I
106TH CONGRESS
2D SESSION
H. R. 4748
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, to increase the availability of critical retirement plan
services, including investment advisory services, to participants, bene-
ficiaries, and plan fiduciaries, 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 Com-
mittee on Education and the Workforce, and in addition to the Com-
mittee 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 Secu-
rity 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 retire-
ment plans, to increase the availability of critical retire-
ment plan services, including investment advisory serv-
ices, to participants, beneficiaries, and plan fiduciaries,
and to harmonize the requirements of such title and
such Code with other Federal and State laws.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Comprehensive ERISA
Modernization Act of 2000’’.
SEC. 2. PROHIBITED TRANSACTION EXEMPTION FOR ARM’S
LENGTH TRANSACTIONS.
(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.—
(1) IN GENERAL.—Section 408(b) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1108(b)) is amended by adding at the end
the following new paragraph:
‘‘(14) Any transaction of the type described in
subparagraph (A), (B), (C), or (D) of section
406(a)(1) or in 406(b) (other than a transaction de-
scribed in paragraph (15)) which meets the arm’s
length transaction requirements of subsection (g).
(2) ARM’S
LENGTH
TRANSACTION
REQUIRE-
MENTS.—Section 408 of such Act is amended fur-
ther by adding at the end the following new sub-
section:
‘‘(g)(1) The arm’s length transaction requirements of
this subsection are met by a transaction described in sub-
paragraph (A), (B), (C), or (D) of section 406(a)(1) if—
‘‘(A) such transaction is entered into pursuant
to a written contract or arrangement which includes
the material terms and conditions of such trans-
action or transactions of the type of such trans-
action,
‘‘(B) such transaction is in the interest of the
plan and its participants and beneficiaries, and
‘‘(C) the terms and conditions of such trans-
action, including any direct or indirect compensa-
tion, are at least as favorable to the plan as an
arm’s length transaction would be.
‘‘(2) The arm’s length transaction requirements of
this subsection are met by a transaction described in sec-
tion 406(b) if—
‘‘(A) such transaction meets the requirements
of paragraph (1), and
‘‘(B) prior to the commencement of such
transaction—
‘‘(i) written disclosure of potential conflicts
of interest associated with the transaction (or
contemplated transactions of the type thereof),
including the receipt of direct or indirect com-
pensation, has been provided to a fiduciary of
the plan, and
‘‘(ii) the transaction (or contemplated
transactions of the type thereof) have been pro-
vided for in the terms of the plan or of a writ-
ten contract with a fiduciary described in clause
(i) that is independent of the person entering
into the transaction and any of its affiliates.
‘‘(3) In any case in which a fiduciary causes a plan
to enter into a transaction with such fiduciary or an affil-
iate thereof, the arm’s length transaction requirements of
this subsection are met only if—
‘‘(A) such transaction meets the requirements
of paragraphs (1) and (2),
‘‘(B) such fiduciary or affiliate is engaged in
the business of entering into transactions of such
type with the general public, and
‘‘(C) such transaction is entered into under
substantially the same terms and conditions as those
under which such transactions with the general pub-
lic are entered into.’’.
(b) AMENDMENTS
TO
THE INTERNAL REVENUE
CODE OF 1986.—
(1) IN
GENERAL.—Subsection (d) of section
4975 of the Internal Revenue Code of 1986 (relating
to exemptions from tax on prohibited transactions)
is amended—
(A) in paragraph (14), by striking ‘‘or’’ at
the end;
(B) in paragraph (15), by striking the pe-
riod at the end and inserting ‘‘; or’’; and
(C) by adding at the end the following new
paragraph:
‘‘(16) Any transaction of the type described in
subsection (c)(1) (other than a transaction described
in paragraph (17)) which meets the arm’s length
transaction requirements of subsection (f)(7).’’.
