, etc.) is amended by inserting after section 408A the following new section:

`SEC. 408B. INDIVIDUAL SOCIAL SECURITY RETIREMENT ACCOUNTS.

`(a) GENERAL RULE- Gross income shall not include--

`(1) any amount paid to an individual social security retirement account as the employer's contribution under section 251(b)(3) of the Social Security Act, or

`(2) 1/2 of the amount paid to an individual social security retirement account under section 253(a) of the Social Security Act.

`(b) INDIVIDUAL SOCIAL SECURITY RETIREMENT ACCOUNT- For purposes of this title, the term `individual social security retirement account' means a trust created or organized in the United States for the exclusive benefit of an eligible individual (as defined in section 257(3) of the Social Security Act) or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:

`(1) No contribution will be accepted, other than--

`(A) a contribution under paragraph (1) or (2) of section 251(b), or subsection (a) of section 253, of the Social Security Act,

`(B) in any taxable year, an aggregate amount not exceeding twice the total amount of contributions described in subparagraph (A) made in such taxable year,

`(C) a contribution recognition bond, and the proceeds thereof, issued under section 6 of the Individual Social Security Retirement Accounts Act of 1999, and

`(D) a supplemental minimum benefit payment under section 256 of the Social Security Act.

`(2) Except as provided in paragraph (12), no amount may be paid or distributed from such trust--

`(A) before the earlier of the date on which the account holder attains age 59 1/2 or the date on which the account holder dies, or

`(B) if the account holder has not died and the balance in the account immediately after the payment or distribution of such

amount would be less than the early distribution annuity amount (as defined in subsection (c)(2)).

Nothing in subparagraph (B) shall be construed to preclude the distribution of all or any portion of the balance in the account if such distribution is used exclusively for the purpose of purchasing an annuity under which payments are made in substantially equal periodic payments (not less frequently than annually) made for the life expectancy of the account holder.

`(3) The trustee is a bank (as defined in section 408(n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.

`(4) The trustee has registered with the Commissioner of Social Security (in such form and manner as the Commissioner may require) as a trustee of individual social security retirement accounts.

`(5) No part of the trust fund is invested in life insurance contracts.

`(6) The interest of an individual in the balance in his account is nonforfeitable.

`(7) The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund, which fund is comprised only of assets of individual social security retirement accounts.

`(8) Under the terms governing the account, contributions will be accepted irrespective of the amount of the contribution.

`(9) The same requirements as are applicable with respect to trusts under paragraph (9) of section 401(a) (relating to required distributions) are met with respect to the account.

`(10) The same requirements as are applicable with respect to trusts under paragraph (11) of section 401(a) (relating to joint and survivor annuity and preretirement survivor annuity) are met with respect to the account (disregarding subparagraph (B) thereof), as if the annuity starting date with respect to the account holder is the earliest date on which amounts may be distributed under paragraph (2).

`(11) The account holder certifies that such trust is the only individual social security retirement account of the holder.

`(12) Under terms governing the account, amounts may be distributed from such trust to purchase disability insurance or a policy providing for preretirement survivor benefits under section 255 of the Social Security Act.

Paragraphs (1), (2), and (10) shall not apply to a direct trustee-to-trustee transfer to a successor individual social security retirement account of the same individual.

`(c) REQUIREMENTS-

`(1) REQUIREMENTS RELATING TO TRUSTEE-

`(A) TRUSTEE- A trustee meets the requirements of subsection (b)(3) if--

`(i) the trustee is in business exclusively as a trustee of individual social security retirement accounts, and

`(ii) the trustee is of good character and is a substantial concern, produces evidence of financial capability, demonstrates financial soundness, and provides appropriate surety.

`(B) REPLACEMENT OF TRUSTEE IN CASE OF BANKRUPTCY- In the case of a trustee of an individual social security retirement account with respect to which there is filed a bankruptcy petition (or upon the initiation of a similar judicial proceeding) against the trustee, the Secretary shall designate a successor trustee.

`(C) STATUS AS FIDUCIARY- Under the terms of an individual social security retirement account, the trustee of the account shall, with respect to the account, have the status of a fiduciary (within the meaning of the first sentence of section 3(21)(A) of the Employee Retirement Income Security Act of 1974). The trustee shall, with respect to the account, be treated as a fiduciary for purposes of section 4975(e) (as applicable under subsection (f)(3)).

