II

104TH CONGRESS

1ST SESSION S. 1490

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

to improve enforcement of such title and benefit security for participants

by adding certain provisions with respect to the auditing of employee

benefit plans, and for other purposes.

IN THE SENATE OF THE UNITED STATES

DECEMBER 20, 1995

Mr. SIMON (for himself, Mr. JEFFORDS Mr. LEAHY, and Mrs. BOXER) introduced the following bill; which was read twice and referred to the Committee on Labor and Human Resources

A BILL

To amend title I of the Employee Retirement Income Security Act of 1974 to improve enforcement of such title

and benefit security for participants by adding certain

provisions with respect to the auditing of employee benefit plans, and for other purposes.

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 ‘‘Pension Audit Im5 provement Act of 1995’’.
2

•S 1490 IS

1 SEC. 2. REPEAL OF LIMITED SCOPE AUDIT.

2 (a) IN GENERAL.—Section 103(a)(3) of the Em3 ployee Retirement Income Security Act of 1974 (29

4 U.S.C. 1023(a)(3)) is amended by striking subparagraph

5 (C) and by redesignating subparagraph (D) as subpara6 graph (C).

7 (b) CONFORMING AMENDMENTS.—

8 (1) Section 103(a)(3)(A) of such Act (29

9 U.S.C. 1023(a)(3)(A)) is amended by striking ‘‘Ex10 cept as provided in subparagraph (C), the’’ and in11 serting ‘‘The’’.

12 (2) Section 104(a)(5)(A) of such Act (29

13 U.S.C. 1024(a)(5)(A)) is amended by striking ‘‘sec14 tion 103(a)(3)(D)’’ and inserting ‘‘section

15 103(a)(3)(C)’’.

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

17 this section shall apply with respect to opinions required

18 under section 103(a)(3)(A) of the Employee Retirement

19 Income Security Act of 1974 for plan years beginning on

20 or after January 1 of the calendar year following the date

21 of the enactment of this Act.

22 SEC. 3. REPORTING AND ENFORCEMENT REQUIREMENTS

23 FOR EMPLOYEE BENEFIT PLANS.

24 (a) IN GENERAL.—Part 1 of subtitle B of title I of

25 the Employee Retirement Income Security Act of 1974

26 (29 U.S.C. 1021 et seq.) is amended—
3

•S 1490 IS

1 (1) by redesignating section 111 as section 112,

2 and

3 (2) by inserting after section 110 the following

4 new section:

5 ‘‘DIRECT REPORTING OF CERTAIN EVENTS

6 ‘‘SEC. 111. (a) REQUIRED NOTIFICATIONS.—

7 ‘‘(1) NOTIFICATIONS BY PLAN ADMINIS8 TRATOR.—The administrator of an employee benefit

9 plan shall, within 5 business days after the adminis10 trator first has reason to believe (or after the admin11 istrator is notified under paragraph (2)) that an ir12 regularity may have occurred with respect to the

13 plan—

14 ‘‘(A) notify the Secretary of the irregular15 ity in writing; and

16 ‘‘(B) furnish a copy of such notification to

17 the accountant who is currently engaged under

18 section 103(a)(3)(A).

19 ‘‘(2) NOTIFICATIONS BY ACCOUNTANT.—

20 ‘‘(A) IN GENERAL.—An accountant en21 gaged by the administrator of an employee ben22 efit plan under section 103(a)(3)(A) shall, with23 in 5 business days after the accountant first

24 has reason to believe in connection with such

25 engagement that an irregularity may have oc26 curred with respect to the plan—
4

•S 1490 IS

1 ‘‘(i) notify the plan administrator of

2 the irregularity in writing, or

3 ‘‘(ii) if the accountant has reason to

4 believe that the irregularity may have in5 volved an individual who is the plan admin6 istrator or who is a senior official of the

7 plan administrator, notify the Secretary of

8 the irregularity in writing.

9 ‘‘(B) NOTIFICATION UPON FAILURE OF

10 PLAN ADMINISTRATOR TO NOTIFY.—If an ac11 countant who has provided notification to the

12 plan administrator pursuant to subparagraph

13 (A)(i) does not receive a copy of the administra14 tor’s notification to the Secretary required

15 under paragraph (1)(B) within the 5-business

16 day period specified therein, the accountant

17 shall furnish to the Secretary a copy of the ac18 countant’s notification made to the plan admin19 istrator on the next business day following such

20 period.

