[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5160 Introduced in House (IH)]







107th CONGRESS
  2d Session
                                H. R. 5160

                  To promote corporate responsibility.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 18, 2002

   Mr. Gephardt (for himself, Mr. Shows, Mr. Holden, Mr. Phelps, Ms. 
  Carson of Indiana, Mr. Rangel, Mr. LaFalce, Mr. Conyers, Mr. George 
 Miller of California, Mr. Matsui, Ms. Lee, Mr. Dicks, Mr. Waxman, Ms. 
Slaughter, Mr. Cardin, Mr. Tierney, Mr. Lynch, Mr. Bonior, Mr. Barrett 
 of Wisconsin, and Mr. Frank) introduced the following bill; which was 
referred to the Committee on Financial Services, and in addition to the 
  Committees on Ways and Means, the Judiciary, and Education and the 
 Workforce, for a period to be subsequently determined by the Speaker, 
 in each case for consideration of such provisions as fall within the 
                jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
                  To promote corporate responsibility.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Business, 
Investors', and Employees' Bill of Rights Act of 2002''.
    (b) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title and table of contents.
 TITLE I--IMPOSING TOUGH CRIMINAL PENALTIES ON CORRUPT CHIEF EXECUTIVE 
                                OFFICERS

Sec. 101. Criminal penalties for altering documents.
Sec. 102. Criminal penalties for defrauding shareholders of publicly 
                            traded companies.
Sec. 103. Review of Federal sentencing guidelines for obstruction of 
                            justice and extensive criminal fraud.
Sec. 104. Debts nondischargeable if incurred in violation of securities 
                            fraud laws.
Sec. 105. Increased protection of employees wages under chapter 11 
                            proceedings.
Sec. 106. Statute of limitations for securities fraud.
Sec. 107. Protection for employees of publicly traded companies who 
                            provide evidence of fraud.
Sec. 108. Establishment of a Retirement Security Fraud Bureau.
Sec. 109. Criminal penalties for mail and wire fraud.
Sec. 110. Amendment to sentencing guidelines relating to certain white-
                            collar offenses.
Sec. 111. Temporary freeze authority for the Securities and Exchange 
                            Commission.
Sec. 112. Increased criminal penalties under Securities Exchange Act of 
                            1934.
Sec. 113. Corporate responsibility for financial reports.
                 TITLE II--STOPPING OFFSHORE TAX HAVENS

Sec. 201. Prevention of corporate expatriation to avoid United States 
                            income tax.
Sec. 202. Inclusion in income of certain deferred amounts of insiders 
                            of corporations which expatriate to avoid 
                            United States income tax.
                TITLE III--MAKING EXECUTIVES ACCOUNTABLE

Sec. 301. Performance-based compensation exception to $1,000,000 
                            limitation on deductible compensation not 
                            to apply in certain cases.
Sec. 302. Inclusion in gross income of funded deferred compensation of 
                            corporate insiders if corporation funds 
                            defined contribution plan with employer 
                            stock.
Sec. 303. Golden parachute excise tax to apply to deferred compensation 
                            paid by corporation after major decline in 
                            stock value or corporation declares 
                            bankruptcy.
Sec. 304. Governance practices to prohibit insider loans.
Sec. 305. Removal of unfit corporate officers.
Sec. 306. Disgorgement required.
Sec. 307. CEO and CFO accountability for disclosure.
Sec. 308. Increased compensation limit not to result in reduced 
                            benefits for the nonhighly compensated.
Sec. 309. Matching contributions not taken into account for minimum 
                            contribution requirements under top-heavy 
                            plan rules.
TITLE IV--ASSURING THE INTEGRITY OF WALL STREET AND RESTORING FAITH IN 
                              THE MARKETS

Subtitle A--Improving Corporate Governance and Providing Investors with 
                           Honest Information

