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107th Congress                                            Rept. 107-262
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 2

======================================================================



 
                 RETIREMENT SECURITY ADVICE ACT OF 2001

                                _______
                                

 November 13, 2001.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                     ADDITIONAL AND MINORITY VIEWS

                        [To accompany H.R. 2269]

      [Including cost estimate of the Congressional Budget Office]

      The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2269) to amend title I of the Employee Retirement 
Income Security Act of 1974 and the Internal Revenue Code of 
1986 to promote the provision of retirement investment advice 
to workers managing their retirement income assets, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background...........................................6
          A. Purpose and Summary.................................     6
          B. Background and Need for Legislation.................     6
          C. Legislative History.................................     6
 II. Explanation of the Bill..........................................6
          A. Prohibited Transaction Exemption for the Provision 
              of Investment Advice...............................     6
III. Votes of the Committee...........................................8
 IV. Budget Effects of the Bill.......................................9
          A. Committee Estimate of Budgetary Effects.............     9
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................     9
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    10
  V. Other Matters To Be Discussed Under the Rules of the House......11
          A. Committee Oversight Findings and Recommendations....    11
          B. Statement of General Performance Goals and 
              Objectives.........................................    11
          C. Constitutional Authority Statement..................    11
          D. Information Relating to Unfunded Mandates...........    11
          E. Applicability of House Rule XXI 5(b)................    11
          F. Tax Complexity Analysis.............................    11
 VI. Changes in Existing Law Made by the Bill as Reported............12
VII. Dissenting Views................................................19
VIII.Additional Views................................................25


    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Retirement Security Advice Act of 
2001''.

SEC. 2. PROHIBITED TRANSACTION EXEMPTION FOR THE PROVISION OF 
                    INVESTMENT ADVICE.

