II 

117TH CONGRESS 

2D SESSION S. 4241 

To amend the Investment Advisers Act of 1940 to require investment advisers 

for passively managed funds to arrange for pass-through voting of proxies 

for certain securities, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MAY 18 (legislative day, MAY 17), 2022 

Mr. SULLIVAN (for himself, Mr. TOOMEY, Mr. CRAPO, Mr. GRASSLEY, Mr. 

CORNYN, Mr. TILLIS, Mr. HAGERTY, Ms. LUMMIS, Mr. DAINES, Mr. 

CRAMER, Mr. RUBIO, Mr. KENNEDY, and Mr. SCOTT of Florida) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To amend the Investment Advisers Act of 1940 to require 

investment advisers for passively managed funds to arrange for pass-through voting of proxies for certain securities, 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 ‘‘INvestor Democracy 

5 is EXpected Act’’ or the ‘‘INDEX Act’’. 


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1 SEC. 2. PROXY VOTING OF PASSIVELY MANAGED FUNDS. 

2 (a) IN GENERAL.—The Investment Advisers Act of 

3 1940 (15 U.S.C. 80b–1 et seq.) is amended by inserting 

4 after section 208 (15 U.S.C. 80b–8) the following: 

5 ‘‘SEC. 208A. REQUIREMENT WITH RESPECT TO PROXY VOT6 ING OF PASSIVELY MANAGED FUNDS. 

7 ‘‘(a) DEFINITIONS.—In this section— 

8 ‘‘(1) the term ‘covered security’— 

9 ‘‘(A) means a voting security, as that term 

10 is defined in section 2(a) of the Investment 

11 Company Act of 1940 (15 U.S.C. 80a–2(a)), in 

12 which a qualified fund is invested; and 

13 ‘‘(B) does not include any voting security 

14 (as defined in subparagraph (A)) of an issuer 

15 registered with the Commission as an invest16 ment company under section 8 of the Invest17 ment Company Act of 1940 (15 U.S.C. 80a–8); 

18 ‘‘(2) the term ‘passively managed fund’ means 

19 a qualified fund that— 

20 ‘‘(A) is designed to track, or is derived 

21 from, an index of securities or a portion of such 

22 an index; 

23 ‘‘(B) discloses that the qualified fund is a 

24 passive fund or an index fund; 

25 ‘‘(C) allocates not less than 40 percent of 

26 the total assets of the qualified fund to an inVerDate Sep 11 2014 19:07 May 23, 2022 Jkt 029200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S4241.IS S4241

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1 vestment strategy that is designed to track, or 

2 is derived from, an index of securities or a por3 tion of such an index; or 

4 ‘‘(D) discloses that an allocation described 

5 in subparagraph (C) follows an investment 

6 strategy that is passive or based on an index of 

7 securities; 

8 ‘‘(3) the term ‘qualified fund’ means— 

9 ‘‘(A) an investment company, as that term 

10 is defined in section 3 of the Investment Com11 pany Act of 1940 (15 U.S.C. 80a–3); 

12 ‘‘(B) a private fund; 

13 ‘‘(C) an eligible deferred compensation 

14 plan, as that term is defined in section 457(b) 

15 of the Internal Revenue Code of 1986; 

16 ‘‘(D) an entity described in section 

17 3(c)(11) of the Investment Company Act of 

18 1940 (15 U.S.C. 80a–3(c)(11)); 

19 ‘‘(E) a plan maintained by an employer de20 scribed in clause (i), (ii), or (iii) of section 

21 403(b)(1)(A) of the Internal Revenue Code of 

22 1986 to provide annuity contracts described in 

23 section 403(b) of such Code; 

24 ‘‘(F) a common trust fund, or similar 

25 fund, maintained by a bank; 


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1 ‘‘(G) any fund established under section 

2 8438(b)(1) of title 5, United States Code; or 

3 ‘‘(H) any separate managed account of a 

4 client of an investment adviser; 

5 ‘‘(4) the term ‘registrant’ means an issuer of 

6 covered securities; 

7 ‘‘(5) the term ‘routine matter’ does not in8 clude— 

9 ‘‘(A) a proposal that is not submitted to a 

10 holder of covered securities by means of a proxy 

11 statement comparable to that described in sec12 tion 240.14a–101 of title 17, Code of Federal 

13 Regulations, or any successor regulation; 

14 ‘‘(B) a proposal that is— 

15 ‘‘(i) the subject of a counter-solicita16 tion; or 

17 ‘‘(ii) part of a proposal made by a 

18 person other than the applicable registrant; 