Sec. 401. Real-time disclosure of financial information.
Sec. 402. Improved transparency of corporate disclosures.
Sec. 403. Improvements in reporting on insider transactions and 
                            relationships.
Sec. 404. Analyst conflicts of interest.
Sec. 405. Independent directors and other corporate governance 
                            requirements.
 Subtitle B--Strengthening Auditor Independence and Industry Oversight

                    Chapter 1--Auditor Independence

Sec. 411. Services outside the scope of practice of auditors.
Sec. 412. Preapproval requirements.
Sec. 413. Audit partner rotation.
Sec. 414. Auditor reports to audit committees.
Sec. 415. Conforming amendments.
Sec. 416. Conflicts of interest.
Sec. 417. Study of mandatory rotation of registered public accounting 
                            firms.
Sec. 418. Commission authority.
Sec. 419. Considerations by appropriate State regulatory authorities.
                     Chapter 2--Industry Oversight

Sec. 421. Auditor oversight.
Sec. 422. Improper influence on conduct of audits.
Sec. 423. Enhanced oversight of periodic disclosures by issuers.
Sec. 424. Retention of records.
Sec. 425. Authorization of appropriations of the Securities and 
                            Exchange Commission.
Sec. 426. Enforcement of audit committee governance practices.
Sec. 427. Review of corporate governance practices.
Sec. 428. Study of enforcement actions.
Sec. 429. Study of credit rating agencies.
Sec. 430. Study of investment banks.
Sec. 431. Study of model rules for attorneys of issuers.
                     Subtitle C--General Provisions

Sec. 441. Enforcement authority.
Sec. 442. Exclusion for investment companies.
Sec. 443. Definitions.
          TITLE V--ENHANCING PENSION PROTECTION FOR EMPLOYEES

                 Subtitle A--Improvements in Disclosure

Sec. 501. Pension benefit information.
Sec. 502. Immediate warning of excessive stock holdings.
Sec. 503. Additional fiduciary protections relating to lockdowns.
Sec. 504. Report to participants and beneficiaries of trades in 
                            employer securities.
Sec. 505. Provision to participants and beneficiaries of material 
                            investment information in accurate form.
Sec. 506. Enforcement of information and disclosure requirements.
                Subtitle B--Diversification Requirements

Sec. 511. Freedom to make investment decisions with plan assets.
Sec. 512. Effective date of subtitle.
                  Subtitle C--Employee Representation

Sec. 521. Participation of participants in trusteeship of individual 
                            account plans.
                      Subtitle D--Executive Parity

Sec. 531. Insider trades during pension fund blackout periods 
                            prohibited.
                  Subtitle E--Increased Accountability

Sec. 541. Bonding or insurance adequate to protect interest of 
                            participants and beneficiaries.
Sec. 542. Liability for breach of fiduciary duty.
Sec. 543. Preservation of rights or claims.
Sec. 544. Office of Pension Participant Advocacy.
Sec. 545. Additional criminal penalties.
Sec. 546. Study regarding insurance system for individual account 
                            plans.
    Subtitle F--Investment Advice for Participants and Beneficiaries

Sec. 551. Independent investment advice.
Sec. 552. Tax treatment of qualified retirement planning services.
                     Subtitle G--General Provisions

Sec. 561. General effective date of title.
Sec. 562. Plan amendments.

 TITLE I--IMPOSING TOUGH CRIMINAL PENALTIES ON CORRUPT CHIEF EXECUTIVE 
                                OFFICERS

SEC. 101. CRIMINAL PENALTIES FOR ALTERING DOCUMENTS.

