99–008

107TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 107–289

PROVIDING FOR CONSIDERATION OF H.R. 2269,

RETIREMENT SECURITY ADVICE ACT OF 2001

NOVEMBER 14, 2001.—Referred to the House Calendar and ordered to be printed

Ms. PRYCE of Ohio, from the Committee on Rules,

submitted the following

R E P O R T

[To accompany H. Res. 288]

The Committee on Rules, having had under consideration House

Resolution 288, by a nonrecord vote, report the same to the House

with the recommendation that the resolution be adopted.

SUMMARY OF PROVISIONS OF THE RESOLUTION

The resolution provides for consideration in the House of H.R.

2269, the Retirement Security Advice Act of 2001, under a modified

closed rule. The rule provides one hundred minutes of debate with

sixty minutes equally divided and controlled by the chairman and

ranking minority member of the Committee on Education and the

Workforce and forty minutes equally divided and controlled by the

chairman and ranking minority member of the Committee on Ways

and Means. The rule provides that, in lieu of the amendments recommended by the Committee on Education and the Workforce and

the Committee on Ways and Means now printed in the bill, the

amendment in the nature of a substitute printed in part A of this

report shall be considered as adopted. The rule waives all points

of order against consideration of the bill as amended.

The rule further provides for consideration of the amendment

printed in part B of this report if offered by Representative George

Miller of California or his designee, which shall be considered as

read and shall be separately debatable for one hour equally divided

and controlled by the proponent and an opponent. The rule waives

all points of order against the amendment printed in part B of this

report. Finally, the rule provides one motion to recommit with or

without instructions.

2

SUMMARY OF AMENDMENTS MADE IN ORDER UNDER THE RULE

(Summaries derived from information provided by amendment

sponsors.)

PART A

Summary of amendment to be considered as adopted

Amendment in the Nature of a Substitute. Combines the provisions reported by the Committee on Education and the Workforce

and the Committee on Ways and Means. Provides a statutory exemption from the prohibited transaction rules of the Employee Retirement Income Security Act (ERISA) and the Internal Revenue

Code (IRC) for: the provision of investment advice regarding plan

assets subject to the direction of plan participants and beneficiaries

to a plan, its participants and beneficiaries; the sale, acquisition,

or holding of securities or other property pursuant to such investment advice; and the direct or indirect receipt for fees or other compensation in connection with providing the advice. Requires an entity to be a ‘‘fiduciary adviser’’ and meet a series of detailed requirements to qualify for an exemption. Requires the fiduciary adviser to provide a clear and conspicuous written (including electronic) disclosure of: the fees or other compensation that the fiduciary adviser and its affiliates receive relating to the provision of

investment advice or a resulting sale or acquisition of securities or

other property (including from third parties); any interest of the fiduciary adviser (and its affiliates) in any security or other property

recommended, purchased or sold; any limitation placed on the fiduciary’s ability to provide advice; the advisory services offered; that

the adviser is acting as a fiduciary of the plan in connection with

the provision of such advice; and any information required to be

disclosed under applicable securities laws. Requires that this disclosure must be made at a time reasonably contemporaneous with

the initial provision of advice and annually thereafter, or it there

is a material change or at the participant’s request, and that the

disclosure must be written in a way that the average plan participant could understand the information. Requires that the terms of

the transaction be at least as favorable to the plan as an arm’s

length transaction would be, and the compensation received by the

fiduciary adviser (and its affiliates) in connection with any transaction to be reasonable. Also requires the fiduciary adviser to provide a written acknowledgment that it is acting as a fiduciary of

the plan to the plan sponsor and to comply with a 6-year recordkeeping requirement (for records necessary to determine whether

the conditions of the exemption have been met). Provides that a

plan sponsor or other fiduciary that arranges for a fiduciary adviser to provide investment advice to participants and beneficiaries

has no duty to monitor the specific investment advice given by the

fiduciary adviser to any particular recipient of advice, but the plan

sponsor or other fiduciary retains the duty of prudent selection and

periodic review of the fiduciary adviser.

3

PART B

Summary of amendment made in order under the rule

George Miller, Democratic Substitute. Under the Democratic substitute, the prohibited transaction rules under section 4975 of the

Internal Revenue Code, and sections 406 and 408 of the Employee

Retirement Security Act (ERISA) would be waived if the following

requirements are met:

1. Disclosure: At the time of providing advice with regard to the

sale, acquisition, or holding of the security or other property, the

advisor would be required to provide the plan participant or beneficiary under the plan with a clear and conspicuous notification of

the factors set forth below. The disclosure could be written or provided by electronic means in a manner to be reasonably understood

by the average plan participant. The Secretary would be required

to provide a model disclosure form pursuant to regulations. The

model disclosure form would include mathematical examples that

are understood by the average plan participant.

The advisor would be required to disclose any interest of such advisor, or any affiliation or contractual relationship of the advisor

with any third party who has an interest in the security or other

property. The advisor also would be required to disclose all fees

and other compensations (including ongoing fees and compensation) relating to the advice that the advisor (or any affiliate) is to

receive in connection with providing advice, or in connection with

the sale, acquisition, or holding of the security or other property.

2. Available option for independent advisor: In cases where the

advisor has an interest in the security or other property, or has an

affiliation or contractual relationship with any third party that has

an interest in the security or other property, the advisor would be

required to arrange, as an alternative to the advice that would otherwise be provided by the advisor, qualified investment advice with

respect to the security or the other property provided by at least

one alternative investment advisor meeting the qualification requirements set forth in the bill.

The alternative independent advice would be provided under the

same terms and conditions, including no additional charge to the

participant or beneficiary, as apply with respect to the investment

advice to be provided by the advisor.

3. Qualification of individuals providing advice: An individual

providing investment advice would be required to be (1) registered

as an investment advisor under the Investment Advisers Act of

1940, (2) if not registered under such act, registered under the laws

of the state in which the fiduciary maintains its principal office and

place of business, (3) registered as a broker or dealer under the Securities Exchange Act of 1934, (4) a bank or similar financial institution as defined in the Investment Advisers Act of 1940, (5) an insurance company qualified to do business under the laws of the

state, or (6) any other comparable qualified entity which satisfies

such criteria as the Secretary determines appropriate.

Additional requirements would be imposed on employees of the

entities listed above, and whose duties include providing qualified

investment advice. Such individuals would be required to be (a)

registered under the Investment Advisers Act or under state laws

as previously provided, (b) a registered broker or dealer under the

4

Securities Exchange Act, or (c) meet such other comparable standard as set forth by the Secretary.

4. Remedies available to plan participant: The plan participant

who successfully brings a cause of action under ERISA against the

fiduciary for a breach of fiduciary duty would be entitled to recover,

from the advisor, any economic loss suffered as a result of such

breach.

TEXT OF AMENDMENT TO BE CONSIDERED AS ADOPTED

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Retirement Security Advice Act of

2001’’.

SEC. 2. PROHIBITED TRANSACTION EXEMPTION FOR THE PROVISION

OF INVESTMENT ADVICE.

