I

103D CONGRESS

2D SESSION H. R. 5135

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

and the Internal Revenue Code of 1986 to clarify provisions governing

fiduciary duties in relation to external benefits, social investing, and

economically targeted investments.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 29, 1994

Mr. SAXTON introduced the following bill; which was referred jointly to the

Committees on Education and Labor and Ways and Means

A BILL

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

1986 to clarify provisions governing fiduciary duties in

relation to external benefits, social investing, and economically targeted investments.

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 ‘‘Employee Benefit Plan

5 Security and Protection Act of 1994’’.
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1 SEC. 2. CLARIFICATION OF SCOPE OF FIDUCIARY DUTIES

2 UNDER ERISA.

3 (a) IN GENERAL.—Section 404(a) of the Employee

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

5 1104(a)) is amended by adding at the end the following

6 new paragraphs:

7 ‘‘(3)(A) In any case in which a fiduciary, in the

8 course of managing a plan or exercising authority or con9 trol respecting management or disposition of its assets,

10 has an occasion to choose between any two alternative in11 vestments of plan assets, if the fiduciary in making such

12 choice takes into account other factors in addition to the

13 rate of return, the riskiness of the investment, and other

14 direct economic factors, the fiduciary shall not be consid15 ered to be discharging the fiduciary’s duties with respect

16 to the plan in accordance with paragraph (1) and section

17 403(c)(1) unless—

18 ‘‘(i) the fiduciary has determined in advance

19 that both alternatives are economically equally ad20 vantageous to the participants and beneficiaries

21 under the plan, and

22 ‘‘(ii) such other factors are taken into account

23 solely to the extent that they would be in the eco24 nomic interest of participants and beneficiaries of

25 the plan.
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1 ‘‘(B)(i) A fiduciary with respect to a plan shall not

2 be considered to be discharging the fiduciary’s duties with

3 respect to the plan in accordance with paragraph (1) and

4 section 403(c)(1) if the fiduciary, in making investment

5 decisions with respect to plan assets, takes into account

6 external benefits.

7 ‘‘(ii) A fiduciary shall not be treated as failing to dis8 charge the fiduciary’s duties with respect to the plan in

9 accordance with paragraph (1) or section 403(c)(1) solely

10 because such investment yields external benefits.

11 ‘‘(iii) For purposes of this subparagraph, the term

12 ‘external benefit’ means, in connection with any invest13 ment of plan assets, a benefit to individuals other than

14 participants or beneficiaries under the plan.

15 ‘‘(4)(A) Neither the Secretary nor any other agency

16 or instrumentality of the Government of the United States

17 may—

18 ‘‘(i) establish or maintain, or cause to be estab19 lished or maintained, by means of subsidy or other20 wise, any list of investments or classes of invest21 ments purporting to satisfy the requirements of

22 paragraph (1) or section 403(c)(1), or

23 ‘‘(ii) in any manner pledge, guarantee, ensure,

24 or otherwise represent that any particular invest25 ment or class of investments will yield a sufficiently
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1 high rate of return at a sufficiently low level of risk

2 to satisfy the requirements of paragraph (1) or sec3 tion 403(c)(1).

4 ‘‘(B) None of the funds authorized or appropriated

5 to carry out this Act or any other provision of law may

6 be used—

7 ‘‘(i) by the Secretary or any other agency or in8 strumentality of the United States, or

9 ‘‘(ii) by any other institution or entity estab10 lished, chartered, or subsidized by the United States,

11 to subsidize, or to otherwise increase the rate of return

12 on, any particular investment or class of investments for

13 the purpose of causing the requirements of paragraph (1)

14 or section 403(c)(1) to be met with respect to such invest15 ment or class of investments.

