107TH CONGRESS
2D SESSION
H. R. 3762
AN ACT
To amend title I of the Employee Retirement In-
come Security Act of 1974 and the Internal Rev-
enue Code of 1986 to provide additional protec-
tions to participants and beneficiaries in indi-
vidual account plans from excessive investment in
employer securities and to promote the provision
of retirement investment advice to workers man-
aging their retirement income assets, and to
amend the Securities Exchange Act of 1934 to
prohibit insider trades during any suspension of
the ability of plan participants or beneficiaries to
direct investment away from equity securities of
the plan sponsor.
107TH CONGRESS
2D SESSION
H. R. 3762
AN ACT
To amend title I of the Employee Retirement Income Secu-
rity Act of 1974 and the Internal Revenue Code of
1986 to provide additional protections to participants
and beneficiaries in individual account plans from exces-
sive investment in employer securities and to promote
the provision of retirement investment advice to workers
managing their retirement income assets, and to amend
the Securities Exchange Act of 1934 to prohibit insider
trades during any suspension of the ability of plan par-
ticipants or beneficiaries to direct investment away from
equity securities of the plan sponsor.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Pension Security Act of 2002’’.
(b) TABLE OF CONTENTS.—The table of contents is
as follows:
Sec. 1. Short title and table of contents.
TITLE I—IMPROVEMENTS IN PENSION SECURITY
Sec. 101. Periodic pension benefits statements.
Sec. 102. Protection from suspensions, limitations, or restrictions on ability of
participant or beneficiary to direct or diversify plan assets.
Sec. 103. Informational and educational support for pension plan fiduciaries.
Sec. 104. Diversification requirements for defined contribution plans that hold
employer securities.
Sec. 105. Prohibited transaction exemption for the provision of investment ad-
vice.
Sec. 106. Study regarding impact on retirement savings of participants and
beneficiaries by requiring consultants to advise plan fiduciaries
of individual account plans.
Sec. 107. Treatment of qualified retirement planning services.
Sec. 108. Insider trades during pension fund blackout periods prohibited.
Sec. 109. Effective dates of title and related rules.
TITLE II—OTHER PROVISIONS RELATING TO PENSIONS
Sec. 201. Amendments to Retirement Protection Act of 1994.
Sec. 202. Reporting simplification.
Sec. 203. Improvement of Employee Plans Compliance Resolution System.
Sec. 204. Flexibility in nondiscrimination, coverage, and line of business rules.
Sec. 205. Extension to all governmental plans of moratorium on application of
certain nondiscrimination rules applicable to State and local
plans.
Sec. 206. Notice and consent period regarding distributions.
Sec. 207. Annual report dissemination.
Sec. 208. Technical corrections to Saver Act.
Sec. 209. Missing participants.
Sec. 210. Reduced PBGC premium for new plans of small employers.
Sec. 211. Reduction of additional PBGC premium for new and small plans.
Sec. 212. Authorization for PBGC to pay interest on premium overpayment re-
funds.
Sec. 213. Substantial owner benefits in terminated plans.
Sec. 214. Benefit suspension notice.
Sec. 215. Studies.
Sec. 216. Interest rate range for additional funding requirements.
Sec. 217. Provisions relating to plan amendments.
TITLE III—STOCK OPTIONS
Sec. 301. Exclusion of incentive stock options and employee stock purchase
plan stock options from wages.
TITLE IV—SOCIAL SECURITY AND MEDICARE HELD HARMLESS
Sec. 401. Protection of Social Security and Medicare.
TITLE I—IMPROVEMENTS IN
PENSION SECURITY
SEC. 101. PERIODIC PENSION BENEFITS STATEMENTS.
(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.—
(1) REQUIREMENTS.—
(A) IN GENERAL.—Section 105(a) of the
Employee Retirement Income Security Act of
1974 (29 U.S.C. 1025(a)) is amended to read
as follows:
‘‘(a)(1)(A) The administrator of an individual ac-
count plan shall furnish a pension benefit statement—
‘‘(i) to each plan participant at least annually,
‘‘(ii) to each plan beneficiary upon written re-
quest, and
‘‘(iii) in the case of an applicable individual ac-
count plan, to each plan participant (and to each
beneficiary with a right to direct investments) at
least quarterly.
‘‘(B) The administrator of a defined benefit plan
shall furnish a pension benefit statement—
‘‘(i) at least once every 3 years to each partici-
pant with a nonforfeitable accrued benefit who is
employed by the employer maintaining the plan at
the time the statement is furnished to participants,
and
‘‘(ii) to a plan participant or plan beneficiary of
the plan upon written request.
‘‘(2) A pension benefit statement under paragraph
(1)—
‘‘(A) shall indicate, on the basis of the latest
available information—
‘‘(i) the total benefits accrued, and
‘‘(ii) the nonforfeitable pension benefits, if
any, which have accrued, or the earliest date on
which benefits will become nonforfeitable,
‘‘(B) shall be written in a manner calculated to
be understood by the average plan participant, and
‘‘(C) may be provided in written form or in
electronic or other appropriate form to the extent
that such form is reasonably accessible to the recipi-
ent.
‘‘(3) In the case of an applicable individual account
plan, the requirements of paragraph (1)(A) shall be treat-
ed as met if the quarterly statement (together with the
information required in subparagraphs (A) and (B) of
subsection (d)(1)) is available electronically in reasonably
accessible form, and the participant or beneficiary is pro-
vided at least once each year a notice that such statement
(together with such information) is available in such form.
Such notice shall be in written, electronic, or other appro-
priate form.
‘‘(4)(A) In the case of a defined benefit plan, the re-
quirements of paragraph (1)(B)(i) shall be treated as met
with respect to a participant if the administrator provides
the participant at least once each year with notice of the
availability of the pension benefit statement and the ways
in which the participant may obtain such statement. Such
notice shall be provided in written, electronic, or other ap-
propriate form, and may be included with other commu-
nications to the participant if done in a manner reasonably
designed to attract the attention of the participant.