  (a) Amendments to the Employee Retirement Income Security Act of 
1974.--
          (1) In general.--Section 408(b) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1108(b)) is amended by 
        adding at the end the following new paragraph:
          ``(14) If the requirements of subsection (g) are met--
                  ``(A) the provision of investment advice referred to 
                in section 3(21)(A)(ii) provided by a fiduciary adviser 
                (as defined in subsection (g)(4)(A)) to an employee 
                benefit plan or to a participant or beneficiary of an 
                employee benefit plan,
                  ``(B) the sale, acquisition, or holding of securities 
                or other property (including any lending of money or 
                other extension of credit associated with the sale, 
                acquisition, or holding of securities or other 
                property) pursuant to such investment advice, and
                  ``(C) the direct or indirect receipt of fees or other 
                compensation by the fiduciary adviser or an affiliate 
                thereof (or any employee, agent, or registered 
                representative of the fiduciary adviser or affiliate) 
                in connection with the provision of such investment 
                advice.''.
          (2) Requirements.--Section 408 of such Act is amended further 
        by adding at the end the following new subsection:
  ``(g)(1) The requirements of this subsection are met in connection 
with the provision of advice referred to in section 3(21)(A)(ii), 
provided to an employee benefit plan or a participant or beneficiary of 
an employee benefit plan by a fiduciary adviser with respect to such 
plan, in connection with any sale or acquisition of a security or other 
property for purposes of investment of amounts held by such plan, if--
          ``(A) in the case of the initial provision of such advice 
        with regard to a security or other property, by such fiduciary 
        adviser to such plan, participant, or beneficiary, the 
        fiduciary adviser provides to the recipient of such advice, at 
        the time of or before the initial provision of such advice, a 
        clear and conspicuous description, in writing (including by 
        means of electronic communication), of--
                  ``(i) all fees or other compensation relating to such 
                advice that the fiduciary adviser or any affiliate 
                thereof is to receive (including compensation provided 
                by any third party) in connection with the provision of 
                such advice or in connection with such acquisition or 
                sale,
                  ``(ii) any material affiliation or contractual 
                relationship of the fiduciary adviser or affiliates 
                thereof in such security or other property,
                  ``(iii) any limitation placed on the scope of the 
                investment advice to be provided by the fiduciary 
                adviser with respect to any such sale or acquisition, 
                and
                  ``(iv) the types of services offered by the fiduciary 
                advisor in connection with the provision of investment 
                advice by the fiduciary adviser,
          ``(B) in the case of the initial or any subsequent provision 
        of such advice to such plan, participant, or beneficiary, the 
        fiduciary adviser, throughout the 1-year period following the 
        provision of such advice, maintains the information described 
        in clauses (i) through (iv) of subparagraph (A) in currently 
        accurate form for availability, upon request and without 
        charge, to the recipient of such advice,
          ``(C) the fiduciary adviser provides appropriate disclosure, 
        in connection with any such acquisition or sale, in accordance 
        with all applicable securities laws,
          ``(D) such acquisition or sale occurs solely at the direction 
        of the recipient of such advice,
          ``(E) the compensation received by the fiduciary adviser and 
        affiliates thereof in connection with such acquisition or sale 
        is reasonable, and
          ``(F) the terms of such acquisition or sale are at least as 
        favorable to such plan as an arm's length transaction would be.
  ``(2) A fiduciary adviser referred to in paragraph (1) who has 
provided advice referred to in such paragraph shall, for a period of 
not less than 6 years after the provision of such advice, maintain any 
records necessary for determining whether the requirements of the 
preceding provisions of this subsection and of subsection (b)(14) have 
been met. A transaction prohibited under section 406 shall not be 
considered to have occurred solely because the records are lost or 
destroyed prior to the end of the 6-year period due to circumstances 
beyond the control of the fiduciary adviser.
  ``(3)(A) Subject to subparagraph (B), a plan sponsor or other person 
who is a fiduciary shall not be treated as failing to meet the 
requirements of this part solely by reason of the provision of 
investment advice referred to in section 3(21)(A)(ii) (or solely by 
reason of contracting for or otherwise arranging for the provision of 
such investment advice), if--
          ``(i) such advice is provided by a fiduciary adviser pursuant 
        to an arrangement between such plan sponsor or other fiduciary 
        and such fiduciary adviser for the provision by such fiduciary 
        adviser of investment advice referred to in such section, and
          ``(ii) the terms of such arrangement require compliance by 
        the fiduciary adviser with the requirements of this subsection.
  ``(B) Nothing in subparagraph (A) shall be construed to exempt a plan 
sponsor or other person who is a fiduciary from any requirement of this 
part for the prudent selection and periodic review of a fiduciary 
adviser with whom the plan sponsor or other person enters into an 
arrangement for the provision of advice referred to in section 
3(21)(A)(ii). Such plan sponsor or other person who is a fiduciary has 
no duty under this part to monitor the specific investment advice given 
by the fiduciary adviser to any particular recipient of such advice.
  ``(C) Nothing in this part shall be construed to preclude the use of 
plan assets to pay for reasonable expenses in providing investment 
advice referred to in section 3(21)(A)(ii).
  ``(4) For purposes of this subsection and subsection (b)(14)--
          ``(A) The term `fiduciary adviser' means, with respect to a 
        plan, a person who is a fiduciary of the plan by reason of the 
        provision of investment advice by such person to the plan or to 
        a participant or beneficiary and who is--
                  ``(i) registered as an investment adviser under the 
                Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et 
                seq.) or under the laws of the State in which the 
                fiduciary maintains its principal office and place of 
                business,
                  ``(ii) a bank or similar financial institution 
                referred to in section 408(b)(4),
                  ``(iii) an insurance company qualified to do business 
                under the laws of a State,
                  ``(iv) a person registered as a broker or dealer 
                under the Securities Exchange Act of 1934 (15 U.S.C. 
                78a et seq.),
                  ``(v) an affiliate of a person described in any of 
                clauses (i) through (iv), or
                  ``(vi) an employee, agent, or registered 
                representative of a person described in any of clauses 
                (i) through (v).
          ``(B) The term `affiliate' means an affiliated person, as 
        defined in section 2(a)(3) of the Investment Company Act of 
        1940 (15 U.S.C. 80a-2(a)(3)).
          ``(C) The term `registered representative' means a person 
        described in section 3(a)(18) of the Securities Exchange Act of 
        1934 (15 U.S.C. 78c(a)(18)) or section 202(a)(17) of the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(17)).''.
  (b) Amendments to the Internal Revenue Code of 1986.--
          (1) Exemption from prohibited transactions.--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 period at the 
                end and inserting ``; or''; and
                  (C) by adding at the end the following new paragraph:
          ``(16) any transaction described in subsection (f)(7)(A) in 
        connection with the provision of investment advice described in 
        subsection (e)(3)(B), in any case in which--
                  ``(A) the investment of assets of the plan is subject 
                to the direction of plan participants or beneficiaries,
                  ``(B) the advice is provided to the plan or a 
                participant or beneficiary of the plan by a fiduciary 
                adviser in connection with any sale, acquisition, or 
                holding of a security or other property for purposes of 
                investment of plan assets, and
                  ``(C) the requirements of subsection (f)(7)(B) are 
                met in connection with the provision of the advice.''
          (2) Allowed transactions and requirements.--Subsection (f) of 
        such section 4975 (relating to other definitions and special 
        rules) is amended by adding at the end the following new 
        paragraph:
          ``(7) Provisions relating to investment advice provided by 
        fiduciary advisers.--
                  ``(A) Transactions allowable in connection with 
                investment advice provided by fiduciary advisers.--The 
                transactions referred to in subsection (d)(16), in 
                connection with the provision of investment advice by a 
                fiduciary adviser, are the following:
                          ``(i) the provision of the advice to the 
                        plan, participant, or beneficiary;
                          ``(ii) the sale, acquisition, or holding of a 
                        security or other property (including any 
                        lending of money or other extension of credit 
                        associated with the sale, acquisition, or 
                        holding of a security or other property) 
                        pursuant to the advice; and
                          ``(iii) the direct or indirect receipt of 
                        fees or other compensation by the fiduciary 
                        adviser or an affiliate thereof (or any 
                        employee, agent, or registered representative 
                        of the fiduciary adviser or affiliate) in 
                        connection with the provision of the advice or 
                        in connection with a sale, acquisition, or 
                        holding of a security or other property 
                        pursuant to the advice.
                  ``(B) Requirements relating to provision of 
                investment advice by fiduciary advisers.--The 
                requirements of this subparagraph (referred to in 
                subsection (d)(16)(C)) are met in connection with the 
                provision of investment advice referred to in 
                subsection (e)(3)(B), provided to a plan or a 
                participant or beneficiary of a plan by a fiduciary 
                adviser with respect to the plan in connection with any 
                sale, acquisition, or holding of a security or other 
                property for purposes of investment of amounts held by 
                the plan, if--
                          ``(i) in the case of the initial provision of 
                        the advice with regard to the security or other 
                        property by the fiduciary adviser to the plan, 
                        participant, or beneficiary, the fiduciary 
                        adviser provides to the recipient of the 
                        advice, at a time reasonably contemporaneous 
                        with the initial provision of the advice, a 
                        written notification (which may consist of 
                        notification by means of electronic 
                        communication)--
                                  ``(I) of all fees or other 
                                compensation relating to the advice 
                                that the fiduciary adviser or any 
                                affiliate thereof is to receive 
                                (including compensation provided by any 
                                third party) in connection with the 
                                provision of the advice or in 
                                connection with the sale, acquisition, 
                                or holding of the security or other 
                                property,
                                  ``(II) of any material affiliation or 
                                contractual relationship of the 
                                fiduciary adviser or affiliates thereof 
                                in the security or other property,
                                  ``(III) of any limitation placed on 
                                the scope of the investment advice to 
                                be provided by the fiduciary adviser 
                                with respect to any such sale, 
                                acquisition, or holding of a security 
                                or other property,
                                  ``(IV) of the types of services 
                                provided by the fiduciary advisor in 
                                connection with the provision of 
                                investment advice by the fiduciary 
                                adviser, and
                                  ``(V) that the adviser is acting as a 
                                fiduciary of the plan in connection 
                                with the provision of the advice,
                          ``(ii) the fiduciary adviser provides 
                        appropriate disclosure, in connection with the 
                        sale, acquisition, or holding of the security 
                        or other property, in accordance with all 
                        applicable securities laws,
                          ``(iii) the sale, acquisition, or holding 
                        occurs solely at the direction of the recipient 
                        of the advice,
                          ``(iv) the compensation received by the 
                        fiduciary adviser and affiliates thereof in 
                        connection with the sale, acquisition, or 
                        holding of the security or other property is 
                        reasonable, and
                          ``(v) the terms of the sale, acquisition, or 
                        holding of the security or other property are 
                        at least as favorable to the plan as an arm's 
                        length transaction would be.
                  ``(C) Standards for presentation of information.--The 
                notification required to be provided to participants 
                and beneficiaries under subparagraph (B)(i) shall be 
                written in a clear and conspicuous manner and in a 
                manner calculated to be understood by the average plan 
                participant and shall be sufficiently accurate and 
                comprehensive to reasonably apprise such participants 
                and beneficiaries of the information required to be 
                provided in the notification.
                  ``(D) Exemption conditioned on making required 
                information available annually, on request, and in the 
                event of material change.--The requirements of 
                subparagraph (B)(i) shall be deemed not to have been 
                met in connection with the initial or any subsequent 
                provision of advice described in subparagraph (B) to 
                the plan, participant, or beneficiary if, at any time 
                during the provision of advisory services to the plan, 
                participant, or beneficiary, the fiduciary adviser 
                fails to maintain the information described in 
                subclauses (I) through (IV) of subparagraph (B)(i) in 
                currently accurate form and in the manner required by 
                subparagraph (C), or fails--
                          ``(i) to provide, without charge, such 
                        currently accurate information to the recipient 
                        of the advice no less than annually,
                          ``(ii) to make such currently accurate 
                        information available, upon request and without 
                        charge, to the recipient of the advice, or
                          ``(iii) in the event of a material change to 
                        the information described in subclauses (I) 
                        through (IV) of subparagraph (B)(i), to 
                        provide, without charge, such currently 
                        accurate information to the recipient of the 
                        advice at a time reasonably contemporaneous to 
                        the material change in information.
                  ``(E) Maintenance for 6 years of evidence of 
                compliance.--A fiduciary adviser referred to in 
                subparagraph (B) who has provided advice referred to in 
                such subparagraph shall, for a period of not less than 
                6 years after the provision of the advice, maintain any 
                records necessary for determining whether the 
                requirements of the preceding provisions of this 
                paragraph and of subsection (d)(16) have been met. A 
                transaction prohibited under subsection (c)(1) shall 
                not be considered to have occurred solely because the 
                records are lost or destroyed prior to the end of the 
                6-year period due to circumstances beyond the control 
                of the fiduciary adviser.
                  ``(F) Definitions.--For purposes of this paragraph 
                and subsection (d)(16)--
                          ``(i) Fiduciary adviser.--The term `fiduciary 
                        adviser' means, with respect to a plan, a 
                        person who is a fiduciary of the plan by reason 
                        of the provision of investment advice by the 
                        person to the plan or to a participant or 
                        beneficiary and who is--
                                  ``(I) registered as an investment 
                                adviser under the Investment Advisers 
                                Act of 1940 (15 U.S.C. 80b-1 et seq.) 
                                or under the laws of the State in which 
                                the fiduciary maintains its principal 
                                office and place of business,
                                  ``(II) a bank or similar financial 
                                institution referred to in subsection 
                                (d)(4),
                                  ``(III) an insurance company 
                                qualified to do business under the laws 
                                of a State,
                                  ``(IV) a person registered as a 
                                broker or dealer under the Securities 
                                Exchange Act of 1934 (15 U.S.C. 78a et 
                                seq.),
                                  ``(V) an affiliate of a person 
                                described in any of subclauses (I) 
                                through (IV), or
                                  ``(VI) an employee, agent, or 
                                registered representative of a person 
                                described in any of subclauses (I) 
                                through (V) who satisfies the 
                                requirements of applicable insurance, 
                                banking, and securities laws relating 
                                to the provision of the advice.
                          ``(ii) Affiliate.--The term `affiliate' of 
                        another entity means an affiliated person of 
                        the entity (as defined in section 2(a)(3) of 
                        the Investment Company Act of 1940 (15 U.S.C. 
                        80a-2(a)(3))).
                          ``(iii) Registered representative.--The term 
                        `registered representative' of another entity 
                        means a person described in section 3(a)(18) of 
                        the Securities Exchange Act of 1934 (15 U.S.C. 
                        78c(a)(18)) (substituting the entity for the 
                        broker or dealer referred to in such section) 
                        or a person described in section 202(a)(17) of 
                        the Investment Advisers Act of 1940 (15 U.S.C. 
                        80b-2(a)(17)) (substituting the entity for the 
                        investment adviser referred to in such 
                        section).''