21 ‘‘(3) IRREGULARITY DEFINED.—

22 ‘‘(A) For purposes of this subsection, the

23 term ‘irregularity’ means—

24 ‘‘(i) a theft, embezzlement, or a viola25 tion of section 664 of title 18, United
5

•S 1490 IS

1 States Code (relating to theft or embezzle2 ment from an employee benefit plan);

3 ‘‘(ii) an extortion or a violation of sec4 tion 1951 of such title 18 (relating to in5 terference with commerce by threats or vi6 olence);

7 ‘‘(iii) a bribery, a kickback, or a viola8 tion of section 1954 of such title 18 (relat9 ing to offer, acceptance, or solicitation to

10 influence operations of an employee benefit

11 plan);

12 ‘‘(iv) a violation of section 411, 501,

13 or 511 of this title (relating to criminal

14 violations); or

15 ‘‘(v) any intentional misstatement or

16 omission of an amount or disclosure in a

17 financial statement, accounting record, or

18 supporting document undertaken to mis19 lead.

20 ‘‘(B) The term ‘irregularity’ shall not in21 clude any act or omission described in this

22 paragraph involving less than $1,000 unless

23 there is reason to believe that the act or omis24 sion may bear on the integrity of plan manage25 ment.
6

•S 1490 IS

1 ‘‘(b) NOTIFICATION UPON TERMINATION OF EN2 GAGEMENT OF ACCOUNTANT.—

3 ‘‘(1) NOTIFICATION BY PLAN ADMINIS4 TRATOR.—Within 5 business days after the termi5 nation of an engagement for auditing services under

6 section 103(a)(3)(A) with respect to an employee

7 benefit plan, the administrator of such plan shall—

8 ‘‘(A) notify the Secretary in writing of

9 such termination, giving the reasons for such

10 termination, and

11 ‘‘(B) furnish the accountant whose engage12 ment was terminated with a copy of the notifi13 cation sent to the Secretary.

14 ‘‘(2) NOTIFICATION BY ACCOUNTANT.—If the

15 accountant referred to in paragraph (1)(B) has not

16 received a copy of the administrator’s notification to

17 the Secretary as required under paragraph (1)(B),

18 or if the accountant disagrees with the reasons given

19 in the notification of termination of the engagement

20 for auditing services, the accountant shall notify the

21 Secretary in writing of the termination, giving the

22 reasons for the termination, within 10 business days

23 after the termination of the engagement.

24 ‘‘(c) DETERMINATION OF PERIODS REQUIRED FOR

25 NOTIFICATION.—In determining whether a notification re-
7

•S 1490 IS

1 quired under this section with respect to any act or omis2 sion has been made within the required number of busi3 ness days—

4 ‘‘(1) the day on which such act or omission be5 gins shall not be included; and

6 ‘‘(2) Saturdays, Sundays, and legal holidays

7 shall not be included.

8 For purposes of this subsection, the term ‘legal holiday’

9 means any Federal legal holiday and any other day ap10 pointed as a holiday by the State in which the person re11 sponsible for making the notification principally conducts

12 his business.

13 ‘‘(d) IMMUNITY FOR GOOD FAITH NOTIFICATION.—

14 Except as provided in this Act, no accountant shall be lia15 ble to any person for any finding, conclusion, or statement

16 made in any notification made pursuant to subsection

17 (a)(2) or (b)(2), or pursuant to any regulations issued

18 thereunder, if such finding, conclusion, or statement is

19 made in good faith.’’

20 (b) CIVIL PENALTY.—

21 (1) IN GENERAL.—Section 502(c) of such Act

22 (29 U.S.C. 1132(c)) is amended by adding at the

23 end the following new paragraph:

24 ‘‘(5)(A) The Secretary may assess a civil pen25 alty of up to $100,000 against any administrator
8

•S 1490 IS

1 who fails to provide the Secretary with any notifica2 tion as required under section 111.

3 ‘‘(B) The Secretary may assess a civil penalty

4 of up to $100,000 against any accountant who

5 knowingly and willfully fails to provide the Secretary

6 with any notification as required under section 111.’’

7 (2) CONFORMING AMENDMENT.—Section

8 502(a)(6) of such Act (29 U.S.C. 1132(a)(6)) is

9 amended by striking ‘‘subsection (c)(2) or (i) or (l)’’

10 and inserting ‘‘paragraph (2), (4), or (5) of sub11 section (c) or subsection (i) or (l)’’.

12 (c) CLERICAL AMENDMENTS.—

13 (1) Section 514(d) of such Act (29 U.S.C.

14 114(d)) is amended by striking ‘‘111’’ and inserting

15 ‘‘112’’.

16 (2) The table of contents in section 1 of such

17 Act is amended by striking the item relating to sec18 tion 111 and inserting the following new items:

‘‘Sec. 111. Direct reporting of certain events.

‘‘Sec. 112. Repeal and effective date.’’