16 ‘‘(5) Nothing in this title shall be construed to permit

17 any matter unrelated to the economic interests of partici18 pants and beneficiaries under employee benefit plans to

19 be taken into account in determining whether a fiduciary

20 has discharged such fiduciary’s duties with respect to a

21 plan in accordance with paragraph (1) and section

22 403(c)(1).’’.
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1 SEC. 3. CLARIFICATION OF SCOPE OF EXCLUSIVE BENEFIT

2 RULE UNDER THE INTERNAL REVENUE

3 CODE.

4 (a) IN GENERAL.—Section 401(a) of the Internal

5 Revenue Code of 1986 (requirements for qualification of

6 pension, profit-sharing, and stock bonus plans) is amend7 ed by inserting after paragraph (31) the following new

8 paragraph:

9 ‘‘(32) ADDITIONAL RULES RELATING TO EX10 CLUSIVE BENEFIT RULE.—

11 ‘‘(A) IN GENERAL.—The requirements of

12 paragraph (2) shall not be treated as satisfied

13 with respect to a plan, in any case in which a

14 fiduciary, in the course of managing a plan or

15 exercising authority or control respecting man16 agement or disposition of its assets, has an oc17 casion to choose between any two alternative in18 vestments of plan assets, if the fiduciary in

19 making such choice takes into account other

20 factors in addition to the rate of return, the

21 riskiness of the investment, and other direct

22 economic factors, unless—

23 ‘‘(i) the fiduciary has determined in

24 advance that both alternatives are eco25 nomically equally advantageous to the em-
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1 ployees and their beneficiaries under the

2 plan, and

3 ‘‘(ii) such other factors are taken into

4 account solely to the extent that they

5 would be in the economic interest of the

6 employees and their beneficiaries of the

7 plan.

8 ‘‘(B) DISREGARD OF EXTERNAL BENE9 FITS.—

10 ‘‘(i) IN GENERAL.—The requirements

11 of paragraph (2) shall not be treated as

12 satisfied with respect to a plan in any case

13 in which a fiduciary with respect to the

14 plan, in making investment decisions with

15 respect to plan assets, takes into account

16 external benefits.

17 ‘‘(ii) EXTERNAL BENEFITS PERMIS18 SIBLE.—The requirements of paragraph

19 (2) shall not be treated as not satisfied

20 solely because such investment yields exter21 nal benefits.

22 ‘‘(iii) EXTERNAL BENEFIT.—For pur23 poses of this subparagraph, the term ‘ex24 ternal benefit’ means, in connection with

25 any investment of plan assets, a benefit to
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1 individuals other than the employees or

2 their beneficiaries under the plan.

3 ‘‘(C) NONINTERFERENCE WITH FIDUCIARY

4 RESPONSIBILITIES.—

5 ‘‘(i) PROHIBITION AGAINST LISTS AND

6 OTHER REFERRALS.—Neither the Sec7 retary nor any other agency or instrumen8 tality of the Government of the United

9 States may—

10 ‘‘(I) establish or maintain, or

11 cause to be established or maintained,

12 by means of subsidy or otherwise, any

13 list of investments or classes of invest14 ments purporting to satisfy the re15 quirements of subparagraph (A), or

16 ‘‘(II) in any manner pledge,

17 guarantee, ensure, or otherwise rep18 resent that any particular investment

19 or class of investments will yield a

20 sufficiently high rate of return at a

21 sufficiently low level of risk to satisfy

22 the requirements of subparagraph

23 (A).

24 ‘‘(ii) PROHIBITION AGAINST SUB25 SIDIES.—None of the funds authorized or
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1 appropriated to carry out this title or any

2 other provision of law may be used—

3 ‘‘(I) by the Secretary or any

4 other agency or instrumentality of the

5 United States, or

6 ‘‘(II) by any other institution or

7 entity established, chartered, or sub8 sidized by the United States,

9 to subsidize, or to otherwise increase the

10 rate of return on, any particular invest11 ment or class of investments for the pur12 pose of causing the requirements of sub13 paragraph (A) to be met with respect to

14 such investment or class of investments.

15 ‘‘(D) IRRELEVANCE OF MATTERS OTHER

16 THAN ECONOMIC INTERESTS OF EMPLOYEES

17 AND THEIR BENEFICIARIES.—Nothing in this

18 paragraph or paragraph (2) shall be construed

19 to permit any matter unrelated to the economic

20 interests of the employees and their bene21 ficiaries to be taken into account in determining

22 whether the requirements of paragraph (2) have

23 been satisfied.’’.
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1 SEC. 4. EFFECTIVE DATE.

2 The amendments made by this Act shall apply with

3 respect to acts or failures to act occurring on or after the

4 date of the enactment of this Act.

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