SEC. 3. EFFECTIVE DATE.

  The amendments made by this Act shall apply with respect to advice 
referred to in section 3(21)(A)(ii) of the Employee Retirement Income 
Security Act of 1974 or section 4975(e)(3)(B) of the Internal Revenue 
Code of 1986 provided on or after January 1, 2002.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The tax provisions of the bill, H.R. 2269, as amended (the 
``Retirement Security Advice Act of 2001''), create a new 
category of prohibited transaction exemptions for investment 
advice, the investment of assets, and the receipt of fees in 
connection with retirement plans and accounts, Archer MSAs, and 
Coverdell education savings accounts. The bill will facilitate 
the provision of investment advice in connection with 
retirement savings and enable workers to better manage their 
retirement assets.

                 B. Background and Need for Legislation

    The provisions approved by the Committee will facilitate 
the provision of investment advice in connection with 
retirement savings.

                         C. Legislative History


                            committee action

    The Committee on Ways and Means marked up the provisions of 
the bill on November 7, 2001, and ordered the bill reported, as 
amended, on November 7, 2001, by a roll call vote of 25 yeas 
and 15 nays, with a quorum present.

                      II. EXPLANATION OF THE BILL


  A. Prohibited Transaction Exemption for the Provision of Investment 
        Advice (Sec. 2(b) of the Bill and Sec. 4975 of the Code)


                              present law

    Present law prohibits certain transactions between an 
employee benefit plan and a disqualified person.\1\ 
Disqualified persons include a fiduciary of the plan, a person 
providing services to the plan, and an employer with employees 
covered by the plan. For this purpose, a fiduciary includes any 
person who (1) exercises any authority or control respecting 
management or disposition of the plan's assets, (2) renders 
investment advice for a fee or other compensation with respect 
to any plan moneys or property, or has the authority or 
responsibility to do so, or (3) has any discretionary authority 
or responsibility in the administration of the plan.
---------------------------------------------------------------------------
    \1\ Similar rules apply under the Employee Retirement Income 
Security Act of 1974 (``ERISA'').
---------------------------------------------------------------------------
    Prohibited transactions include (1) the sale, exchange or 
leasing of property, (2) the lending of money or other 
extension of credit, (3) the furnishing of goods, services or 
facilities, (4) the transfer to, or use by or for the benefit 
of, the income or assets of the plan, (5) in the case of a 
fiduciary, any act that deals with the plan's income or assets 
the for the fiduciary's own interest or account, and (6) the 
receipt by a fiduciary of any consideration for the fiduciary's 
own personal account from any party dealing with the plan in 
connection with a transaction involving the income or assets of 
the plan. However, certain transactions are exempt from 
prohibited transaction treatment, for example, certain loans to 
plan participants.
    If a prohibited transaction occurs, the disqualified person 
who participates in the transaction is subject to a two-tier 
excise tax. The first level tax is 15 percent of the amount 
involved in the transaction. The second level tax is imposed if 
the prohibited transaction is not corrected within a certain 
period and is 100 percent of the amount involved. The 
prohibited transaction rules apply to a qualified retirement 
plan, a qualified retirement annuity, an individual retirement 
account or annuity, an Archer MSA, or a Coverdell education 
savings account.

                           reasons for change

    The Committee believes that providing prohibited 
transaction exemptions will facilitate the provision of 
investment advice to individuals who are responsible for 
directing the investment of their retirement assets.

