[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4237 Introduced in House (IH)]
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118th CONGRESS
1st Session
H. R. 4237
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.
_______________________________________________________________________
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.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Ensuring Sound Guidance Act''.
SEC. 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.
SEC. 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.
SEC. 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.
SEC. 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.
SEC. 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.
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