19 ‘‘(C) a proposal that relates to a merger or 

20 consolidation, except when, with respect to a 

21 registrant— 

22 ‘‘(i) the proposal is to merge with a 

23 wholly owned subsidiary of the registrant; 

24 and 


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1 ‘‘(ii) holders of covered securities 

2 issued by the registrant that dissent to the 

3 proposal do not have rights of appraisal; 

4 ‘‘(D) a proposal that relates to the sale, 

5 lease, or exchange of all, or substantially all, of 

6 the property and assets of a registrant; 

7 ‘‘(E) an election for directors (or com8 parable positions); or 

9 ‘‘(F) any other matter determined by the 

10 Commission or an exchange registered under 

11 section 6 of the Securities Exchange Act of 

12 1934 (15 U.S.C. 78f) to be not routine; and 

13 ‘‘(6) the term ‘voting person’ means a person 

14 that provides voting instructions under subsection 

15 (b) or (c). 

16 ‘‘(b) REQUIREMENT.— 

17 ‘‘(1) IN GENERAL.—Subject to subsection (g), if 

18 an investment adviser holds authority to vote a 

19 proxy solicited pursuant to section 14 of the Securi20 ties Exchange Act of 1934 (15 U.S.C. 78n) in con21 nection with any vote of covered securities held by 

22 a passively managed fund, and the voting authority 

23 held by that investment adviser with respect to those 

24 covered securities (when combined with the voting 

25 authority of other persons controlled by, or under 


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1 common control with, that investment adviser) is 

2 more than 1 percent of the voting authority of the 

3 outstanding securities of the registrant subject to 

4 the vote, the investment adviser shall vote propor5 tionate amounts of those covered securities in ac6 cordance with the voting instructions of— 

7 ‘‘(A) in the case of a passively managed 

8 fund that issues securities, persons holding se9 curities in the passively managed fund, such 

10 that, solely for the purposes of that vote, the 

11 percentage of securities held by such a person 

12 shall be deemed to be the percentage of the cov13 ered securities beneficially owned by that per14 son; and 

15 ‘‘(B) in all cases other than a case de16 scribed in subparagraph (A), persons holding 

17 economic interests in the passively managed 

18 fund, such that, solely for purposes of that vote, 

19 the percentage of economic interests held by 

20 such a person shall be deemed to be the per21 centage of the covered securities beneficially 

22 owned by that person. 

23 ‘‘(2) PROHIBITION.—If paragraph (1) applies 

24 with respect to any vote of covered securities and the 

25 investment adviser to which that paragraph applies 


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1 does not receiving voting instructions from all per2 sons described in subparagraphs (A) and (B) of that 

3 paragraph, the investment adviser may not vote the 

4 proportion of the shares of the covered securities for 

5 which the investment adviser does not receive voting 

6 instructions. 

7 ‘‘(c) PASSIVELY MANAGED FUND AS SECURITY

8 HOLDER OF ANOTHER PASSIVELY MANAGED FUND.—If 

9 a passively managed fund (referred to in this subsection 

10 as the ‘holding fund’) holds securities of another passively 

11 managed fund (referred to in this subsection as the ‘held 

12 fund’), and there is a vote with respect to covered securi13 ties held by the held fund, the investment adviser of the 

14 holding fund shall obtain voting instructions from persons 

15 holding securities in the holding fund, or to persons hold16 ing economic interests in the holding fund, as applicable, 

17 with respect to that vote in the manner described in sub18 section (b). 

19 ‘‘(d) PROHIBITIONS.— 

20 ‘‘(1) REIMBURSEMENT.—No person may seek 

21 reimbursement from a registrant, or require any ex22 penses incurred to be paid by a registrant, with re23 spect to the obligations imposed under this section. 

24 ‘‘(2) PARTIAL COMPLIANCE.—An investment 

25 adviser may not solicit voting instructions from 


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1 some, but not all, voting persons under subsection 

2 (b)(1) or (c), as applicable. 

3 ‘‘(e) EXCEPTIONS.— 

4 ‘‘(1) VOTING ON ROUTINE MATTERS.—Notwith5 standing subsections (b)(1), (b)(2), and (d)(2), if an 

6 investment adviser chooses not to solicit voting in7 structions with respect to a vote described in sub8 section (b)(1) or (c), or, as of the date that is 10 

9 days before such a vote, the investment adviser has 

10 not received voting instructions from a person de11 scribed in subparagraph (A) or (B) of subsection 

12 (b)(1) or subsection (c), as applicable, the invest13 ment adviser may vote the covered securities for 

14 which the investment adviser has not received voting 

15 instructions with respect to a routine matter. 

