I

106TH CONGRESS

2D SESSION H. R. 4748

To amend title I of the Employee Retirement Income Security Act of 1974

and the Internal Revenue Code of 1986 to modernize such title and

such Code to take into account the evolution of employer-sponsored

retirement plans, to increase the availability of critical retirement plan

services, including investment advisory services, to participants, beneficiaries, and plan fiduciaries, and to harmonize the requirements of

such title and such Code with other Federal and State laws.

IN THE HOUSE OF REPRESENTATIVES

JUNE 26, 2000

Mr. BOEHNER introduced the following bill; which was referred to the Committee on Education and the Workforce, and in addition to the Committee on Ways and Means, for a period to be subsequently determined

by the Speaker, in each case for consideration of such provisions as fall

within the jurisdiction of the committee concerned

A BILL

To amend title I of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of

1986 to modernize such title and such Code to take

into account the evolution of employer-sponsored retirement plans, to increase the availability of critical retirement plan services, including investment advisory services, to participants, beneficiaries, and plan fiduciaries,

and to harmonize the requirements of such title and

such Code with other Federal and State laws.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Comprehensive ERISA

5 Modernization Act of 2000’’.

6 SEC. 2. PROHIBITED TRANSACTION EXEMPTION FOR ARM’S

7 LENGTH TRANSACTIONS.

8 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

9 INCOME SECURITY ACT OF 1974.—

10 (1) IN GENERAL.—Section 408(b) of the Em11 ployee Retirement Income Security Act of 1974 (29

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

13 the following new paragraph:

14 ‘‘(14) Any transaction of the type described in

15 subparagraph (A), (B), (C), or (D) of section

16 406(a)(1) or in 406(b) (other than a transaction de17 scribed in paragraph (15)) which meets the arm’s

18 length transaction requirements of subsection (g).

19 (2) ARM’S LENGTH TRANSACTION REQUIRE20 MENTS.—Section 408 of such Act is amended fur21 ther by adding at the end the following new sub22 section:

23 ‘‘(g)(1) The arm’s length transaction requirements of

24 this subsection are met by a transaction described in sub25 paragraph (A), (B), (C), or (D) of section 406(a)(1) if—
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1 ‘‘(A) such transaction is entered into pursuant

2 to a written contract or arrangement which includes

3 the material terms and conditions of such trans4 action or transactions of the type of such trans5 action,

6 ‘‘(B) such transaction is in the interest of the

7 plan and its participants and beneficiaries, and

8 ‘‘(C) the terms and conditions of such trans9 action, including any direct or indirect compensa10 tion, are at least as favorable to the plan as an

11 arm’s length transaction would be.

12 ‘‘(2) The arm’s length transaction requirements of

13 this subsection are met by a transaction described in sec14 tion 406(b) if—

15 ‘‘(A) such transaction meets the requirements

16 of paragraph (1), and

17 ‘‘(B) prior to the commencement of such

18 transaction—

19 ‘‘(i) written disclosure of potential conflicts

20 of interest associated with the transaction (or

21 contemplated transactions of the type thereof),

22 including the receipt of direct or indirect com23 pensation, has been provided to a fiduciary of

24 the plan, and
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1 ‘‘(ii) the transaction (or contemplated

2 transactions of the type thereof) have been pro3 vided for in the terms of the plan or of a writ4 ten contract with a fiduciary described in clause

5 (i) that is independent of the person entering

6 into the transaction and any of its affiliates.

7 ‘‘(3) In any case in which a fiduciary causes a plan

8 to enter into a transaction with such fiduciary or an affil9 iate thereof, the arm’s length transaction requirements of

10 this subsection are met only if—

11 ‘‘(A) such transaction meets the requirements

12 of paragraphs (1) and (2),

13 ‘‘(B) such fiduciary or affiliate is engaged in

14 the business of entering into transactions of such

15 type with the general public, and

16 ‘‘(C) such transaction is entered into under

17 substantially the same terms and conditions as those

18 under which such transactions with the general pub19 lic are entered into.’’.