`(2) EARLY DISTRIBUTION ANNUITY AMOUNT- For purposes of subsection (b)(2)--

`(A) IN GENERAL- The term `early distribution annuity amount' means the amount (determined under regulations of the Secretary) necessary to purchase a minimum annuity on the date of the payment or distribution referred to in subsection (b)(2).

`(B) MINIMUM ANNUITY- For purposes of subparagraph (A), the term `minimum annuity' means an immediate annuity making payments over the life expectancy of the account holder which (on a monthly basis) are equal to the lesser of--

`(i) an amount equal to 95 percent of the account holder's initial primary insurance amount, determined under section 215 of the Social Security Act--

`(I) as if section 202(y) of such Act did not apply, and

`(II) as if the account holder applied for old-age insurance benefits on the date of the payment or distribution referred to in subsection (b)(2), or

`(ii) 40 percent of the account holder's average indexed monthly earnings (as so determined),

`(C) IMMEDIATE ANNUITY- For purposes of subparagraph (B), the term `immediate annuity' means an annuity--

`(i) which is purchased with a single premium, and

`(ii) the annuity starting date (as defined in paragraph (4) of section 72(c) of the Internal Revenue Code of 1986) of which commences on the 1st day of the month beginning after the date of the purchase of the annuity.

`(3) INVESTMENT IN COLLECTIBLES TREATED AS A DISTRIBUTION- For purposes of this section, subsection (m) of section 408 shall apply.

`(d) ACCOUNT EXEMPT FROM TAX-

`(1) GENERAL RULE- Except as provided in paragraph (2), any individual social security retirement account is exempt from taxation under this subtitle. Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).

`(2) APPLICATION OF PROHIBITED TRANSACTIONS RULES, ETC- Rules similar to the rules of paragraphs (2), (3), and (4) of section 408(e) shall apply to individual social security retirement accounts.

`(e) TAXATION OF DISTRIBUTIONS-

`(1) IN GENERAL-

`(A) INCOME EXCLUSION- In the case of any amount paid or distributed from an individual social security retirement account--

`(i) the social security benefit amount shall be includible in gross income only if so includible under section 86, determined by treating the social security benefit amount as social security benefits (as defined in such section), and

`(ii) the supplemental retirement amount shall be includible in gross income to the extent that such amount is so includible under section 72, determined by treating the individual social security retirement account as an individual retirement plan in accordance with section 408(d)(2).

`(B) SOCIAL SECURITY BENEFIT AMOUNT- For purposes of subparagraph (A), the term `social security benefit amount' means the amount which bears the same ratio to the amount of the payment or distribution as the sum of the amounts contributed to the individual social security retirement account under subparagraphs (A), (C), and (D) of subsection (b)(1) bears to the total amount contributed to such account under subsection (b)(1).

`(C) SUPPLEMENTAL RETIREMENT AMOUNT- For purposes of subparagraph (A), the term `supplemental retirement amount' means the amount which bears the same ratio to the amount of the payment or distribution as the sum of the amounts contributed to the individual social security retirement account under subparagraph (B) of subsection (b)(1) bears to the total amount contributed to such account under subsection (b)(1).

`(2) TREATMENT OF ROLLOVERS- No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer from an individual social security retirement account of an individual to a successor individual social security retirement account of the same individual if such transfer is made in accordance with section 408(d)(3)(A)(i).

`(3) TREATMENT OF DISABILITY INSURANCE AND PRERETIREMENT BENEFIT POLICY PREMIUMS- No amount shall be includible in gross income to the extent that such amount is a premium for the purchase of disability insurance or a policy providing for preretirement survivor benefits pursuant to section 255 of the Social Security Act.

`(4) TREATMENT OF COLLECTIBLES- Amounts treated as a distribution under subsection (c)(3) shall be includible in gross income and paragraph (1) of section 72(t) shall apply to such amounts.

`(f) CERTAIN OTHER RULES TO APPLY- The following rules shall apply to individual social security retirement accounts in the same manner that such rules apply to individual retirement accounts:

`(1) Section 408(h) (relating to custodial accounts).

`(2) Sections 408(i) and 6693 (relating to reports).

`(3) Section 4975 (relating to prohibited transactions).'.

(b) EXCESS CONTRIBUTIONS-

(1) IN GENERAL- Subsection (a) of section 4973 of the Internal Revenue Code of 1986 is amended by striking `or' at the end of paragraph (3), by inserting `or' at the end of paragraph (4), and by inserting after paragraph (4) the following new paragraph:

`(5) an individual social security retirement account (as defined in section 408B),'.

