‘‘(i) prior to engaging in the transaction, 
the plan acquires from the eligible person a suf-
ficient guarantee, consisting of a letter of credit 
or other form of written guarantee, issued by a 
bank or similar financial institution (other than 
the eligible person requesting the exemption or 
an affiliate) regulated and supervised by, and 
subject to periodic examination by, an agency of 
a State or of the Federal Government, in a 
stated amount equal, as of the close of business 
on the day preceding the transaction, to not 
less than 100 percent of the amount of plan as-
sets involved in the transaction, plus interest on 
that amount at a rate determined by the parties 
to the transaction, or in the absence of such de-
termination, an interest rate equal to the un-
derpayment rate defined in section 6621(a)(2) 
of the Internal Revenue Code of 1986, 
‘‘(ii) the eligible person receives in such 
transaction not more than reasonable com-
pensation, 
‘‘(iii) such transaction is expressly ap-
proved by an independent fiduciary who has in-
vestment authority with respect to the plan as-
sets involved in the transaction, and
‘‘(iv) immediately after the acquisition of 
the financial product— 
‘‘(I) the fair market value of such fi-
nancial product does not exceed 1 percent 
of the fair market value of the assets of 
the plan, and 
‘‘(II) the aggregate fair market value 
of all outstanding financial products ac-
quired by the plan from the eligible person 
pursuant to this subsection does not exceed 
5 percent of the fair market value of the 
assets of the plan. 
‘‘(3) For purposes of this subsection— 
‘‘(A) A guarantee referred to in paragraph (2) 
is ‘sufficient’ if such guarantee is irrevocable and, 
under the terms of the guarantee, if the Secretary 
determines not to grant the exemption, the plan has 
the unconditional right to apply the amounts under 
the guarantee to any losses suffered and to the pay-
ment of interest determined under the terms of the 
transaction. A guarantee shall not be treated as fail-
ing to be ‘sufficient’ solely because, under the terms 
of the guarantee, if the Secretary grants the exemp-
tion, the guarantee may expire without any pay-
ments made to the plan.
‘‘(B) The term ‘eligible person’ means a person 
that— 
‘‘(i) consists of— 
‘‘(I) a bank as defined in section 
202(a)(2) of the Investment Advisers Act 
of 1940, 
‘‘(II) an investment adviser registered 
under the Investment Advisers Act of 
1940, 
‘‘(III) an insurance company which is 
qualified to do business in more than one 
State, or 
‘‘(IV) a broker-dealer registered under 
the Securities Exchange Act of 1934, 
‘‘(ii) has shareholders’ or partners’ equity 
in excess of $1,000,000, and 
‘‘(iii) is not described in section 411.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply with respect to transactions occur-
ring after December 31, 2005. 
SEC. 302. 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)) is amended by adding at the end 
the following new paragraph: 
‘‘(14)(A) Any transaction described in subpara-
graph (B) in connection with the provision of invest-
ment advice described in section 3(21)(A)(ii), in any 
case in which— 
‘‘(i) the plan provides for individual ac-
counts and permits a participant or beneficiary 
to exercise control over assets in his or her ac-
count, 
‘‘(ii) the advice is qualified investment ad-
vice provided to a participant or beneficiary of 
the plan by a fiduciary adviser in connection 
with any sale, acquisition, or holding of a secu-
rity or other property for purposes of invest-
ment of plan assets, and 
‘‘(iii) the requirements of subsection (g) 
are met in connection with each instance of the 
provision of the advice. 
‘‘(B) The transactions described in this sub-
paragraph are the following: 
‘‘(i) the provision of the advice to the par-
ticipant or beneficiary;
‘‘(ii) the sale, acquisition, or holding of a 
security or other property (including any lend-
ing of money or other extension of credit associ-
ated with the sale, acquisition, or holding of a 
security or other property) pursuant to the ad-
vice; and 
‘‘(iii) 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 the advice.’’. 
(2) REQUIREMENTS.—Section 408 of such Act 
is amended further by adding at the end the fol-
lowing new subsection: 
‘‘(g) REQUIREMENTS FOR EXEMPTION FROM PRO-
HIBITED TRANSACTIONS WITH RESPECT TO PROVISION 
OF INVESTMENT ADVICE.— 
‘‘(1) IN GENERAL.—The requirements of this 
subsection are met in connection with the provision 
of qualified investment advice provided to a partici-
pant or beneficiary of an employee benefit plan by 
a fiduciary adviser with respect to the plan in con-
nection with any sale, acquisition, or holding of a se-
curity or other property for purposes of investment
of amounts held by the plan, if the requirements of 
the following subparagraphs are met: 
‘‘(A) WRITTEN DISCLOSURES.—At a time 
contemporaneous with the provision of the ad-
vice in connection with the sale, acquisition, or 
holding of the security or other property, the fi-
duciary adviser shall provide to the recipient of 
the advice a clear and conspicuous notification, 
written in a manner to be reasonably under-
stood by the average plan participant pursuant 
to regulations which shall be prescribed by the 
Secretary (including mathematical examples), of 
the following: 
‘‘(i) INTERESTS HELD BY THE FIDU-
CIARY ADVISER.—Any interest of the fidu-
ciary adviser in, or any affiliation or con-
tractual relationship of the fiduciary ad-
viser (or affiliates thereof) with any third 
party having an interest in, the security or 
other property. 