    (a) In General.--Chapter 73 of title 18, United States Code, is 
amended by adding at the end the following:
``Sec. 1519. Destruction, alteration, or falsification of records in 
              Federal investigations and bankruptcy
    ``Whoever knowingly alters, destroys, mutilates, conceals, covers 
up, falsifies, or makes a false entry in any record, document, or 
tangible object with the intent to impede, obstruct, or influence the 
investigation or proper administration of any matter within the 
jurisdiction of any department or agency of the United States or any 
case filed under title 11, or in relation to or contemplation of any 
such matter or case, shall be fined under this title, imprisoned not 
more than 20 years, or both.
``Sec. 1520. Destruction of corporate audit records
    ``(a) Any accountant who conducts an audit of an issuer of 
securities to which section 10A(a) of the Securities Exchange Act of 
1934 (15 U.S.C. 78j-1(a)) applies, shall maintain all documents 
(including electronic documents) sent, received, or created in 
connection with any audit, review, or other engagement for such issuer 
for a period of 20 years from the end of the fiscal period in which the 
audit, review, or other engagement was concluded.
    ``(b) Whoever knowingly and willfully violates subsection (a) shall 
be fined under this title, imprisoned not more than 5 years, or both.
    ``(c) Nothing in this section shall be deemed to diminish or 
relieve any person of any other duty or obligation, imposed by Federal 
or State law or regulation, to maintain, or refrain from destroying, 
any document.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 73 of title 18, United States Code, is amended by adding at the 
end the following new items:

``1519. Destruction, alteration, or falsification of records in Federal 
                            investigations and bankruptcy.
``1520. Destruction of corporate audit records.''.

SEC. 102. CRIMINAL PENALTIES FOR DEFRAUDING SHAREHOLDERS OF PUBLICLY 
              TRADED COMPANIES.

    (a) In General.--Chapter 63 of title 18, United States Code, is 
amended by adding at the end the following:
``Sec. 1348. Securities fraud
    ``Whoever knowingly executes, or attempts to execute, a scheme or 
artifice--
            ``(1) to defraud any person in connection with any security 
        registered under section 12 or 15(d) of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78l, 78o(d)) or section 6 of the 
        Securities Act of 1933 (15 U.S.C. 77f); or
            ``(2) to obtain, by means of false or fraudulent pretenses, 
        representations, or promises, any money or property in 
        connection with the purchase or sale of any security registered 
        under section 12 or 15(d) of the Securities Exchange Act of 
        1934 (15 U.S.C. 78l, 78o(d)) or section 6 of the Securities Act 
        of 1933 (15 U.S.C. 77f),
shall be fined under this title, or imprisoned not more than 25 years, 
or both.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 63 of title 18, United States Code, is amended by adding at the 
end the following new item:

``1348. Securities fraud.''.

SEC. 103. REVIEW OF FEDERAL SENTENCING GUIDELINES FOR OBSTRUCTION OF 
              JUSTICE AND EXTENSIVE CRIMINAL FRAUD.

    Pursuant to section 994 of title 28, United States Code, and in 
accordance with this section, the United States Sentencing Commission 
shall review and amend, as appropriate, the Federal Sentencing 
Guidelines and related policy statements to ensure that--
            (1) the guideline offense levels and enhancements for an 
        obstruction of justice offense are adequate in cases where 
        documents or other physical evidence are actually destroyed or 
        fabricated;
            (2) the guideline offense levels and enhancements for 
        violations of section 1519 or 1520 of title 18, United States 
        Code, as added by this Act, are sufficient to deter and punish 
        that activity;
            (3) the guideline offense levels and enhancements under 
        United States Sentencing Guideline 2B1.1 (as in effect on the 
        date of enactment of this Act) are sufficient for a fraud 
        offense when the number of victims adversely involved is 
        significantly greater than 50; and
            (4) a specific offense characteristic enhancing sentencing 
        is provided under United States Sentencing Guideline 2B1.1 (as 
        in effect on the date of enactment of this Act) for a fraud 
        offense that endangers the solvency or financial security of 1 
        or more victims.

SEC. 104. DEBTS NONDISCHARGEABLE IF INCURRED IN VIOLATION OF SECURITIES 
              FRAUD LAWS.