(2) EXCESS CONTRIBUTIONS DEFINED- Section 4973 of such Code is amended by adding at the end the following new subsection:

`(g) EXCESS CONTRIBUTIONS TO INDIVIDUAL SOCIAL SECURITY RETIREMENT ACCOUNTS- For purposes of this section, in the case of contributions to an individual social security retirement account (within the meaning of section 408B(b)), the term `excess contributions' means with respect to a taxable year the sum of--

`(1) the excess (if any) of--

`(A) the amount contributed for the taxable year to such account (other than a qualified rollover contribution described in section 408B(e)(2)), over

`(B) the amount allowable as a contribution for that taxable year under section 408B(b)(1), and

`(2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of--

`(A) the distributions out of the account for such taxable year, and

`(B) the excess (if any) of the maximum amount allowable as a contribution under section 408B(b)(1) for such taxable year over the amount contributed to the account for the taxable year.

For purposes of this subsection, any contribution which is distributed from an individual social security retirement account in a distribution described in section 408(d)(4) shall be treated as an amount not contributed.'.

(c) CLERICAL AMENDMENT- The table of sections for subpart A of part I of subchapter D of chapter 1 of such Code is amended by inserting after the item relating to section 408A the following new item:

`Sec. 408B. Individual social security retirement accounts.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 5. NO COVERAGE UNDER OASDI UPON ELECTION TO BE ELIGIBLE INDIVIDUAL UNDER PART B.

(a) OLD-AGE AND SURVIVORS INSURANCE BENEFITS- Section 202 of the Social Security Act (42 U.S.C. 402) is amended by adding at the end the following new subsection:

`(y) Notwithstanding the preceding provisions of this section, an individual who has made an election under section 254 to be an eligible individual under part B shall be deemed (except for purposes of sections 226 and 226A) not entitled to benefits under this section for any month ending after the date of the election, and (except for purposes of sections 226 and 226A) no other individual shall be deemed entitled to benefits under this section for any month ending after the date of the election based on the wages or self-employment income of the individual who made the election.'.

(b) DISABILITY INSURANCE BENEFITS- Section 223 of such Act (42 U.S.C. 423) is amended by adding at the end the following new subsection:

`(j) Notwithstanding the preceding provisions of this section, an individual who has made an election under section 254 to be an eligible individual under part B shall be deemed (except for purposes of sections 226 and 226A) not entitled to benefits under this section for any month ending after the date of the election, and (except for purposes of sections 226 and 226A) no other individual shall be deemed entitled to benefits under section 202 for any month ending after the date of the election based on the wages or self-employment income of an individual who has made such an election.'.

SEC. 6. CONTRIBUTION RECOGNITION BONDS.

(a) CERTIFICATION OF CREDITED WAGES AND SELF-EMPLOYMENT INCOME- Not later than July 1 of the first calendar year for which an individual is an eligible individual (as defined in section 257(3) of the Social Security Act), the Commissioner of Social Security shall certify to the Secretary of the Treasury whether such individual was, as of immediately before such first calendar year, credited with wages and self-employment income under part A of title II of the Social Security Act.

(b) ISSUANCE OF BOND- Immediately upon receipt of certification under subsection (a) that such individual is so credited, the Secretary of the Treasury shall issue a contribution recognition bond to the trustee of the individual social security retirement account held by such individual. Such bond shall consist of an obligation of the United States to pay each month into the individual social security retirement account held by such individual, commencing with the applicable initial month, an amount equal to such individual's primary insurance amount, determined under section 215 of the Social Security Act as if section 202(y) of such Act did not apply and such individual had applied for old-age insurance benefits under section 202(a) of such Act for such month, and by taking into account average indexed monthly earnings based solely on those wages and self-employment income that were credited as described in subsection (a).

(c) APPLICABLE INITIAL MONTH- For purposes of subsection (b), the applicable initial month in connection with any individual is the later of--

(1) the month in which such individual attains age 62, or

(2) the month in which such individual first commences distributions from such individual's individual social security retirement account.

(d) ADDITIONAL PROVISIONS- The purposes for which obligations of the United States may be issued under chapter 31 of title 31, United States Code, are hereby extended to authorize the issuance of public debt obligations consisting of contribution recognition bonds issued under this section. Each such obligation shall be evidenced by a paper instrument in the form of a bond issued by the Secretary setting forth the terms specified in this subsection, and stating on its face that the obligation shall be incontestable in the hands of the trustee of such account, that the obligation is supported by the full faith and credit of the United States, and that the United States is pledged to the payment of the obligation, to the credit of such account, in accordance with the provisions of this section.