20 (b) AMENDMENTS TO THE INTERNAL REVENUE

21 CODE OF 1986.—

22 (1) IN GENERAL.—Subsection (d) of section

23 4975 of the Internal Revenue Code of 1986 (relating

24 to exemptions from tax on prohibited transactions)

25 is amended—
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1 (A) in paragraph (14), by striking ‘‘or’’ at

2 the end;

3 (B) in paragraph (15), by striking the pe4 riod at the end and inserting ‘‘; or’’; and

5 (C) by adding at the end the following new

6 paragraph:

7 ‘‘(16) Any transaction of the type described in

8 subsection (c)(1) (other than a transaction described

9 in paragraph (17)) which meets the arm’s length

10 transaction requirements of subsection (f)(7).’’.

11 (2) ARM’S LENGTH TRANSACTION REQUIRE12 MENTS.—Subsection (f) of such section 4975 (relat13 ing to other definitions and special rules) is amended

14 by adding at the end the following new paragraph:

15 ‘‘(7) ARM’S LENGTH TRANSACTION REQUIRE16 MENTS.—

17 ‘‘(A) TRANSACTIONS WITH DISQUALIFIED

18 PERSONS.—The arm’s length transaction re19 quirements of this subsection are met by a

20 transaction described in subparagraph (A), (B),

21 (C), or (D) of subsection (c)(1) if—

22 ‘‘(i) such transaction is entered into

23 pursuant to a written contract or arrange24 ment which includes the material terms

25 and conditions of such transaction or
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1 transactions of the type of such trans2 action,

3 ‘‘(ii) such transaction is in the inter4 est of the plan and its participants and

5 beneficiaries, and

6 ‘‘(iii) the terms and conditions of such

7 transaction, including any direct or indi8 rect compensation, are at least as favorable

9 to the plan as an arm’s length transaction

10 would be.

11 ‘‘(B) TRANSACTIONS WITH A FIDUCIARY

12 OR ITS AFFILIATE.—The arm’s length trans13 action requirements of this subsection are met

14 by a transaction described in subparagraph (E)

15 or (F) of subsection (c)(1) if—

16 ‘‘(i) such transaction meets the re17 quirements of subparagraph (A), and

18 ‘‘(ii) prior to the commencement of

19 such transaction—

20 ‘‘(I) written disclosure of poten21 tial conflicts of interest associated

22 with the transaction (or contemplated

23 transactions of the type thereof), in24 cluding the receipt of direct or indi-
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1 rect compensation, has been provided

2 to a fiduciary of the plan, and

3 ‘‘(II) the transaction (or con4 templated transactions of the type

5 thereof) have been provided for in the

6 terms of the plan or of a written con7 tract with a fiduciary described in

8 subclause (I) that is independent of

9 the person entering into the trans10 action and any of its affiliates.

11 ‘‘(C) TRANSACTIONS WITH THE FIDUCIARY

12 CAUSING THE TRANSACTIONS.—In any case in

13 which a fiduciary causes a plan to enter into a

14 transaction with such fiduciary or an affiliate

15 thereof, the arm’s length transaction require16 ments of this subjection are met only if—

17 ‘‘(i) such transaction meets the re18 quirements of subparagraphs (A) and (B),

19 ‘‘(ii) such fiduciary or affiliate is en20 gaged in the business of entering into

21 transactions of such type with the general

22 public, and

23 ‘‘(iii) such transaction is entered into

24 under substantially the same terms and

25 conditions as those under which such
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1 transactions with the general public are

2 entered into.’’.

3 (c) EFFECTIVE DATE.—The amendments made by

4 this section shall apply with respect to transactions en5 tered into on or after January 1, 2001.