‘‘(B) The Secretary may provide that years in which
no employee or former employee benefits (within the
meaning of section 410(b) of the Internal Revenue Code
of 1986) under the plan need not be taken into account
in determining the 3-year period under paragraph
(1)(B)(i).’’.
(B) CONFORMING AMENDMENTS.—
(i) Section 105 of the Employee Re-
tirement Income Security Act of 1974 (29
U.S.C. 1025) is amended by striking sub-
section (d).
(ii) Section 105(b) of such Act (29
U.S.C. 1025(b)) is amended to read as fol-
lows:
‘‘(b) In no case shall a participant or beneficiary of
a plan be entitled to more than one statement described
in clause (i) or (ii) of subsection (a)(1)(A) or clause (i)
or (ii) of subsection (a)(1)(B), whichever is applicable, in
any 12-month period. If such report is required under sub-
section (a) to be furnished at least quarterly, the require-
ments of the preceding sentence shall be applied with re-
spect to each quarter in lieu of the 12-month period.’’.
(2) INFORMATION
REQUIRED
FROM
APPLICA-
BLE INDIVIDUAL ACCOUNT PLANS.—Section 105 of
such Act (as amended by paragraph (1)) is amended
further by adding at the end the following new sub-
section:
‘‘(d)(1) The statements required to be provided at
least quarterly under subsection (a) shall include (together
with the information required in subsection (a)) the fol-
lowing:
‘‘(A) the value of investments allocated to the
individual account, including the value of any assets
held in the form of employer securities, without re-
gard to whether such securities were contributed by
the plan sponsor or acquired at the direction of the
plan or of the participant or beneficiary, and an ex-
planation of any limitations or restrictions on the
right of the participant or beneficiary to direct an
investment; and
‘‘(B) an explanation, written in a manner cal-
culated to be understood by the average plan partici-
pant, of the importance, for the long-term retire-
ment security of participants and beneficiaries, of a
well-balanced and diversified investment portfolio,
including a discussion of the risk of holding more
than 25 percent of a portfolio in the security of any
one entity, such as employer securities.
‘‘(2) The value of any employer securities that are
not readily tradable on an established securities market
that is required to be reported under paragraph (1)(A)
may be determined by using the most recent valuation of
the employer securities.
‘‘(3) The Secretary shall issue guidance and model
notices which meet the requirements of this subsection.’’.
(3) DEFINITION
OF
APPLICABLE
INDIVIDUAL
ACCOUNT PLAN.—Section 3 of such Act (29 U.S.C.
1002) is amended by adding at the end the following
new paragraph:
‘‘(42)(A) The term ‘applicable individual account
plan’ means any individual account plan, except that such
term does not include an employee stock ownership plan
(within the meaning of section 4975(e)(7) of the Internal
Revenue Code of 1986) unless there are any contributions
to such plan (or earnings thereunder) held within such
plan that are subject to subsection (k)(3) or (m)(2) of sec-
tion 401 of the Internal Revenue Code of 1986. Such term
shall not include a one-participant retirement plan.
‘‘(B) The term ‘one-participant retirement plan’
means a retirement plan that—
‘‘(i) on the first day of the plan year—
‘‘(I) covered only the employer (and the
employer’s spouse) and the employer owned the
entire business (whether or not incorporated),
or
‘‘(II) covered only one or more partners
(and their spouses) in a business partnership
(including partners in an S or C corporation),
‘‘(ii) meets the minimum coverage requirements
of section 410(b) of the Internal Revenue Code of
1986 (as in effect on the date of the enactment of
this paragraph) without being combined with any
other plan of the business that covers the employees
of the business,
‘‘(iii) does not provide benefits to anyone except
the employer (and the employer’s spouse) or the
partners (and their spouses),
‘‘(iv) does not cover a business that is a mem-
ber of an affiliated service group, a controlled group
of corporations, or a group of businesses under com-
mon control, and
‘‘(v) does not cover a business that leases em-
ployees.’’.
(4) CIVIL PENALTIES FOR FAILURE TO PRO-
VIDE QUARTERLY BENEFIT STATEMENTS.—Section
502 of such Act (29 U.S.C. 1132) is amended—
(A) in subsection (a)(6), by striking ‘‘(5),
or (6)’’ and inserting ‘‘(5), (6), or (7)’’;
(B) by redesignating paragraph (7) of sub-
section (c) as paragraph (8); and
(C) by inserting after paragraph (6) of
subsection (c) the following new paragraph:
‘‘(7) The Secretary may assess a civil penalty against
any plan administrator of up to $1,000 a day from the
date of such plan administrator’s failure or refusal to pro-
vide participants or beneficiaries with a benefit statement
on at least a quarterly basis in accordance with section
105(a)(1)(A)(iii).’’.
(5) MODEL
STATEMENTS.—The Secretary of
Labor shall, not later than January 1, 2003, issue
initial guidance and a model benefit statement, writ-
ten in a manner calculated to be understood by the
average plan participant, that may be used by plan
administrators in complying with the requirements
of section 105 of the Employee Retirement Income
Security Act of 1974. Not later than 75 days after
the date of the enactment of this Act, the Secretary
shall promulgate interim final rules necessary to
carry out the amendments made by this subsection.
(b) AMENDMENTS
TO
THE INTERNAL REVENUE
CODE OF 1986.—
(1) PROVISION
OF
INVESTMENT
EDUCATION
NOTICES
TO
PARTICIPANTS
IN
CERTAIN
PLANS.—
Section 414 of the Internal Revenue Code of 1986
(relating to definitions and special rules) is amended
by adding at the end the following:
‘‘(w) PROVISION OF INVESTMENT EDUCATION NO-
TICES TO PARTICIPANTS IN CERTAIN PLANS.—
‘‘(1) IN GENERAL.—The plan administrator of
an applicable pension plan shall provide to each ap-
plicable individual an investment education notice
described in paragraph (2) at the time of the enroll-
ment of the applicable individual in the plan and not
less often than annually thereafter.
‘‘(2) INVESTMENT EDUCATION NOTICE.—An in-
vestment education notice is described in this para-
graph if such notice contains—
‘‘(A) an explanation, for the long-term re-
tirement security of participants and bene-
ficiaries, of generally accepted investment prin-
ciples, including principles of risk management
and diversification, and
‘‘(B) a discussion of the risk of holding
substantial portions of a portfolio in the secu-
rity of any one entity, such as employer securi-
ties.
