II

106TH CONGRESS

2D SESSION S. 2969

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

and the Internal Revenue Code of 1986 to promote the provision of

retirement investment advice to workers managing their retirement income assets.

IN THE SENATE OF THE UNITED STATES

JULY 27, 2000

Mr. GORTON introduced the following bill; which was read twice and referred

to the Committee on Finance

A BILL

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

1986 to promote the provision of retirement investment

advice to workers managing their retirement income assets.

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 ‘‘Retirement Security

5 Advice Act of 2000’’.
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1 SEC. 2. PROHIBITED TRANSACTION EXEMPTION FOR THE

2 PROVISION OF INVESTMENT ADVICE.

3 (a) AMENDMENTS TO THE EMPLOYEE RETIREMENT

4 INCOME SECURITY ACT OF 1974.—

5 (1) IN GENERAL.—Section 408(b) of the Em6 ployee Retirement Income Security Act of 1974 (29

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

8 the following new paragraph:

9 ‘‘(14) If the requirements of subsection (g) are

10 met—

11 ‘‘(A) the provision of investment advice re12 ferred to in section 3(21)(A)(ii) provided by a

13 fiduciary adviser (as defined in subsection

14 (g)(4)(A)) to an employee benefit plan or to a

15 participant or beneficiary of an employee ben16 efit plan,

17 ‘‘(B) the sale, acquisition, or holding of se18 curities or other property (including any exten19 sion of credit associated with the sale, acquisi20 tion, or holding of securities or other property)

21 pursuant to such investment advice, and

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

23 or other compensation by the fiduciary adviser

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

25 or registered representative of the fiduciary ad-
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1 viser or affiliate) in connection with the provi2 sion of such investment advice.’’.

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

4 is amended by adding at the end the following new

5 subsection:

6 ‘‘(g)(1) The requirements of this subsection are met

7 in connection with the provision of advice referred to in

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

9 or a participant or beneficiary of an employee benefit plan

10 by a fiduciary adviser with respect to such plan, in connec11 tion with any sale or acquisition of a security or other

12 property for purposes of investment of amounts held by

13 such plan, if—

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

15 advice with regard to a security or other property by

16 such fiduciary adviser to such plan, participant, or

17 beneficiary, the fiduciary adviser provides to the re18 cipient of such advice, at the time of or before the

19 initial provision of such advice, a clear and con20 spicuous description, in writing (including by means

21 of electronic communication) of—

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

23 to such advice that the fiduciary adviser or any

24 affiliate thereof is to receive (including com25 pensation provided by any third party) in con-
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1 nection with the provision of such advice or in

2 connection with such acquisition or sale,

3 ‘‘(ii) any material affiliation or contractual

4 relationship of the fiduciary adviser or affiliates

5 thereof in such security or other property,

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

7 the investment advice to be provided by the fi8 duciary adviser with respect to any such sale or

9 acquisition, and

10 ‘‘(iv) the types of services offered by the fi11 duciary advisor in connection with the provision

12 of investment advice by the fiduciary adviser,

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

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

15 beneficiary, the fiduciary adviser, throughout the 1-

16 year period following the provision of such advice,

17 maintains the information described in clauses (i)

18 through (iv) of subparagraph (A) in currently accu19 rate form for availability, upon request and without

20 charge, to the recipient of such advice,

21 ‘‘(C) the fiduciary adviser provides appropriate

22 disclosure, in connection with any such acquisition

23 or sale, in accordance with all applicable securities

24 laws,
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1 ‘‘(D) such acquisition or sale occurs solely at

2 the discretion of the recipient of such advice,

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

4 adviser and affiliates thereof in connection with such

5 acquisition or sale is reasonable, and

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

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

8 transaction would be.

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

10 who has provided advice referred to in such paragraph

11 shall, for a period of not less than 6 years after the provi12 sion of such advice, maintain any records necessary for

13 determining whether the requirements of the preceding

14 provisions of this subsection and of subsection (b)(14)

15 have been met. A prohibited transaction provided in sec16 tion 406 shall not be considered to have occurred solely

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

18 of the 6-year period due to circumstances beyond the con19 trol of the fiduciary adviser.