(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.— (1) EXEMPTION FROM PROHIBITED TRANSACTIONS.—Section

408(b) of the Employee Retirement Income Security Act of

1974 (29 U.S.C. 1108(b)) is amended by adding at the end the

following new paragraph:

‘‘(14)(A) Any transaction described in subparagraph (B) in

connection with the provision of investment advice described in

section 3(21)(A)(ii), in any case in which—

‘‘(i) the investment of assets of the plan is subject to the

direction of plan participants or beneficiaries,

‘‘(ii) the advice is provided to the plan or a participant

or beneficiary of the plan by a fiduciary adviser in connection with any sale, acquisition, or holding of a security or

other property for purposes of investment of plan assets,

and

‘‘(iii) the requirements of subsection (g) are met in connection with the provision of the advice.

‘‘(B) The transactions described in this subparagraph are the

following:

‘‘(i) the provision of the advice to the plan, participant,

or beneficiary;

‘‘(ii) the sale, acquisition, or holding of a security or

other property (including any lending of money or other

extension of credit associated with the sale, acquisition, or

holding of a security or other property) pursuant to the advice; and

‘‘(iii) the direct or indirect receipt of fees or other compensation by the fiduciary adviser or an affiliate thereof

(or any employee, agent, or registered representative of the

fiduciary adviser or affiliate) in connection with the provision of the advice or in connection with a sale, acquisition,

or holding of a security or other property pursuant to the

advice.’’.

(2) REQUIREMENTS.—Section 408 of such Act is amended further by adding at the end the following new subsection:

‘‘(g) REQUIREMENTS RELATING TO PROVISION OF INVESTMENT ADVICE BY FIDUCIARY ADVISERS.—

5

‘‘(1) IN GENERAL.—The requirements of this subsection are

met in connection with the provision of investment advice referred to in section 3(21)(A)(ii), provided to an employee benefit

plan or a participant or beneficiary of an employee benefit plan

by a fiduciary adviser with respect to the plan in connection

with any sale, acquisition, or holding of a security or other

property for purposes of investment of amounts held by the

plan, if—

‘‘(A) in the case of the initial provision of the advice with

regard to the security or other property by the fiduciary

adviser to the plan, participant, or beneficiary, the fiduciary adviser provides to the recipient of the advice, at a

time reasonably contemporaneous with the initial provision of the advice, a written notification (which may consist of notification by means of electronic communication)—

‘‘(i) of all fees or other compensation relating to the

advice that the fiduciary adviser or any affiliate thereof is to receive (including compensation provided by

any third party) in connection with the provision of

the advice or in connection with the sale, acquisition,

or holding of the security or other property, ‘‘(ii) of any material affiliation or contractual relationship of the fiduciary adviser or affiliates thereof in

the security or other property, ‘‘(iii) of any limitation placed on the scope of the investment advice to be provided by the fiduciary adviser with respect to any such sale, acquisition, or

holding of a security or other property, ‘‘(iv) of the types of services provided by the fiduciary advisor in connection with the provision of investment advice by the fiduciary adviser, and ‘‘(v) that the adviser is acting as a fiduciary of the

plan in connection with the provision of the advice,

‘‘(B) the fiduciary adviser provides appropriate disclosure, in connection with the sale, acquisition, or holding of

the security or other property, in accordance with all applicable securities laws,

‘‘(C) the sale, acquisition, or holding occurs solely at the

direction of the recipient of the advice,

‘‘(D) the compensation received by the fiduciary adviser

and affiliates thereof in connection with the sale, acquisition, or holding of the security or other property is reasonable, and

‘‘(E) the terms of the sale, acquisition, or holding of the

security or other property are at least as favorable to the

plan as an arm’s length transaction would be.

‘‘(2) STANDARDS FOR PRESENTATION OF INFORMATION.—The

notification required to be provided to participants and beneficiaries under paragraph (1)(A) shall be written in a clear and

conspicuous manner and in a manner calculated to be understood by the average plan participant and shall be sufficiently

accurate and comprehensive to reasonably apprise such participants and beneficiaries of the information required to be provided in the notification.

6

‘‘(3) EXEMPTION CONDITIONED ON CONTINUED AVAILABILITY OF

REQUIRED INFORMATION ON REQUEST FOR 1 YEAR.—The requirements of paragraph (1)(A) shall be deemed not to have been

met in connection with the initial or any subsequent provision

of advice described in paragraph (1) to the plan, participant, or

beneficiary if, at any time during the provision of advisory

services to the plan, participant, or beneficiary, the fiduciary

adviser fails to maintain the information described in clauses

(i) through (iv) of subparagraph (A) in currently accurate form

and in the manner described in paragraph (2) or fails— ‘‘(A) to provide, without charge, such currently accurate

information to the recipient of the advice no less than annually, ‘‘(B) to make such currently accurate information available, upon request and without charge, to the recipient of

the advice, or ‘‘(C) in the event of a material change to the information

described in clauses (i) through (iv) of paragraph (1)(A), to

provide, without charge, such currently accurate information to the recipient of the advice at a time reasonably contemporaneous to the material change in information. ‘‘(4) MAINTENANCE FOR 6 YEARS OF EVIDENCE OF COMPLI- ANCE.—A fiduciary adviser referred to in paragraph (1) who

has provided advice referred to in such paragraph shall, for a

period of not less than 6 years after the provision of the advice,

maintain any records necessary for determining whether the

requirements of the preceding provisions of this subsection and

of subsection (b)(14) have been met. A transaction prohibited

under section 406 shall not be considered to have occurred

solely because the records are lost or destroyed prior to the end

of the 6-year period due to circumstances beyond the control of

the fiduciary adviser. ‘‘(5) EXEMPTION FOR PLAN SPONSOR AND CERTAIN OTHER FIDU- CIARIES.—

‘‘(A) IN GENERAL.—Subject to subparagraph (B), a plan

sponsor or other person who is a fiduciary (other than a

fiduciary adviser) shall not be treated as failing to meet

the requirements of this part solely by reason of the provision of investment advice referred to in section 3(21)(A)(ii)

(or solely by reason of contracting for or otherwise arranging for the provision of the advice), if— ‘‘(i) the advice is provided by a fiduciary adviser pursuant to an arrangement between the plan sponsor or

other fiduciary and the fiduciary adviser for the provision by the fiduciary adviser of investment advice referred to in such section, ‘‘(ii) the terms of the arrangement require compliance by the fiduciary adviser with the requirements of

this subsection, and ‘‘(iii) the terms of the arrangement include a written

acknowledgment by the fiduciary adviser that the fiduciary adviser is a fiduciary of the plan with respect

to the provision of the advice.

‘‘(B) CONTINUED DUTY OF PRUDENT SELECTION OF ADVISER AND PERIODIC REVIEW.—Nothing in subparagraph

7

(A) shall be construed to exempt a plan sponsor or other

person who is a fiduciary from any requirement of this

part for the prudent selection and periodic review of a fiduciary adviser with whom the plan sponsor or other person enters into an arrangement for the provision of advice

referred to in section 3(21)(A)(ii). The plan sponsor or

other person who is a fiduciary has no duty under this

part to monitor the specific investment advice given by the

fiduciary adviser to any particular recipient of the advice. ‘‘(C) AVAILABILITY OF PLAN ASSETS FOR PAYMENT FOR AD- VICE.—Nothing in this part shall be construed to preclude

the use of plan assets to pay for reasonable expenses in

providing investment advice referred to in section

3(21)(A)(ii). ‘‘(6) DEFINITIONS.—For purposes of this subsection and subsection (b)(14)— ‘‘(A) FIDUCIARY ADVISER.—The term ‘fiduciary adviser’ means, with respect to a plan, a person who is a fiduciary

of the plan by reason of the provision of investment advice

by the person to the plan or to a participant or beneficiary

and who is— ‘‘(i) registered as an investment adviser under the

Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et

seq.) or under the laws of the State in which the fiduciary maintains its principal office and place of business, ‘‘(ii) a bank or similar financial institution referred

to in section 408(b)(4), ‘‘(iii) an insurance company qualified to do business

under the laws of a State, ‘‘(iv) a person registered as a broker or dealer under

the Securities Exchange Act of 1934 (15 U.S.C. 78a et

seq.), ‘‘(v) an affiliate of a person described in any of

clauses (i) through (iv), or

‘‘(vi) an employee, agent, or registered representative of a person described in any of clauses (i) through

(v) who satisfies the requirements of applicable insurance, banking, and securities laws relating to the provision of the advice.