‘‘(3) UNDERSTANDABILITY.—Each notice re-
quired by paragraph (1) shall be written in a man-
ner calculated to be understood by the average plan
participant and shall provide sufficient information
(as determined in accordance with guidance provided
by the Secretary) to allow recipients to understand
such notice.
‘‘(4) FORM AND MANNER OF NOTICES.—The
notices required by this subsection shall be in writ-
ing, except that such notices may be in electronic or
other form (or electronically posted on the plan’s
website) to the extent that such form is reasonably
accessible to the applicable individual.
‘‘(5) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) APPLICABLE INDIVIDUAL.—The term
‘applicable individual’ means—
‘‘(i) any participant in the applicable
pension plan,
‘‘(ii) any beneficiary who is an alter-
nate payee (within the meaning of section
414(p)(8)) under a qualified domestic rela-
tions order (within the meaning of section
414(p)(1)(A)), and
‘‘(iii) any beneficiary of a deceased
participant or alternate payee.
‘‘(B) APPLICABLE
PENSION
PLAN.—The
term ‘applicable pension plan’ means—
‘‘(i) a plan described in clause (i), (ii),
or (iv) of section 219(g)(5)(A), and
‘‘(ii) an eligible deferred compensation
plan (as defined in section 457(b)) of an
eligible employer described in section
457(e)(1)(A),
which permits any participant to direct the invest-
ment of some or all of his account in the plan or
failure is due to reasonable cause and not to willful ne-
glect, there shall be paid, on notice and demand of the
Secretary and in the same manner as tax, by the person
failing to provide such notice, an amount equal to $100
for each such failure, but the total amount imposed on
such person for all such failures during any calendar year
shall not exceed $50,000.’’.
SEC. 102. PROTECTION FROM SUSPENSIONS, LIMITATIONS,
OR RESTRICTIONS ON ABILITY OF PARTICI-
PANT OR BENEFICIARY TO DIRECT OR DI-
VERSIFY PLAN ASSETS.
(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.—
(1) NOTICE REQUIREMENTS.—
(A) IN GENERAL.—Section 101 of the Em-
ployee Retirement Income Security Act of 1974
(29 U.S.C. 1021) is amended—
(i) by redesignating the second sub-
section (h) as subsection (j); and
(ii) by inserting after the first sub-
section (h) the following new subsection:
‘‘(i) NOTICE OF SUSPENSION, LIMITATION, OR RE-
STRICTION ON ABILITY OF PARTICIPANT OR BENEFICIARY
TO DIRECT INVESTMENTS
IN INDIVIDUAL ACCOUNT
PLAN.—
‘‘(1) DUTIES OF PLAN ADMINISTRATOR.—
‘‘(A) IN GENERAL.—In the case of any ac-
tion having the effect of temporarily sus-
pending, limiting, or restricting any ability of
participants or beneficiaries under an applicable
individual account plan, which is otherwise
available under the terms of such plan, to direct
or diversify assets credited to their accounts, if
such suspension, limitation, or restriction is for
any period of more than 3 consecutive business
days, the plan administrator shall—
‘‘(i) in advance of taking such action,
determine, in accordance with the require-
ments of part 4, that the expected period
of suspension, limitation, or restriction is
reasonable, and
‘‘(ii) after making the determination
under subparagraph (A) and in advance of
taking such action, notify the plan partici-
pants and beneficiaries who are affected by
such action in accordance with this sub-
section.
‘‘(B) 
EXCEPTIONS.—Subparagraph 
(A)
does not apply in connection with any suspen-
sion, limitation, or restriction—
‘‘(i) which occurs by reason of the ap-
plication of the securities laws (as defined
in section 3(a)(47) of the Securities Ex-
change Act of 1934), or
‘‘(ii) to the extent the suspension, lim-
itation, or restriction is a change to the
terms of the plan disclosed to participants
or beneficiaries through the summary plan
description or materials describing specific
investment alternatives under the plan.
‘‘(C) BUSINESS
DAY.—For purposes of
subparagraph (A), under regulations prescribed
by the Secretary, the term ‘business day’
means—
‘‘(i) in the case of a security which is
traded on an established security market,
any day on which such security may be
traded on the principal securities market
of such security, and
‘‘(ii) in the case of a security which is
not traded on an established security mar-
ket, any calendar day.
‘‘(2) NOTICE REQUIREMENTS.—
‘‘(A) IN GENERAL.—The notices described
in paragraph (1) shall be written in a manner
calculated to be understood by the average plan
participant and shall include—
‘‘(i) the reasons for the suspension,
limitation, or restriction,
‘‘(ii) an identification of the invest-
ments affected,
‘‘(iii) the expected period of the sus-
pension, limitation, or restriction,
‘‘(iv) a statement that the plan ad-
ministrator has evaluated the reasonable-
ness of the expected period of suspension,
limitation, or restriction,
‘‘(v) a statement that the participant
or beneficiary should evaluate the appro-
priateness of their current investment deci-
sions in light of their inability to direct or
diversify assets credited to their accounts
during the expected period of suspension,
limitation, or restriction, and
‘‘(vi) such other matters as the Sec-
retary may include in the model notices
issued under subparagraph (E).
‘‘(B) PROVISION OF NOTICE.—Except as
otherwise provided in this subsection, notices
described in paragraph (1) shall be furnished to
all participants and beneficiaries under the plan
at least 30 days in advance of the action sus-
pending, limiting, or restricting the ability of
the participants or beneficiaries to direct or di-
versify assets.
‘‘(C) EXCEPTION TO 30-DAY NOTICE RE-
QUIREMENT.—In any case in which—
‘‘(i) a fiduciary of the plan deter-
mines, in writing, that a deferral of the
suspension, limitation, or restriction would
violate the requirements of subparagraph
(A) or (B) of section 404(a)(1), or
‘‘(ii) the inability to provide the 30-
day advance notice is due to events that
were unforeseeable or circumstances be-
yond the reasonable control of the plan ad-
ministrator,
subparagraph (B) shall not apply, and the no-
tice shall be furnished to all participants and
beneficiaries under the plan as soon as reason-
ably possible under the circumstances unless
such a notice in advance of the termination of
the suspension, limitation, or restriction is im-
practicable.