(2) ARM’S
LENGTH
TRANSACTION
REQUIRE-
MENTS.—Subsection (f) of such section 4975 (relat-
ing to other definitions and special rules) is amended
by adding at the end the following new paragraph:
‘‘(7) ARM’S
LENGTH
TRANSACTION
REQUIRE-
MENTS.—
‘‘(A) TRANSACTIONS WITH DISQUALIFIED
PERSONS.—The arm’s length transaction re-
quirements of this subsection are met by a
transaction described in subparagraph (A), (B),
(C), or (D) of subsection (c)(1) if—
‘‘(i) such transaction is entered into
pursuant to a written contract or arrange-
ment which includes the material terms
and conditions of such transaction or
transactions of the type of such trans-
action,
‘‘(ii) such transaction is in the inter-
est of the plan and its participants and
beneficiaries, and
‘‘(iii) the terms and conditions of such
transaction, including any direct or indi-
rect compensation, are at least as favorable
to the plan as an arm’s length transaction
would be.
‘‘(B) TRANSACTIONS
WITH
A
FIDUCIARY
OR ITS AFFILIATE.—The arm’s length trans-
action requirements of this subsection are met
by a transaction described in subparagraph (E)
or (F) of subsection (c)(1) if—
‘‘(i) such transaction meets the re-
quirements of subparagraph (A), and
‘‘(ii) prior to the commencement of
such transaction—
‘‘(I) written disclosure of poten-
tial conflicts of interest associated
with the transaction (or contemplated
transactions of the type thereof), in-
cluding the receipt of direct or indi-
rect compensation, has been provided
to a fiduciary of the plan, and
‘‘(II) the transaction (or con-
templated transactions of the type
thereof) have been provided for in the
terms of the plan or of a written con-
tract with a fiduciary described in
subclause (I) that is independent of
the person entering into the trans-
action and any of its affiliates.
‘‘(C) TRANSACTIONS WITH THE FIDUCIARY
CAUSING THE TRANSACTIONS.—In any case in
which a fiduciary causes a plan to enter into a
transaction with such fiduciary or an affiliate
thereof, the arm’s length transaction require-
ments of this subjection are met only if—
‘‘(i) such transaction meets the re-
quirements of subparagraphs (A) and (B),
‘‘(ii) such fiduciary or affiliate is en-
gaged in the business of entering into
transactions of such type with the general
public, and
‘‘(iii) such transaction is entered into
under substantially the same terms and
conditions as those under which such
transactions with the general public are
entered into.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to transactions en-
tered into on or after January 1, 2001.
SEC. 3. PROHIBITED TRANSACTION EXEMPTION FOR THE
PROVISION OF INVESTMENT ADVICE.
(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.—
(1) IN GENERAL.—Section 408(b) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1108(b)) (as amended by section 2) is
amended further by adding at the end the following
new paragraph:
‘‘(15) If the requirements of subsection (h) are
met—
‘‘(A) the provision of investment advice re-
ferred to in section 3(21)(A)(ii) provided by a
fiduciary adviser (as defined in subsection
(h)(4)(A)) to an employee benefit plan or to a
participant or beneficiary of an employee ben-
efit plan,
‘‘(B) the sale, acquisition, or holding of se-
curities or other property (including any exten-
sion of credit associated with the sale, acquisi-
tion, or holding of securities or other property)
pursuant to such investment advice, and
‘‘(C) the direct or indirect receipt of fees
or other compensation by the fiduciary adviser
or an affiliate thereof (or any employee, agent,
or registered representative of the fiduciary ad-
viser or affiliate) in connection with the provi-
sion of such investment advice.’’.
(2) REQUIREMENTS.—Section 408 of such Act
(as amended by section 2) is amended further by
adding at the end the following new subsection:
‘‘(h)(1) The requirements of this subsection are met
in connection with the provision of advice referred to in
section 3(21)(A)(ii), provided to an employee benefit plan
or a participant or beneficiary of an employee benefit plan
by a fiduciary adviser with respect to such plan, in connec-
tion with any sale or acquisition of a security or other
property for purposes of investment of amounts held by
such plan, if—
‘‘(A) in the case of the initial provision of such
advice by such fiduciary adviser to such plan, partic-
ipant, or beneficiary, the fiduciary adviser provides
to the plan, participant, or beneficiary, at the time
of or before the initial provision of such advice, a de-
scription, in writing or by means of electronic com-
munication, of—
‘‘(i) all fees or other compensation relating
to such advice that the fiduciary adviser or any
affiliate thereof is to receive (including com-
pensation provided by any third party) in con-
nection with the provision of such advice or in
connection with such acquisition or sale,
‘‘(ii) any material affiliation or contractual
relationship of the fiduciary adviser or affiliates
thereof in such security or other property,
‘‘(iii) any limitation placed on the scope of
the investment advice to be provided by the fi-
duciary adviser with respect to any such sale or
acquisition, and
‘‘(iv) the types of services offered by the fi-
duciary advisor in connection with the provision
of investment advice by the fiduciary adviser,
‘‘(B) in the case of the initial or any subsequent
provision of such advice to such plan, participant, or
beneficiary, the fiduciary adviser, throughout the 1-
year period following the provision of such advice,
maintains the information described in clauses (i)
through (iv) of subparagraph (A) in currently accu-
rate form for availability, upon request and without
charge, to the recipient of such advice,
‘‘(C) the fiduciary adviser provides appropriate
disclosure, in connection with any such acquisition
or sale, in accordance with all applicable securities
laws,
‘‘(D) such acquisition or sale occurs solely at
the discretion of the recipient of such advice,
‘‘(E) the compensation received by the fiduciary
adviser and affiliates thereof in connection with such
acquisition or sale is reasonable, and
‘‘(F) the terms of such acquisition or sale are
at least as favorable to such plan as an arm’s length
transaction would be.
