I 118th CONGRESS 1st Session H. R. 4237 IN THE HOUSE OF REPRESENTATIVES June 21, 2023 Mr. Barr (for himself, Mr. Allen , and Mr. Huizenga ) introduced the following bill; which was referred to the Committee on Financial Services , and in addition to the Committee on Education and the Workforce , 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 the Investment Advisers Act of 1940 and the Employee Retirement Income Security Act of 1974 to specify requirements concerning the consideration of pecuniary and non-pecuniary factors.

1. Short title This Act may be cited as the Ensuring Sound Guidance Act . 2. Investment Advisors Act of 1940 amendment (a) In general Section 211(g) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b–11(g) ) is amended by adding at the end the following: (3) Best interest based on pecuniary factors (A) In general For purposes of paragraph (1), the best interest of a customer shall be determined using pecuniary factors, which may not be subordinated to or limited by non-pecuniary factors, unless the customer provides informed consent, in writing, that such non-pecuniary factors be so considered. (B) Disclosure of pecuniary factors If a customer provides a broker, dealer, or investment adviser with the informed consent to consider non-pecuniary factors described under subparagraph (A), the broker, dealer, or investment adviser shall also— (i) disclose the expected pecuniary effects to the customer over a time period selected by the customer and not to exceed three years; and (ii) at the end of the time period described under clause (i), disclose, by comparison to a reasonably comparable index or basket of securities selected by the customer, the actual pecuniary effects of that time period, including all fees, costs, and other expenses incurred to so consider non-pecuniary factors. (C) Pecuniary factor defined The term pecuniary factor has the meaning given such term in section 404(a)(3)(D) of the Employment Retirement Income Security Act of 1974 ( 29 U.S.C. 1104(a)(3)(D) ). . (b) Rulemaking Not later than the end of the 12-month period beginning on the date of enactment of this Act, the Securities and Exchange Commission shall revise or issue such rules as may be necessary to implement the amendment made by subsection (a). (c) Effective date The amendment made by subsection (a) shall apply to actions taken by a broker, dealer, or investment adviser on or after the date that is 12 months after the date of enactment of this Act. 3. Employee Retirement Income Security Act of 1974 amendment (a) In general Section 404(a) of the Employee Retirement Income Security Act of 1974 ( 29 U.S.C. 1104(a) ) is amended by adding at the end the following: (3) Interest based on pecuniary factors (A) In general For purposes of paragraph (1), a fiduciary of a plan shall be considered to act solely in the interest of the participants and beneficiaries of the plan with respect to an investment or investment course of action only if the fiduciary’s action with respect to such investment or investment course of action is based only on pecuniary factors (except as provided in subparagraph (B)). The fiduciary may not subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan to other objectives and may not sacrifice investment return or take on additional investment risk to promote non-pecuniary benefits or goals. The weight given to any pecuniary factor by a fiduciary should appropriately reflect a prudent assessment of the impact of such factor on risk and return. (B) Use of non-pecuniary factors for investment alternatives Notwithstanding paragraph (A), if a fiduciary is unable to distinguish between or among investment alternatives or investment courses of action on the basis of pecuniary factors alone, the fiduciary may use non-pecuniary factors as the deciding factor if the fiduciary documents— (i) why pecuniary factors were not sufficient to select a plan investment or investment course of action; (ii) how the selected investment compares to the alternative investments with regard to the composition of the portfolio with regard to diversification, the liquidity and current return of the portfolio relative to the anticipated cash flow requirements of the plan, and the projected return of the portfolio relative to the funding objectives of the plan; and (iii) how the selected non-pecuniary factor or factors are consistent with the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan. (C) Investment alternatives for participant-directed individual account plans In selecting or retaining investment options for a pension plan described in subsection (c)(1)(A), a fiduciary is not prohibited from considering, selecting, or retaining an investment option on the basis that such investment option promotes, seeks, or supports one or more non-pecuniary benefits or goals, if— (i) the fiduciary satisfies the requirements of paragraph (1) and subparagraphs (A) and (B) of this paragraph in selecting or retaining any such investment option; and (ii) such investment option is not added or retained as, or included as a component of, a default investment under subsection (c)(5) (or any other default investment alternative) if its investment objectives or goals or its principal investment strategies include, consider, or indicate