20 ‘‘(3)(A) Subject to subparagraph (B), a plan sponsor

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

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

23 reason of the provision of investment advice referred to

24 in section 3(21)(A)(ii) (or solely by reason of contracting
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1 for or otherwise arranging for the provision of such invest2 ment advice), if—

3 ‘‘(i) such advice is provided by a fiduciary ad4 viser pursuant to an arrangement between such plan

5 sponsor or other fiduciary and such fiduciary adviser

6 for the provision by such fiduciary adviser of invest7 ment advice referred to in such section, and

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

9 compliance by the fiduciary adviser with the require10 ments of this subsection.

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

12 to exempt a plan sponsor or other person who is a fidu13 ciary from any requirement of this part for the prudent

14 selection and periodic review of a fiduciary adviser with

15 whom the plan sponsor or other person enters into an ar16 rangement for the provision of advice referred to in section

17 3(21)(A)(ii). Such plan sponsor or other person who is a

18 fiduciary has no duty under this part to monitor the spe19 cific investment advice given by the fiduciary adviser to

20 any particular recipient of such advice.

21 ‘‘(C) Nothing in this part shall be construed to pre22 clude the use of plan assets to pay for reasonable expenses

23 in providing investment advice referred to in section

24 3(21)(A)(ii).
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1 ‘‘(4) For purposes of this subsection and subsection

2 (b)(14)—

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

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

5 plan by reason of the provision of investment advice

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

7 beneficiary and who is—

8 ‘‘(i) registered as an investment adviser

9 under the Investment Advisers Act of 1940 (15

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

11 State in which the fiduciary maintains its prin12 cipal office and place of business,

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

14 referred to in subsection (b)(4),

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

16 business under the laws of a State,

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

18 dealer under the Securities Exchange Act of

19 1934 (15 U.S.C. 78a et seq.),

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

21 any of clauses (i) through (iv), or

22 ‘‘(vi) an employee, agent, or registered rep23 resentative of a person described in any of

24 clauses (i) through (v).
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1 ‘‘(B) The term ‘affiliate’ means an affiliated

2 person, as defined in section 2(a)(3) of the Invest3 ment Company Act of 1940 (15 U.S.C. 80a–

4 2(a)(3)).

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

6 a person described in section 3(a)(18) of the Securi7 ties Exchange Act of 1934 (15 U.S.C. 78c(a)(18))

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

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

10 (b) AMENDMENTS TO THE INTERNAL REVENUE

11 CODE OF 1986.—

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

13 4975 of the Internal Revenue Code of 1986 (relating

14 to exemptions from tax on prohibited transactions)

15 is amended—

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

17 the end;

18 (B) in paragraph (15), by striking the pe19 riod at the end and inserting ‘‘; or’’; and

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

21 paragraph:

22 ‘‘(16) If the requirements of subsection (f)(7)

23 are met—

24 ‘‘(A) the provision of investment advice re25 ferred to in subsection (e)(3)(B) provided by a
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1 fiduciary adviser (as defined in subsection

2 (f)(7)(C)(i)) to a plan or to a participant or

3 beneficiary of a plan,

4 ‘‘(B) the sale, acquisition, or holding of se5 curities or other property (including any exten6 sion of credit associated with the sale, acquisi7 tion, or holding of securities or other property)

8 pursuant to such investment advice, and

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

10 or other compensation by the fiduciary adviser

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

12 or registered representative of the fiduciary ad13 viser or affiliate) in connection with the provi14 sion of such investment advice.’’.

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

16 section 4975 (relating to other definitions and spe17 cial rules) is amended by adding at the end the fol18 lowing new paragraph:

19 ‘‘(7) REQUIREMENTS FOR EXEMPTION FOR IN20 VESTMENT ADVICE PROVIDED BY FIDUCIARY ADVIS21 ERS.—

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

23 this paragraph are met in connection with the

24 provision of advice referred to in subsection

25 (e)(3)(B), provided to a plan or a participant or
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1 beneficiary of a plan by a fiduciary adviser with

2 respect to such plan, in connection with any

3 sale or acquisition of a security or other prop4 erty for purposes of investment of amounts held

5 by such plan, if—

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

7 of such advice by such fiduciary adviser to

8 such plan, participant, or beneficiary, the

9 fiduciary adviser provides to the plan, par10 ticipant, or beneficiary, at the time of or