‘‘(2) A fiduciary adviser referred to in paragraph (1)
who has provided advice referred to in such paragraph
shall, for a period of not less than 6 years after the provi-
sion of such advice, maintain any records necessary for
determining whether the requirements of the preceding
provisions of this subsection and of subsection (b)(15)
have been met. A prohibited transaction provided in sec-
tion 406 shall not be considered to have occurred solely
because the records are lost or destroyed prior to the end
of the 6-year period due to circumstances beyond the con-
trol of the fiduciary adviser.
‘‘(3)(A) Subject to subparagraph (B), a plan sponsor
or other person who is a fiduciary shall not be treated
as failing to meet the requirements of this part solely by
reason of the provision of investment advice referred to
in section 3(21)(A)(ii), if—
‘‘(i) such advice is provided by a fiduciary ad-
viser pursuant to an arrangement between such plan
sponsor or other fiduciary and such fiduciary adviser
for the provision by such fiduciary adviser of invest-
ment advice referred to in such section, and
‘‘(ii) the terms of such arrangement require
compliance by the fiduciary adviser with the require-
ments of this subsection.
‘‘(B) Nothing in subparagraph (A) shall be construed
to exempt a plan sponsor or other person who is a fidu-
ciary from any requirement of this part for the prudent
selection and periodic review of a fiduciary adviser with
whom the plan sponsor or other person enters into an ar-
rangement for the provision of advice referred to in section
3(21)(A)(ii). Such plan sponsor or other person who is a
fiduciary has no duty under this part to monitor the spe-
cific investment advice given by the fiduciary adviser to
any particular recipient of such advice.
‘‘(C) Nothing in this part shall be construed to pre-
clude the use of plan assets to pay for reasonable expenses
in providing investment advice referred to in section
3(21)(A)(ii).
‘‘(4) For purposes of this subsection and subsection
(b)(15)—
‘‘(A) The term ‘fiduciary adviser’ means, with
respect to a plan, a person who is a fiduciary of the
plan by reason of the provision of investment advice
by such person to the plan or to a participant or
beneficiary and who is—
‘‘(i) registered as an investment adviser
under the Investment Advisers Act of 1940 (15
U.S.C. 80b–1 et seq.) or under the laws of the
State in which the fiduciary maintains its prin-
cipal office and place of business,
‘‘(ii) a bank or similar financial institution
referred to in section 408(b)(4),
‘‘(iii) an insurance company qualified to do
business under the laws of a State,
‘‘(iv) a person registered as a broker or
dealer under the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.),
‘‘(v) an affiliate of a person described in
any of clauses (i) through (iv), or
‘‘(vi) an employee, agent, or registered rep-
resentative of a person described in any of
clauses (i) through (v).
‘‘(B) The term ‘affiliate’ means an affiliated
person, as defined in section 2(a)(3) of the Invest-
ment Company Act of 1940 (15 U.S.C 80a–2(a)(3)).
‘‘(C) The term ‘registered representative’ means
a person described in section 3(a)(18) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78c(a)(18))
or section 202(a)(17) of the Investment Advisers Act
of 1940 (15 U.S.C 80b–2(a)(17)).’’.