‘‘(D) WRITTEN
NOTICE.—The notice re-
quired to be provided under this subsection
shall be in writing, except that such notice may
be in electronic or other form to the extent that
such form is reasonably accessible to the recipi-
ent.
‘‘(E) MODEL
NOTICES.—The Secretary
shall issue model notices which meet the re-
quirements of this paragraph.
‘‘(3) EXCEPTION
FOR
SUSPENSIONS, LIMITA-
TIONS, OR RESTRICTIONS WITH LIMITED APPLICA-
BILITY.—In any case in which the suspension, limi-
tation, or restriction described in paragraph (1)—
‘‘(A) applies only to 1 or more individuals,
each of whom is the participant, an alternate
payee (as defined in section 206(d)(3)(K)), or
any other beneficiary pursuant to a qualified
domestic relations order (as defined in section
206(d)(3)(B)(i)), or
‘‘(B) applies only to 1 or more participants
or beneficiaries in connection with a merger, ac-
quisition, divestiture, or similar transaction in-
volving the plan or plan sponsor and occurs
solely in connection with becoming or ceasing to
be a participant or beneficiary under the plan
by reason of such merger, acquisition, divesti-
ture, or transaction,
the requirement of this subsection that the notice be
provided to all participants and beneficiaries shall be
treated as met if the notice required under para-
graph (1) is provided to all the individuals referred
to in subparagraph (A) or (B) to whom the suspen-
sion, limitation, or restriction applies as soon as rea-
sonably practicable.
‘‘(4) CHANGES IN PERIOD OF SUSPENSION, LIM-
ITATION, OR RESTRICTION.—If, following the fur-
nishing of the notice pursuant to this subsection,
there is a change in the period of the suspension,
limitation, or restriction (specified in such notice
pursuant to paragraph (2)(A)(iii)) on the right of a
participant or beneficiary to direct or diversify as-
sets, the administrator shall provide affected partici-
pants and beneficiaries notice of the change as soon
as reasonably practicable. In relation to the extended
suspension, limitation, or restriction, such notice
shall meet the requirements of paragraph (2)(D)
and shall specify any material change in the matters
referred to in clauses (i) through (vi) of paragraph
(2)(A).
‘‘(5) REGULATORY
EXCEPTIONS.—The Sec-
retary may provide by regulation for additional ex-
ceptions to the requirements of this subsection which
the Secretary determines are in the interests of par-
ticipants and beneficiaries.
‘‘(6) GUIDANCE
AND
MODEL
NOTICES.—The
Secretary shall issue guidance and model notices
which meet the requirements of this subsection.’’.
(B) ISSUANCE OF INITIAL GUIDANCE AND
MODEL NOTICE.—The Secretary of Labor shall
issue initial guidance and a model notice pursu-
ant to section 101(i)(6) of the Employee Retire-
ment Income Security Act of 1974 (as added by
this subsection) not later than January 1,
2003. Not later than 75 days after the date of
the enactment of this Act, the Secretary shall
promulgate interim final rules necessary to
carry out the amendments made by this sub-
section.
(2) CIVIL PENALTIES FOR FAILURE TO PRO-
VIDE NOTICE.—Section 502 of such Act (as amend-
ed by section 101(a)(4)) is amended further—
(A) in subsection (a)(6), by striking ‘‘(6),
or (7)’’ and inserting ‘‘(6), (7), or (8)’’;
(B) by redesignating paragraph (8) of sub-
section (c) as paragraph (9); and
(C) by inserting after paragraph (7) of
subsection (c) the following new paragraph:
‘‘(8) The Secretary may assess a civil penalty against
a plan administrator of up to $100 a day from the date
of the plan administrator’s failure or refusal to provide
notice to participants and beneficiaries in accordance with
section 101(i). For purposes of this paragraph, each viola-
tion with respect to any single participant or beneficiary
shall be treated as a separate violation.’’.
(3) INAPPLICABILITY OF RELIEF FROM FIDU-
CIARY LIABILITY DURING SUSPENSION OF ABILITY
OF PARTICIPANT OR BENEFICIARY TO DIRECT IN-
VESTMENTS.—Section 404(c)(1) of such Act (29
U.S.C. 1104(c)(1)) is amended—
(A) by redesignating subparagraphs (A)
and (B) as clauses (i) and (ii), respectively, and
by inserting ‘‘(A)’’ after ‘‘(c)(1)’’;
(B) in subparagraph (A)(ii) (as redesig-
nated by subparagraph (A)), by inserting before
the period the following: ‘‘, except that this
clause shall not apply in connection with such
participant or beneficiary for any period during
which the ability of such participant or bene-
ficiary to direct the investment of the assets in
his or her account is suspended by a plan spon-
sor or fiduciary’’; and
(C) by adding at the end the following new
subparagraphs:
‘‘(B) If the person referred to in subparagraph (A)(ii)
meets the requirements of this title in connection with au-
thorizing the suspension, such person shall not be liable
under this title for any loss occurring during the suspen-
sion as a result of any exercise by the participant or bene-
ficiary of control over assets in his or her account prior
to the suspension. Matters to be considered in determining
whether such person has satisfied the requirements of this
title include whether such person—
‘‘(i) has considered the reasonableness of the
expected period of the suspension as required under
section 101(i)(1)(A)(i),
‘‘(ii) has provided the notice required under sec-
tion 101(i)(1)(A)(ii), and
‘‘(iii) has acted in accordance with the require-
ments of subsection (a) in determining whether to
enter into the suspension.
‘‘(C) Any limitation or restriction that may govern
the frequency of transfers between investment vehicles
shall not be treated as a suspension referred to in subpara-
graph (A)(ii) to the extent such limitation or restriction
is disclosed to participants or beneficiaries through the
summary plan description or materials describing specific
investment alternatives under the plan.’’.
