I
106TH CONGRESS
2D SESSION
H. R. 4749
To amend title I of the Employee Retirement Income Security Act of 1974
and the Internal Revenue Code of 1986 to modernize such title and
such Code to take into account the evolution of employer-sponsored
retirement plans, and to harmonize the requirements of such title and
such Code with other Federal and State laws.
IN THE HOUSE OF REPRESENTATIVES
JUNE 26, 2000
Mr. BOEHNER introduced the following bill; which was referred to the Com-
mittee on Education and the Workforce, and in addition to the Com-
mittee on Ways and Means, for a period to be subsequently determined
by the Speaker, in each case for consideration of such provisions as fall
within the jurisdiction of the committee concerned
A BILL
To amend title I of the Employee Retirement Income Secu-
rity Act of 1974 and the Internal Revenue Code of
1986 to modernize such title and such Code to take
into account the evolution of employer-sponsored retire-
ment plans, and to harmonize the requirements of such
title and such Code with other Federal and State laws.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘ERISA Modernization
Act of 2000’’.
SEC. 2. PROHIBITED TRANSACTION EXEMPTION FOR ARM’S
LENGTH TRANSACTIONS.
(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.—
(1) IN GENERAL.—Section 408(b) of the Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1108(b)) is amended by adding at the end
the following new paragraph:
‘‘(14) Any transaction of the type described in
subparagraph (A), (B), (C), or (D) of section
406(a)(1) or in 406(b) (other than a transaction de-
scribed in paragraph (15)) which meets the arm’s
length transaction requirements of subsection (g).
(2) ARM’S
LENGTH
TRANSACTION
REQUIRE-
MENTS.—Section 408 of such Act is amended fur-
ther by adding at the end the following new sub-
section:
‘‘(g)(1) The arm’s length transaction requirements of
this subsection are met by a transaction described in sub-
paragraph (A), (B), (C), or (D) of section 406(a)(1) if—
‘‘(A) such transaction is entered into pursuant
to a written contract or arrangement which includes
the material terms and conditions of such trans-
action or transactions of the type of such trans-
action,
‘‘(B) such transaction is in the interest of the
plan and its participants and beneficiaries, and
‘‘(C) the terms and conditions of such trans-
action, including any direct or indirect compensa-
tion, are at least as favorable to the plan as an
arm’s length transaction would be.
‘‘(2) The arm’s length transaction requirements of
this subsection are met by a transaction described in sec-
tion 406(b) if—
‘‘(A) such transaction meets the requirements
of paragraph (1), and
‘‘(B) prior to the commencement of such
transaction—
‘‘(i) written disclosure of potential conflicts
of interest associated with the transaction (or
contemplated transactions of the type thereof),
including the receipt of direct or indirect com-
pensation, has been provided to a fiduciary of
the plan, and
‘‘(ii) the transaction (or contemplated
transactions of the type thereof) have been pro-
vided for in the terms of the plan or of a writ-
ten contract with a fiduciary described in clause
(i) that is independent of the person entering
into the transaction and any of its affiliates.
‘‘(3) In any case in which a fiduciary causes a
plan to enter into a transaction with such fiduciary
or an affiliate thereof, the arm’s length transaction
requirements of this subsection are met only if—
‘‘(A) such transaction meets the require-
ments of paragraphs (1) and (2),
‘‘(B) such fiduciary or affiliate is engaged
in the business of entering into transactions of
such type with the general public, and
‘‘(C) such transaction is entered into under
substantially the same terms and conditions as
those under which such transactions with the
general public are entered into.’’.
(b) AMENDMENTS
TO
THE INTERNAL REVENUE
CODE OF 1986.—
(1) IN
GENERAL.—Subsection (d) of section
4975 of the Internal Revenue Code of 1986 (relating
to exemptions from tax on prohibited transactions)
is amended—
(A) in paragraph (14), by striking ‘‘or’’ at
the end;
(B) in paragraph (15), by striking the pe-
riod at the end and inserting ‘‘; or’’; and
(C) by adding at the end the following new
paragraph:
‘‘(16) Any transaction of the type described in
subsection (c)(1) (other than a transaction described
in paragraph (17)) which meets the arm’s length
transaction requirements of subsection (f)(7).’’.
(2) ARM’S
LENGTH
TRANSACTION
REQUIRE-
MENTS.—Subsection (f) of such section 4975 (relat-
ing to other definitions and special rules) is amended
by adding at the end the following new paragraph:
‘‘(7) ARM’S
LENGTH
TRANSACTION
REQUIRE-
MENTS.—
‘‘(A) TRANSACTIONS WITH DISQUALIFIED
PERSONS.—The arm’s length transaction re-
quirements of this subsection are met by a
transaction described in subparagraph (A), (B),
(C), or (D) of subsection (c)(1) if—
‘‘(i) such transaction is entered into
pursuant to a written contract or arrange-
ment which includes the material terms
and conditions of such transaction or
transactions of the type of such trans-
action,
‘‘(ii) such transaction is in the inter-
est of the plan and its participants and
beneficiaries, and
‘‘(iii) the terms and conditions of such
transaction, including any direct or indi-
rect compensation, are at least as favorable
to the plan as an arm’s length transaction
would be.