    Section 523(a) of title 11, United States Code, is amended--
            (1) in paragraph (17), by striking ``or'' after the 
        semicolon;
            (2) in paragraph (18), by striking the period at the end 
        and inserting ``; or''; and
            (3) by adding at the end, the following:
            ``(19) that--
                    ``(A) arises under a claim relating to--
                            ``(i) the violation of any of the Federal 
                        securities laws (as that term is defined in 
                        section 3(a)(47) of the Securities Exchange Act 
                        of 1934 (15 U.S.C. 78c(a)(47)), any State 
                        securities laws, or any regulations or orders 
                        issued under such Federal or State securities 
                        laws; or
                            ``(ii) common law fraud, deceit, or 
                        manipulation in connection with the purchase or 
                        sale of any security; and
                    ``(B) results, in relation to any claim described 
                in subparagraph (A), from--
                            ``(i) any judgment, order, consent order, 
                        or decree entered in any Federal or State 
                        judicial or administrative proceeding;
                            ``(ii) any settlement agreement entered 
                        into by the debtor; or
                            ``(iii) any court or administrative order 
                        for any damages, fine, penalty, citation, 
                        restitutionary payment, disgorgement payment, 
                        attorney fee, cost, or other payment owed by 
                        the debtor.''.

SEC. 105. INCREASED PROTECTION OF EMPLOYEES WAGES UNDER CHAPTER 11 
              PROCEEDINGS.

    Section 507(a) of title 11, United States Code, is amended--
            (1) in paragraph (3) by striking ``90'' and inserting 
        ``180'', and
            (2) in paragraphs (3) and (4) by striking ``$4,000'' each 
        place it appears and inserting ``$10,000''.

SEC. 106. STATUTE OF LIMITATIONS FOR SECURITIES FRAUD.

    (a) In General.--Section 1658 of title 28, United States Code, is 
amended--
            (1) by inserting ``(a)'' before ``Except''; and
            (2) by adding at the end the following:
    ``(b) Notwithstanding subsection (a), a private right of action 
that involves a claim of fraud, deceit, manipulation, or deliberate or 
reckless disregard of a regulatory requirement concerning the 
securities laws, as defined in section 3(a)(47) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), may be brought not later 
than the earlier of--
            ``(1) 5 years after the date on which the alleged violation 
        occurred; or
            ``(2) 3 years after the date on which the alleged violation 
        was discovered.''.
    (b) Effective Date.--The limitations period provided by section 
1658(b) of title 28, United States Code, as added by this section, 
shall apply to all proceedings addressed by this section that are 
commenced on or after the date of enactment of this Act.

SEC. 107. PROTECTION FOR EMPLOYEES OF PUBLICLY TRADED COMPANIES WHO 
              PROVIDE EVIDENCE OF FRAUD.