(b) AMENDMENTS
TO
THE INTERNAL REVENUE
CODE OF 1986.—
(1) EXCISE
TAX
ON
FAILURE
OF
PENSION
PLANS TO PROVIDE NOTICE OF TRANSACTION RE-
STRICTION PERIODS.—
(A) IN GENERAL.—Chapter 43 of the In-
ternal Revenue Code of 1986 (relating to quali-
fied pension, etc., plans) is amended by adding
at the end the following new section:
‘‘SEC. 4980H. FAILURE OF APPLICABLE PLANS TO PROVIDE
NOTICE OF TRANSACTION RESTRICTION PE-
RIODS.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax on the failure of any applicable pension plan to meet
the requirements of subsection (e) with respect to any ap-
plicable individual.
‘‘(b) AMOUNT OF TAX.—The amount of the tax im-
posed by subsection (a) on any failure with respect to any
applicable individual shall be $100.
‘‘(c) LIMITATIONS ON AMOUNT OF TAX.—
‘‘(1) TAX NOT TO APPLY TO FAILURES COR-
RECTED AS SOON AS REASONABLY PRACTICABLE.—
No tax shall be imposed by subsection (a) on any
failure if—
‘‘(A) any person subject to liability for the
tax under subsection (d) exercised reasonable
diligence to meet the requirements of subsection
(e), and
‘‘(B) such person provides the notice de-
scribed in subsection (e) as soon as reasonably
practicable after the first date such person
knew, or exercising reasonable diligence should
have known, that such failure existed and at
least 1 business day before the beginning of the
transaction restriction period.
‘‘(2) TAX NOT TO APPLY WHEN PROVIDING NO-
TICE NOT REASONABLY PRACTICABLE.—No tax shall
be imposed by subsection (a) if, in the case of the
occurrence of an unforeseeable event, it is not rea-
sonably practicable to provide such notice before the
beginning of the transaction restriction period.
‘‘(3) OVERALL
LIMITATION
FOR
UNINTEN-
TIONAL FAILURES.—
‘‘(A) IN GENERAL.—If the person subject
to liability for tax under subsection (d) exer-
cised reasonable diligence to meet the require-
ments of subsection (e), the tax imposed by
subsection (a) for failures during the taxable
year of the employer (or, in the case of a multi-
employer plan, the taxable year of the trust
forming part of the plan) shall not exceed
$500,000. For purposes of the preceding sen-
tence, all multiemployer plans of which the
same trust forms a part shall be treated as 1
plan.
‘‘(B) TAXABLE
YEARS
IN
THE
CASE
OF
CERTAIN CONTROLLED GROUPS.—For purposes
of this paragraph, if all persons who are treated
as a single employer for purposes of this section
do not have the same taxable year, the taxable
years taken into account shall be determined
under principles similar to the principles of sec-
tion 1561.
‘‘(4) WAIVER BY SECRETARY.—In the case of a
failure which is due to reasonable cause and not to
willful neglect, the Secretary may waive part or all
of the tax imposed by subsection (a) to the extent
that the payment of such tax would be excessive or
otherwise inequitable relative to the failure involved.
‘‘(d) LIABILITY FOR TAX.—The following shall be lia-
ble for the tax imposed by subsection (a):
‘‘(1) In the case of a plan other than a multi-
employer plan, the employer.
‘‘(2) In the case of a multiemployer plan, the
plan.
‘‘(e) NOTICE OF TRANSACTION RESTRICTION PE-
RIOD.—
‘‘(1) IN GENERAL.—The plan administrator of
an applicable pension plan shall provide written no-
tice of any transaction restriction period to each ap-
plicable individual to whom the transaction restric-
tion period applies (and to each employee organiza-
tion representing such applicable individuals).
‘‘(2) UNDERSTANDABILITY.—The notice re-
quired by paragraph (1) shall be written in a man-
ner calculated to be understood by the average plan
participant and shall provide sufficient information
(as determined in accordance with guidance provided
by the Secretary) to allow recipients to understand
the timing and effect of such transaction restriction
period.
‘‘(3) TIMING OF NOTICE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the notice required by para-
graph (1) shall be provided at least 30 days be-
fore the beginning of the transaction restriction
period.
‘‘(B) DISPOSITION
OF
STOCK
OR
AS-
SETS.—
‘‘(i) IN GENERAL.—If, in connection
with the major corporate disposition by a
corporation maintaining an applicable pen-
sion plan, there is the possibility of a
transaction restriction period—
‘‘(I) the notice required by para-
graph (1) shall be provided at least 30
days before the date of such disposi-
tion, and
‘‘(II) no other notice shall be re-
quired by paragraph (1) with respect
to such period if notice is provided
pursuant to subclause (I) and such
period begins not more than 30 days
after the date of such disposition.
Subclause (I) shall not apply if the plan
administrator has a substantial basis to
believe that there will be no transaction re-
striction period in connection with the dis-
position.
‘‘(ii) MAJOR
CORPORATE
DISPOSI-
TION.—For purposes of clause (i), the
term ‘major corporate disposition’ means,
with respect to a corporation—
‘‘(I) the disposition of substan-
tially all of the stock of such corpora-
tion or a subsidiary thereof, or
‘‘(II) the disposition of substan-
tially all of the assets used in a trade
or business of such corporation or
subsidiary.
‘‘(iii) NONCORPORATE
ENTITIES.—
Rules similar to the rules of this subpara-
graph shall apply to entities that are not
corporations.
‘‘(4) FORM AND MANNER OF NOTICE.—The no-
tice required by this subsection shall be in writing,
except that such notice may be in electronic or other
form to the extent that such form is reasonably ac-
cessible to the applicable individual.
‘‘(f ) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) APPLICABLE INDIVIDUAL.—The term ‘ap-
plicable individual’ means—
‘‘(A) any participant in the applicable pen-
sion plan, and
‘‘(B) any beneficiary who is an alternate
payee (within the meaning of section 414(p)(8))
under a qualified domestic relations order
(within the meaning of section 414(p)(1)(A)),
and
‘‘(C) any beneficiary of a deceased partici-
pant or alternate payee.