‘‘(B) TRANSACTIONS
WITH
A
FIDUCIARY
OR ITS AFFILIATE.—The arm’s length trans-
action requirements of this subsection are met
by a transaction described in subparagraph (E)
or (F) of subsection (c)(1) if—
‘‘(i) such transaction meets the re-
quirements of subparagraph (A), and
‘‘(ii) prior to the commencement of
such transaction—
‘‘(I) written disclosure of poten-
tial conflicts of interest associated
with the transaction (or contemplated
transactions of the type thereof), in-
cluding the receipt of direct or indi-
rect compensation, has been provided
to a fiduciary of the plan, and
‘‘(II) the transaction (or con-
templated transactions of the type
thereof) have been provided for in the
terms of the plan or of a written con-
tract with a fiduciary described in
subclause (I) that is independent of
the person entering into the trans-
action and any of its affiliates.
‘‘(C) TRANSACTIONS WITH THE FIDUCIARY
CAUSING THE TRANSACTIONS.—In any case in
which a fiduciary causes a plan to enter into a
transaction with such fiduciary or an affiliate
thereof, the arm’s length transaction require-
ments of this subjection are met only if—
‘‘(i) such transaction meets the re-
quirements of subparagraphs (A) and (B),
‘‘(ii) such fiduciary or affiliate is en-
gaged in the business of entering into
transactions of such type with the general
public, and
‘‘(iii) such transaction is entered into
under substantially the same terms and
conditions as those under which such
transactions with the general public are
entered into.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to transactions en-
tered into on or after January 1, 2001.
SEC. 3. DEFINITION OF PARTY IN INTEREST.
(a) AMENDMENTS TO THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974.—Section 3(14) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1002(14)) is amended—
(1) by striking subparagraphs (A) and (B) and
inserting the following:
‘‘(A) a person who is an administrator, officer,
counsel, or employee of the plan;
‘‘(B) in connection with a transaction described
in section 406(a), a fiduciary not otherwise described
in subparagraph (A) who personally directed or ac-
tively participated in the plan’s entry into such
transaction;’’;
(2) in subparagraph (G), by adding ‘‘or’’ at the
end;
(3) by striking subparagraphs (H) and (I) and
inserting the following:
‘‘(H) an officer or director (or an individual
having powers or responsibilities similar to those of
officers and directors) of a person described in sub-
paragraph (C), (D), (E), or (G), or of the employee
benefit plan.’’; and
(4) in the matter following subparagraph (I)
(as in effect before the amendments made by this
subsection), by striking ‘‘and lower than 10 percent
for subparagraph (H) or (I)’’.
(b) AMENDMENTS
TO
THE INTERNAL REVENUE
CODE OF 1986.—Paragraph (2) of section 4975(e) of the
Internal Revenue Code of 1986 (relating to disqualified
person) is amended—
(1) by striking subparagraphs (A) and (B) and
inserting the following:
‘‘(A) a person who is an administrator, of-
ficer, counsel, or employee of the plan;
‘‘(B) in connection with a transaction de-
scribed in subparagraph (A), (B), (C), or (D)
of subsection (c)(1), a fiduciary not otherwise
described in subparagraph (A) of this para-
graph who personally directed or actively par-
ticipated in the plan’s entry into such trans-
action;’’;
(2) in subparagraph (G), by adding ‘‘or’’ at the
end;
(3) by striking subparagraphs (H) and (I) and
inserting the following:
‘‘(H) an officer or director (or an indi-
vidual having powers or responsibilities similar
to those of officers and directors) of a person
described in subparagraph (C), (D), (E), or
(G), or of the plan.’’; and
(4) in the matter following subparagraph (I)
(as in effect before the amendments made by this
subsection), by striking ‘‘and lower than 10 percent
for subparagraph (H) or (I)’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to transactions, acts,
or omissions occurring on or after January 1, 2001.
SEC. 4. STANDARDS FOR ISSUING EXEMPTIVE RELIEF.
(a) IN GENERAL.—Section 408(a) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C.