6 SEC. 3. PROHIBITED TRANSACTION EXEMPTION FOR THE

7 PROVISION OF INVESTMENT ADVICE.

8 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

9 INCOME SECURITY ACT OF 1974.—

10 (1) IN GENERAL.—Section 408(b) of the Em11 ployee Retirement Income Security Act of 1974 (29

12 U.S.C. 1108(b)) (as amended by section 2) is

13 amended further by adding at the end the following

14 new paragraph:

15 ‘‘(15) If the requirements of subsection (h) are

16 met—

17 ‘‘(A) the provision of investment advice re18 ferred to in section 3(21)(A)(ii) provided by a

19 fiduciary adviser (as defined in subsection

20 (h)(4)(A)) to an employee benefit plan or to a

21 participant or beneficiary of an employee ben22 efit plan,

23 ‘‘(B) the sale, acquisition, or holding of se24 curities or other property (including any exten25 sion of credit associated with the sale, acquisi-
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1 tion, or holding of securities or other property)

2 pursuant to such investment advice, and

3 ‘‘(C) the direct or indirect receipt of fees

4 or other compensation by the fiduciary adviser

5 or an affiliate thereof (or any employee, agent,

6 or registered representative of the fiduciary ad7 viser or affiliate) in connection with the provi8 sion of such investment advice.’’.

9 (2) REQUIREMENTS.—Section 408 of such Act

10 (as amended by section 2) is amended further by

11 adding at the end the following new subsection:

12 ‘‘(h)(1) The requirements of this subsection are met

13 in connection with the provision of advice referred to in

14 section 3(21)(A)(ii), provided to an employee benefit plan

15 or a participant or beneficiary of an employee benefit plan

16 by a fiduciary adviser with respect to such plan, in connec17 tion with any sale or acquisition of a security or other

18 property for purposes of investment of amounts held by

19 such plan, if—

20 ‘‘(A) in the case of the initial provision of such

21 advice by such fiduciary adviser to such plan, partic22 ipant, or beneficiary, the fiduciary adviser provides

23 to the plan, participant, or beneficiary, at the time

24 of or before the initial provision of such advice, a de-
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1 scription, in writing or by means of electronic com2 munication, of—

3 ‘‘(i) all fees or other compensation relating

4 to such advice that the fiduciary adviser or any

5 affiliate thereof is to receive (including com6 pensation provided by any third party) in con7 nection with the provision of such advice or in

8 connection with such acquisition or sale,

9 ‘‘(ii) any material affiliation or contractual

10 relationship of the fiduciary adviser or affiliates

11 thereof in such security or other property,

12 ‘‘(iii) any limitation placed on the scope of

13 the investment advice to be provided by the fi14 duciary adviser with respect to any such sale or

15 acquisition, and

16 ‘‘(iv) the types of services offered by the fi17 duciary advisor in connection with the provision

18 of investment advice by the fiduciary adviser,

19 ‘‘(B) in the case of the initial or any subsequent

20 provision of such advice to such plan, participant, or

21 beneficiary, the fiduciary adviser, throughout the 1-

22 year period following the provision of such advice,

23 maintains the information described in clauses (i)

24 through (iv) of subparagraph (A) in currently accu-
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1 rate form for availability, upon request and without

2 charge, to the recipient of such advice,

3 ‘‘(C) the fiduciary adviser provides appropriate

4 disclosure, in connection with any such acquisition

5 or sale, in accordance with all applicable securities

6 laws,

7 ‘‘(D) such acquisition or sale occurs solely at

8 the discretion of the recipient of such advice,

9 ‘‘(E) the compensation received by the fiduciary

10 adviser and affiliates thereof in connection with such

11 acquisition or sale is reasonable, and

12 ‘‘(F) the terms of such acquisition or sale are

13 at least as favorable to such plan as an arm’s length

14 transaction would be.