                        explanation of provision

    The provision adds a new category of prohibited transaction 
exemptions in connection with the provision of investment 
advice with respect to plan assets for a fee if (1) the 
investment of plan assets is subject to the direction of plan 
participants or beneficiaries, (2) the advice is provided to 
the plan or a participant or beneficiary by a fiduciary 
advisory in connection with a sale, acquisition or holding of a 
security or other property (an ``investment transaction'') for 
purposes of investment plan assets, and (3) certain other 
requirements are met. Under the provision, the following are 
exempt from prohibited transaction treatment: (1) the provision 
of investment advice to the plan, participant or beneficiary, 
(2) an investment transaction (including any lending of money 
or other extension of credit associated with the investment 
transaction) pursuant to the advice, and (3) the direct or 
indirect receipt of fees or other compensation by a fiduciary 
advisor or affiliate (or any employee, agent or registered 
representative of the fiduciary advisor or affiliate) in 
connection with the provision of the advice or an investment 
transaction pursuant to the advice.
    Under the provision, certain requirements must be met in 
order for the exemption to apply. When initially providing 
advice about a security or other property, the fiduciary 
advisor must provide to the recipient of the advice, on a 
reasonably contemporaneous basis, written notification of 
specified information (discussed below) as well as any 
disclosure required in connection with the investment 
transaction under any applicable securities laws. In addition, 
the investment transaction must occur solely at the direction 
of the recipient of the advice; the compensation received by 
the advisor and affiliates in connection with the investment 
transaction must be at least as favorable as an arm's length 
transaction would be.
    The written notification required to be provided by the 
fiduciary advisor must include information about the following: 
(1) all fees or compensation to be received by the advisor or 
an affiliate (including from a third party) in connection with 
the advice or the investment transaction, (2) any material 
affiliation or contractual relationship of the advisor or 
affiliates in the security or other property involved in the 
investment transaction (3) any limitation to be placed on the 
scope of the investment advice, (4) the types of services 
provided by the advisor in connection with the provision of 
investment advice, and (5) the advisor's status as a fiduciary 
of the plan in connection with the provision of the advice. The 
written notification can be provided electronically. In 
addition, in connection with the initial advice or subsequent 
advice, the required information must be provided in currently 
accurate form at least annually and also when requested by the 
recipient of the advice and when there is a material change in 
the information. Any notification (or currently accurate 
information) must be written in a clear and conspicuous manner, 
calculated to be understood by the average plan participant, 
and be sufficiently accurate and comprehensive reasonably to 
apprise participants and beneficiaries of the required 
information.
    The fiduciary advisor must maintain for at least six years 
any records necessary for determining whether the requirements 
for the prohibited transaction exemption were met. A prohibited 
transaction will not be considered to have occurred merely 
because records were lost or destroyed before the end of six 
years due to circumstances beyond the advisor's control.
    For purposes of the provision, ``fiduciary advisor'' is 
defined as a person who is a fiduciary of the plan by reason of 
the provision of investment advice to the plan, a participant 
or beneficiary and who is also (1) registered as an investment 
advisor under the Investment Advisors Act of 1940 or under 
State laws, (2) a bank or similar financial institution 
supervised by the United States or a State, (3) an insurance 
company qualified to do business under State law, (4) 
registered as a broker or dealer under the Securities Exchange 
Act of 1934, (5) an affiliate of any of the preceding, or (6) 
an employee, agent or representative of any of the preceding or 
(6) an employee, agent or representative of any of the 
preceding who satisfies the requirements of applicable 
insurance, banking and securities laws relating to the 
provision of advice. ``Affiliate'' means an affiliated person 
as defined under section 2(a)(3) of the Investment Company Act 
of 1940. ``Registered representative'' means a person described 
in section 3(a)(18) of the Securities Exchange Act of 1934 or a 
person described in section 202(a)(17) of the Investment 
Advisors Act of 1940.

                             Effective Date

    The provision is effective with respect to investment 
advice provided on or after January 1, 2002.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee of Ways and Means in its 
consideration of the bill, H.R. 2269.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 2269, as amended, was ordered favorably 
reported by a roll call vote of 25 yeas to 15 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Nussle.....................  ........  ........  .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....  ........        X   .........
Mr. Watkins....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Weller.....................        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 2269, as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2002-2006:

 ESTIMATED BUDGET EFFECTS OF THE REVENUE PROVISIONS CONTAINED IN H.R. 2269, THE ``RETIREMENT SECURITY ADVICE ACT OF 2001,'' AS REPORTED BY THE COMMITTEE
                                                                    ON WAYS AND MEANS
                                                    [Fiscal years 2002-2006, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                            Provision                                 Effective             2002          2003      2004      2005      2006     2002-06
--------------------------------------------------------------------------------------------------------------------------------------------------------
Add a new category of prohibited transaction exemption for            iapo/a 1/1/02                        Negligible Revenue Effect
 investment advice, certain investments of plan assets, and the
 receipt of fees in connection with the advice or investments...
--------------------------------------------------------------------------------------------------------------------------------------------------------
Legend for ``Effective'' column: iapo/a=investment advice provided on or after.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the bill does not involve 
increased tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, November 9, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2269, the 
Retirement Security Advice Act of 2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Geoffrey 
Gehardt.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 2269--Retirement Security Advice Act of 2001

    H.R. 2269 would amend the Employee Retirement Income 
Security Act of 1974 (ERISA) and the Internal Revenue Code so 
that employer-sponsored retirement plans may provide plan 
participants with direct access to fiduciary advisers. Under 
current law, employers may not provide participants in their 
retirement plans with direct access to financial advisers for 
the purpose of providing individual investment advice.
    The Congressional Budget Office and the Joint Committee on 
Taxation estimate that H.R. 2269 would have a negligible effect 
on federal spending and revenues. This version of the bill is 
similar to the version approved by the House Committee on 
Education and the Workforce on October 3, 2001, and our 
estimate is unchanged. Because H.R. 2269 would affect receipts, 
pay-as-you-go procedures would apply to the bill.
    In modifying provisions of ERISA and the Internal Revenue 
Code, the legislation also would establish certain requirements 
that must be followed by advisers who are provided by plan 
sponsors. H.R. 2269 would require that fiduciary advisers must 
disclose to employees all fees, as well as any financial 
holdings or potential conflicts that could affect their 
investment advice. Fees collected though such advice would not 
be subject to the excise taxes imposed by section 4975 of the 
Internal Revenue Code. The bill would also require advisers to 
act in the best financial interest of the employee and to 
maintain records related to such advice for at least six years.
    H.R. 2269 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Geoffrey 
Gerhardt. The estimate was approve by Peter H. Fontaine, Deputy 
Assistant Director for Budget Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning retirement security that the 
Committee concluded that it is appropriate and timely to enact 
the revenue provision included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for any 
measure that authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representative (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts, and 
Excises . . .''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of Treasury) to provide a 
tax complexity analysis. The complexity analysis is required 
for all legislation reported by the House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
``widespread applicability'' to individuals or small 
businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

   SECTION 408 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974


                EXEMPTIONS FROM PROHIBITED TRANSACTIONS

  Sec. 408. (a) * * *
  (b) The prohibitions provided in section 406 shall not apply 
to any of the following transactions:
          (1) * * *

           *       *       *       *       *       *       *

          (14) If the requirements of subsection (g) are met--
                  (A) the provision of investment advice 
                referred to in section 3(21)(A)(ii) provided by 
                a fiduciary adviser (as defined in subsection 
                (g)(4)(A)) to an employee benefit plan or to a 
                participant or beneficiary of an employee 
                benefit plan,
                  (B) the sale, acquisition, or holding of 
                securities or other property (including any 
                lending of money or other extension of credit 
                associated with the sale, acquisition, or 
                holding of securities or other property) 
                pursuant to such investment advice, and
                  (C) the direct or indirect receipt of fees or 
                other compensation by the fiduciary adviser or 
                an affiliate thereof (or any employee, agent, 
                or registered representative of the fiduciary 
                adviser or affiliate) in connection with the 
                provision of such investment advice.