‘‘(B) AFFILIATE.—The term ‘affiliate’ of another entity

means an affiliated person of the entity (as defined in section 2(a)(3) of the Investment Company Act of 1940 (15

U.S.C. 80a–2(a)(3))).

‘‘(C) REGISTERED REPRESENTATIVE.—The term ‘registered

representative’ of another entity means a person described

in section 3(a)(18) of the Securities Exchange Act of 1934

(15 U.S.C. 78c(a)(18)) (substituting the entity for the

broker or dealer referred to in such section) or a person described in section 202(a)(17) of the Investment Advisers

Act of 1940 (15 U.S.C. 80b–2(a)(17)) (substituting the entity for the investment adviser referred to in such section).’’. (b) AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.—

(1) EXEMPTION FROM PROHIBITED TRANSACTIONS.—Subsection

(d) of section 4975 of the Internal Revenue Code of 1986 (relatVerDate 06-NOV-2001 05:09 Nov 15, 2001 Jkt 099008 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR289.XXX pfrm01 PsN: HR289
8

ing to exemptions from tax on prohibited transactions) is

amended— (A) in paragraph (14), by striking ‘‘or’’ at the end;

(B) in paragraph (15), by striking the period at the end

and inserting ‘‘; or’’; and

(C) by adding at the end the following new paragraph: ‘‘(16) any transaction described in subsection (f)(7)(A) in connection with the provision of investment advice described in

subsection (e)(3)(B), in any case in which— ‘‘(A) the investment of assets of the plan is subject to the

direction of plan participants or beneficiaries, ‘‘(B) the advice is provided to the plan or a participant

or beneficiary of the plan by a fiduciary adviser in connection with any sale, acquisition, or holding of a security or

other property for purposes of investment of plan assets,

and‘‘(C) the requirements of subsection (f)(7)(B) are met in

connection with the provision of the advice.’’ (2) ALLOWED TRANSACTIONS AND REQUIREMENTS.—Subsection

(f) of such section 4975 (relating to other definitions and special rules) is amended by adding at the end the following new

paragraph: ‘‘(7) PROVISIONS RELATING TO INVESTMENT ADVICE PROVIDED

BY FIDUCIARY ADVISERS.— ‘‘(A) TRANSACTIONS ALLOWABLE IN CONNECTION WITH IN- VESTMENT ADVICE PROVIDED BY FIDUCIARY ADVISERS.—The

transactions referred to in subsection (d)(16), in connection

with the provision of investment advice by a fiduciary adviser, are the following: ‘‘(i) the provision of the advice to the plan, participant, or beneficiary; ‘‘(ii) the sale, acquisition, or holding of a security or

other property (including any lending of money or

other extension of credit associated with the sale, acquisition, or holding of a security or other property)

pursuant to the advice; and

‘‘(iii) the direct or indirect receipt of fees or other

compensation by the fiduciary adviser or an affiliate

thereof (or any employee, agent, or registered representative of the fiduciary adviser or affiliate) in connection with the provision of the advice or in connection with a sale, acquisition, or holding of a security

or other property pursuant to the advice.

‘‘(B) REQUIREMENTS RELATING TO PROVISION OF INVESTMENT ADVICE BY FIDUCIARY ADVISERS.—The requirements

of this subparagraph (referred to in subsection (d)(16)(C))

are met in connection with the provision of investment advice referred to in subsection (e)(3)(B), provided to a plan

or a participant or beneficiary of a plan by a fiduciary adviser with respect to the plan in connection with any sale,

acquisition, or holding of a security or other property for

purposes of investment of amounts held by the plan, if— ‘‘(i) in the case of the initial provision of the advice

with regard to the security or other property by the fiduciary adviser to the plan, participant, or beneficiary,

9

the fiduciary adviser provides to the recipient of the

advice, at a time reasonably contemporaneous with

the initial provision of the advice, a written notification (which may consist of notification by means of

electronic communication)— ‘‘(I) of all fees or other compensation relating to

the advice that the fiduciary adviser or any affiliate thereof is to receive (including compensation

provided by any third party) in connection with

the provision of the advice or in connection with

the sale, acquisition, or holding of the security or

other property, ‘‘(II) of any material affiliation or contractual relationship of the fiduciary adviser or affiliates

thereof in the security or other property, ‘‘(III) of any limitation placed on the scope of the

investment advice to be provided by the fiduciary

adviser with respect to any such sale, acquisition,

or holding of a security or other property, ‘‘(IV) of the types of services provided by the fiduciary advisor in connection with the provision of

investment advice by the fiduciary adviser, and ‘‘(V) that the adviser is acting as a fiduciary of

the plan in connection with the provision of the

advice, ‘‘(ii) the fiduciary adviser provides appropriate disclosure, in connection with the sale, acquisition, or

holding of the security or other property, in accordance

with all applicable securities laws, ‘‘(iii) the sale, acquisition, or holding occurs solely at

the direction of the recipient of the advice, ‘‘(iv) the compensation received by the fiduciary adviser and affiliates thereof in connection with the sale,

acquisition, or holding of the security or other property

is reasonable, and

‘‘(v) the terms of the sale, acquisition, or holding of

the security or other property are at least as favorable

to the plan as an arm’s length transaction would be.

‘‘(C) STANDARDS FOR PRESENTATION OF INFORMATION.— The notification required to be provided to participants

and beneficiaries under subparagraph (B)(i) shall be written in a clear and conspicuous manner and in a manner

calculated to be understood by the average plan participant and shall be sufficiently accurate and comprehensive

to reasonably apprise such participants and beneficiaries

of the information required to be provided in the notification. ‘‘(D) EXEMPTION CONDITIONED ON MAKING REQUIRED INFORMATION AVAILABLE ANNUALLY, ON REQUEST, AND IN THE

EVENT OF MATERIAL CHANGE.—The requirements of subparagraph (B)(i) shall be deemed not to have been met in

connection with the initial or any subsequent provision of

advice described in subparagraph (B) to the plan, participant, or beneficiary if, at any time during the provision of

advisory services to the plan, participant, or beneficiary,

10

the fiduciary adviser fails to maintain the information described in subclauses (I) through (IV) of subparagraph

(B)(i) in currently accurate form and in the manner required by subparagraph (C), or fails—

‘‘(i) to provide, without charge, such currently accurate information to the recipient of the advice no less

than annually,

‘‘(ii) to make such currently accurate information

available, upon request and without charge, to the recipient of the advice, or

‘‘(iii) in the event of a material change to the information described in subclauses (I) through (IV) of subparagraph (B)(i), to provide, without charge, such currently accurate information to the recipient of the advice at a time reasonably contemporaneous to the material change in information.