SEC. 7. PHASED IN INCREASE IN SOCIAL SECURITY RETIREMENT AGE.

Section 216(l) of the Social Security Act (42 U.S.C. 416(l) is amended--

(1) by striking subparagraphs (B), (C), (D), and (E) of paragraph (1) and inserting the following new subparagraphs:

`(B) with respect to an individual who attains early retirement age (as determined under paragraph (2)) after December 31, 1999, and before January 1, 2029, 65 years of age plus 2/12 of the number of months in the period beginning with January 2000 and ending with December of the year in which the individual attains early retirement age (as so determined); and

`(C) with respect to an individual who attains early retirement age after December 31, 2028, 70 years of age.'; and

(2) by striking paragraph (3).

SEC. 8. ADJUSTED PERCENTAGES APPLIED TO AVERAGE INDEXED MONTHLY EARNINGS IN DETERMINING PRIMARY INSURANCE AMOUNTS.

(a) IN GENERAL- Section 215(a)(1)(B) of the Social Security Act (42 U.S.C. 415(a)(1)(B)) is amended by adding at the end the following new clause:

`(iii) For purposes of determinations made under this subsection taking effect in each calendar year after 2001, each percentage specified in clauses (i), (ii), and (iii) of subparagraph (A) shall be replaced with a percentage equal to the product derived by multiplying--

`(I) the percentage in effect for purposes of determinations made under this subsection in the prior calendar year, by

`(II) the applicable index ratio,

rounded to the nearest one-tenth of 1 percent.

`(iv) For purposes of clause (iii), the applicable index ratio in connection with determinations made under this subsection in any calendar year, means a ratio--

`(I) the numerator of which is 100 percent plus the percentage (rounded to the nearest one-tenth of 1 percent) by which the Consumer Price Index for December of the preceding calendar year exceeds the Consumer Price Index for December of the next prior calendar year, and

`(II) the denominator of which is 100 percent plus the percentage (rounded to the nearest one-tenth of 1 percent) by which the national average wage index (as defined in section 209(k)(1)) for the preceding calendar year exceeds such index for the next prior calendar year.'.

(b) CONFORMING AMENDMENT- Section 209(k)(1) of such Act (42 U.S.C. 409(k)(1)) is amended by inserting `215(a)(1)(B)(iii),' after `215(a)(1)(B)(ii),'.

SEC. 9. OFF-BUDGET TREATMENT FOR SOCIAL SECURITY REFORMS.

(a) IN GENERAL- In determining any new budget authority, outlays, receipts, deficit, or surplus for purposes of--

(1) the budget of the United States Government as submitted by the President,

(2) the congressional budget, or

(3) the Balanced Budget and Emergency Deficit Control Act of 1985,

any receipts or disbursements of the general fund of the Treasury and any indebtedness incurred by the Federal Government pursuant to the operation of the provisions of this Act or the amendments made thereby (other than administrative expenses of the Social Security Administration or the Department of the Treasury) shall not be taken into account.

(b) RULES OF CONSTRUCTION- Nothing in this Act (or the amendments made thereby) shall--

(1) affect the status as private property of amounts contributed to individual social security retirement accounts pursuant to section 251 or 253 of the Social Security Act (added by this Act) and any income attributable to such contributions, or

(2) supersede or otherwise affect the provisions of section 710 of the Social Security Act (relating to budgetary treatment of the social security trust funds) or section 13301 of the Budget Enforcement Act of 1990 (relating to off-budget status of OASDI trust funds).

(c) EXCLUSION OF PROGRAM FOR SOCIAL SECURITY REFORMS FROM CONGRESSIONAL BUDGET- Section 301(a) of the Congressional Budget Act of 1974 is amended in the last sentence by inserting `or of the operation of the provisions of the Individual Social Security Retirement Accounts Act of 1999 (and the amendments made thereby)' after `1986'.

SEC. 10. STUDY RELATING TO FEDERAL CIVILIAN AND MILITARY PERSONNEL.

(a) IN GENERAL- Not later than December 31, 2000, the Office of Personnel Management, after appropriate study, shall submit to the President and each House of the Congress a written report containing recommendations for the most appropriate and feasible means of providing for the application of this Act with respect to Federal civilian and military personnel.

(b) REQUIREMENTS- The report--

(1) shall be prepared in consultation with the Social Security Administration and other appropriate agencies, and

(2) shall be accompanied by draft legislation which, if enacted, would carry out the recommendations contained in such report.

END