‘‘(D) INVESTMENT OPTIONS.—The require-
ments of this subparagraph are met if—
‘‘(i) the plan offers not less than 3 in-
vestment options, other than employer se-
curities, to which an applicable individual 
may direct the proceeds from the divest-
ment of employer securities pursuant to 
this paragraph, each of which is diversified 
and has materially different risk and re-
turn characteristics, and 
‘‘(ii) the plan permits the applicable 
individual to choose from any of the invest-
ment options made available under the 
plan to which such proceeds may be so di-
rected, subject to such restrictions as may 
be provided by the plan limiting such 
choice to periodic, reasonable opportunities 
occurring no less frequently than on a 
quarterly basis. 
‘‘(E) DEFINITIONS AND RULES.—For pur-
poses of this paragraph—
‘‘(i) APPLICABLE DEFINED CONTRIBU-
TION PLAN.—The term ‘applicable defined 
contribution plan’ means any defined con-
tribution plan, except that such term does
not include an employee stock ownership 
plan (within the meaning of section 
4975(e)(7)) unless there are any contribu-
tions to such plan (or earnings thereon) 
held within such plan that are subject to 
subsection (k)(3) or (m)(2). 
‘‘(ii) APPLICABLE
INDIVIDUAL.—The 
term ‘applicable individual’ means—
‘‘(I) any participant in the plan, 
and 
‘‘(II) any beneficiary of a partici-
pant referred to in clause (i) who has 
an account under the plan with re-
spect to which the beneficiary is enti-
tled to exercise the rights of the par-
ticipant. 
‘‘(iii) 
ELECTIVE
DEFERRAL.—The 
term ‘elective deferral’ means an employer 
contribution 
described 
in 
section 
402(g)(3)(A) (as in effect on the date of 
the enactment of this paragraph). 
‘‘(iv) 
EMPLOYER
SECURITY.—The 
term ‘employer security’ shall have the 
meaning given such term by section 
407(d)(1) of the Employee Retirement In-
come Security Act of 1974 (as in effect on 
the date of the enactment of this para-
graph). 
‘‘(v) EMPLOYEE
STOCK
OWNERSHIP 
PLAN.—The term ‘employee stock owner-
ship plan’ shall have the same meaning 
given to such term by section 4975(e)(7) 
of the Internal Revenue Code of 1986 (as 
in effect on the date of the enactment of 
this paragraph). 
‘‘(vi) ELECTIONS.—Elections under 
this paragraph may be made not less fre-
quently than quarterly. 
‘‘(F) EXCEPTION
WHERE
THERE
IS
NO 
READILY
TRADABLE
STOCK.—This paragraph 
shall not apply if there is no class of stock 
issued by the employer that is readily tradable 
on an established securities market (or in such 
other circumstances as may be determined 
jointly by the Secretary of the Treasury and the 
Secretary of Labor in regulations). 
‘‘(G) TRANSITION RULE.—
‘‘(i) IN GENERAL.—In the case of any 
defined contribution plan which, on the ef-
fective date of this subsection, holds em-
ployer securities of any class that were ac-
quired before such date and on which there 
is a restriction on diversification otherwise 
precluded by this paragraph, this para-
graph shall apply to such securities of such 
class held in any plan year only with re-
spect to the number of such securities 
equal to the applicable percentage of the 
total number of such securities of such 
class held on such date. 
‘‘(ii) APPLICABLE PERCENTAGE.—For 
purposes of clause (i), the applicable per-
centage shall be as follows:
‘‘Plan years for which provisions 
are effective: 
Applicable percentage: 
1st plan year .....................................................................
20 percent.
2nd plan year ....................................................................
40 percent.
3rd plan year .....................................................................
60 percent.
4th plan year .....................................................................
80 percent.
5th plan year or thereafter ...............................................
100 percent.
‘‘(iii) ELECTIVE DEFERRALS TREATED 
AS SEPARATE PLAN NOT INDIVIDUAL AC-
COUNT PLAN.—For purposes of clause (i), 
the applicable percentage shall be 100 per-
cent with respect to—
‘‘(I) employee contributions to a 
plan under which any portion attrib-
utable to elective deferrals is treated 
as a separate plan under section
407(b)(2) of the Employee Retirement 
Income Security Act of 1974 as of the 
date of the enactment of this para-
graph, and 
‘‘(II) such elective deferrals. 
