II 118th CONGRESS 1st Session S. 2282 IN THE SENATE OF THE UNITED STATES July 12, 2023 Mr. Cotton (for himself, Mr. Braun , Mr. Budd , Mr. Risch , Mrs. Blackburn , Mr. Cramer , and Mr. Scott of Florida ) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 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, and for other purposes.

1. Short title This Act may be cited as the Ensuring Sound Guidance Act . 2. Definitions In this Act: (1) Commission The term Commission means the Securities and Exchange Commission. (2) Municipal securities The term municipal securities has the meaning given the term in section 3(a) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78c(a) ). 3. 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— (1) by redesignating paragraph (2) as paragraph (3); and (2) by inserting after paragraph (1) the following: (2) Best interest based on pecuniary factors (A) Definition In this paragraph, the term pecuniary factor has the meaning given the term in paragraph (3) of section 404(a) of the Employment Retirement Income Security Act of 1974 ( 29 U.S.C. 1104(a) ). (B) Determination 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. (C) Disclosure of pecuniary factors If a customer provides a broker, dealer, or investment adviser with the informed consent to consider non-pecuniary factors described in subparagraph (B), 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 3 years; and (ii) at the end of the time period described in 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. . (b) Rulemaking Not later than 1 year after the date of enactment of this Act, the 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 1 year after the date of enactment of this Act. 4. 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, except as provided in subparagraph (B), only on pecuniary factors. The weight given to any such pecuniary factors by a fiduciary shall appropriately reflect a prudent assessment of the impact of such factor on the risk and return of the investment or investment course of action. The duties under paragraph (1) shall include the duty to not subordinate the interests of the participants and beneficiaries in retirement income or financial benefits under a plan to other objectives and the duty to not sacrifice investment return or take on additional investment risk to promote non-pecuniary benefits or goals. (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 in the selection or retention of an investment if the fiduciary documents— (i) why pecuniary factors were not sufficient to select or retain 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 is 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 The consideration, selection, or retention by a fiduciary of an investment option for a pension plan described in subsection (c)(1)(A) that promotes, seeks, or supports a non-pecuniary benefit or goal shall not constitute a breach of fiduciary duties under paragraph (1) if— (i) the fiduciary satisfies the requirements of subparagraph (A) and paragraph (1) in selecting, considering, or retaining any such investment option; and (ii) in the case of such an investment option in which the investment objectives or goals or principal investment strategy of the investment option include, consider, or indicate the use of a non-pecuniary factor, such investment option is not selected or retained as, or included as a component of, a default investment under subsection (c)(5) (or any other default investment alternative). (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. 5. 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. 6. Study on climate change and other environmental disclosures in municipal bond market (a) In general The Commission shall solicit public comment and thereafter conduct a study to determine the extent to which issuers of municipal securities make disclosures to investors regarding climate change and other environmental matters (referred to in this section as covered disclosures ). (b) Contents The study under subsection (a) shall consider and analyze, among other things— (1) the frequency of covered disclosures; (2) whether covered disclosures made by issuers of municipal securities in connection with offerings of securities align with covered 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 covered disclosures; and (4) the degree to which investors consider covered disclosures in connection with making an investment decision. (c) Report (1) In general Not later than 1 year after the date of enactment of this Act, the Commission shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report on the study required under this section. (2) Contents The report required under paragraph (1) shall include— (A) a detailed discussion of— (i) the financial risks to investors from investments in municipal securities; and (ii) whether the risks described in clause (i) are being adequately disclosed; and (B) a discussion of regulatory or legislative steps that are recommended, or that may be necessary, to address any concerns identified in the study required under this section. 7. Study on solicitation of municipal securities business (a) Definition In this section, the term covered rules means— (1) Rule G–38 of the Municipal Securities Rulemaking Board; and (2) section 275.206(4)–5 of title 17, Code of Federal Regulations, or any successor regulation. (b) Study The Commission shall solicit public comment and thereafter conduct a study to determine the effectiveness of the covered rules 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. (c) Contents The study under subsection (b) shall consider and analyze, among other things— (1) whether the covered rules have had their intended effects and any unintended adverse effects; (2) the frequency and scope of enforcement actions undertaken under the covered rules; (3) the degree to which persons subject to the covered rules have put in place policies and procedures intended to ensure compliance with the covered rules; (4) the degree to which State and Federal regulations, other than the covered rules, impact the solicitation of municipal securities business; and (5) the degree to which persons subject to the covered rules are disadvantaged from participating in the political process, both as a general matter and relative to persons that solicit or receive government business or government licenses, permits, and approvals other than in connection with the offer or sale of municipal securities. (d) Report (1) In general Not later than 1 year after the date of enactment of this Act, the Commission shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report on the study required under this section. (2) Contents The report required under paragraph (1) shall include— (A) a discussion of the extent to which persons affiliated with small businesses, and persons affiliated with minority- and women-opened businesses, have been affected by the covered rules; and (B) a discussion of regulatory or legislative steps that are recommended, or that may be necessary, to address any concerns identified in the study required under this section.