15 ‘‘(2) A fiduciary adviser referred to in paragraph (1)

16 who has provided advice referred to in such paragraph

17 shall, for a period of not less than 6 years after the provi18 sion of such advice, maintain any records necessary for

19 determining whether the requirements of the preceding

20 provisions of this subsection and of subsection (b)(15)

21 have been met. A prohibited transaction provided in sec22 tion 406 shall not be considered to have occurred solely

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

24 of the 6-year period due to circumstances beyond the con25 trol of the fiduciary adviser.
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1 ‘‘(3)(A) Subject to subparagraph (B), a plan sponsor

2 or other person who is a fiduciary shall not be treated

3 as failing to meet the requirements of this part solely by

4 reason of the provision of investment advice referred to

5 in section 3(21)(A)(ii), if—

6 ‘‘(i) such advice is provided by a fiduciary ad7 viser pursuant to an arrangement between such plan

8 sponsor or other fiduciary and such fiduciary adviser

9 for the provision by such fiduciary adviser of invest10 ment advice referred to in such section, and

11 ‘‘(ii) the terms of such arrangement require

12 compliance by the fiduciary adviser with the require13 ments of this subsection.

14 ‘‘(B) Nothing in subparagraph (A) shall be construed

15 to exempt a plan sponsor or other person who is a fidu16 ciary from any requirement of this part for the prudent

17 selection and periodic review of a fiduciary adviser with

18 whom the plan sponsor or other person enters into an ar19 rangement for the provision of advice referred to in section

20 3(21)(A)(ii). Such plan sponsor or other person who is a

21 fiduciary has no duty under this part to monitor the spe22 cific investment advice given by the fiduciary adviser to

23 any particular recipient of such advice.

24 ‘‘(C) Nothing in this part shall be construed to pre25 clude the use of plan assets to pay for reasonable expenses
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1 in providing investment advice referred to in section

2 3(21)(A)(ii).

3 ‘‘(4) For purposes of this subsection and subsection

4 (b)(15)—

5 ‘‘(A) The term ‘fiduciary adviser’ means, with

6 respect to a plan, a person who is a fiduciary of the

7 plan by reason of the provision of investment advice

8 by such person to the plan or to a participant or

9 beneficiary and who is—

10 ‘‘(i) registered as an investment adviser

11 under the Investment Advisers Act of 1940 (15

12 U.S.C. 80b–1 et seq.) or under the laws of the

13 State in which the fiduciary maintains its prin14 cipal office and place of business,

15 ‘‘(ii) a bank or similar financial institution

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

17 ‘‘(iii) an insurance company qualified to do

18 business under the laws of a State,

19 ‘‘(iv) a person registered as a broker or

20 dealer under the Securities Exchange Act of

21 1934 (15 U.S.C. 78a et seq.),

22 ‘‘(v) an affiliate of a person described in

23 any of clauses (i) through (iv), or
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1 ‘‘(vi) an employee, agent, or registered rep2 resentative of a person described in any of

3 clauses (i) through (v).

4 ‘‘(B) The term ‘affiliate’ means an affiliated

5 person, as defined in section 2(a)(3) of the Invest6 ment Company Act of 1940 (15 U.S.C 80a–2(a)(3)).

7 ‘‘(C) The term ‘registered representative’ means

8 a person described in section 3(a)(18) of the Securi9 ties Exchange Act of 1934 (15 U.S.C. 78c(a)(18))

10 or section 202(a)(17) of the Investment Advisers Act

11 of 1940 (15 U.S.C 80b–2(a)(17)).’’.