           *       *       *       *       *       *       *

  (g)(1) The requirements of this subsection are met in 
connection with the provision of advice referred to in section 
3(21)(A)(ii), provided to an employee benefit plan or a 
participant or beneficiary of an employee benefit plan by a 
fiduciary adviser with respect to such plan, in connection with 
any sale or acquisition of a security or other property for 
purposes of investment of amounts held by such plan, if--
          (A) in the case of the initial provision of such 
        advice with regard to a security or other property, by 
        such fiduciary adviser to such plan, participant, or 
        beneficiary, the fiduciary adviser provides to the 
        recipient of such advice, at the time of or before the 
        initial provision of such advice, a clear and 
        conspicuous description, in writing (including by means 
        of electronic communication), of--
                  (i) all fees or other compensation relating 
                to such advice that the fiduciary adviser or 
                any affiliate thereof is to receive (including 
                compensation provided by any third party) in 
                connection with the provision of such advice or 
                in connection with such acquisition or sale,
                  (ii) any material affiliation or contractual 
                relationship of the fiduciary adviser or 
                affiliates thereof in such security or other 
                property,
                  (iii) any limitation placed on the scope of 
                the investment advice to be provided by the 
                fiduciary adviser with respect to any such sale 
                or acquisition, and
                  (iv) the types of services offered by the 
                fiduciary advisor in connection with the 
                provision of investment advice by the fiduciary 
                adviser,
          (B) in the case of the initial or any subsequent 
        provision of such advice to such plan, participant, or 
        beneficiary, the fiduciary adviser, throughout the 1-
        year period following the provision of such advice, 
        maintains the information described in clauses (i) 
        through (iv) of subparagraph (A) in currently accurate 
        form for availability, upon request and without charge, 
        to the recipient of such advice,
          (C) the fiduciary adviser provides appropriate 
        disclosure, in connection with any such acquisition or 
        sale, in accordance with all applicable securities 
        laws,
          (D) such acquisition or sale occurs solely at the 
        direction of the recipient of such advice,
          (E) the compensation received by the fiduciary 
        adviser and affiliates thereof in connection with such 
        acquisition or sale is reasonable, and
          (F) the terms of such acquisition or sale are at 
        least as favorable to such plan as an arm's length 
        transaction would be.
  (2) A fiduciary adviser referred to in paragraph (1) who has 
provided advice referred to in such paragraph shall, for a 
period of not less than 6 years after the provision of such 
advice, maintain any records necessary for determining whether 
the requirements of the preceding provisions of this subsection 
and of subsection (b)(14) have been met. A transaction 
prohibited under section 406 shall not be considered to have 
occurred solely because the records are lost or destroyed prior 
to the end of the 6-year period due to circumstances beyond the 
control of the fiduciary adviser.
  (3)(A) Subject to subparagraph (B), a plan sponsor or other 
person who is a fiduciary shall not be treated as failing to 
meet the requirements of this part solely by reason of the 
provision of investment advice referred to in section 
3(21)(A)(ii) (or solely by reason of contracting for or 
otherwise arranging for the provision of such investment 
advice), if--
          (i) such advice is provided by a fiduciary adviser 
        pursuant to an arrangement between such plan sponsor or 
        other fiduciary and such fiduciary adviser for the 
        provision by such fiduciary adviser of investment 
        advice referred to in such section, and
          (ii) the terms of such arrangement require compliance 
        by the fiduciary adviser with the requirements of this 
        subsection.
  (B) Nothing in subparagraph (A) shall be construed to exempt 
a plan sponsor or other person who is a fiduciary from any 
requirement of this part for the prudent selection and periodic 
review of a fiduciary adviser with whom the plan sponsor or 
other person enters into an arrangement for the provision of 
advice referred to in section 3(21)(A)(ii). Such plan sponsor 
or other person who is a fiduciary has no duty under this part 
to monitor the specific investment advice given by the 
fiduciary adviser to any particular recipient of such advice.
  (C) Nothing in this part shall be construed to preclude the 
use of plan assets to pay for reasonable expenses in providing 
investment advice referred to in section 3(21)(A)(ii).
  (4) For purposes of this subsection and subsection (b)(14)--
          (A) The term ``fiduciary adviser'' means, with 
        respect to a plan, a person who is a fiduciary of the 
        plan by reason of the provision of investment advice by 
        such person to the plan or to a participant or 
        beneficiary and who is--
                  (i) registered as an investment adviser under 
                the Investment Advisers Act of 1940 (15 U.S.C. 
                80b-1 et seq.) or under the laws of the State 
                in which the fiduciary maintains its principal 
                office and place of business,
                  (ii) a bank or similar financial institution 
                referred to in section 408(b)(4),
                  (iii) an insurance company qualified to do 
                business under the laws of a State,
                  (iv) a person registered as a broker or 
                dealer under the Securities Exchange Act of 
                1934 (15 U.S.C. 78a et seq.),
                  (v) an affiliate of a person described in any 
                of clauses (i) through (iv), or
                  (vi) an employee, agent, or registered 
                representative of a person described in any of 
                clauses (i) through (v).
          (B) The term ``affiliate'' means an affiliated 
        person, as defined in section 2(a)(3) of the Investment 
        Company Act of 1940 (15 U.S.C. 80a-2(a)(3)).
          (C) The term ``registered representative'' means a 
        person described in section 3(a)(18) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) or section 
        202(a)(17) of the Investment Advisers Act of 1940 (15 
        U.S.C. 80b-2(a)(17)).
                              ----------                              


           SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986

SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Exemptions.--Except as provided in subsection (f)(6), the 
prohibitions provided in subsection (c) shall not apply to--
          (1) * * *

           *       *       *       *       *       *       *

          (14) any transaction required or permitted under part 
        1 of subtitle E of title IV or section 4223 of the 
        Employee Retirement Income Security Act of 1974, but 
        this paragraph shall not apply with respect to the 
        application of subsection (c)(1) (E) or (F); [or]
          (15) a merger of multiemployer plans, or the transfer 
        of assets or liabilities between multiemployer plans, 
        determined by the Pension Benefit Guaranty Corporation 
        to meet the requirements of section 4231 of such Act, 
        but this paragraph shall not apply with respect to the 
        application of subsection (c)(1) (E) or (F)[.]; or
          (16) any transaction described in subsection 
        (f)(7)(A) in connection with the provision of 
        investment advice described in subsection (e)(3)(B), in 
        any case in which--
                  (A) the investment of assets of the plan is 
                subject to the direction of plan participants 
                or beneficiaries,
                  (B) the advice is provided to the plan or a 
                participant or beneficiary of the plan by a 
                fiduciary adviser in connection with any sale, 
                acquisition, or holding of a security or other 
                property for purposes of investment of plan 
                assets, and
                  (C) the requirements of subsection (f)(7)(B) 
                are met in connection with the provision of the 
                advice.