‘‘(iv) CONTRIBUTIONS HELD WITHIN 
AN
ESOP.—In the case of contributions 
(other than elective deferrals and employee 
contributions) held within an employee 
stock ownership plan, in the case of the 1st 
and 2nd plan years referred to in the table 
in clause (ii), the applicable percentage 
shall be the greater of the amount deter-
mined under clause (ii) or the percentage 
determined under paragraph (28) (deter-
mined as if paragraph (28) applied to a 
plan described in this paragraph). 
‘‘(v) 
COORDINATION
WITH
PRIOR 
ELECTIONS
UNDER
PARAGRAPH
(28).—In 
any case in which a divestiture of invest-
ment in employer securities of any class 
held by an employee stock ownership plan 
prior to the effective date of this para-
graph was undertaken pursuant to an elec-
tion under paragraph (28) prior to such
date, the applicable percentage (as deter-
mined without regard to this clause) in 
connection with such securities shall be re-
duced to the extent necessary to account 
for the amount to which such election ap-
plied. 
‘‘(H) REGULATIONS.—The Secretary shall 
prescribe regulations under this paragraph in 
consultation with the Secretary of Labor.’’. 
(2) CONFORMING AMENDMENTS.—
(A) Section 401(a)(28) of such Code is 
amended by adding at the end the following 
new subparagraph: 
‘‘(D) APPLICATION.—This paragraph shall 
not apply to a plan to which paragraph (35) ap-
plies.’’. 
(B) Section 409(h)(7) of such Code is 
amended by inserting before the period at the 
end ‘‘or subparagraph (B) or (C) of section 
401(a)(35)’’. 
(C) Section 4980(c)(3)(A) of such Code is 
amended by striking ‘‘if—’’ and all that follows 
and inserting ‘‘if the requirements of subpara-
graphs (B), (C), and (D) are met.’’. 
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2) and section 108, the amendments made by 
this section shall apply to plan years beginning after 
December 31, 2003, and with respect to employer 
securities allocated to accounts before, on, or after 
the date of the enactment of this Act. 
(2) EXCEPTION.—The amendments made by 
this section shall not apply to employer securities 
held by an employee stock ownership plan which are 
acquired before January 1, 1987. 
SEC. 105. PROHIBITED TRANSACTION EXEMPTION FOR THE 
PROVISION OF INVESTMENT ADVICE. 
(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT 
INCOME SECURITY ACT OF 1974.—
(1) EXEMPTION
FROM
PROHIBITED
TRANS-
ACTIONS.—Section 408(b) of the Employee Retire-
ment Income Security Act of 1974 (29 U.S.C. 
1108(b)) is amended by adding at the end the fol-
lowing 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 investment of assets of the plan is 
subject to the direction of plan participants or 
beneficiaries, 
‘‘(ii) the advice is provided to the plan or 
a participant or beneficiary of the plan by a fi-
duciary adviser in connection with any sale, ac-
quisition, or holding of a security or other prop-
erty for purposes of investment of plan assets, 
and 
‘‘(iii) the requirements of subsection (g) 
are met in connection with the provision of the 
advice. 
‘‘(B) The transactions described in this sub-
paragraph are the following: 
‘‘(i) the provision of the advice to the plan, 
participant, 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 or in connection with a sale, 
acquisition, or holding of a security or other 
property pursuant to the advice.’’. 
(2) REQUIREMENTS.—Section 408 of such Act 
is amended further by adding at the end the fol-
lowing new subsection: 
‘‘(g) REQUIREMENTS RELATING TO PROVISION OF 
INVESTMENT ADVICE BY FIDUCIARY ADVISERS.—
‘‘(1) IN GENERAL.—The requirements of this 
subsection are met in connection with the provision 
of 
investment 
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 the plan 
in connection with any sale, acquisition, or holding 
of a security or other property for purposes of in-
vestment of amounts held by the plan, if—
‘‘(A) in the case of the initial provision of 
the advice with regard to the security or other 
property by the fiduciary adviser to the plan, 
participant, or beneficiary, the fiduciary adviser 
provides to the recipient of the advice, at a time 
reasonably contemporaneous with the initial
provision of the advice, a written notification 
(which may consist of notification by means of 
electronic communication)—
‘‘(i) of all fees or other compensation 
relating to the advice 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, 
‘‘(ii) of any material affiliation or con-
tractual relationship of the fiduciary ad-
viser or affiliates thereof in the security or 
other property, 
‘‘(iii) of any limitation placed on the 
scope of the investment advice to be pro-
vided by the fiduciary adviser with respect 
to any such sale, acquisition, or holding of 
a security or other property, 
‘‘(iv) of the types of services provided 
by the fiduciary adviser in connection with 
the provision of investment advice by the 
fiduciary adviser,
‘‘(v) that the adviser is acting as a fi-
duciary of the plan in connection with the 
provision of the advice, and 
‘‘(vi) that a recipient of the advice 
may separately arrange for the provision of 
advice by another adviser, that could have 
no material affiliation with and receive no 
fees or other compensation in connection 
with the security or other property, 
‘‘(B) the fiduciary adviser provides appro-
priate disclosure, in connection with the sale, 
acquisition, or holding of the security or other 
property, in accordance with all applicable secu-
rities laws, 
‘‘(C) the sale, acquisition, or holding oc-
curs solely at the direction of the recipient of 
the advice, 
‘‘(D) the compensation received by the fi-
duciary adviser and affiliates thereof in connec-
tion with the sale, acquisition, or holding of the 
security or other property is reasonable, and 
‘‘(E) the terms of the sale, acquisition, or 
holding of the security or other property are at 
least as favorable to the plan as an arm’s 
length transaction would be.