12 (b) AMENDMENTS TO THE INTERNAL REVENUE

13 CODE OF 1986.—

14 (1) IN GENERAL.—Subsection (d) of section

15 4975 of the Internal Revenue Code of 1986 (relating

16 to exemptions from tax on prohibited transactions)

17 (as amended by section 2) is amended further—

18 (A) in paragraph (15), by striking ‘‘or’’ at

19 the end;

20 (B) in paragraph (16), by striking the pe21 riod at the end and inserting ‘‘; or’’; and

22 (C) by adding at the end the following new

23 paragraph:

24 ‘‘(17) If the requirements of subsection (f)(8)

25 are met—
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1 ‘‘(A) the provision of investment advice re2 ferred to in subsection (e)(3)(B) provided by a

3 fiduciary adviser (as defined in subsection

4 (f)(8)(C)(i)) to a plan or to a participant or

5 beneficiary of a plan,

6 ‘‘(B) the sale, acquisition, or holding of se7 curities or other property (including any exten8 sion of credit associated with the sale, acquisi9 tion, or holding of securities or other property)

10 pursuant to such investment advice, and

11 ‘‘(C) the direct or indirect receipt of fees

12 or other compensation by the fiduciary adviser

13 or an affiliate thereof (or any employee, agent,

14 or registered representative of the fiduciary ad15 viser or affiliate) in connection with the provi16 sion of such investment advice.’’.

17 (2) REQUIREMENTS.—Subsection (f) of such

18 section 4975 (relating to other definitions and spe19 cial rules) (as amended by section 2) is amended

20 further by adding at the end the following new para21 graph:

22 ‘‘(8) REQUIREMENTS FOR EXEMPTION FOR IN23 VESTMENT ADVICE PROVIDED BY FIDUCIARY ADVIS24 ERS.—
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1 ‘‘(A) IN GENERAL.—The requirements of

2 this paragraph are met in connection with the

3 provision of advice referred to in subsection

4 (e)(3)(B), provided to a plan or a participant or

5 beneficiary of a plan by a fiduciary adviser with

6 respect to such plan, in connection with any

7 sale or acquisition of a security or other prop8 erty for purposes of investment of amounts held

9 by such plan, if—

10 ‘‘(i) in the case of the initial provision

11 of such advice by such fiduciary adviser to

12 such plan, participant, or beneficiary, the

13 fiduciary adviser provides to the plan, par14 ticipant, or beneficiary, at the time of or

15 before the initial provision of such advice

16 such advice, a description, in writing or by

17 means of electronic communication, of—

18 ‘‘(I) all fees or other compensa19 tion relating to such advice that the

20 fiduciary adviser or any affiliate

21 thereof is to receive (including com22 pensation provided by any third

23 party) in connection with the provi24 sion of such advice or in connection

25 with such acquisition or sale,
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1 ‘‘(II) any material affiliation or

2 contractual relationship of the fidu3 ciary adviser or affiliates thereof in

4 such security or other property,

5 ‘‘(III) any limitation placed on

6 the scope of the investment advice to

7 be provided by the fiduciary adviser

8 with respect to any such sale or acqui9 sition, and

10 ‘‘(IV) the types of services of11 fered by the fiduciary advisor in con12 nection with the provision of invest13 ment advice by the fiduciary adviser,

14 ‘‘(ii) in the case of the initial or any

15 subsequent provision of such advice to such

16 plan, participant, or beneficiary, the fidu17 ciary adviser, throughout the 1-year period

18 following the provision of such advice,

19 maintains the information described in

20 subclauses (I) through (IV) of clause (i) in

21 currently accurate form for availability,

22 upon request and without charge, to the

23 recipient of such advice,

24 ‘‘(iii) the fiduciary adviser provides

25 appropriate disclosure, in connection with
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1 any such acquisition or sale, in accordance

2 with all applicable securities laws,

3 ‘‘(iv) such acquisition or sale occurs

4 solely at the discretion of the recipient of

5 such advice,

6 ‘‘(v) the compensation received by the

7 fiduciary adviser and affiliates thereof in

8 connection with such acquisition or sale is

9 reasonable, and

10 ‘‘(vi) the terms of such acquisition or

11 sale are at least as favorable to such plan

12 as an arm’s length transaction would be.