‘‘(E) MAINTENANCE FOR 6 YEARS OF EVIDENCE OF COMPLIANCE.—A fiduciary adviser referred to in subparagraph (B)

who has provided advice referred to in such subparagraph

shall, for a period of not less than 6 years after the provision of the advice, maintain any records necessary for determining whether the requirements of the preceding provisions of this paragraph and of subsection (d)(16) have

been met. A transaction prohibited under subsection (c)(1)

shall not be considered to have occurred solely because the

records are lost or destroyed prior to the end of the 6-year

period due to circumstances beyond the control of the fiduciary adviser.

‘‘(F) EXEMPTION FOR PLAN SPONSOR AND CERTAIN OTHER

FIDUCIARIES.—A plan sponsor or other person who is a fiduciary (other than a fiduciary adviser) shall not be treated as failing to meet the requirements of this section solely

by reason of the provision of investment advice referred to

in subsection (e)(3)(B) (or solely by reason of contracting

for or otherwise arranging for the provision of the advice),

if—

‘‘(i) the advice is provided by a fiduciary adviser pursuant to an arrangement between the plan sponsor or

other fiduciary and the fiduciary adviser for the provision by the fiduciary adviser of investment advice referred to in such section,

‘‘(ii) the terms of the arrangement require compliance by the fiduciary adviser with the requirements of

this paragraph,

‘‘(iii) the terms of the arrangement include a written

acknowledgment by the fiduciary adviser that the fiduciary adviser is a fiduciary of the plan with respect

to the provision of the advice, and

‘‘(iv) the requirements of part 4 of subtitle B of title

I of the Employee Retirement Income Security Act of

1974 are met in connection with the provision of such

advice.

‘‘(G) DEFINITIONS.—For purposes of this paragraph and

subsection (d)(16)—

11

‘‘(i) FIDUCIARY ADVISER.—The term ‘fiduciary adviser’ means, with respect to a plan, a person who is

a fiduciary of the plan by reason of the provision of investment advice by the person to the plan or to a participant or beneficiary and who is—

‘‘(I) registered as an investment adviser under

the Investment Advisers Act of 1940 (15 U.S.C.

80b–1 et seq.) or under the laws of the State in

which the fiduciary maintains its principal office

and place of business,

‘‘(II) a bank or similar financial institution referred to in subsection (d)(4),

‘‘(III) an insurance company qualified to do business under the laws of a State,

‘‘(IV) a person registered as a broker or dealer

under the Securities Exchange Act of 1934 (15

U.S.C. 78a et seq.),

‘‘(V) an affiliate of a person described in any of

subclauses (I) through (IV), or

‘‘(VI) an employee, agent, or registered representative of a person described in any of subclauses (I) through (V) who satisfies the requirements of applicable insurance, banking, and securities laws relating to the provision of the advice.

‘‘(ii) AFFILIATE.—The term ‘affiliate’ of another entity means an affiliated person of the entity (as defined

in section 2(a)(3) of the Investment Company Act of

1940 (15 U.S.C. 80a–2(a)(3))).

‘‘(iii) REGISTERED REPRESENTATIVE.—The term ‘registered representative’ of another entity means a person described in section 3(a)(18) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) (substituting

the entity for the broker or dealer referred to in such

section) or a person described in section 202(a)(17) of

the Investment Advisers Act of 1940 (15 U.S.C. 80b–

2(a)(17)) (substituting the entity for the investment

adviser referred to in such section).’’

SEC. 3. EFFECTIVE DATE.

The amendments made by this Act shall apply with respect to

advice referred to in section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974 or section 4975(e)(3)(B) of the Internal Revenue Code of 1986 provided on or after January 1, 2002.

TEXT OF AMENDMENT MADE IN ORDER UNDER THE RULE

AN AMENDMENT TO BE OFFERED BY REPRESENTATIVE GEORGE MILLER OF CALIFORNIA, OR A DESIGNEE, DEBATABLE FOR 60 MINUTES

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Retirement Security Advice Act of

2001’’.

12

SEC. 2. PROHIBITED TRANSACTION EXEMPTION FOR THE PROVISION

OF INVESTMENT ADVICE.

(a) AMENDMENTS TO THE INTERNAL REVENUE CODE OF 1986.—

(1) IN GENERAL.—Subsection (d) of section 4975 of the Internal Revenue Code of 1986 (relating to exemptions from tax on

prohibited transactions) is amended by striking ‘‘or’’ at the end

of paragraph (14), by striking the period at the end of paragraph (15) and inserting ‘‘; or’’; and by adding at the end the

following new paragraph:

‘‘(16) any transaction described in subsection (f)(7)(A) in connection with the provision of investment advice described in

subsection (e)(3)(B), in any case in which—

‘‘(A) the plan provides for individual accounts and permits a participant or beneficiary to exercise control over

assets in his or her account,

‘‘(B) the advice is qualified investment advice provided to

a participant or beneficiary of the plan by a fiduciary adviser in connection with any sale, acquisition, or holding of

a security or other property for purposes of investment of

plan assets, and

‘‘(C) the requirements of subsection (f)(7)(B) are met in

connection with each instance of the provision of the advice.’’.

(2) RULES RELATING TO INVESTMENT ADVICE PROVIDED BY FIDUCIARY ADVISERS.—Subsection (f) of section 4975 of such Code

(relating to other definitions and special rules) is amended by

adding at the end the following new paragraph:

‘‘(7) INVESTMENT ADVICE PROVIDED BY FIDUCIARY ADVISERS.—

‘‘(A) ALLOWABLE TRANSACTIONS.—The transactions described in this subsection, in connection with the provision

of investment advice by a fiduciary adviser, are the following:

‘‘(i) the provision of the advice to the participant or

beneficiary;

‘‘(ii) the sale, acquisition, or holding of a security or

other property (including any lending of money or

other extension of credit associated with the sale, acquisition, or holding of a security or other property)

pursuant to the advice; and

‘‘(iii) the direct or indirect receipt of fees or other

compensation by the fiduciary adviser or an affiliate

thereof (or any employee, agent, or registered representative of the fiduciary adviser or affiliate) in connection with the provision of the advice.

‘‘(B) REQUIREMENTS FOR EXEMPTION FROM PROHIBITED

TRANSACTIONS WITH RESPECT TO PROVISION OF INVESTMENT

ADVICE.—The requirements of this subparagraph are met

in connection with the provision of qualified investment

advice provided to a participant or beneficiary of an employee benefit plan by a fiduciary adviser with respect to

the plan in connection with any sale, acquisition, or holding of a security or other property for purposes of investment of amounts held by the plan, if the requirements of

the following clauses are met:

13

‘‘(i) WRITTEN OR ELECTRONIC DISCLOSURES.—At a

time contemporaneous with the provision of the advice

in connection with the sale, acquisition, or holding of

the security or other property, the fiduciary adviser

shall provide to the recipient of the advice a clear and

conspicuous notification, written (or by electronic

means) in a manner to be reasonably understood by

the average plan participant pursuant to regulations

which shall be prescribed by the Secretary (including

mathematical examples), of the following: ‘‘(I) INTERESTS HELD BY THE FIDUCIARY AD- VISER.—Any interest of the fiduciary adviser in, or

any affiliation or contractual relationship of the fiduciary adviser (or affiliates thereof) with any

third party having an interest in, the security or

other property. ‘‘(II) RELATED FEES OR COMPENSATION IN CON- NECTION WITH THE PROVISION OF THE ADVICE.—All

fees or other compensation relating to the advice

(including fees or other compensation itemized

with respect to each security or other property

with respect to which the advice is provided) that

the fiduciary adviser (or any affiliate thereof) is to

receive (including compensation provided by any

third party) in connection with the provision of

the advice or in connection with the sale, acquisition, or holding of the security or other property. ‘‘(III) ONGOING FEES OR COMPENSATION IN CON- NECTION WITH THE SECURITY OR PROPERTY IN- VOLVED.—All fees or other compensation that the

fiduciary adviser (or any affiliate thereof) is to receive, on an ongoing basis, in connection with any

security or other property with respect to which

the fiduciary adviser gives the advice.