‘‘(2) APPLICABLE PENSION PLAN.—
‘‘(A) IN GENERAL.—The term ‘applicable
pension plan’ means—
‘‘(i) a plan described in clause (i), (ii),
or (iv) of section 219(g)(5)(A), and
‘‘(ii) an eligible deferred compensation
plan (as defined in section 457(b)) of an
eligible employer described in section
457(e)(1)(A),
which maintains accounts for participants
under the plan or under which the accrued ben-
efit of any participant depends in whole or in
part on hypothetical investments directed by the
participant.
‘‘(B) EXCEPTION.—Such term shall not in-
clude a one-participant retirement plan (as de-
fined in section 4980G(f)(3)).
‘‘(3) TRANSACTION RESTRICTION PERIOD.—
‘‘(A) IN GENERAL.—The term ‘transaction
restriction period’ means, with respect to an ap-
plicable pension plan, a period beginning on a
day in which there is a substantial reduction in
rights described in subparagraph (B) which are
not restored as of the beginning of the 3rd day
following the day of such reduction.
‘‘(B) RIGHTS DESCRIBED.—For purposes
of this paragraph, rights described in this sec-
tion with respect to an applicable pension plan
are rights under such plan of 1 or more appli-
cable individuals to direct investments in such
plan, to obtain loans from such plan, or to ob-
tain distributions from such plan.
‘‘(C) SPECIAL RULE FOR EMPLOYER SECU-
RITIES.—For purposes of this paragraph—
‘‘(i) IN
GENERAL.—In the case of
rights relating to directing investments out
of employer securities, such rights shall be
treated as substantially reduced if such
rights are significantly restricted for at
least 3 consecutive business days.
‘‘(ii) BUSINESS
DAY.—For purposes
of clause (i), under regulations prescribed
by the Secretary, the term ‘business day’
means—
‘‘(I) in the case of a security
which is traded on an established se-
curity market, any day on which such
security may be traded on the prin-
cipal securities market of such secu-
rity, and
‘‘(II) in the case of a security
which is not traded on an established
security market, any calendar day.
‘‘(iii) EMPLOYER
SECURITIES.—For
purposes of this subparagraph, the term
‘employer securities’ shall have the mean-
ing given such term by section 407(d)(1)
of the Employee Retirement Income Secu-
rity Act of 1974.
‘‘(D) EXCEPTIONS.—Rights which are sub-
stantially reduced by reason of the application
of securities laws or other circumstances speci-
fied by the Secretary in regulations shall not be
taken into account for purposes of this para-
graph.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions for chapter 43 of such Code is amended by
adding at the end the following new item:
‘‘Sec. 4980H. Failure of applicable plans to provide notice of
transaction restriction periods.’’.
(3) GUIDANCE.—The Secretary of the Treas-
ury, in consultation with the Secretary of Labor,
shall issue guidance in carrying out section 4980H
of the Internal Revenue Code of 1986 (as added by
this section). Such guidance—
(A) in the case of a reduction of rights re-
lating to the direction of investments out of em-
ployer securities, shall be issued by November
1, 2002 (or, if later, the 60th day after the date
of the enactment of this Act), and
(B) in any other case, shall be issued not
later than 120 days after the date of the enact-
ment of this Act.
SEC. 103. INFORMATIONAL AND EDUCATIONAL SUPPORT
FOR PENSION PLAN FIDUCIARIES.
Section 404 of the Employee Retirement Income Se-
curity Act of 1974 (29 U.S.C. 1104) is amended by adding
at the end the following new subsection:
‘‘(e) The Secretary shall establish a program under
which information and educational resources shall be
made available on an ongoing basis to persons serving as
fiduciaries under employee pension benefit plans so as to
assist such persons in diligently and effectively carrying
out their fiduciary duties in accordance with this part.’’.
SEC. 104. DIVERSIFICATION REQUIREMENTS FOR DEFINED
CONTRIBUTION 
PLANS 
THAT 
HOLD 
EM-
PLOYER SECURITIES.
(a) AMENDMENT TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.—Section 204 of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1054) is amended—
(1) by redesignating subsection (j) as sub-
section (k); and
(2) by inserting after subsection (i) the fol-
lowing new subsection:
‘‘(j) DIVERSIFICATION REQUIREMENTS
FOR INDI-
VIDUAL ACCOUNT PLANS THAT HOLD EMPLOYER SECU-
RITIES.—
‘‘(1) IN GENERAL.—An applicable individual ac-
count plan shall meet the requirements of para-
graphs (2) and (3).
‘‘(2) EMPLOYEE
CONTRIBUTIONS
AND
ELEC-
TIVE DEFERRALS INVESTED IN EMPLOYER SECURI-
TIES.—In the case of the portion of the account at-
tributable to employee contributions and elective de-
ferrals which is invested in employer securities, a
plan meets the requirements of this paragraph if
each applicable individual may elect to direct the
plan to divest any such securities in the individual’s
account and to reinvest an equivalent amount in
other investment options which meet the require-
ments of paragraph (4).
‘‘(3) EMPLOYER CONTRIBUTIONS INVESTED IN
EMPLOYER SECURITIES.—
‘‘(A) IN GENERAL.—In the case of the por-
tion of the account attributable to employer
contributions (other than elective deferrals to
which paragraph (2) applies) which is invested
in employer securities, a plan meets the require-
ments of this paragraph if, under the plan—
‘‘(i) each applicable individual with a
benefit based on 3 years of service may
elect to direct the plan to divest any such
securities in the individual’s account and
to reinvest an equivalent amount in other
investment options which meet the require-
ments of paragraph (4), or
‘‘(ii) with respect to any employer se-
curity allocated to an applicable individ-
ual’s account during any plan year, such
applicable individual may elect to direct
the plan to divest such employer security
after a date which is not later than 3 years
after the end of such plan year and to re-
invest an equivalent amount in other in-
vestment options which meet the require-
ments of paragraph (4).