           *       *       *       *       *       *       *

  (f) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Provisions relating to investment advice provided 
        by fiduciary advisers.--
                  (A) Transactions allowable in connection with 
                investment advice provided by fiduciary 
                advisers.--The transactions referred to in 
                subsection (d)(16), in connection with the 
                provision of investment advice by a fiduciary 
                adviser, are the following:
                          (i) the provision of the advice to 
                        the plan, participant, or beneficiary;
                          (ii) the sale, acquisition, or 
                        holding of a security or other property 
                        (including any lending of money or 
                        other extension of credit associated 
                        with the sale, acquisition, or holding 
                        of a security or other property) 
                        pursuant to the advice; and
                          (iii) the direct or indirect receipt 
                        of fees or other compensation by the 
                        fiduciary adviser or an affiliate 
                        thereof (or any employee, agent, or 
                        registered representative of the 
                        fiduciary adviser or affiliate) in 
                        connection with the provision of the 
                        advice or in connection with a sale, 
                        acquisition, or holding of a security 
                        or other property pursuant to the 
                        advice.
                  (B) Requirements relating to provision of 
                investment advice by fiduciary advisers.--The 
                requirements of this subparagraph (referred to 
                in subsection (d)(16)(C)) are met in connection 
                with the provision of investment advice 
                referred to in subsection (e)(3)(B), provided 
                to a plan or a participant or beneficiary of a 
                plan by a fiduciary adviser with respect to the 
                plan in connection with any sale, acquisition, 
                or holding of a security or other property for 
                purposes of investment of amounts held by the 
                plan, if--
                          (i) in the case of the initial 
                        provision of the advice with regard to 
                        the security or other property by the 
                        fiduciary adviser to the plan, 
                        participant, or beneficiary, the 
                        fiduciary adviser provides to the 
                        recipient of the advice, at a time 
                        reasonably contemporaneous with the 
                        initial provision of the advice, a 
                        written notification (which may consist 
                        of notification by means of electronic 
                        communication)--
                                  (I) of all fees or other 
                                compensation relating to the 
                                advice that the fiduciary 
                                adviser or any affiliate 
                                thereof is to receive 
                                (including compensation 
                                provided by any third party) in 
                                connection with the provision 
                                of the advice or in connection 
                                with the sale, acquisition, or 
                                holding of the security or 
                                other property,
                                  (II) of any material 
                                affiliation or contractual 
                                relationship of the fiduciary 
                                adviser or affiliates thereof 
                                in the security or other 
                                property,
                                  (III) of any limitation 
                                placed on the scope of the 
                                investment advice to be 
                                provided by the fiduciary 
                                adviser with respect to any 
                                such sale, acquisition, or 
                                holding of a security or other 
                                property,
                                  (IV) of the types of services 
                                provided by the fiduciary 
                                advisor in connection with the 
                                provision of investment advice 
                                by the fiduciary adviser, and
                                  (V) that the adviser is 
                                acting as a fiduciary of the 
                                plan in connection with the 
                                provision of the advice,
                          (ii) the fiduciary adviser provides 
                        appropriate disclosure, in connection 
                        with the sale, acquisition, or holding 
                        of the security or other property, in 
                        accordance with all applicable 
                        securities laws,
                          (iii) the sale, acquisition, or 
                        holding occurs solely at the direction 
                        of the recipient of the advice,
                          (iv) the compensation received by the 
                        fiduciary adviser and affiliates 
                        thereof in connection with the sale, 
                        acquisition, or holding of the security 
                        or other property is reasonable, and
                          (v) the terms of the sale, 
                        acquisition, or holding of the security 
                        or other property are at least as 
                        favorable to the plan as an arm's 
                        length transaction would be.
                  (C) Standards for presentation of 
                information.--The notification required to be 
                provided to participants and beneficiaries 
                under subparagraph (B)(i) shall be written in a 
                clear and conspicuous manner and in a manner 
                calculated to be understood by the average plan 
                participant and shall be sufficiently accurate 
                and comprehensive to reasonably apprise such 
                participants and beneficiaries of the 
                information required to be provided in the 
                notification.
                  (D) Exemption conditioned on making required 
                information available annually, on request, and 
                in the event of material change.--The 
                requirements of subparagraph (B)(i) shall be 
                deemed not to have been met in connection with 
                the initial or any subsequent provision of 
                advice described in subparagraph (B) to the 
                plan, participant, or beneficiary if, at any 
                time during the provision of advisory services 
                to the plan, participant, or beneficiary, the 
                fiduciary adviser fails to maintain the 
                information described in subclauses (I) through 
                (IV) of subparagraph (B)(i) in currently 
                accurate form and in the manner required by 
                subparagraph (C), or fails--
                          (i) to provide, without charge, such 
                        currently accurate information to the 
                        recipient of the advice no less than 
                        annually,
                          (ii) to make such currently accurate 
                        information available, upon request and 
                        without charge, to the recipient of the 
                        advice, or
                          (iii) in the event of a material 
                        change to the information described in 
                        subclauses (I) through (IV) of 
                        subparagraph (B)(i), to provide, 
                        without charge, such currently accurate 
                        information to the recipient of the 
                        advice at a time reasonably 
                        contemporaneous to the material change 
                        in information.
                  (E) Maintenance for 6 years of evidence of 
                compliance.--A fiduciary adviser referred to in 
                subparagraph (B) who has provided advice 
                referred to in such subparagraph shall, for a 
                period of not less than 6 years after the 
                provision of the advice, maintain any records 
                necessary for determining whether the 
                requirements of the preceding provisions of 
                this paragraph and of subsection (d)(16) have 
                been met. A transaction prohibited under 
                subsection (c)(1) shall not be considered to 
                have occurred solely because the records are 
                lost or destroyed prior to the end of the 6-
                year period due to circumstances beyond the 
                control of the fiduciary adviser.
                  (F) Definitions.--For purposes of this 
                paragraph and subsection (d)(16)--
                          (i) Fiduciary adviser.--The term 
                        ``fiduciary adviser'' means, with 
                        respect to a plan, a person who is a 
                        fiduciary of the plan by reason of the 
                        provision of investment advice by the 
                        person to the plan or to a participant 
                        or beneficiary and who is--
                                  (I) registered as an 
                                investment adviser under the 
                                Investment Advisers Act of 1940 
                                (15 U.S.C. 80b-1 et seq.) or 
                                under the laws of the State in 
                                which the fiduciary maintains 
                                its principal office and place 
                                of business,
                                  (II) a bank or similar 
                                financial institution referred 
                                to in subsection (d)(4),
                                  (III) an insurance company 
                                qualified to do business under 
                                the laws of a State,
                                  (IV) a person registered as a 
                                broker or dealer under the 
                                Securities Exchange Act of 1934 
                                (15 U.S.C. 78a et seq.),
                                  (V) an affiliate of a person 
                                described in any of subclauses 
                                (I) through (IV), or
                                  (VI) an employee, agent, or 
                                registered representative of a 
                                person described in any of 
                                subclauses (I) through (V) who 
                                satisfies the requirements of 
                                applicable insurance, banking, 
                                and securities laws relating to 
                                the provision of the advice.
                          (ii) Affiliate.--The term 
                        ``affiliate'' of another entity means 
                        an affiliated person of the entity (as 
                        defined in section 2(a)(3) of the 
                        Investment Company Act of 1940 (15 
                        U.S.C. 80a-2(a)(3))).
                          (iii) Registered representative.--The 
                        term ``registered representative'' of 
                        another entity means a person described 
                        in section 3(a)(18) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 
                        78c(a)(18)) (substituting the entity 
                        for the broker or dealer referred to in 
                        such section) or a person described in 
                        section 202(a)(17) of the Investment 
                        Advisers Act of 1940 (15 U.S.C. 80b-
                        2(a)(17)) (substituting the entity for 
                        the investment adviser referred to in 
                        such section).