13 ‘‘(B) MAINTENANCE OF RECORDS.—A fi14 duciary adviser referred to in subparagraph (A)

15 who has provided advice referred to in such

16 subparagraph shall, for a period of not less

17 than 6 years after the provision of such advice,

18 maintain any records necessary for determining

19 whether the requirements of the preceding pro20 visions of this subsection and of subsection

21 (d)(17) have been met. A prohibited transaction

22 described in subsection (c)(1) shall not be con23 sidered to have occurred solely because the

24 records are lost or destroyed prior to the end of
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1 the 6-year period due to circumstances beyond

2 the control of the fiduciary adviser.

3 ‘‘(C) DEFINITIONS.—For purposes of this

4 paragraph and subsection (d)(17)—

5 ‘‘(i) FIDUCIARY ADVISER.—The term

6 ‘fiduciary adviser’ means, with respect to a

7 plan, a person who is a fiduciary of the

8 plan by reason of the provision of invest9 ment advice by such person to the plan or

10 to a participant or beneficiary and who

11 is—

12 ‘‘(I) registered as an investment

13 adviser under the Investment Advisers

14 Act of 1940 (15 U.S.C. 80b–1 et seq.)

15 or under the laws of the State in

16 which the fiduciary maintains its prin17 cipal office and place of business,

18 ‘‘(II) a bank or similar financial

19 institution referred to in subsection

20 (d)(4),

21 ‘‘(III) an insurance company

22 qualified to do business under the

23 laws of a State,

24 ‘‘(IV) a person registered as a

25 broker or dealer under the Securities
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1 Exchange Act of 1934 (15 U.S.C. 78a

2 et seq.),

3 ‘‘(V) an affiliate of a person de4 scribed in any of subclauses (I)

5 through (IV), or

6 ‘‘(VI) an employee, agent, or reg7 istered representative of a person de8 scribed in any of subclauses (I)

9 through (V).

10 ‘‘(ii) AFFILIATE.—The term ‘affiliate’

11 means an affiliated person, as defined in

12 section 2(a)(3) of the Investment Company

13 Act of 1940 (15 U.S.C 80a–2(a)(3)).

14 ‘‘(iii) REGISTERED REPRESENTA15 TIVE.—The term ‘registered representa16 tive’ means a person described in section

17 3(a)(18) of the Securities Exchange Act of

18 1934 (15 U.S.C. 78c(a)(18)) or section

19 202(a)(17) of the Investment Advisers Act

20 of 1940 (15 U.S.C 80b–2(a)(17)).’’.

21 (c) EFFECTIVE DATE.—The amendments made by

22 this section shall apply with respect to advice referred to

23 in section 3(21)(A)(ii) of the Employee Retirement In24 come Security Act of 1974 or section 4975(e)(3)(B) of the
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1 Internal Revenue Code of 1986 provided on or after Janu2 ary 1, 2001.

3 SEC. 4. DEFINITION OF PARTY IN INTEREST.

4 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

5 INCOME SECURITY ACT OF 1974.—Section 3(14) of the

6 Employee Retirement Income Security Act of 1974 (29

7 U.S.C. 1002(14)) is amended—

8 (1) by striking subparagraphs (A) and (B) and

9 inserting the following:

10 ‘‘(A) a person who is an administrator, officer,

11 counsel, or employee of the plan;

12 ‘‘(B) in connection with a transaction described

13 in section 406(a), a fiduciary not otherwise described

14 in subparagraph (A) who personally directed or ac15 tively participated in the plan’s entry into such

16 transaction;’’;

17 (2) in subparagraph (G), by adding ‘‘or’’ at the

18 end;

19 (3) by striking subparagraphs (H) and (I) and

20 inserting the following:

21 ‘‘(H) an officer or director (or an individual

22 having powers or responsibilities similar to those of

23 officers and directors) of a person described in sub24 paragraph (C), (D), (E), or (G), or of the employee

25 benefit plan.’’; and
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1 (4) in the matter following subparagraph (I)

2 (as in effect before the amendments made by this

3 subsection), by striking ‘‘and lower than 10 percent

4 for subparagraph (H) or (I)’’.