‘‘(B) APPLICABLE INDIVIDUAL WITH BEN-
EFIT
BASED
ON
YEARS
OF
SERVICE.—For
purposes of subparagraph (A), an applicable in-
dividual has a benefit based on 3 years of serv-
ice if such individual would be an applicable in-
dividual if only participants in the plan who
have completed at least 3 years of service (as
determined under section 203(b)) were taken
into account under paragraph (6)(B)(i).
‘‘(4) INVESTMENT OPTIONS.—The requirements
of this paragraph are met if—
‘‘(A) the plan offers not less than 3 invest-
ment options, other than employer securities, to
which an applicable individual may direct the
proceeds from the divestment of employer secu-
rities pursuant to this subsection, each of which
is diversified and has materially different risk
and return characteristics, and
‘‘(B) the plan permits the applicable indi-
vidual to choose from any of the investment op-
tions made available under the plan to which
such proceeds may be so directed, 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.
‘‘(5) DEFINITIONS AND RULES.—For purposes
of this subsection—
‘‘(A) APPLICABLE
INDIVIDUAL
ACCOUNT
PLAN.—The term ‘applicable individual account
plan’ means any individual account plan, except
that such term does not include an employee
stock ownership plan (within the meaning of
section 4975(e)(7) of the Internal Revenue
Code of 1986) 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) of section 401 of the Internal
Revenue Code of 1986.
‘‘(B) APPLICABLE INDIVIDUAL.—The term
‘applicable individual’ means—
‘‘(i) any participant in the plan, and
‘‘(ii) any beneficiary of a participant
referred to in clause (i) who has an ac-
count under the plan with respect to which
the beneficiary is entitled to exercise the
rights of the participant.
‘‘(C) ELECTIVE
DEFERRAL.—The term
‘elective deferral’ means an employer contribu-
tion described in section 402(g)(3)(A) of the In-
ternal Revenue Code of 1986 (as in effect on
the date of the enactment of this subsection).
‘‘(D) EMPLOYER
SECURITY.—The term
‘employer security’ shall have the meaning
given such term by section 407(d)(1) of this
Act (as in effect on the date of the enactment
of this subsection).
‘‘(E) 
EMPLOYEE
STOCK
OWNERSHIP
PLAN.—The term ‘employee stock ownership
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 subsection).
‘‘(F) ELECTIONS.—Elections under this
subsection may be made not less frequently
than quarterly.
‘‘(6) EXCEPTION WHERE THERE IS NO READILY
TRADABLE STOCK.—This subsection shall not apply
with respect to a plan if there is no class of stock
issued by any employer maintaining the plan (or by
a corporation which is an affiliate of any such em-
ployer, as defined in section 407(d)(7) as in effect
on the date of the enactment of this subsection) that
is readily tradable on an established securities mar-
ket.
‘‘(7) TRANSITION RULE.—
‘‘(A) IN GENERAL.—In the case of any in-
dividual account plan which, on the first day of
the first plan year to which this subsection ap-
plies, holds employer securities of any class that
were acquired before such date and on which
there is a restriction on diversification otherwise
precluded by this subsection, this subsection
shall apply to such securities of such class held
in any plan year only with respect to the num-
ber of such securities equal to the applicable
percentage of the total number of such securi-
ties of such class held on such date.
‘‘(B) 
APPLICABLE
PERCENTAGE.—For
purposes of subparagraph (A), the applicable
percentage shall be as follows:
‘‘Plan years for which provi-
sions 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.
‘‘(C) ELECTIVE DEFERRALS TREATED AS
SEPARATE
PLAN
NOT
INDIVIDUAL
ACCOUNT
PLAN.—For purposes of subparagraph (A), the
applicable percentage shall be 100 percent with
respect to—
‘‘(i) employee contributions to a plan
under which any portion attributable to
elective deferrals is treated as a separate
plan under section 407(b)(2) as of the date
of the enactment of this paragraph, and
‘‘(ii) such elective deferrals.
‘‘(D) COORDINATION
WITH
PRIOR
ELEC-
TIONS.—In any case in which a divestiture of
investment in employer securities of any class
held by an employee stock ownership plan prior
to the effective date of this subsection was un-
dertaken pursuant to other applicable Federal
law prior to such date, the applicable percent-
age (as determined without regard to this sub-
paragraph) in connection with such securities
shall be reduced to the extent necessary to ac-
count for the amount to which such election ap-
plied.
‘‘(8) REGULATIONS.—The Secretary of the
Treasury shall prescribe regulations under this sub-
section in consultation with the Secretary of
Labor.’’.
(b) AMENDMENTS
TO
THE INTERNAL REVENUE
CODE OF 1986.—
(1) IN GENERAL.—Section 401(a) of the Inter-
nal Revenue Code of 1986 (relating to requirements
for qualification) is amended by inserting after para-
graph (34) the following new paragraph:
‘‘(35) DIVERSIFICATION
REQUIREMENTS
FOR
DEFINED
CONTRIBUTION
PLANS
THAT
HOLD
EM-
PLOYER SECURITIES.—
‘‘(A) IN GENERAL.—An applicable defined
contribution plan shall meet the requirements
of subparagraphs (B) and (C).
‘‘(B) EMPLOYEE
CONTRIBUTIONS
AND
ELECTIVE DEFERRALS INVESTED IN EMPLOYER
SECURITIES.—In the case of the portion of the
account attributable to employee contributions
and elective deferrals which is invested in em-
ployer securities, a plan meets the requirements
of this subparagraph if each applicable indi-
vidual in such plan may elect to direct the plan
to divest any such securities in the individual’s
account and to reinvest an equivalent amount
in other investment options which meet the re-
quirements of subparagraph (D).
‘‘(C) 
EMPLOYER
CONTRIBUTIONS
IN-
VESTED IN EMPLOYER SECURITIES.—
‘‘(i) IN GENERAL.—In the case of the
portion of the account attributable to em-
ployer contributions (other than elective
deferrals to which subparagraph (B) ap-
plies) which is invested in employer securi-
ties, a plan meets the requirements of this
subparagraph if, under the plan—
‘‘(I) each applicable individual
with a benefit based on 3 years of
service may elect to direct the plan to
divest any such securities in the indi-
vidual’s account and to reinvest an
equivalent amount in other investment
options which meet the requirements
of subparagraph (D), or
‘‘(II) with respect to any em-
ployer security allocated to an applica-
ble individual’s account during any
plan year, such applicable individual
may elect to direct the plan to divest
such employer security after a date
which is not later than 3 years after
the end of such plan year and to rein-
vest an equivalent amount in other in-
vestment options which meet the re-
quirements of subparagraph (D).