11 before the initial provision of such advice,

12 a description, in writing or by means of

13 electronic communication, of—

14 ‘‘(I) all fees or other compensa15 tion relating to such advice that the

16 fiduciary adviser or any affiliate

17 thereof is to receive (including com18 pensation provided by any third

19 party) in connection with the provi20 sion of such advice or in connection

21 with such acquisition or sale,

22 ‘‘(II) any material affiliation or

23 contractual relationship of the fidu24 ciary adviser or affiliates thereof in

25 such security or other property,
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1 ‘‘(III) any limitation placed on

2 the scope of the investment advice to

3 be provided by the fiduciary adviser

4 with respect to any such sale or acqui5 sition, and

6 ‘‘(IV) the types of services of7 fered by the fiduciary advisor in con8 nection with the provision of invest9 ment advice by the fiduciary adviser,

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

11 subsequent provision of such advice to such

12 plan, participant, or beneficiary, the fidu13 ciary adviser, throughout the 1-year period

14 following the provision of such advice,

15 maintains the information described in

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

17 currently accurate form for availability,

18 upon request and without charge, to the

19 recipient of such advice,

20 ‘‘(iii) the fiduciary adviser provides

21 appropriate disclosure, in connection with

22 any such acquisition or sale, in accordance

23 with all applicable securities laws,
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1 ‘‘(iv) such acquisition or sale occurs

2 solely at the discretion of the recipient of

3 such advice,

4 ‘‘(v) the compensation received by the

5 fiduciary adviser and affiliates thereof in

6 connection with such acquisition or sale is

7 reasonable, and

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

9 sale are at least as favorable to such plan

10 as an arm’s length transaction would be.

11 ‘‘(B) MAINTENANCE OF RECORDS.—A fi12 duciary adviser referred to in subparagraph (A)

13 who has provided advice referred to in such

14 subparagraph shall, for a period of not less

15 than 6 years after the provision of such advice,

16 maintain any records necessary for determining

17 whether the requirements of the preceding pro18 visions of this subsection and of subsection

19 (d)(16) have been met. A prohibited transaction

20 described in subsection (c)(1) shall not be con21 sidered to have occurred solely because the

22 records are lost or destroyed prior to the end of

23 the 6-year period due to circumstances beyond

24 the control of the fiduciary adviser.
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1 ‘‘(C) DEFINITIONS.—For purposes of this

2 paragraph and subsection (d)(16)—

3 ‘‘(i) FIDUCIARY ADVISER.—The term

4 ‘fiduciary adviser’ means, with respect to a

5 plan, a person who is a fiduciary of the

6 plan by reason of the provision of invest7 ment advice by such person to the plan or

8 to a participant or beneficiary and who

9 is—

10 ‘‘(I) registered as an investment

11 adviser under the Investment Advisers

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

13 or under the laws of the State in

14 which the fiduciary maintains its prin15 cipal office and place of business,

16 ‘‘(II) a bank or similar financial

17 institution referred to in subsection

18 (d)(4),

19 ‘‘(III) an insurance company

20 qualified to do business under the

21 laws of a State,

22 ‘‘(IV) a person registered as a

23 broker or dealer under the Securities

24 Exchange Act of 1934 (15 U.S.C. 78a

25 et seq.),
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1 ‘‘(V) an affiliate of a person de2 scribed in any of subclauses (I)

3 through (IV), or

4 ‘‘(VI) an employee, agent, or reg5 istered representative of a person de6 scribed in any of subclauses (I)

7 through (V).

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

9 means an affiliated person, as defined in

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

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

12 ‘‘(iii) REGISTERED REPRESENTA13 TIVE.—The term ‘registered representa14 tive’ means a person described in section

15 3(a)(18) of the Securities Exchange Act of

16 1934 (15 U.S.C. 78c(a)(18)) or section

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

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

19 SEC. 3. EFFECTIVE DATE.

20 The amendments made by this Act shall apply with

21 respect to advice referred to in section 3(21)(A)(ii) of the

22 Employee Retirement Income Security Act of 1974 or sec23 tion 4975(e)(3)(B) of the Internal Revenue Code of 1986

24 provided on or after January 1, 2001.

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