‘‘(IV) APPLICABLE LIMITATIONS ON SCOPE OF AD- VICE.—Any limitation placed (in accordance with

the requirements of this subsection) on the scope

of the advice to be provided by the fiduciary adviser with respect to the sale, acquisition, or holding of the security or other property. ‘‘(V) TYPES OF SERVICES GENERALLY OFFERED.—

The types of services offered by the fiduciary adviser in connection with the provision of qualified

investment advice by the fiduciary adviser.

‘‘(VI) FIDUCIARY STATUS OF THE FIDUCIARY ADVISER.—That the fiduciary advisor is a fiduciary of

the plan.

‘‘(ii) DISCLOSURE BY FIDUCIARY ADVISER IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS.—The fiduciary adviser shall provide appropriate disclosure, in

connection with the sale, acquisition, or holding of the

security or other property, in accordance with all applicable securities laws. ‘‘(iii) TRANSACTION OCCURRING SOLELY AT DIRECTION

OF RECIPIENT OF ADVICE.—The sale, acquisition, or

14

holding of the security or other property shall occur

solely at the direction of the recipient of the advice.

‘‘(iv) REASONABLE COMPENSATION.—The compensation received by the fiduciary adviser and affiliates

thereof in connection with the sale, acquisition, or

holding of the security or other property shall be reasonable.

‘‘(v) ARM’S LENGTH TRANSACTION.—The terms of the

sale, acquisition, or holding of the security or other

property shall be at least as favorable to the plan as

an arm’s length transaction would be.

‘‘(C) CONTINUED AVAILABILITY OF INFORMATION FOR AT

LEAST 1 YEAR.—The requirements of subparagraph (B)(i)

shall be deemed not to have been met in connection with

the initial or any subsequent provision of advice described

in subparagraph (B) if, at any time during the 1-year period following the provision of the advice, the fiduciary adviser fails to maintain the information described in subclauses (I) through (IV) of subparagraph (B)(i) in currently

accurate form or to make the information available, upon

request and without charge, to the recipient of the advice.

‘‘(D) EVIDENCE OF COMPLIANCE MAINTAINED FOR AT

LEAST 6 YEARS.—A fiduciary adviser referred to in subparagraph (B) who has provided advice referred to in such subparagraph shall, for a period of not less than 6 years after

the provision of the advice, maintain any records necessary

for determining whether the requirements of the preceding

provisions of this paragraph and of subsection (d)(16) have

been met. A transaction prohibited under subsection (c)(1)

shall not be considered to have occurred solely because the

records are lost or destroyed prior to the end of the 6-year

period due to circumstances beyond the control of the fiduciary adviser.

‘‘(E) MODEL DISCLOSURE FORMS.—The Secretary shall

prescribe regulations setting forth model disclosure forms

to assist fiduciary advisers in complying with the disclosure requirements under this paragraph.

‘‘(F) ANNUAL REVIEWS BY THE SECRETARY.—The Secretary shall conduct annual reviews of randomly selected

fiduciary advisers providing qualified investment advice to

participants and beneficiaries. In the case of each review,

the Secretary shall review the following:

‘‘(i) COMPLIANCE BY ADVICE COMPUTER MODELS WITH

REASONABLE INVESTMENT METHODOLOGIES.—The extent to which advice computer models employed by the

fiduciary adviser comply with reasonable investment

methodologies.

‘‘(ii) COMPLIANCE WITH DISCLOSURE REQUIREMENTS.—The extent to which disclosures provided by

the fiduciary adviser have complied with the requirements of this subsection.

‘‘(iii) EXTENT OF VIOLATIONS.—The extent to which

any violations of fiduciary duties have occurred in connection with the provision of the advice.

15

‘‘(iv) EXTENT OF REPORTED COMPLAINTS.—The extent

to which complaints to relevant agencies have been

made in connection with the provision of the advice.

Any proprietary information obtained by the Secretary

shall be treated as confidential. ‘‘(G) DUTY OF CONFLICTED FIDUCIARY ADVISER TO PRO- VIDE FOR ALTERNATIVE INDEPENDENT ADVICE.— ‘‘(i) IN GENERAL.—In connection with any qualified

investment advice provided by a fiduciary adviser to a

participant or beneficiary regarding any security or

other property, if the fiduciary adviser— ‘‘(I) has an interest in the security or other property, or ‘‘(II) has an affiliation or contractual relationship with any third party that has an interest in

the security or other property,

the requirements of subparagraph (B) shall be treated

as not met in connection with the advice unless the fiduciary adviser has arranged, as an alternative to the

advice that would otherwise be provided by the fiduciary advisor, for qualified investment advice with respect to the security or other property provided by at

least one alternative investment adviser meeting the

requirements of clause (ii). ‘‘(ii) INDEPENDENCE AND QUALIFICATIONS OF ALTER- NATIVE INVESTMENT ADVISER.—Any alternative investment adviser whose qualified investment advice is arranged for by a fiduciary adviser pursuant to clause

(i)— ‘‘(I) shall have no material interest in, and no

material affiliation or contractual relationship

with any third party having a material interest in,

the security or other property with respect to

which the investment adviser is providing the advice, and

‘‘(II) shall meet the requirements of a fiduciary

adviser under subparagraph (H)(ii) and (iii), except that an alternative investment adviser may

not be a fiduciary of the plan other than in connection with the provision of the advice.

‘‘(iii) SCOPE AND FEES OF ALTERNATIVE INVESTMENT

ADVICE.—Any qualified investment advice provided

pursuant to this subparagraph by an alternative investment adviser shall be of the same type and scope,

and provided under the same terms and conditions (including no additional charge to the participant or beneficiary), as apply with respect to the qualified investment advice to be provided by the fiduciary adviser.

‘‘(H) FIDUCIARY ADVISER DEFINED.—For purposes of this

paragraph and subsection (d)(16)— ‘‘(i) IN GENERAL.—The term ‘fiduciary adviser’

means, with respect to a plan, a person who—

‘‘(I) is a fiduciary of the plan by reason of the

provision of qualified investment advice by such

person to a participant or beneficiary,

16

‘‘(II) meets the qualifications of clause (ii), and

‘‘(III) meets the additional requirements of

clause (iii). ‘‘(ii) QUALIFICATIONS.—A person meets the qualifications of this clause if such person— ‘‘(I) is registered as an investment adviser under

the Investment Advisers Act of 1940 (15 U.S.C.