‘‘(ii) APPLICABLE
INDIVIDUAL
WITH
BENEFIT
BASED
ON
YEARS
OF
SERV-
ICE.—For purposes of clause (i), an appli-
cable individual has a benefit based on 3
years of service if such individual would be
an applicable individual if only participants
in the plan who have completed at least 3
years of service (as determined under sec-
tion 411(a)) were taken into account under
subparagraph (F)(ii)(I).
‘‘(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 with respect to a plan if there
is no class of stock issued by any employer
maintaining the plan that is readily tradable on
an established securities market.
‘‘(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 provi-
sions 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 109, the amendments made by
this section shall apply to plan years beginning after
December 31, 2002, 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
shall be construed to preclude the use of plan
assets to pay for reasonable expenses in pro-
viding investment advice referred to in section
3(21)(A)(ii).
‘‘(6) DEFINITIONS.—For purposes of this sub-
section and subsection (b)(14)—
‘‘(A) FIDUCIARY ADVISER.—The term ‘fi-
duciary adviser’ means, with respect to a plan,
a person who is a fiduciary of the plan by rea-
son of the provision of investment advice by the
person to the plan or to a participant or bene-
ficiary and who is—
‘‘(i) registered as an investment ad-
viser 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 principal office and place of
business,
‘‘(ii) a bank or similar financial insti-
tution referred to in section 408(b)(4), but
only if the advice is provided through a
trust department of the bank or similar fi-
nancial institution which is subject to peri-
odic examination and review by Federal or
State banking authorities,
‘‘(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
representative of a person described in any
of clauses (i) through (v) who satisfies the
requirements 
of 
applicable 
insurance,
banking, and securities laws relating to the
provision of the advice.
‘‘(B) AFFILIATE.—The term ‘affiliate’ of
another entity means an affiliated person of the
entity (as defined in section 2(a)(3) of the In-
vestment Company Act of 1940 (15 U.S.C.
80a–2(a)(3))).
‘‘(C) 
REGISTERED
REPRESENTATIVE.—
The term ‘registered representative’ of another
entity means a person described in section
3(a)(18) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(18)) (substituting the
entity for the broker or dealer referred to in
such section) or a person described in section
202(a)(17) of the Investment Advisers Act of
1940 (15 U.S.C. 80b–2(a)(17)) (substituting
the entity for the investment adviser referred to
in such section).’’.
(b) AMENDMENTS
TO
THE INTERNAL REVENUE
CODE OF 1986.—
(1) EXEMPTION
FROM
PROHIBITED
TRANS-
ACTIONS.—Subsection (d) of section 4975 of the In-
ternal 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 described in subsection
(f)(7)(A) in connection with the provision of invest-
ment advice described in subsection (e)(3)(B), in
any case in which—
‘‘(A) the investment of assets of the plan
is subject to the direction of plan participants
or beneficiaries,
‘‘(B) 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
‘‘(C) 
the 
requirements 
of 
subsection
(f)(7)(B) are met in connection with the provi-
sion of the advice.’’.
(2) ALLOWED
TRANSACTIONS
AND
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) PROVISIONS
RELATING
TO
INVESTMENT
ADVICE PROVIDED BY FIDUCIARY ADVISERS.—
‘‘(A) TRANSACTIONS ALLOWABLE IN CON-
NECTION WITH INVESTMENT ADVICE PROVIDED
BY FIDUCIARY ADVISERS.—The transactions re-
ferred to in subsection (d)(16), in connection
with the provision of investment advice by a fi-
duciary adviser, 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 lending of money or other extension of
credit associated with the sale, acquisition,
or holding of a security or other property)
pursuant to the advice; and
‘‘(iii) the direct or indirect receipt of
fees or other compensation by the fiduciary
(5) the impact of the additional fiduciary duty
of an independent advisor on the strict fiduciary ob-
ligations of plan fiduciaries,
(6) the impact of new requirements (consulting
fees, reporting requirements, and new plan duties to
prudently identify and contract with qualified inde-
pendent consultants) on the availability of individual
account plans, and
(7) the impact of a new requirement on the
plan administration costs per participant for small
and mid-size employers and the pension plans they
sponsor.
(b) REPORT.—Not later than 1 year after the date
of the enactment of this Act, the Secretary of Labor shall
report the results of the study undertaken pursuant to this
section, together with any recommendations for legislative
changes, to the Committee on Education and the Work-
force of the House of Representatives and the Committee
on Health, Education, Labor, and Pensions of the Senate.
SEC. 107. TREATMENT OF QUALIFIED RETIREMENT PLAN-
NING SERVICES.
(a) IN GENERAL.—Subsection (m) of section 132 of
the Internal Revenue Code of 1986 (defining qualified re-
tirement services) is amended by adding at the end the
following new paragraph:
‘‘(4) NO CONSTRUCTIVE RECEIPT.—No amount
shall be included in the gross income of any em-
ployee solely because the employee may choose be-
tween any qualified retirement planning services pro-
vided by a qualified investment advisor and com-
pensation which would otherwise be includible in the
gross income of such employee. The preceding sen-
tence shall apply to highly compensated employees
only if the choice described in such sentence is avail-
able on substantially the same terms to each mem-
ber of the group of employees normally provided
education and information regarding the employer’s
qualified employer plan.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 403(b)(3)(B) of such Code is
amended 
by 
inserting 
‘‘132(m)(4),’’ 
after
‘‘132(f)(4),’’.
(2) Section 414(s)(2) of such Code is amended
by inserting ‘‘132(m)(4),’’ after ‘‘132(f)(4),’’.
(3) Section 415(c)(3)(D)(ii) of such Code is
amended 
by 
inserting 
‘‘132(m)(4),’’ 
after
‘‘132(f)(4),’’.
(c) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2002.