the use of one or more non-pecuniary factors. (D) Pecuniary factor defined For the purposes of this paragraph, the term pecuniary factor means a factor that a fiduciary prudently determines is expected to have a material effect on the risk or return of an investment based on appropriate investment horizons consistent with the plan’s investment objectives and the funding policy established pursuant to section 402(b)(1). . (b) Effective date The amendments made by this section shall apply to actions taken by a fiduciary on or after the date that is 12 months after the date of enactment of this Act. 4. Study of State and local pension plans (a) Study The Comptroller General of the United States shall conduct a study on the potential impact of underfunded State and local pension plans on the Federal Government, including— (1) the extent to which such pension plans subordinate the pecuniary interests of participants and beneficiaries to environmental, social, governance, or other objectives; and (2) legislative and administrative actions that, if implemented at the Federal level, would prevent such pension plans from subordinating the interests of participants and beneficiaries to environmental, social, or governance objectives. (b) Report Not later than 12 months after the date of enactment of this Act, the Comptroller General submit to Congress a report containing the results of the study. 5. Study on climate change and other environmental disclosures in municipal bond market (a) In general The Securities and Exchange Commission shall solicit public comment and thereafter conduct a study to determine the extent to which issuers of municipal securities (as such term is defined in section 3(a)(29) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78c(a)(29) ) make disclosure to investors regarding climate change and other environmental matters. (b) Contents The study under subsection (a) shall consider and analyze, among other things— (1) the frequency of such disclosures; (2) whether such disclosures made by issuers of municipal securities in connection with offerings of securities align with such disclosures made by issuers of municipal securities in other contexts or to other audiences other than investors; (3) any voluntary or mandatory disclosure standards observed by issuers of municipal securities in the course of making such disclosures; and (4) the degree to which investors consider such disclosures in connection with making an investment decision. (c) Report The Securities and Exchange Commission shall issue a report on the study required under this section to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives not later than 12 months after the date of enactment of this Act. The report shall include a detailed discussion of the financial risks to investors from investments in municipal securities and whether those risks are being adequately disclosed as well as a discussion of regulatory or legislative steps that are recommended or that may be necessary to address any concerns identified in the study. 6. Study on solicitation of municipal securities business (a) In general The Securities and Exchange Commission shall solicit public comment and thereafter conduct a study to determine the effectiveness of Rule G–38 of the Municipal Securities Rulemaking Board and Rule 206(4)–5 of the Securities and Exchange Commission (17 CFR 275.206(4)–5) in preventing the payment of funds to elected officials or candidates for elected office in exchange for the receipt of government business in connection with the offer or sale of municipal securities (as such term is defined in section 3(a)(29) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78c(a)(29) ). (b) Contents The study under subsection (a) shall consider and analyze, among other things— (1) whether Rule G–38 and Rule 206(4)–5 have had their intended effects and whether they have had any unintended adverse effects; (2) the frequency and scope of enforcement actions undertaken under Rule G–38 and Rule 206(4)–5; (3) the degree to which persons subject to Rule G–38 and Rule 206(4)–5 have put in place policies and procedures intended to ensure compliance with such rules; (4) the degree to which other State and Federal regulations impact the solicitation of municipal securities business; and (5) the degree to which persons subject to Rule G–38 and Rule 206(4)–5 are disadvantaged from participating in the political process both as a general matter and relative to persons who solicit or receive government business or government licenses, permits, and approvals other than in connection with the offer or sale of municipal securities. (c) Report The Securities and Exchange Commission shall issue a report on the study required under this section to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives not later than 12 months after the date of enactment of this Act. The report shall include a discussion of the extent to which persons affiliated with small businesses, as well as persons affiliated with minority and women opened businesses, have been affected by Rule G–38 and Rule 206(4)–5 and a discussion of regulatory or legislative a discussion of regulatory or legislative steps that are recommended or that may be necessary to address any concerns identified in the study.