    (a) In General.--Chapter 73 of title 18, United States Code, is 
amended by inserting after section 1514 the following:
``Sec. 1514A. Civil action to protect against retaliation in fraud 
              cases
    ``(a) Whistleblower Protection for Employees of Publicly Traded 
Companies.--No company with securities registered under section 6 of 
the Securities Act of 1933 (15 U.S.C. 77f) or section 12 or 15(d) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78l, 78o(d)), or any 
officer, employee, contractor, subcontractor, or agent of such company, 
may discharge, demote, suspend, threaten, harass, or in any other 
manner discriminate against an employee in the terms and conditions of 
employment because of any lawful act done by the employee--
            ``(1) to provide information, cause information to be 
        provided, or otherwise assist in an investigation regarding any 
        conduct which the employee reasonably believes constitutes a 
        violation of section 1341, 1343, 1344, or 1348, any rule or 
        regulation of the Securities and Exchange Commission, or any 
        provision of Federal law relating to fraud against 
        shareholders, when the information or assistance is provided to 
        or the investigation is conducted by--
                    ``(A) a Federal regulatory or law enforcement 
                agency;
                    ``(B) any Member of Congress or any committee of 
                Congress; or
                    ``(C) a person with supervisory authority over the 
                employee (or such other person working for the employer 
                who has the authority to investigate, discover, or 
                terminate misconduct); or
            ``(2) to file, cause to be filed, testify, participate in, 
        or otherwise assist in a proceeding filed or about to be filed 
        (with any knowledge of the employer) relating to an alleged 
        violation of section 1341, 1343, 1344, or 1348, any rule or 
        regulation of the Securities and Exchange Commission, or any 
        provision of Federal law relating to fraud against 
        shareholders.
    ``(b) Election of Action.--
            ``(1) In general.--A person who alleges discharge or other 
        discrimination by any person in violation of subsection (a) may 
        seek relief under subsection (c), by--
                    ``(A) filing a complaint with the Secretary of 
                Labor; or
                    ``(B) bringing an action at law or equity in the 
                appropriate district court of the United States.
            ``(2) Procedure.--
                    ``(A) In general.--An action under paragraph (1)(A) 
                shall be governed under the rules and procedures set 
                forth in section 42121(b) of title 49, United States 
                Code.
                    ``(B) Exception.--Notification made under section 
                42121(b)(1) of title 49, United States Code, shall be 
                made to the person named in the complaint and to the 
                employer.
                    ``(C) Burdens of proof.--An action brought under 
                paragraph (1)(B) shall be governed by the legal burdens 
                of proof set forth in section 42121(b) of title 49, 
                United States Code.
                    ``(D) Statute of limitations.--An action under 
                paragraph (1) shall be commenced not later than 180 
                days after the date on which the violation occurs.
    ``(c) Remedies.--
            ``(1) In general.--An employee prevailing in any action 
        under subsection (b)(1) (A) or (B) shall be entitled to all 
        relief necessary to make the employee whole.
            ``(2) Compensatory damages.--Relief for any action under 
        paragraph (1) shall include--
                    ``(A) reinstatement with the same seniority status 
                that the employee would have had, but for the 
                discrimination;
                    ``(B) 2 times the amount of back pay, with 
                interest; and
                    ``(C) compensation for any special damages 
                sustained as a result of the discrimination, including 
                litigation costs, expert witness fees, and reasonable 
                attorney fees.
            ``(3) Punitive damages.--
                    ``(A) In general.--In a case in which the finder of 
                fact determines that the protected conduct of the 
                employee under subsection (a) involved a substantial 
                risk to the health, safety, or welfare of shareholders 
of the employer or the public, the finder of fact may award punitive 
damages to the employee.
                    ``(B) Factors.--In determining the amount, if any, 
                to be awarded under this paragraph, the finder of fact 
                shall take into account--
                            ``(i) the significance of the information 
                        or assistance provided by the employee under 
                        subsection (a) and the role of the employee in 
                        advancing any investigation, proceeding, 
                        congressional inquiry or action, or internal 
                        remedial process, or in protecting the health, 
                        safety, or welfare of shareholders of the 
                        employer or of the public;
                            ``(ii) the nature and extent of both the 
                        actual and potential discrimination to which 
                        the employee was subjected as a result of the 
                        protected conduct of the employee under 
                        subsection (a); and
                            ``(iii) the nature and extent of the risk 
                        to the health, safety, or welfare of 
                        shareholders or the public under subparagraph 
                        (A).
    ``(d) Rights Retained by Employee.--
            ``(1) Other remedies unaffected.--Nothing in this section 
        shall be deemed to diminish the rights, privilege, or remedies 
        of any employee under any Federal or State law, or under any 
        collective bargaining agreement.
            ``(2) Voluntary adjudication.--No employee may be compelled 
        to adjudicate his or her rights under this section pursuant to 
        an arbitration agreement.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 73 of title 18, United States Code, is amended by inserting 
after the item relating to section 1514 the following new item:

``1514A. Civil action to protect against retaliation in fraud cases.''.

SEC. 108. ESTABLISHMENT OF A RETIREMENT SECURITY FRAUD BUREAU.