16 ‘‘(2) MIRROR VOTING EXCEPTION FOR MATTERS

17 REQUIRING APPROVAL OF A MAJORITY OF OUT18 STANDING SECURITIES.—Notwithstanding sub19 sections (b)(1), (b)(2), and (d)(2), if a matter to be 

20 considered at a meeting of a registrant requires the 

21 approval of a majority of the outstanding securities 

22 of the registrant entitled to vote on the matter, an 

23 investment adviser to which any such provision ap24 plies may, with respect to any covered securities for 

25 which voting instructions have not been received, as 


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1 of the date that is 10 days before that vote, vote the 

2 uninstructed covered securities in a manner that is 

3 proportionate to the votes submitted on the matter 

4 by all other security holders of the registrant. 

5 ‘‘(f) DISSEMINATION OF INFORMATION.— 

6 ‘‘(1) IN GENERAL.—Any investment adviser 

7 subject to the requirements of subsection (b) or (c) 

8 shall, with respect to the dissemination of informa9 tion and other materials to a voting person, comply 

10 with the following requirements, unless the voting 

11 person affirmatively declines to receive that informa12 tion and other materials: 

13 ‘‘(A) Provide to the voting person— 

14 ‘‘(i) a proxy statement, other proxy 

15 soliciting material, or an information state16 ment; 

17 ‘‘(ii) an annual report from the appli18 cable registrant; 

19 ‘‘(iii) a form of voting instruction to 

20 return to the investment adviser; and 

21 ‘‘(iv) any control or identification 

22 number that the voting person needs to re23 turn to the investment adviser the voting 

24 instruction provided under subparagraph 

25 (B). 


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1 ‘‘(B) Provide the voting person with not 

2 less than 5 business days after the date on 

3 which the voting person receives the materials 

4 provided under paragraph (1) to return those 

5 materials to the investment adviser. 

6 ‘‘(2) ELECTRONIC DELIVERY.—All, or any por7 tion, of the materials that an investment adviser is 

8 required to provide under paragraph (1)(A) may be 

9 provided electronically, including an internet web 

10 site address provided by the applicable registrant or 

11 a third party. 

12 ‘‘(3) OPTION FOR INVESTMENT ADVISERS.—An 

13 investment adviser may provide recommendations to 

14 voting persons with the material provided under 

15 paragraph (1)(A), or after providing the material 

16 under that paragraph, if the investment adviser per17 mits voting recommendations to be provided to vot18 ing persons by third parties on a nondiscriminatory 

19 basis and on a wide range of views. 

20 ‘‘(4) SATISFACTION OF REQUIREMENTS BY PAS21 SIVELY MANAGED FUND.—With respect to any re22 quirement applicable to an investment adviser under 

23 this subsection, the requirement may be satisfied by 

24 the applicable passively managed fund, which may 


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1 cover any expenses, direct or indirect, incurred in 

2 carrying out that requirement. 

3 ‘‘(g) SAFE HARBOR AND RULE OF CONSTRUCTION

4 REGARDING DUTIES.—An investment adviser— 

5 ‘‘(1) with respect to a matter that is not a rou6 tine matter, may choose not to solicit voting instruc7 tions from any person under subsection (b)(1) or (c), 

8 subject to subsections (d)(2) and (e); and 

9 ‘‘(2) if the investment adviser chooses not to so10 licit voting instructions under subparagraph (A), 

11 shall not be considered to be in violation of any duty 

12 under any Federal or State law for failing to vote 

13 the applicable securities.’’. 

14 (b) EFFECTIVE DATE.—Section 208A of the Invest15 ment Advisers Act of 1940, as added by subsection (a), 

16 shall take effect on the first August 1 that occurs after 

17 the date that is 2 years after the date of enactment of 

18 this Act. 

19 SEC. 3. VOTING INSTRUCTIONS FROM CUSTOMERS. 

20 Section 14(b)(1) of the Securities Exchange Act of 

21 1934 (15 U.S.C. 78n(b)(1)) is amended by inserting ‘‘vot22 ing instruction,’’ after ‘‘consent,’’. 

Æ 


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