‘‘(2) STANDARDS FOR PRESENTATION OF IN-
FORMATION.—
‘‘(A) IN
GENERAL.—The notification re-
quired to be provided to participants and bene-
ficiaries under paragraph (1)(A) shall be writ-
ten in a clear and conspicuous manner and in 
a manner calculated to be understood by the av-
erage plan participant and shall be sufficiently 
accurate and comprehensive to reasonably ap-
prise such participants and beneficiaries of the 
information required to be provided in the noti-
fication. 
‘‘(B) MODEL FORM FOR DISCLOSURE OF 
FEES AND OTHER COMPENSATION.—The Sec-
retary shall issue a model form for the disclo-
sure of fees and other compensation required in 
paragraph (1)(A)(i) which meets the require-
ments of subparagraph (A). 
‘‘(3) EXEMPTION CONDITIONED ON MAKING RE-
QUIRED
INFORMATION
AVAILABLE
ANNUALLY, ON 
REQUEST, 
AND
IN
THE
EVENT
OF
MATERIAL 
CHANGE.—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) to the plan, participant,
or beneficiary if, at any time during the provision 
of advisory services to the plan, participant, or bene-
ficiary, the fiduciary adviser fails to maintain the in-
formation described in clauses (i) through (iv) of 
subparagraph (A) in currently accurate form and in 
the manner described in paragraph (2) or fails—
‘‘(A) to provide, without charge, such cur-
rently accurate information to the recipient of 
the advice no less than annually, 
‘‘(B) to make such currently accurate in-
formation available, upon request and without 
charge, to the recipient of the advice, or 
‘‘(C) in the event of a material change to 
the information described in clauses (i) through 
(iv) of paragraph (1)(A), to provide, without 
charge, such currently accurate information to 
the recipient of the advice at a time reasonably 
contemporaneous to the material change in in-
formation. 
‘‘(4) MAINTENANCE FOR 6 YEARS OF EVIDENCE 
OF COMPLIANCE.—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 provision of the advice, maintain 
any records necessary for determining whether the
requirements of the preceding provisions of this sub-
section 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 beyond the con-
trol of the fiduciary adviser. 
‘‘(5) EXEMPTION FOR PLAN SPONSOR AND CER-
TAIN OTHER FIDUCIARIES.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (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 re-
quirements of this part solely by reason of the 
provision of investment advice referred to in 
section 3(21)(A)(ii) (or solely by reason of con-
tracting for or otherwise arranging for the pro-
vision of the 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 invest-
ment advice referred to in such section,
‘‘(ii) the terms of the arrangement re-
quire compliance by the fiduciary adviser 
with the requirements of this subsection, 
and 
‘‘(iii) the terms of the arrangement 
include a written acknowledgment by the 
fiduciary adviser that the fiduciary adviser 
is a fiduciary of the plan with respect to 
the provision of the advice. 
‘‘(B) CONTINUED DUTY OF PRUDENT SE-
LECTION OF ADVISER AND PERIODIC REVIEW.—
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 periodic review of 
a fiduciary adviser with whom the plan sponsor 
or other person enters into an arrangement for 
the provision of advice referred to in section 
3(21)(A)(ii). The plan sponsor or other person 
who is a fiduciary has no duty under this part 
to monitor the specific investment advice given 
by the fiduciary adviser to any particular recipi-
ent of the advice. 
‘‘(C) AVAILABILITY OF PLAN ASSETS FOR 
PAYMENT FOR ADVICE.—Nothing in this part