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    We support the effort of the majority to bring before this 
Committee the issue of improved access to investment advice for 
millions of American workers. We agree that, in light of the 
growth of self-directed pension plans, we must take steps to 
ensure that the 42 million workers who participate in, and are 
beneficiaries under, such plans have easy access to information 
designed to help them make better investment choices. However, 
we are disappointed that an issue of such importance was 
brought before the Committee in this manner.
    The Committee on Education and the Workforce recognized the 
importance of this issue. Before marking up H.R. 2269 in full 
Committee, their Subcommittee on Employer-Employee Relations 
held five hearings between February 15, 2000, and August 2, 
2001. On the other hand, this Committee did not hold one single 
hearing either in Subcommittee or full Committee. We lost a 
great opportunity to engage in dialogue with the proponents and 
opponents of this bill regarding the advantages and 
disadvantages of the approach adopted in H.R. 2269. We remain 
hopeful there will be an opportunity for us to come together 
and discuss all the issues, various available options, and 
agree on the best solution to this problem. This approach is 
necessary as millions of workers look to us to protect the 
security of their pension benefits.
    While some of us are primarily concerned with only a single 
provision of the bill, collectively, there are many areas of 
concern that are addressed herein.
    A fundamental premise of our pension law is that people who 
manage or administer assets of a pension plan cannot engage in 
any transaction under the plan in which they have a financial 
or other conflict of interest. These limitations are referred 
to as the prohibited transaction rules. There are limited 
statutory and regulatory exemptions from these rules, but only 
for cases that are determined to be in the best interest of 
plan participants and beneficiaries. When the prohibited 
transaction rules were enacted, there was considerable debate 
concerning whether such transactions should be subject to a 
complete bar, or if such transactions should be permitted if 
the plan received adequate compensation. The risks to the 
integrity of our pension system were considered to be too great 
if plan transactions involving a financial interest or other 
conflict were permitted. Thus, a complete bar was adopted.
    The financial markets and financial transactions have 
become far more complicated since the prohibited transaction 
rules were enacted. In addition, the type of pension plan used 
by employers to deliver retirement benefits to their workers 
has changed. We recognize the need to respond to the changing 
market for pension plans, but we also value the importance of 
protecting the integrity of our pension system. Because of 
these tensions, we believe we would all be better served if we 
could come to the table and engage in a process that results in 
legislation that adequately addresses all the issues raised by 
these competing needs.
    Some of our Members believe that no general exemption from 
the prohibited transaction rules should be permitted. They 
believe that such an approach has too great a potential for 
fraud and abuse. They argue that such a change would weaken or 
eliminate rules designed to prevent abuse of plan participants. 
Those of us who hold these views regard the disclosure 
provisions, minimum qualification requirements for advisors, 
and the availability of independent advice to plan participants 
when there is conflicted advice as an inadequate substitute for 
erosion of the protections American workers currently have 
under the prohibited transaction rules.
    Another group of us believe that if certain safeguards are 
built into the system, an exemption to the prohibited 
transaction rules is permissible. The approach to ensure the 
existence of adequate safeguards varies according to the area 
of greatest concern for the Member. Some of us believe that if 
there is clear and meaningful disclosure, H.R. 2269 would be 
acceptable. Others are concerned with the qualification 
requirements for advisors as contained in the bill. Still 
others are concerned with the availability of independent 
advice to plan participants when there is conflicted advice. 
While some of us are concerned primarily with only a single 
provision, collectively, there are numerous areas of concerns. 
These are all addressed below.

1. Disclosure

    We are pleased with the changes made to the underlying 
disclosure provision that were included in the Chairman's 
substitute to H.R. 2269 as introduced. We acknowledge that 
these changes will go a long way in providing information to 
plan participants as they struggle to make the best investments 
they can among the choice available to them. We hope these 
changes also are reflected in the provisions of the bill that 
fall under the Employee Retirement Income Security Act (ERISA) 
as it is brought to the floor.
    Some of us would have preferred to improve a little further 
the standard adopted by the majority. We would have liked to 
provide the Department of Labor (DOL) regulatory authority 
under which it could provide a model disclosure form. This 
becomes important in light of the fact that the majority of the 
Committee on Education and the Workforce stated in its 
committee report views that it intends for the disclosure to be 
a flexible standard that each advisor would be able to 
interpret. We find this standard to be unacceptable. We do not 
believe that such an undeterminable standard was intended by 
the Members of this Committee. An Amendment that was proposed 
by Mr. Pomeroy and withdrawn would have ensured that disclosure 
under the bill followed a uniform standard. Adequate and 
meaningful disclosure to participants is very important. We 
believe that disclosure should be honest, straightforward, and 
uniform. In addition, it is important that disclosure made by 
electronic means be consistent with regulations issued by the 
DOL and the Treasury Department.

2. Minimum qualification requirements for advisors

    Under H.R. 2269, a fiduciary advisor means a person who is 
a fiduciary of the plan by reason of providing investment 
advice to the plan, a participant, or beneficiary, and who is 
(1) registered as an investment advisor under the Investment 
Adviser Act of 1940, (2) a bank or similar financial 
institution, (3) an insurance company, (4) a registered broker 
or dealer under the Securities Act of 1934, (5) an affiliate of 
a person described above, or (6) an employee, agent or 
registered representative of a person described above who 
satisfies the requirements of applicable law relating to 
advice.
    Those of us who have concerns regarding the qualification 
standard for investment advisors, as contained in the bill, 
believe this standard is inadequate for the following reasons. 
Banks and insurance companies would be permitted to be 
qualified advisors but are currently exempt from the Investment 
Advisers Act with respect to providing investment advice. 
Consequently, in States that do not have any qualification 
standards applicable to these entities, employees would be 
permitted to provide investment advice without demonstrating 
that they meet any level of proficiency in this area.
    Because these entities are exempt under the Investment 
Advisers Act, there is no Federal level of regulation with 
respect to investment advice. Moreover, regulation at the state 
level is not uniform. While there are some states, such as 
California, that require an insurance agent to pass a written 
examination that is prepared and administered by the state; 
some states, such as Washington, allow anyone who meets the 
following requirements to be agents (1) be at least eighteen 
years of age, (2) be a resident of and actually reside in the 
state, and (3) be trustworthy and competent.
    Further, the bill provides that an affiliate of a qualified 
entity would be a qualified investment advisor. An affiliate is 
broadly defined under the Investment Adviser Act to include all 
employees. Also, the bill specifically provides that an 
employee, agent, or registered representative of a qualified 
entity who satisfies the requirements of applicable law 
relating to advice would be a qualified agent under the law. 
This provides another opening for employees of banks and 
insurance companies to act as qualified investment advisors 
under the bill, without meeting any qualification requirements 
in some cases.
    An amendment offered by Mr. Pomeroy and withdrawn would 
have ensured that all persons who give investment advice have a 
license under federal or state law or be registered with the 
Department of Labor. By doing so, the Pomeroy amendment would 
have provided an administrative remedy--i.e. the prospect of 
losing one's license--to ensure that advisers fulfill their 
fiduciary duties.
    We believe it is imperative to ensure that only trained 
qualified persons provide investment advice to plan 
participants. The integrity of our pension system is too 
important. To permit a lesser standard here than we would in 
any other area involving investment advice would directly 
undermine the integrity of our pension system. We are hopeful 
that as the bill moves through the legislative process our 
negotiations in this area will bring us to an acceptable middle 
ground.