80b–1 et seq.), ‘‘(II) if not registered as an investment adviser

under such Act by reason of section 203A(a)(1) of

such Act (15 U.S.C. 80b–3a(a)(1)), is registered

under the laws of the State in which the fiduciary

maintains its principal office and place of business, and, at the time the fiduciary last filed the

registration form most recently filed by the fiduciary with such State in order to maintain the fiduciary’s registration under the laws of such

State, also filed a copy of such form with the Secretary, ‘‘(III) is registered as a broker or dealer under

the Securities Exchange Act of 1934 (15 U.S.C.

78a et seq.), ‘‘(IV) is a bank or similar financial institution

referred to in subsection (d)(4), ‘‘(V) is an insurance company qualified to do

business under the laws of a State, or ‘‘(VI) is any other comparable qualified entity

which satisfies such criteria as the Secretary determines appropriate consistent with the purpose

of this subsection. ‘‘(iii) ADDITIONAL REQUIREMENTS WITH RESPECT TO

CERTAIN EMPLOYEES OR OTHER AGENTS OF CERTAIN AD- VISERS.—A person meets the additional requirements

of this clause if every individual who is employed (or

otherwise compensated) by such person and whose

scope of duties includes the provision of qualified investment advice on behalf of such person to any participant or beneficiary is—

‘‘(I) a registered representative of such person,

‘‘(II) an individual described in subclause (I),

(II), or (III) of clause (ii), or

‘‘(III) such other comparable qualified individual

who satisfies such criteria as the Secretary determines appropriate consistent with the purpose of

this subsection.

‘‘(I) ADDITIONAL DEFINITIONS.—For purposes of this paragraph and subsection (d)(16)—

‘‘(i) QUALIFIED INVESTMENT ADVICE.—The term

‘qualified investment advice’ means, in connection

with a participant or beneficiary, investment advice

referred to in subsection (e)(3)(B) which—

‘‘(I) consists of an individualized recommendation to the participant or beneficiary with respect

to the purchase, sale, or retention of securities or

other property for the individual account of the

17

participant or beneficiary, in accordance with generally accepted investment management principles, and ‘‘(II) takes into account all investment options

under the plan. ‘‘(ii) REGISTERED REPRESENTATIVE.—The term ‘registered representative’ of another entity means a person described in section 3(a)(18) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) (substituting

such entity for the broker or dealer referred to in such

section) or a person described in section 202(a)(17) of

the Investment Advisers Act of 1940 (15 U.S.C. 80b– 2(a)(17)) (substituting such entity for the investment

adviser referred to in such section).’’. (3) ASSUMPTION OF LIABILITY.—Subsection (b) of section 4975

of such Code is amended— (A) by striking ‘‘PERSON.—In’’ and inserting ‘‘PERSON.— ‘‘(1) IN GENERAL.—In’’, and moving the text 2 ems to the

right, and

(B) by adding at the end the following new paragraph: ‘‘(2) ASSUMPTION OF LIABILITY.—If a court determines that a

fiduciary advisor has breached his fiduciary responsibility as a

result of a failure to meet the requirements of subparagraph

(B), (C), (D), or (G) of subsection (e)(7), then, notwithstanding

any other provision of this title or the Employee Retirement

Income Security Act of 1974, the fiduciary advisor shall be liable for any monetary losses suffered by a participant or beneficiary as a result of such breach.’’. (b) AMENDMENTS TO THE EMPLOYEE RETIREMENT INCOME SECU- RITY ACT OF 1974.— (1) IN GENERAL.—Section 408(b) of the Employee Retirement

Income Security Act of 1974 (29 U.S.C. 1108(b)) is amended by

adding at the end the following new paragraph: ‘‘(14)(A) Any transaction described in subparagraph (B) in

connection with the provision of investment advice described in

section 3(21)(A)(ii), in any case in which—

‘‘(i) the plan provides for individual accounts and permits a participant or beneficiary to exercise control over

assets in his or her account,

‘‘(ii) the advice is qualified investment advice provided to

a participant or beneficiary of the plan by a fiduciary adviser in connection with any sale, acquisition, or holding of

a security or other property for purposes of investment of

plan assets, and

‘‘(iii) the requirements of subsection (g) are met in connection with each instance of the provision of the advice.

‘‘(B) The transactions described in this subparagraph are the

following:

‘‘(i) the provision of the advice to the participant or beneficiary;

‘‘(ii) the sale, acquisition, or holding of a security or

other property (including any lending of money or other

extension of credit associated with the sale, acquisition, or

holding of a security or other property) pursuant to the advice; and

18

‘‘(iii) the direct or indirect receipt of fees or other compensation by the fiduciary adviser or an affiliate thereof

(or any employee, agent, or registered representative of the

fiduciary adviser or affiliate) in connection with the provision of the advice.’’. (2) REQUIREMENTS.—Section 408 of such Act is amended further by adding at the end the following new subsection: ‘‘(g) REQUIREMENTS FOR EXEMPTION FROM PROHIBITED TRANS- ACTIONS WITH RESPECT TO PROVISION OF INVESTMENT ADVICE.— ‘‘(1) IN GENERAL.—The requirements of this subsection are

met in connection with the provision of qualified investment

advice provided to a participant or beneficiary of an employee

benefit plan by a fiduciary adviser with respect to the plan in

connection with any sale, acquisition, or holding of a security

or other property for purposes of investment of amounts held

by the plan, if the requirements of the following subparagraphs

are met: ‘‘(A) WRITTEN DISCLOSURES.—At a time contemporaneous

with the provision of the advice in connection with the

sale, acquisition, or holding of the security or other property, the fiduciary adviser shall provide to the recipient of

the advice a clear and conspicuous notification, written in

a manner to be reasonably understood by the average plan

participant pursuant to regulations which shall be prescribed by the Secretary (including mathematical examples), of the following: ‘‘(i) INTERESTS HELD BY THE FIDUCIARY ADVISER.— Any interest of the fiduciary adviser in, or any affiliation or contractual relationship of the fiduciary adviser (or affiliates thereof) with any third party having

an interest in, the security or other property. ‘‘(ii) RELATED FEES OR COMPENSATION IN CONNEC- TION WITH THE PROVISION OF THE ADVICE.—All fees or

other compensation relating to the advice (including

fees or other compensation itemized with respect to

each security or other property with respect to which

the advice is provided) that the fiduciary adviser (or

any affiliate thereof) is to receive (including compensation provided by any third party) in connection with

the provision of the advice or in connection with the

sale, acquisition, or holding of the security or other

property.

‘‘(iii) ONGOING FEES OR COMPENSATION IN CONNECTION WITH THE SECURITY OR PROPERTY INVOLVED.—All

fees or other compensation that the fiduciary adviser

(or any affiliate thereof) is to receive, on an ongoing

basis, in connection with any security or other property with respect to which the fiduciary adviser gives

the advice. ‘‘(iv) APPLICABLE LIMITATIONS ON SCOPE OF AD- VICE.—Any limitation placed (in accordance with the

requirements of this subsection) on the scope of the

advice to be provided by the fiduciary adviser with respect to the sale, acquisition, or holding of the security

or other property.

