I

106TH CONGRESS

2D SESSION H. R. 4749

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, 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, and to harmonize the requirements of such

title and such Code with other Federal and State laws.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE.

2 This Act may be cited as the ‘‘ERISA Modernization

3 Act of 2000’’.

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

5 LENGTH TRANSACTIONS.

6 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

7 INCOME SECURITY ACT OF 1974.—

8 (1) IN GENERAL.—Section 408(b) of the Em9 ployee Retirement Income Security Act of 1974 (29

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

11 the following new paragraph:

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

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

14 406(a)(1) or in 406(b) (other than a transaction de15 scribed in paragraph (15)) which meets the arm’s

16 length transaction requirements of subsection (g).

17 (2) ARM’S LENGTH TRANSACTION REQUIRE18 MENTS.—Section 408 of such Act is amended fur19 ther by adding at the end the following new sub20 section:

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

22 this subsection are met by a transaction described in sub23 paragraph (A), (B), (C), or (D) of section 406(a)(1) if—

24 ‘‘(A) such transaction is entered into pursuant

25 to a written contract or arrangement which includes

26 the material terms and conditions of such trans-
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1 action or transactions of the type of such trans2 action,

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

4 plan and its participants and beneficiaries, and

5 ‘‘(C) the terms and conditions of such trans6 action, including any direct or indirect compensa7 tion, are at least as favorable to the plan as an

8 arm’s length transaction would be.

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

10 this subsection are met by a transaction described in sec11 tion 406(b) if—

12 ‘‘(A) such transaction meets the requirements

13 of paragraph (1), and

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

15 transaction—

16 ‘‘(i) written disclosure of potential conflicts

17 of interest associated with the transaction (or

18 contemplated transactions of the type thereof),

19 including the receipt of direct or indirect com20 pensation, has been provided to a fiduciary of

21 the plan, and

22 ‘‘(ii) the transaction (or contemplated

23 transactions of the type thereof) have been pro24 vided for in the terms of the plan or of a writ25 ten contract with a fiduciary described in clause
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1 (i) that is independent of the person entering

2 into the transaction and any of its affiliates.

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

4 plan to enter into a transaction with such fiduciary

5 or an affiliate thereof, the arm’s length transaction

6 requirements of this subsection are met only if—

7 ‘‘(A) such transaction meets the require8 ments of paragraphs (1) and (2),

9 ‘‘(B) such fiduciary or affiliate is engaged

10 in the business of entering into transactions of

11 such type with the general public, and

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

13 substantially the same terms and conditions as

14 those under which such transactions with the

15 general public are entered into.’’.

16 (b) AMENDMENTS TO THE INTERNAL REVENUE

17 CODE OF 1986.—

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

19 4975 of the Internal Revenue Code of 1986 (relating

20 to exemptions from tax on prohibited transactions)

21 is amended—

22 (A) in paragraph (14), by striking ‘‘or’’ at

23 the end;

24 (B) in paragraph (15), by striking the pe25 riod at the end and inserting ‘‘; or’’; and
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1 (C) by adding at the end the following new

2 paragraph:

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

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

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

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

7 (2) ARM’S LENGTH TRANSACTION REQUIRE8 MENTS.—Subsection (f) of such section 4975 (relat9 ing to other definitions and special rules) is amended

10 by adding at the end the following new paragraph:

11 ‘‘(7) ARM’S LENGTH TRANSACTION REQUIRE12 MENTS.—

13 ‘‘(A) TRANSACTIONS WITH DISQUALIFIED

14 PERSONS.—The arm’s length transaction re15 quirements of this subsection are met by a

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

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

18 ‘‘(i) such transaction is entered into

19 pursuant to a written contract or arrange20 ment which includes the material terms

21 and conditions of such transaction or

22 transactions of the type of such trans23 action,
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1 ‘‘(ii) such transaction is in the inter2 est of the plan and its participants and

3 beneficiaries, and

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

5 transaction, including any direct or indi6 rect compensation, are at least as favorable

7 to the plan as an arm’s length transaction

8 would be.