3. Availability of independent advice

    With regard to the need to provide plan participant with 
independent advice, under the plan, when there is conflicted 
advice, some of us do not believe that the advisor who was 
selected by the employer to provide investment advice to the 
plan, participants and beneficiaries should be forced to share 
the contract with a competitor. Others among us believe that if 
we are permitting advisors to give conflicted advice to plan 
participants, we should ensure that they have the ability to 
receive non-conflicted advice. The latter group believes that 
if this option is not present, the claim that we are providing 
plan participants access to investment advice is nothing more 
than an empty promise.
    Those of us who have concerns in this area do not believe 
that the only choice for plan participants should be to accept 
conflicted advice or go without any advice. Such a standard is 
not in the best interest of the plan participants or the 
beneficiaries. Yet, these are the very people proponents argue 
this bill is intended to help.
    Some who oppose this modification have argued that advice 
is never truly free of conflict. We have a different view on 
this issue. Current law allows a plan sponsor to obtain 
investment advice from one of about twenty firms which provide 
this service, mainly through the internet. The fact that these 
independent firms do not sell their own products, nor do they 
earn differential fees for the investment options recommended 
provides an important element of protection against workers 
receiving conflicted advice.
    The investment advice firms currently evaluate all the 
investment options under the plan. They then make 
recommendations to the plan participants based on the overall 
rating of the investment fund, and recommend the options they 
think are best. This has led some financial service firms to 
express dissatisfaction with some of these firms. In some 
cases, the financial service firm may conclude that the 
investment advice firm is not recommending a sufficient amount 
of their products or is not promoting the funds that generate 
the highest profits. While we understand and appreciate the 
frustration some of these financial service firms have 
experienced, we must be careful not to minimize the element of 
independence that is so vital to the integrity of our pension 
system.
    Some of us have concerns in this area but would choose a 
different approach. Under this alternative approach, we would 
design a provision to ensure that there is a sufficient level 
of diversity among the investment options available under the 
plan. We believe such an approach would diminish the potential 
for abuse. To be successful with this approach, it would be 
necessary to preclude the plan from receiving conflicted 
advice. Thus, the exemption from the prohibited transaction 
rules would not apply to the plan, as currently permitted under 
H.R. 2269. Rather, the exemption would be limited to plan 
participants and beneficiaries under the plan, as was included 
in the Democratic Substitute that was offered by Rep. Robert 
Andrews in the markup held by the Committee on Education and 
the Workforce.
    Such an approach would preclude a certain level of bias 
with respect to the investment funds offered by the plan. We 
believe that ensuring diversity among the products as well as 
among the different companies whose products are offered under 
the plan can go a long way to diminish the harm that could 
result with conflicted advice. This standard will ensure that 
more meaningful advice is received by plan participants.

4. Remedies available upon a breach of fiduciary duties

    There are a few of us who believe steps must be taken to 
ensure that plan participants are empowered within a system 
that permits conflicted advice. One of the ways we believe this 
can be accomplished is by expanding available remedies in the 
case of a fiduciary breach.
    The remedies available to plan participants under ERISA 
have not kept pace with the changing face of our pension 
system. ERISA was enacted at a time when pension plans were 
predominantly defined benefit plans. The remedies available 
under ERISA are designed to respond to a defined benefit plan 
structure. With the explosion of defined contribution plans and 
the creation of individual accounts under these plans it is now 
possible to measure the financial loss a plan participant has 
suffered as a result of a fiduciary breach. However, no 
modification of the current structure has been made.
    Today, twenty five years after the enactment of ERISA, the 
courts remain unresolved as to what damages are permitted to 
the participant of a defined contribution plan who has suffered 
harm as a result of a fiduciary breach. The ERISA provision 
which gives an individual participant a cause of action 
(section 502(a)(3)) limits recovery to loss suffered by the 
plan.
    This is a time when every effort should be made to enhance 
the right of recovery for plan participants. Yet, under the 
bill, only the current limited form of recovery would be 
continued. We do not believe that, given the significant 
changes being made to workers' protections provided under the 
prohibited transaction rules, the current form of remedies is 
adequate. We believe it is important to enhance the ability of 
injured participants to recover some of the economic loss 
suffered resulting from a breach of fiduciary duty.
    In conclusion, we would again state that we agree there is 
a need to get improved access to investment advice to the 
millions of workers who participate in self-directed pension 
plans. We agree with the majority that this need must be 
addressed. However, in light of the comments expressed above, 
we believe that the approach taken under H.R. 2269 has some 
major problems that must be addressed if we are to move forward 
on this issue in a meaningful way. We hope that our majority 
will give us the opportunity to engage in discussion and design 
an approach to this need that responds to the many competing 
interests presented here.

                                   Charles B. Rangel.
                                   William J. Jefferson.
                                   Xavier Becerra.
                                   Jim McDermott.
                                   John Lewis.
                                   Pete Stark.
                                   Lloyd Doggett.
                                   Sander Levin.
                                   Karen L. Thurman.
                                   Robert T. Matsui.
                                   William J. Coyne.
                                   Jerry Kleczka.
                                   Ben Cardin.
                                   Earl Pomeroy.

                         VIII. ADDITIONAL VIEWS

    As our pension system continues to move toward a system 
that favors defined contribution plans over defined benefit 
plans, the need for plan participants to have sophisticated 
investment advice to assist them to prepare for their 
retirement becomes increasingly imperative. H.R. 2269 as 
reported from the Education and Workforce Committee represents 
a reasonable, but flawed, attempt to fill this need.
    Any break in ERISA's fiduciary rules gives rise to the 
concern that investment advice may be given without the sole 
interest of the individual plan participant in mind. Ensuring 
that this is not an unintended result constitutes an a priori 
condition for passage of any bill, and the proponents of this 
bill must demonstrate that they have done all they can to 
prevent such an occurrence. The Education and Workforce bill 
fails to accomplish this in two areas: adequate disclosure, and 
licensing.
    The Substitute offered by Chairman Thomas adequately 
addresses the former problem. The Substitute imposes additional 
disclosure requirements on investment advisors that improve the 
information disclosed to participants as they consider 
investment options that have an element of self-interest for 
the advisor. While additional protections might be helpful, 
such as requiring disclosure each time the advice is given and 
requiring that employers provide independent advisors when it 
is requested by a plan participant, the disclosure standards in 
the Chairman's mark meets the minimum acceptable level.
    Unfortunately, this is not true of the standard governing 
qualification of investment advisors. As reported by both the 
Education and Workforce Committee and the Committee on Ways and 
Means, some individuals with no special training or 
qualifications could provide investment advice to plan 
participants because certain financial institutions are exempt 
from the Investors Advisers Act as it pertains to investment 
advice, and not all States have filled in this gap. In 
addition, the statutory definition of ``affiliate'' in the 
Investment Advisers Act is so broad that any employee could 
give the advice. This standard provides an incentive for advice 
to be offered by less qualified individuals, which would be 
less expensive for the companies providing the service.
    This problem could have been solved by an amendment offered 
but withdrawn by a Democratic Member, Mr. Pomeroy of North 
Dakota. His amendment would have required an employer to 
provide an advisor who is licensed under state or federal law. 
However, employees of bank trust departments--a common source 
for investment advisors--are not subject to licensure 
requirements. Apparently, some believe it would be too great a 
burden to require their employees to meet minimum licensing 
requirements that would be prescribed by the Secretary of 
Labor.
    I supported final passage of the Ways and Means Committee 
version of H.R. 2269. I strongly hope that Mr. Pomeroy will be 
able to work out an agreement with the Chairman of the 
Committee for stronger licensing agreements. I also hope that 
the disclosure standards adopted in the Chairman's substitute 
will be reflected in the ERISA provisions of the bill when H.R. 
2269 is brought to the House floor. Should disclosure standards 
be weakened, or licensing standards not be added, I reserve the 
right discontinue by support.

                                                   Richard E. Neal.