‘‘(ii) RELATED FEES OR COMPENSA-
TION
IN
CONNECTION
WITH
THE
PROVI-
SION OF THE ADVICE.—All fees or other 
compensation relating to the advice (in-
cluding 
fees 
or 
other 
compensation
itemized with respect to each security or 
other property with respect to which the 
advice is provided) that the fiduciary ad-
viser (or any affiliate thereof) is to receive 
(including compensation provided by any 
third party) in connection with the provi-
sion of the advice or in connection with the 
sale, acquisition, or holding of the security 
or other property. 
‘‘(iii) ONGOING FEES OR COMPENSA-
TION IN CONNECTION WITH THE SECURITY 
OR
PROPERTY
INVOLVED.—All fees or 
other compensation that the fiduciary ad-
viser (or any affiliate thereof) is to receive, 
on an ongoing basis, in connection with 
any security or other property with respect 
to which the fiduciary adviser gives the ad-
vice. 
‘‘(iv) APPLICABLE
LIMITATIONS
ON 
SCOPE OF ADVICE.—Any limitation placed 
(in accordance with the requirements of 
this subsection) on the scope of the advice 
to be provided by the fiduciary adviser with 
respect to the sale, acquisition, or holding 
of the security or other property.
‘‘(v) TYPES OF SERVICES GENERALLY 
OFFERED.—The types of services offered 
by the fiduciary adviser in connection with 
the provision of qualified investment advice 
by the fiduciary adviser. 
‘‘(vi) FIDUCIARY STATUS OF THE FI-
DUCIARY ADVISER.—That the fiduciary ad-
visor is a fiduciary of the plan. 
‘‘(B) DISCLOSURE BY FIDUCIARY ADVISER 
IN ACCORDANCE WITH APPLICABLE SECURITIES 
LAWS.—The fiduciary adviser shall provide ap-
propriate disclosure, in connection with the sale, 
acquisition, or holding of the security or other 
property, in accordance with all applicable secu-
rities laws. 
‘‘(C) TRANSACTION OCCURRING SOLELY AT 
DIRECTION
OF
RECIPIENT
OF
ADVICE.—The 
sale, acquisition, or holding of the security or 
other property shall occur solely at the direction 
of the recipient of the advice. 
‘‘(D) REASONABLE COMPENSATION.—The 
compensation received by the fiduciary adviser 
and affiliates thereof in connection with the 
sale, acquisition, or holding of the security or 
other property shall be reasonable.
‘‘(E) ARM’S LENGTH TRANSACTION.—The 
terms of the sale, acquisition, or holding of the 
security or other property shall be at least as 
favorable to the plan as an arm’s length trans-
action would be. 
‘‘(2) CONTINUED AVAILABILITY OF INFORMA-
TION FOR AT LEAST 1 YEAR.—The requirements of 
paragraph (1)(A) shall be deemed not to have been 
met in connection with the initial or any subsequent 
provision of advice described in paragraph (1) if, at 
any time during the 1-year period following the pro-
vision of the advice, the fiduciary adviser fails to 
maintain the information described in clauses (i) 
through (iv) of subparagraph (A) in currently accu-
rate form or to make the information available, upon 
request and without charge, to the recipient of the 
advice. 
‘‘(3) EVIDENCE OF COMPLIANCE MAINTAINED 
FOR AT LEAST 6 YEARS.—A fiduciary adviser re-
ferred 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 provision of the ad-
vice, maintain any records necessary for determining 
whether the requirements of the preceding provisions 
of this subsection and of subsection (b)(14) have
been met. A transaction prohibited under section 
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 be-
yond the control of the fiduciary adviser. 
‘‘(4) MODEL
DISCLOSURE
FORMS.—The Sec-
retary shall prescribe regulations setting forth model 
disclosure forms to assist fiduciary advisers in com-
plying with the disclosure requirements of this sub-
section. 
‘‘(5) 
EXEMPTION
FOR
EMPLOYERS
CON-
TRACTING FOR QUALIFIED INVESTMENT ADVICE.— 
‘‘(A) RELIANCE
ON
CONTRACTUAL
AR-
RANGEMENTS.—Subject to subparagraph (B), a 
plan sponsor or other person who is a fiduciary 
(other than a fiduciary adviser) shall not be 
treated as failing to meet the requirements of 
this part solely by reason of the provision of 
qualified investment advice (or solely by reason 
of contracting for or otherwise arranging for 
the provision of the investment advice), if— 
‘‘(i) the advice is provided by a fidu-
ciary adviser pursuant to an arrangement 
between the plan sponsor or other fidu-
ciary and the fiduciary adviser for the pro-
vision by the fiduciary adviser of qualified 
investment advice, and 
‘‘(ii) the terms of the arrangement re-
quire compliance by the fiduciary adviser 
with the requirements of this subsection. 
‘‘(B) CONTINUED DUTY FOR EMPLOYER TO 
PRUDENTLY SELECT AND REVIEW FIDUCIARY 
ADVISERS.—Nothing in subparagraph (A) shall 
be construed to exempt a plan sponsor or other 
person who is a fiduciary from any requirement 
of this part for the prudent selection and peri-
odic review of a fiduciary adviser with whom 
the plan sponsor or other person enters into an 
arrangement for the provision of qualified in-
vestment advice. The plan sponsor or other per-
son who is a fiduciary shall not be liable under 
this part with respect to the specific qualified 
investment advice given by the fiduciary adviser 
to any particular recipient of the advice. Pursu-
ant to regulations which shall be prescribed by 
the Secretary, the fiduciary adviser shall pro-
vide appropriate disclosures to the plan sponsor 
to enable the plan sponsor to fulfill its fiduciary 
responsibilities under this part. In connection 
with the provision of the advice by a fiduciary