19

‘‘(v) TYPES OF SERVICES GENERALLY OFFERED.—The

types of services offered by the fiduciary adviser in

connection with the provision of qualified investment

advice by the fiduciary adviser. ‘‘(vi) FIDUCIARY STATUS OF THE FIDUCIARY AD- VISER.—That the fiduciary advisor is a fiduciary of the

plan. ‘‘(B) DISCLOSURE BY FIDUCIARY ADVISER IN ACCORDANCE

WITH APPLICABLE SECURITIES LAWS.—The fiduciary adviser

shall provide appropriate disclosure, in connection with

any the sale, acquisition, or holding of the security or other

property, in accordance with all applicable securities laws. ‘‘(C) TRANSACTION OCCURRING SOLELY AT DIRECTION OF

RECIPIENT OF ADVICE.—The sale, acquisition, or holding of

the security or other property shall occur solely at the direction of the recipient of the advice. ‘‘(D) REASONABLE COMPENSATION.—The compensation received by the fiduciary adviser and affiliates thereof in

connection with the sale, acquisition, or holding of the security or other property shall be reasonable. ‘‘(F) ARM’S LENGTH TRANSACTION.—The terms of the sale,

acquisition, or holding of the security or other property

shall be at least as favorable to the plan as an arm’s

length transaction would be. ‘‘(2) CONTINUED AVAILABILITY OF INFORMATION FOR AT LEAST

1 YEAR.—The requirements of paragraph (1)(A) shall be

deemed not to have been met in connection with the initial or

any subsequent provision of advice described in paragraph (1)

if, at any time during the 1-year period following the provision

of the advice, the fiduciary adviser fails to maintain the information described in clauses (i) through (iv) of subparagraph (A)

in currently accurate form or to make the information available, upon request and without charge, to the recipient of the

advice.

‘‘(3) EVIDENCE OF COMPLIANCE MAINTAINED FOR AT LEAST 6

YEARS.—A fiduciary adviser referred to in paragraph (1) who

has provided advice referred to in such paragraph shall, for a

period of not less than 6 years after the provision of the advice,

maintain any records necessary for determining whether the

requirements of the preceding provisions of this subsection and

of subsection (b)(14) have been met. A transaction prohibited

under section 406 shall not be considered to have occurred

solely because the records are lost or destroyed prior to the end

of the 6-year period due to circumstances beyond the control of

the fiduciary adviser. ‘‘(4) MODEL DISCLOSURE FORMS.—The Secretary shall prescribe regulations setting forth model disclosure forms to assist

fiduciary advisers in complying with the disclosure requirements of under this subsection. ‘‘(5) EXEMPTION FOR EMPLOYERS CONTRACTING FOR QUALIFIED

INVESTMENT ADVICE.—

‘‘(A) RELIANCE ON CONTRACTUAL ARRANGEMENTS.—Subject to subparagraph (B), a plan sponsor or other person

who is a fiduciary (other than a fiduciary adviser) shall not

be treated as failing to meet the requirements of this part

20

solely by reason of the provision of qualified investment

advice (or solely by reason of contracting for or otherwise

arranging for the provision of the investment advice), if—

‘‘(i) the advice is provided by a fiduciary adviser pursuant to an arrangement between the plan sponsor or

other fiduciary and the fiduciary adviser for the provision by the fiduciary adviser of qualified investment

advice, and

‘‘(ii) the terms of the arrangement require compliance by the fiduciary adviser with the requirements of

this subsection.

‘‘(B) CONTINUED DUTY FOR EMPLOYER TO PRUDENTLY SELECT AND REVIEW FIDUCIARY ADVISERS.—Nothing in subparagraph (A) shall be construed to exempt a plan sponsor

or other person who is a fiduciary from any requirement

of this part for the prudent selection and periodic review

of a fiduciary adviser with whom the plan sponsor or other

person enters into an arrangement for the provision of

qualified investment advice. The plan sponsor or other person who is a fiduciary shall not be liable under this part

with respect to the specific qualified investment advice

given by the fiduciary adviser to any particular recipient

of the advice. Pursuant to regulations which shall be prescribed by the Secretary, the fiduciary adviser shall provide appropriate disclosures to the plan sponsor to enable

the plan sponsor to fulfill its fiduciary responsibilities

under this part. In connection with the provision of the advice by a fiduciary adviser on an ongoing basis, such regulations shall provide for such disclosures on at least an annual basis.

‘‘(C) PLAN ASSETS MAY BE USED TO PAY REASONABLE EXPENSES.—Nothing in this part shall be construed to preclude the use of plan assets to pay for reasonable expenses

in providing qualified investment advice.

‘‘(6) ANNUAL REVIEWS BY THE SECRETARY.—The Secretary

shall conduct annual reviews of randomly selected fiduciary advisers providing qualified investment advice to participants

and beneficiaries. In the case of each review, the Secretary

shall review the following:

‘‘(A) COMPLIANCE BY ADVICE COMPUTER MODELS WITH

GENERALLY ACCEPTED INVESTMENT MANAGEMENT PRINCIPLES.—The extent to which advice computer models employed by the fiduciary adviser comply with generally accepted investment management principles.

‘‘(B) COMPLIANCE WITH DISCLOSURE REQUIREMENTS.—The

extent to which disclosures provided by the fiduciary adviser have complied with the requirements of this subsection.

‘‘(C) EXTENT OF VIOLATIONS.—The extent to which any

violations of fiduciary duties have occurred in connection

with the provision of the advice.

‘‘(D) EXTENT OF REPORTED COMPLAINTS.—The extent to

which complaints to relevant agencies have been made in

connection with the provision of the advice.

21

Any proprietary information obtained by the Secretary shall be

treated as confidential.

‘‘(7) DUTY OF CONFLICTED FIDUCIARY ADVISER TO PROVIDE FOR

ALTERNATIVE INDEPENDENT ADVICE.—

‘‘(A) IN GENERAL.—In connection with any qualified investment advice provided by a fiduciary adviser to a participant or beneficiary regarding any security or other

property, if the fiduciary adviser—

‘‘(i) has an interest in the security or other property,

or

‘‘(ii) has an affiliation or contractual relationship

with any third party that has an interest in the security or other property,

the requirements of paragraph (1) shall be treated as not

met in connection with the advice unless the fiduciary adviser has arranged, as an alternative to the advice that

would otherwise be provided by the fiduciary advisor, for

qualified investment advice with respect to the security or

other property provided by at least one alternative investment adviser meeting the requirements of subparagraph

(B).

‘‘(B) INDEPENDENCE AND QUALIFICATIONS OF ALTERNATIVE INVESTMENT ADVISER.—Any alternative investment

adviser whose qualified investment advice is arranged for

by a fiduciary adviser pursuant to subparagraph (A)—

‘‘(i) shall have no material interest in, and no material affiliation or contractual relationship with any

third party having a material interest in, the security

or other property with respect to which the investment

adviser is providing the advice, and

‘‘(ii) shall meet the requirements of a fiduciary adviser under paragraph (7)(A), except that an alternative investment adviser may not be a fiduciary of

the plan other than in connection with the provision

of the advice.

‘‘(C) SCOPE AND FEES OF ALTERNATIVE INVESTMENT ADVICE.—Any qualified investment advice provided pursuant

to this paragraph by an alternative investment adviser

shall be of the same type and scope, and provided under

the same terms and conditions (including no additional

charge to the participant or beneficiary), as apply with respect to the qualified investment advice to be provided by

the fiduciary adviser.