19 (d) EFFECTIVE DATE.—The amendments made by

20 this section shall apply with respect to any irregularity or

21 termination of engagement described in such amendments

22 only if the 5-day period described in such amendments in

23 connection with such irregularity or termination com24 mences on or after the date of the enactment of this Act.
9

•S 1490 IS

1 SEC. 4. ADDITIONAL REQUIREMENTS FOR QUALIFIED PUB2 LIC ACCOUNTANTS.

3 (a) IN GENERAL.—Section 103(a)(3)(C) of the Em4 ployee Retirement Income Security Act of 1974 (29

5 U.S.C. 1023(a)(3)(C)), as redesignated by section 2, is

6 amended—

7 (1) by inserting ‘‘(i)’’ after ‘‘(C)’’;

8 (2) by inserting ‘‘, with respect to any engage9 ment of an accountant under subparagraph (A)’’

10 after ‘‘means’’;

11 (3) by redesignating clauses (i), (ii), and (iii) as

12 subclauses (I), (II), and (III), respectively;

13 (4) by striking the period at the end of

14 subclause (III) (as so redesignated) and inserting a

15 comma;

16 (5) by adding after subclause (III) (as so redes17 ignated), and flush with clause (i), the following:

18 ‘‘but only if such person meets the require19 ments of clauses (ii) and (iii) with respect

20 to such engagement.’’; and

21 (6) by adding at the end the following new

22 clauses:

23 ‘‘(ii) A person meets the requirements

24 of this clause with respect to an engage25 ment of such person as an accountant

26 under subparagraph (A) if such person—
10

•S 1490 IS

1 ‘‘(I) has in operation an appro2 priate internal quality control system;

3 ‘‘(II) has undergone a qualified

4 external quality control review of the

5 person’s accounting and auditing

6 practices, including such practices rel7 evant to employee benefit plans (if

8 any), during the 3-year period imme9 diately preceding such engagement;

10 and

11 ‘‘(III) has completed, within the

12 2-year period immediately preceding

13 such engagement, at least 80 hours of

14 continuing education or training

15 which contributes to the accountant’s

16 professional proficiency, at least 20

17 hours of which have been completed

18 during the 1-year period immediately

19 preceding the engagement, and at

20 least 16 hours of which relate to em21 ployee benefit plan matters.

22 ‘‘(iii) A person meets the require23 ments of this clause with respect to an en24 gagement of such person as an accountant

25 under subparagraph (A) if such person
11

•S 1490 IS

1 meets such additional requirements and

2 qualifications of regulations which the Sec3 retary deems necessary to ensure the qual4 ity of plan audits.

5 ‘‘(iv) For purposes of clause (ii)(II),

6 an external quality control review shall be

7 treated as qualified with respect to a per8 son referred to in clause (ii) if—

9 ‘‘(I) such review is performed in

10 accordance with the requirements of

11 external quality control review pro12 grams of recognized auditing stand13 ard-setting bodies, as determined

14 under regulations of the Secretary,

15 and

16 ‘‘(II) in the case of any such per17 son who has, during the peer review

18 period, conducted one or more pre19 vious audits of employee benefit plans,

20 such review includes the review of an

21 appropriate number (determined as

22 provided in such regulations, but in

23 no case less than one) of plan audits

24 in relation to the scale of such per25 son’s auditing practice.
12

•S 1490 IS

1 The Secretary shall issue the regulations

2 under subclause (I) no later than Decem3 ber 31, 1997.’’

4 (b) EFFECTIVE DATES.—

5 (1) IN GENERAL.—Except as provided in para6 graph (2), the amendments made by this section

7 shall apply with respect to plan years beginning on

8 or after the date which is 3 years after the date of

9 the enactment of this Act.

10 (2) RESTRICTIONS ON CONDUCTING EXAMINA11 TIONS.—Clause (iii) of section 103(a)(3)(C) of the

12 Employee Retirement Income Security Act of 1974

13 (as added by subsection (a)(6)) shall take effect on

14 the date of enactment of this Act.

15 SEC. 5. CLARIFICATION OF FIDUCIARY PENALTIES.

16 (a) MODIFICATION OF PROHIBITION OF ASSIGNMENT

17 OR ALIENATION.—

18 (1) AMENDMENT TO ERISA.—Section 206(d) of

19 the Employee Retirement Income Security Act of

20 1974 (29 U.S.C. 1056(d)) is amended by adding the

21 following new paragraph:

22 ‘‘(4) Paragraph (1) shall not apply to any offset

23 of a participant’s accrued benefit in an employee

24 pension benefit plan against an amount that the
13

•S 1490 IS

1 participant is ordered or required to pay to the

2 plan—

3 ‘‘(A) under a judgment of conviction for a

4 crime involving such plan, or

5 ‘‘(B) under a civil judgment (including a

6 consent order or decree) entered—

7 ‘‘(i) by a court in an action brought

8 under section 502(a) of this title, or

9 ‘‘(ii) pursuant to a settlement agree10 ment between the Secretary and the partic11 ipant in connection with a violation (or al12 leged violation) of part 4 of this title by a

13 fiduciary or any other person,

14 if the judgment, order, decree, or settlement

15 agreement expressly provides for the offset of

16 all or part of the amount ordered or required

17 to be paid to the plan against the participant’s

18 accrued benefit in the plan.’’