5 (b) AMENDMENTS TO THE INTERNAL REVENUE

6 CODE OF 1986.—Paragraph (2) of section 4975(e) of the

7 Internal Revenue Code of 1986 (relating to disqualified

8 person) is amended—

9 (1) by striking subparagraphs (A) and (B) and

10 inserting the following:

11 ‘‘(A) a person who is an administrator, of12 ficer, counsel, or employee of the plan;

13 ‘‘(B) in connection with a transaction de14 scribed in subparagraph (A), (B), (C), or (D)

15 of subsection (c)(1), a fiduciary not otherwise

16 described in subparagraph (A) of this para17 graph who personally directed or actively par18 ticipated in the plan’s entry into such trans19 action;’’;

20 (2) in subparagraph (G), by adding ‘‘or’’ at the

21 end;

22 (3) by striking subparagraphs (H) and (I) and

23 inserting the following:

24 ‘‘(H) an officer or director (or an indi25 vidual having powers or responsibilities similar
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1 to those of officers and directors) of a person

2 described in subparagraph (C), (D), (E), or

3 (G), or of the plan.’’; and

4 (4) in the matter following subparagraph (I)

5 (as in effect before the amendments made by this

6 subsection), by striking ‘‘and lower than 10 percent

7 for subparagraph (H) or (I)’’.

8 (b) EFFECTIVE DATE.—The amendments made by

9 this section shall apply with respect to transactions, acts,

10 or omissions occurring on or after January 1, 2001.

11 SEC. 5. STANDARDS FOR ISSUING EXEMPTIVE RELIEF.

12 (a) IN GENERAL.—Section 408(a) of the Employee

13 Retirement Income Security Act of 1974 (29 U.S.C.

14 1108(a)) is amended—

15 (1) by striking the third sentence;

16 (2) by adding ‘‘and’’ at the end of paragraph

17 (1), by striking paragraph (2), and by redesignating

18 paragraph (3) as paragraph (2); and

19 (3) in the matter following paragraph (3) (as in

20 effect before the amendments made by this sub21 section)—

22 (A) by striking ‘‘Before granting’’ and in23 serting the following:

24 ‘‘The issuance of an exemption by the Secretary from any

25 restriction under section 406 or 407(a) does not exempt
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1 a fiduciary who enters into a transaction subject to such

2 exemption from the fiduciary duties of section 404 with

3 respect to the plan or any other provision of this Act with

4 respect to the plan. In any case in which the Secretary

5 deems it appropriate, before granting’’;

6 (B) by striking ‘‘shall’’ each place it ap7 pears and inserting ‘‘may’’;

8 (C) by inserting ‘‘or provide such other no9 tice as the Secretary deems appropriate’’ after

10 ‘‘pendency of the exemption’’;

11 (D) by striking ‘‘paragraphs (1), (2), and

12 (3)’’ and inserting ‘‘paragraphs (1) and (2)’’;

13 and

14 (E) by adding at the end the following new

15 sentence: ‘‘The Secretary may not grant an ex16 emption under this section unless the Secretary

17 finds that the conditions or requirements set

18 forth in the exemption are necessary additions

19 to the existing Federal and State laws and reg20 ulations and the protections they afford to ad21 dress concerns unique to employee benefit

22 plans.’’.

23 (b) EFFECTIVE DATE.—The amendments made by

24 this section shall apply with respect to transactions occur25 ring on or after January 1, 2001.
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1 SEC. 6. REGULATIONS RELATING TO DEFINITION OF PLAN

2 ASSETS.

3 (a) IN GENERAL.—Section 401 of the Employee Re4 tirement Income Security Act of 1974 (29 U.S.C. 1101)

5 is amended by adding at the end the following new sub6 section:

7 ‘‘(d)(1)(A) Not later than March 31, 2001, the Sec8 retary shall issue proposed regulations (including proposed

9 amendments to existing regulations) to provide additional

10 guidance for the purpose of determining when the assets

11 of an entity in which an employee benefit plan has invested

12 will constitute assets of the plan for purposes of this part.