1108(a)) is amended—
(1) by striking the third sentence;
(2) by adding ‘‘and’’ at the end of paragraph
(1), by striking paragraph (2), and by redesignating
paragraph (3) as paragraph (2); and
(3) in the matter following paragraph (3) (as in
effect before the amendments made by this sub-
section)—
(A) by striking ‘‘Before granting’’ and in-
serting the following:
‘‘The issuance of an exemption by the Secretary from any
restriction under section 406 or 407(a) does not exempt
a fiduciary who enters into a transaction subject to such
exemption from the fiduciary duties of section 404 with
respect to the plan or any other provision of this Act with
respect to the plan. In any case in which the Secretary
deems it appropriate, before granting’’;
(B) by striking ‘‘shall’’ each place it ap-
pears and inserting ‘‘may’’;
(C) by inserting ‘‘or provide such other no-
tice as the Secretary deems appropriate’’ after
‘‘pendency of the exemption’’;
(D) by striking ‘‘paragraphs (1), (2), and
(3)’’ and inserting ‘‘paragraphs (1) and (2)’’;
and
(E) by adding at the end the following new
sentence: ‘‘The Secretary may not grant an ex-
emption under this section unless the Secretary
finds that the conditions or requirements set
forth in the exemption are necessary additions
to the existing Federal and State laws and reg-
ulations and the protections they afford to ad-
dress concerns unique to employee benefit
plans.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to transactions occur-
ring on or after January 1, 2001.
SEC. 5. REGULATIONS RELATING TO DEFINITION OF PLAN
ASSETS.
(a) IN GENERAL.—Section 401 of the Employee Re-
tirement Income Security Act of 1974 (29 U.S.C. 1101)
is amended by adding at the end the following new sub-
section:
‘‘(d)(1)(A) Not later than March 31, 2001, the Sec-
retary shall issue proposed regulations (including proposed
amendments to existing regulations) to provide additional
guidance for the purpose of determining when the assets
of an entity in which an employee benefit plan has invested
will constitute assets of the plan for purposes of this part.
‘‘(B) The proposed regulations issued pursuant to
subparagraph (A) shall be subject to public notice and
comment until June 30, 2001.
‘‘(C) The Secretary shall issue final regulations pro-
viding the guidance described in subparagraph (A) not
later than September 30, 2001.
‘‘(D) Except as otherwise determined by the Sec-
retary, such regulations shall apply only to investments
in an entity made by an employee benefit plan after Sep-
tember 30, 2001. No inference shall be drawn from the
preceding sentence with respect to the interpretation of
any existing regulations prior to such effective date.
‘‘(2) The Secretary shall ensure that the regulations
issued under paragraph (1)—
‘‘(A) are administratively feasible; and
‘‘(B) protect the interests and rights of the plan
and of its participants and beneficiaries (including
meeting the requirements of paragraph (3)).
‘‘(3) The regulations prescribed by the Secretary pur-
suant to paragraph (1) shall provide—
‘‘(A) that an entity in whose assets investment
by an employee benefit plan is not significant will
not be treated as holding the plan assets of such
plan;
‘‘(B) that participation by an employee benefit
plan will not be treated as significant unless such
plan owns 25 percent or more of any class of inter-
ests in the entity;
‘‘(C) that, for purposes of determining whether
investment by an employee benefit plan in an entity
is significant, interests in the entity which are owned
by other entities that are deemed to hold assets of
employee benefit plans shall be treated as held by
such plans only to the extent proportionate to the in-
terests in such entities that are owned by such
plans;
‘‘(D) that an entity that has made no invest-
ments, or that has made only short-term invest-
ments pending long-term commitment, shall be per-
mitted to qualify for the exception (as in effect
under existing regulations) from plan asset status as
a ‘venture capital operating company’ on a tentative
basis for purposes of accepting capital contributions
of employee benefit plans for a period not to exceed
30 days prior to the entity’s first investment that
would permit it to qualify as a ‘venture capital oper-
ating company’ pursuant to such exception;
‘‘(E) that a startup or other early stage com-
pany is eligible to qualify as an ‘operating company’
for purposes of the definition of a ‘venture capital
operating company’ under the exception described in
subparagraph (D); and
‘‘(F) that an entity which, for a prior period,
has not qualified or has failed to qualify for the ex-
ception described in subparagraph (D) may never-
theless qualify for such exception prospectively if it
satisfies the requirements for the exception on a pro-
spective basis.
‘‘(4) For purposes of this subsection—
‘‘(A) The term ‘existing regulations’ means the
regulations issued under this section which were in
effect immediately before the date of the enactment
of this subsection.
‘‘(B) Any reference to an employee benefit plan
includes a reference to any employee benefit plan to
which the existing regulations apply.’’.
(b) CONFORMING AMENDMENT.—Subsection (f) of
section 4975 of the Internal Revenue Code of 1986 (relat-
ing to other definitions and special rules) (as amended by
the preceding provisions of this Act) is amended further
by adding at the end the following new paragraph:
‘‘(9) REGULATIONS RELATING TO DEFINITION
OF PLAN ASSETS.—Section 401(d) of the Employee
Retirement Income Security Act of 1974 shall apply
with respect to regulations issued under this section.
For purposes of this paragraph, references in such
section 401(d) to employee benefit plans shall be
deemed to include references to plans referred to in
this section.’’.
Æ