[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 2282 Introduced in Senate (IS)]
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118th CONGRESS
1st Session
S. 2282
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.
_______________________________________________________________________
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.
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. 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)).
SEC. 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.
SEC. 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.
SEC. 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.
SEC. 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.
SEC. 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.
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