13 ‘‘(B) The proposed regulations issued pursuant to

14 subparagraph (A) shall be subject to public notice and

15 comment until June 30, 2001.

16 ‘‘(C) The Secretary shall issue final regulations pro17 viding the guidance described in subparagraph (A) not

18 later than September 30, 2001.

19 ‘‘(D) Except as otherwise determined by the Sec20 retary, such regulations shall apply only to investments

21 in an entity made by an employee benefit plan after Sep22 tember 30, 2001. No inference shall be drawn from the

23 preceding sentence with respect to the interpretation of

24 any existing regulations prior to such effective date.

25 ‘‘(2) The Secretary shall ensure that the regulations

26 issued under paragraph (1)—
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1 ‘‘(A) are administratively feasible; and

2 ‘‘(B) protect the interests and rights of the plan

3 and of its participants and beneficiaries (including

4 meeting the requirements of paragraph (3)).

5 ‘‘(3) The regulations prescribed by the Secretary pur6 suant to paragraph (1) shall provide—

7 ‘‘(A) that an entity in whose assets investment

8 by an employee benefit plan is not significant will

9 not be treated as holding the plan assets of such

10 plan;

11 ‘‘(B) that participation by an employee benefit

12 plan will not be treated as significant unless such

13 plan owns 25 percent or more of any class of inter14 ests in the entity;

15 ‘‘(C) that, for purposes of determining whether

16 investment by an employee benefit plan in an entity

17 is significant, interests in the entity which are owned

18 by other entities that are deemed to hold assets of

19 employee benefit plans shall be treated as held by

20 such plans only to the extent proportionate to the in21 terests in such entities that are owned by such

22 plans;

23 ‘‘(D) that an entity that has made no invest24 ments, or that has made only short-term invest25 ments pending long-term commitment, shall be per-
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1 mitted to qualify for the exception (as in effect

2 under existing regulations) from plan asset status as

3 a ‘venture capital operating company’ on a tentative

4 basis for purposes of accepting capital contributions

5 of employee benefit plans for a period not to exceed

6 30 days prior to the entity’s first investment that

7 would permit it to qualify as a ‘venture capital oper8 ating company’ pursuant to such exception;

9 ‘‘(E) that a startup or other early stage com10 pany is eligible to qualify as an ‘operating company’

11 for purposes of the definition of a ‘venture capital

12 operating company’ under the exception described in

13 subparagraph (D); and

14 ‘‘(F) that an entity which, for a prior period,

15 has not qualified or has failed to qualify for the ex16 ception described in subparagraph (D) may never17 theless qualify for such exception prospectively if it

18 satisfies the requirements for the exception on a pro19 spective basis.

20 ‘‘(4) For purposes of this subsection—

21 ‘‘(A) The term ‘existing regulations’ means the

22 regulations issued under this section which were in

23 effect immediately before the date of the enactment

24 of this subsection.
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1 ‘‘(B) Any reference to an employee benefit plan

2 includes a reference to any employee benefit plan to

3 which the existing regulations apply.’’.

4 (b) CONFORMING AMENDMENT.—Subsection (f) of

5 section 4975 of the Internal Revenue Code of 1986 (relat6 ing to other definitions and special rules) (as amended by

7 the preceding provisions of this Act) is amended further

8 by adding at the end the following new paragraph:

9 ‘‘(9) REGULATIONS RELATING TO DEFINITION

10 OF PLAN ASSETS.—Section 401(d) of the Employee

11 Retirement Income Security Act of 1974 shall apply

12 with respect to regulations issued under this section.

13 For purposes of this paragraph, references in such

14 section 401(d) to employee benefit plans shall be

15 deemed to include references to plans referred to in

16 this section.’’.

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