‘‘(8) FIDUCIARY ADVISER DEFINED.—For purposes of this subsection and subsection (b)(14)—

‘‘(A) IN GENERAL.—The term ‘fiduciary adviser’ means,

with respect to a plan, a person—

‘‘(i) who is a fiduciary of the plan by reason of the

provision of qualified investment advice by such person to a participant or beneficiary,

‘‘(ii) who—

‘‘(I) is registered as an investment adviser under

the Investment Advisers Act of 1940 (15 U.S.C.

80b–1 et seq.),

22

‘‘(II) if not registered as an investment adviser

under such Act by reason of section 203A(a)(1) of

such Act (15 U.S.C. 80b–3a(a)(1)), is registered

under the laws of the State in which the fiduciary

maintains its principal office and place of business, and, at the time the fiduciary last filed the

registration form most recently filed by the fiduciary with such State in order to maintain the fiduciary’s registration under the laws of such

State, also filed a copy of such form with the Secretary,

‘‘(III) is registered as a broker or dealer under

the Securities Exchange Act of 1934 (15 U.S.C.

78a et seq.),

‘‘(IV) is a bank or similar financial institution

referred to in section 408(b)(4),

‘‘(V) is an insurance company qualified to do

business under the laws of a State, or

‘‘(VI) is any other comparable entity which satisfies such criteria as the Secretary determines appropriate, and

‘‘(iii) who is an entity meeting the requirements of

subparagraph (B).

‘‘(B) ADDITIONAL REQUIREMENTS WITH RESPECT TO CERTAIN EMPLOYEES OR OTHER AGENTS OF CERTAIN ADVISERS.—The requirements of this subparagraph are met if

every individual who is employed (or otherwise compensated) by a person described subparagraph (A)(ii) and

whose scope of duties includes the provision of qualified investment advice on behalf of such person to any participant or beneficiary is—

‘‘(i) a registered representative of such person,

‘‘(ii) an individual described in subclause (I), (II), or

(III) of subparagraph (A)(ii), or

‘‘(iii) such other comparable qualified individual as

may be designated in regulations of the Secretary.

‘‘(9) ADDITIONAL DEFINITIONS.—For purposes of this subsection and subsection (b)(14)—

‘‘(A) QUALIFIED INVESTMENT ADVICE.—The term ‘qualified investment advice’ means, in connection with a participant or beneficiary, investment advice referred to in section 3(21)(A)(ii) which—

‘‘(i) consists of an individualized recommendation to

the participant or beneficiary with respect to the purchase, sale, or retention of securities or other property

for the individual account of the participant or beneficiary, in accordance with generally accepted investment management principles, and

‘‘(ii) takes into account all investment options under

the plan.

‘‘(B) AFFILIATE.—The term ‘affiliate’ of another entity

means an affiliated person of such entity (as defined in

section 2(a)(3) of the Investment Company Act of 1940 (15

U.S.C. 80a–2(a)(3))).

23

‘‘(C) REGISTERED REPRESENTATIVE.—The term ‘registered

representative’ of another entity means a person described

in section 3(a)(18) of the Securities Exchange Act of 1934

(15 U.S.C. 78c(a)(18)) (substituting such entity for the

broker or dealer referred to in such section) or a person described in section 202(a)(17) of the Investment Advisers

Act of 1940 (15 U.S.C. 80b–2(a)(17)) (substituting such entity for the investment adviser referred to in such section).’’. (c) ENFORCEMENT.— (1) LIABILITY FOR BREACH.— (A) LIABILITY IN CONNECTION WITH INDIVIDUAL ACCOUNT

PLANS.—Section 409 of such Act (29 U.S.C. 1109) is

amended by adding at the end the following new subsection: ‘‘(c)(1) In any case in which the provision by a fiduciary adviser

of qualified investment advice to a participant or beneficiary regarding any security or other property consists of a breach described in subsection (a), the fiduciary adviser shall be personally

liable to make good to the individual account of the participant or

beneficiary any losses to the individual account resulting from the

breach, and to restore to the individual account any profits of the

fiduciary adviser which have been made through use of assets of

the individual account by— ‘‘(A) the fiduciary adviser, or

‘‘(B) any other party with respect to whom a material affiliation or contractual relationship of the fiduciary adviser resulted in a violation of section 408(g)(1)(A) in connection with

the advice. ‘‘(2) In the case of any action under this title by a participant or

beneficiary against a fiduciary adviser for relief under this subsection in connection with the provision of any qualified investment

advice—

‘‘(A) if the participant or beneficiary shows that the fiduciary

adviser had any interest in, or had any affiliation or contractual relationship with a third party having an interest in, the

security or other property, there shall be a presumption (rebuttable by a preponderance of the evidence) that the fiduciary adviser failed to meet the requirements of subparagraphs (A) and

(B) of section 404(a)(1) in connection with the provision of the

advice, and

‘‘(B) the dispute may be settled by arbitration, but only pursuant to terms and conditions established by agreement entered into voluntarily by both parties after the commencement

of the dispute.

‘‘(3) For purposes of this subsection, the terms ‘fiduciary adviser’

and ‘qualified investment advice’ shall have the meanings provided

such terms in subparagraphs (A) and (B), respectively, of section

406(g)(7).’’.

(B) LIMITATION ON EXEMPTION FROM LIABILITY.—Section

404(c) of such Act (29 U.S.C. 1104(c)) is amended— (i) by redesignating paragraph (2) as paragraph (3)

(and by adjusting the margination of such paragraph

to full measure and adjusting the margination of subparagraphs (A) through (B) thereof accordingly); and

24

(ii) by inserting after paragraph (1) the following

new paragraph: ‘‘(2)(A) In any case in which— ‘‘(i) a participant or beneficiary exercises control over the assets in his or her account by means of a sale, acquisition, or

holding of a security or other property with regard to which

qualified investment advice was provided by a fiduciary adviser, and ‘‘(ii) any transaction in connection with the exercise of such

control is not a prohibited transaction solely by reason of section 408(b)(14),

paragraph (1) shall not apply with respect to the fiduciary adviser

in connection with the provision of the advice. ‘‘(B) For purposes of this subsection, the terms ‘fiduciary adviser’ and ‘qualified investment advice’ shall have the meanings provided

such terms in subparagraphs (A) and (B), respectively, of section

408(g)(7).’’. (2) ATTORNEY’S FEES.—Section 502(g) of such Act (29 U.S.C.

1132(g)) is amended— (A) in paragraph (1), by inserting ‘‘or (3)’’ after ‘‘paragraph (2)’’; and

(B) by adding at the end the following new paragraph: ‘‘(3) In any action under this title by the participant or beneficiary against a fiduciary adviser for relief under section 409(c) in

which the plaintiff prevails, the court shall allow a reasonable attorney’s fee and costs of action to the prevailing plaintiff.’’. (3) APPLICABILITY OF STATE FRAUD LAWS.—Section 514(b) of

such Act (29 U.S.C. 1144(b)) is amended— (A) by redesignating paragraph (9) as paragraph (10);

and

(B) by inserting after paragraph (8) the following new

paragraph: ‘‘(9) Nothing in this title shall be construed to supersede any

State action for fraud against a fiduciary adviser for any act or failure to act by the fiduciary adviser constituting a violation of section

409(c).’’.

SEC. 3. EFFECTIVE DATE.

The amendments made by this Act shall apply with respect to

advice referred to in section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974 or section 4975(e)(3)(B) of the Internal Revenue Code of 1986 provided on or after January 1, 2002.

Æ