9 ‘‘(B) TRANSACTIONS WITH A FIDUCIARY

10 OR ITS AFFILIATE.—The arm’s length trans11 action requirements of this subsection are met

12 by a transaction described in subparagraph (E)

13 or (F) of subsection (c)(1) if—

14 ‘‘(i) such transaction meets the re15 quirements of subparagraph (A), and

16 ‘‘(ii) prior to the commencement of

17 such transaction—

18 ‘‘(I) written disclosure of poten19 tial conflicts of interest associated

20 with the transaction (or contemplated

21 transactions of the type thereof), in22 cluding the receipt of direct or indi23 rect compensation, has been provided

24 to a fiduciary of the plan, and
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1 ‘‘(II) the transaction (or con2 templated transactions of the type

3 thereof) have been provided for in the

4 terms of the plan or of a written con5 tract with a fiduciary described in

6 subclause (I) that is independent of

7 the person entering into the trans8 action and any of its affiliates.

9 ‘‘(C) TRANSACTIONS WITH THE FIDUCIARY

10 CAUSING THE TRANSACTIONS.—In any case in

11 which a fiduciary causes a plan to enter into a

12 transaction with such fiduciary or an affiliate

13 thereof, the arm’s length transaction require14 ments of this subjection are met only if—

15 ‘‘(i) such transaction meets the re16 quirements of subparagraphs (A) and (B),

17 ‘‘(ii) such fiduciary or affiliate is en18 gaged in the business of entering into

19 transactions of such type with the general

20 public, and

21 ‘‘(iii) such transaction is entered into

22 under substantially the same terms and

23 conditions as those under which such

24 transactions with the general public are

25 entered into.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to transactions en3 tered into on or after January 1, 2001.

4 SEC. 3. DEFINITION OF PARTY IN INTEREST.

5 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

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

7 Employee Retirement Income Security Act of 1974 (29

8 U.S.C. 1002(14)) is amended—

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

10 inserting the following:

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

12 counsel, or employee of the plan;

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

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

15 in subparagraph (A) who personally directed or ac16 tively participated in the plan’s entry into such

17 transaction;’’;

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

19 end;

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

21 inserting the following:

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

23 having powers or responsibilities similar to those of

24 officers and directors) of a person described in sub-
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1 paragraph (C), (D), (E), or (G), or of the employee

2 benefit plan.’’; and

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

4 (as in effect before the amendments made by this

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

6 for subparagraph (H) or (I)’’.

7 (b) AMENDMENTS TO THE INTERNAL REVENUE

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

9 Internal Revenue Code of 1986 (relating to disqualified

10 person) is amended—

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

12 inserting the following:

13 ‘‘(A) a person who is an administrator, of14 ficer, counsel, or employee of the plan;

15 ‘‘(B) in connection with a transaction de16 scribed in subparagraph (A), (B), (C), or (D)

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

18 described in subparagraph (A) of this para19 graph who personally directed or actively par20 ticipated in the plan’s entry into such trans21 action;’’;

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

23 end;

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

25 inserting the following:
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1 ‘‘(H) an officer or director (or an indi2 vidual having powers or responsibilities similar

3 to those of officers and directors) of a person

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

5 (G), or of the plan.’’; and

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

7 (as in effect before the amendments made by this

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

9 for subparagraph (H) or (I)’’.

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

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

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

13 SEC. 4. STANDARDS FOR ISSUING EXEMPTIVE RELIEF.

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

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

16 1108(a)) is amended—

17 (1) by striking the third sentence;

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

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

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

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

22 effect before the amendments made by this sub23 section)—

24 (A) by striking ‘‘Before granting’’ and in25 serting the following:
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1 ‘‘The issuance of an exemption by the Secretary from any

2 restriction under section 406 or 407(a) does not exempt

3 a fiduciary who enters into a transaction subject to such

4 exemption from the fiduciary duties of section 404 with

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

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

7 deems it appropriate, before granting’’;

8 (B) by striking ‘‘shall’’ each place it ap9 pears and inserting ‘‘may’’;

10 (C) by inserting ‘‘or provide such other no11 tice as the Secretary deems appropriate’’ after

12 ‘‘pendency of the exemption’’;

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

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

15 and

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

17 sentence: ‘‘The Secretary may not grant an ex18 emption under this section unless the Secretary

19 finds that the conditions or requirements set

20 forth in the exemption are necessary additions

21 to the existing Federal and State laws and reg22 ulations and the protections they afford to ad23 dress concerns unique to employee benefit

24 plans.’’.
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1 (b) EFFECTIVE DATE.—The amendments made by

2 this section shall apply with respect to transactions occur3 ring on or after January 1, 2001.