(b) AMENDMENTS
TO
THE INTERNAL REVENUE
CODE OF 1986.—
(1) IN
GENERAL.—Subsection (d) of section
4975 of the Internal Revenue Code of 1986 (relating
to exemptions from tax on prohibited transactions)
(as amended by section 2) is amended further—
(A) in paragraph (15), by striking ‘‘or’’ at
the end;
(B) in paragraph (16), by striking the pe-
riod at the end and inserting ‘‘; or’’; and
(C) by adding at the end the following new
paragraph:
‘‘(17) If the requirements of subsection (f)(8)
are met—
‘‘(A) the provision of investment advice re-
ferred to in subsection (e)(3)(B) provided by a
fiduciary adviser (as defined in subsection
(f)(8)(C)(i)) to a plan or to a participant or
beneficiary of a plan,
‘‘(B) the sale, acquisition, or holding of se-
curities or other property (including any exten-
sion of credit associated with the sale, acquisi-
tion, or holding of securities or other property)
pursuant to such investment advice, and
‘‘(C) the direct or indirect receipt of fees
or other compensation by the fiduciary adviser
or an affiliate thereof (or any employee, agent,
or registered representative of the fiduciary ad-
viser or affiliate) in connection with the provi-
sion of such investment advice.’’.
(2) REQUIREMENTS.—Subsection (f) of such
section 4975 (relating to other definitions and spe-
cial rules) (as amended by section 2) is amended
further by adding at the end the following new para-
graph:
‘‘(8) REQUIREMENTS FOR EXEMPTION FOR IN-
VESTMENT ADVICE PROVIDED BY FIDUCIARY ADVIS-
ERS.—
‘‘(A) IN GENERAL.—The requirements of
this paragraph are met in connection with the
provision of advice referred to in subsection
(e)(3)(B), provided to a plan or a participant or
beneficiary of a plan by a fiduciary adviser with
respect to such plan, in connection with any
sale or acquisition of a security or other prop-
erty for purposes of investment of amounts held
by such plan, if—
‘‘(i) in the case of the initial provision
of such advice by such fiduciary adviser to
such plan, participant, or beneficiary, the
fiduciary adviser provides to the plan, par-
ticipant, or beneficiary, at the time of or
before the initial provision of such advice
such advice, a description, in writing or by
means of electronic communication, of—
‘‘(I) all fees or other compensa-
tion relating to such advice that the
fiduciary adviser or any affiliate
thereof is to receive (including com-
pensation provided by any third
party) in connection with the provi-
sion of such advice or in connection
with such acquisition or sale,
‘‘(II) any material affiliation or
contractual relationship of the fidu-
ciary adviser or affiliates thereof in
such security or other property,
‘‘(III) any limitation placed on
the scope of the investment advice to
be provided by the fiduciary adviser
with respect to any such sale or acqui-
sition, and
‘‘(IV) the types of services of-
fered by the fiduciary advisor in con-
nection with the provision of invest-
ment advice by the fiduciary adviser,
‘‘(ii) in the case of the initial or any
subsequent provision of such advice to such
plan, participant, or beneficiary, the fidu-
ciary adviser, throughout the 1-year period
following the provision of such advice,
maintains the information described in
subclauses (I) through (IV) of clause (i) in
currently accurate form for availability,
upon request and without charge, to the
recipient of such advice,
‘‘(iii) the fiduciary adviser provides
appropriate disclosure, in connection with
any such acquisition or sale, in accordance
with all applicable securities laws,
‘‘(iv) such acquisition or sale occurs
solely at the discretion of the recipient of
such advice,
‘‘(v) the compensation received by the
fiduciary adviser and affiliates thereof in
connection with such acquisition or sale is
reasonable, and
‘‘(vi) the terms of such acquisition or
sale are at least as favorable to such plan
as an arm’s length transaction would be.
‘‘(B) MAINTENANCE OF RECORDS.—A fi-
duciary adviser referred to in subparagraph (A)
who has provided advice referred to in such
subparagraph shall, for a period of not less
than 6 years after the provision of such advice,
maintain any records necessary for determining
whether the requirements of the preceding pro-
visions of this subsection and of subsection
(d)(17) have been met. A prohibited transaction
described in subsection (c)(1) shall not be con-
sidered to have occurred solely because the
records are lost or destroyed prior to the end of