19 (2) AMENDMENT TO 1986 CODE.—Section

20 401(a)(13) of the Internal Revenue Code of 1986 is

21 made by adding at the end the following new sub22 paragraph:

23 ‘‘(C) SPECIAL RULE FOR CERTAIN JUDG24 MENTS AND SETTLEMENTS.—Subparagraph (A)

25 shall not apply to any offset of a participant’s
14

•S 1490 IS

1 accrued benefit in an employee pension benefit

2 plan against an amount that the participant is

3 ordered or required to pay to the plan—

4 ‘‘(i) under a judgment of conviction

5 for a crime involving such plan, or

6 ‘‘(ii) under a civil judgment (including

7 a consent order or decree) entered—

8 ‘‘(I) by a court in an action

9 brought under section 502(a) of the

10 Employee Retirement Income Security

11 Act of 1974, or

12 ‘‘(II) pursuant to a settlement

13 agreement between the Secretary of

14 Labor and the participant in connec15 tion with a violation (or alleged viola16 tion) of part 4 of title I of such Act

17 by a fiduciary or any other person,

18 if the judgment, order, decree or settlement

19 agreement expressly provides for the offset of

20 all or part of the amount ordered or required

21 to be paid to the plan against the participant’s

22 accrued benefit in the plan.’’

23 (3) EFFECTIVE DATE.—The amendments made

24 by this subsection shall take effect on the date of en25 actment of this Act.
15

•S 1490 IS

1 (b) CIVIL PENALTIES FOR BREACH OF FIDUCIARY

2 RESPONSIBILITY.—

3 (1) IMPOSITION AND AMOUNT OF PENALTY

4 MADE DISCRETIONARY.—Section 502(l)(1) of the

5 Employee Retirement Income Security Act of 1974

6 (29 U.S.C. 1132(l)(1)) is amended—

7 (A) by striking ‘‘shall’’ and inserting

8 ‘‘may’’, and

9 (B) by striking ‘‘equal to’’ and inserting

10 ‘‘not greater than’’.

11 (2) APPLICABLE RECOVERY AMOUNT.—Section

12 502(l)(2) of such Act (29 U.S.C. 1132(l)(2)) is

13 amended to read as follows:

14 ‘‘(2) For purposes of paragraph (1), the term

15 ‘applicable recovery amount’ means any amount

16 which is recovered from (or on behalf of) any fidu17 ciary or other person with respect to a breach or vio18 lation described in paragraph (1) on or after the

19 30th day following receipt by such fiduciary or other

20 person of written notice from the Secretary of the

21 violation, whether paid voluntarily or by order of a

22 court in a judicial proceeding instituted by the Sec23 retary under subsection (a)(2) or (a)(5). The Sec24 retary may, in the Secretary’s sole discretion, extend
16

•S 1490 IS

1 the 30-day period described in the preceding sen2 tence.’’

3 (3) OTHER RULES.—Section 502(l) of such Act

4 (29 U.S.C. 1132(l)) is amended by adding at the

5 end the following new paragraphs:

6 ‘‘(5) A person shall be jointly and severally lia7 ble for the penalty described in paragraph (1) to the

8 same extent that such person is jointly and severally

9 liable for the applicable recovery amount on which

10 the penalty is based.

11 ‘‘(6) No penalty shall be assessed under this

12 subsection unless the person against whom the pen13 alty is assessed is given notice and opportunity for

14 a hearing with respect to the violation and applicable

15 recovery amount.’’

16 (4) EFFECTIVE DATES.—

17 (A) IN GENERAL.—The amendments made

18 by this subsection shall apply to any breach of

19 fiduciary responsibility or other violation of part

20 4 of title I of the Employment Retirement In21 come Security Act of 1974 occurring on or after

22 the date of enactment of this Act.

23 (B) TRANSITION RULE.—In applying the

24 amendment made by paragraph (2) (relating to

25 applicable recovery amount), a breach or other
17

•S 1490 IS

1 violation occurring before the date of the enact2 ment of this Act which continues after the

3 180th day after such date (and which may have

4 been discontinued at any time during its exist5 ence) shall be treated as having occurred after

6 such date of enactment.

Æ

S 1490 IS——2