4 SEC. 5. REGULATIONS RELATING TO DEFINITION OF PLAN

5 ASSETS.

6 (a) IN GENERAL.—Section 401 of the Employee Re7 tirement Income Security Act of 1974 (29 U.S.C. 1101)

8 is amended by adding at the end the following new sub9 section:

10 ‘‘(d)(1)(A) Not later than March 31, 2001, the Sec11 retary shall issue proposed regulations (including proposed

12 amendments to existing regulations) to provide additional

13 guidance for the purpose of determining when the assets

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

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

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

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

18 comment until June 30, 2001.

19 ‘‘(C) The Secretary shall issue final regulations pro20 viding the guidance described in subparagraph (A) not

21 later than September 30, 2001.

22 ‘‘(D) Except as otherwise determined by the Sec23 retary, such regulations shall apply only to investments

24 in an entity made by an employee benefit plan after Sep25 tember 30, 2001. No inference shall be drawn from the
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1 preceding sentence with respect to the interpretation of

2 any existing regulations prior to such effective date.

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

4 issued under paragraph (1)—

5 ‘‘(A) are administratively feasible; and

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

7 and of its participants and beneficiaries (including

8 meeting the requirements of paragraph (3)).

9 ‘‘(3) The regulations prescribed by the Secretary pur10 suant to paragraph (1) shall provide—

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

12 by an employee benefit plan is not significant will

13 not be treated as holding the plan assets of such

14 plan;

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

16 plan will not be treated as significant unless such

17 plan owns 25 percent or more of any class of inter18 ests in the entity;

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

20 investment by an employee benefit plan in an entity

21 is significant, interests in the entity which are owned

22 by other entities that are deemed to hold assets of

23 employee benefit plans shall be treated as held by

24 such plans only to the extent proportionate to the in-
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1 terests in such entities that are owned by such

2 plans;

3 ‘‘(D) that an entity that has made no invest4 ments, or that has made only short-term invest5 ments pending long-term commitment, shall be per6 mitted to qualify for the exception (as in effect

7 under existing regulations) from plan asset status as

8 a ‘venture capital operating company’ on a tentative

9 basis for purposes of accepting capital contributions

10 of employee benefit plans for a period not to exceed

11 30 days prior to the entity’s first investment that

12 would permit it to qualify as a ‘venture capital oper13 ating company’ pursuant to such exception;

14 ‘‘(E) that a startup or other early stage com15 pany is eligible to qualify as an ‘operating company’

16 for purposes of the definition of a ‘venture capital

17 operating company’ under the exception described in

18 subparagraph (D); and

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

20 has not qualified or has failed to qualify for the ex21 ception described in subparagraph (D) may never22 theless qualify for such exception prospectively if it

23 satisfies the requirements for the exception on a pro24 spective basis.

25 ‘‘(4) For purposes of this subsection—
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1 ‘‘(A) The term ‘existing regulations’ means the

2 regulations issued under this section which were in

3 effect immediately before the date of the enactment

4 of this subsection.

5 ‘‘(B) Any reference to an employee benefit plan

6 includes a reference to any employee benefit plan to

7 which the existing regulations apply.’’.

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

9 section 4975 of the Internal Revenue Code of 1986 (relat10 ing to other definitions and special rules) (as amended by

11 the preceding provisions of this Act) is amended further

12 by adding at the end the following new paragraph:

13 ‘‘(9) REGULATIONS RELATING TO DEFINITION

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

15 Retirement Income Security Act of 1974 shall apply

16 with respect to regulations issued under this section.

17 For purposes of this paragraph, references in such

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

19 deemed to include references to plans referred to in

20 this section.’’.

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