    (a) In General.--Part II of title 28, United States Code, is 
amended by adding at the end the following:

            ``CHAPTER 40A--RETIREMENT SECURITY FRAUD BUREAU

``Sec. 600. Retirement Security Fraud Bureau
    ``(a) In General.--The Attorney General shall establish a 
Retirement Security Fraud Bureau which shall be a bureau in the 
Department of Justice.
    ``(b) Director.--
            ``(1) Appointment.--The head of the Retirement Security 
        Fraud Bureau shall be the Director who shall be appointed by 
        the Attorney General.
            ``(2) Duties and powers.--The duties and powers of the 
        Director are as follows:
                    ``(A) Advise and make recommendations on matters 
                relating to pension and securities fraud, in general, 
                to the Assistant Attorney General of the Criminal 
                Division.
                    ``(B) Maintain a government-wide data access 
                service, with access, in accordance with applicable 
                legal requirements, to the following:
                            ``(i) Information collected by the 
                        Department of Justice, the Department of Labor, 
                        the Department of the Treasury, and the 
                        Securities and Exchange Commission on pension 
                        and securities fraud matters.
                            ``(ii) Other privately and publicly 
                        available information on pension and securities 
                        fraud-related activities.
                    ``(C) Analyze and disseminate the available data in 
                accordance with applicable legal requirements, 
                policies, and guidelines established by the Attorney 
                General to--
                            ``(i) identify possible criminal activity 
                        to appropriate Federal, State, local, and 
                        foreign law enforcement agencies;
                            ``(ii) support ongoing criminal pension and 
                        securities fraud investigations;
                            ``(iii) determine emerging trends and 
                        methods in pension and securities fraud 
                        matters; and
                            ``(iv) support government initiatives 
                        against pension and securities fraud-related 
                        activities.
                    ``(D) Furnish research, analytical, and 
                informational services to financial institutions, to 
                appropriate Federal regulatory agencies with regard to 
                financial institutions, and to appropriate Federal, 
                State, local, and foreign law enforcement authorities, 
                in accordance with policies and guidelines established 
                by the Department of Justice, in the interest of 
                detection, prevention, and prosecution of pension and 
                securities fraud-related crimes.
                    ``(E) Establish and maintain a special unit 
                dedicated to assisting Federal, State, local, and 
                foreign law enforcement and regulatory authorities in 
                combating pension and securities fraud.
                    ``(F) Such other duties and powers as the Attorney 
                General may delegate or prescribe.
    ``(c) Authorization of Appropriations.--There are authorized to be 
appropriated for the Retirement Security Fraud Bureau such sums as may 
be necessary for fiscal years 2003, 2004, 2005, and 2006.''.
    (b) Clerical Amendment.--The table of chapters at the beginning of 
part II of title 28, United States Code, is amended by adding at the 
end the following new item:

``40A. Retirement Security Fraud Bureau.....................     600''.

SEC. 109. CRIMINAL PENALTIES FOR MAIL AND WIRE FRAUD.

    (a) Mail Fraud.--Section 1341 of title 18, United States Code, is 
amended by striking ``five years'' and inserting ``20 years''.
    (b) Wire Fraud.--Section 1343 of title 18, United States Code, is 
amended by striking ``five years'' and inserting ``20 years''.

SEC. 110. AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-
              COLLAR OFFENSES.

    (a) Directive to the United States Sentencing Commission.--Pursuant 
to its authority under section 994(p) of title 18, United States Code, 
and in accordance with this section, the United States Sentencing 
Commission shall review and, as appropriate, amend the Federal 
Sentencing Guidelines and related policy statements to implement the 
provisions of this title.
    (b) Requirements.--In carrying out this section, the Sentencing 
Commission shall--
            (1) ensure that the sentencing guidelines and policy 
        statements reflect the serious nature of the offenses and the 
        penalties set forth in this title, the growing incidence of 
        serious fraud offenses which are identified above, and the need 
        to modify the sentencing guidelines and policy statements to 
        deter, prevent, and punish such offenses;
            (2) consider the extent to which the guidelines and policy 
        statements adequately address--
                    (A) whether the guideline offense levels and 
                enhancements for violations of the sections amended by 
                this title are sufficient to deter and punish such 
                offenses, and specifically, are adequate in view of the 
                statutory increases in penalties contained in this 
                title; and
                    (B) whether a specific offense characteristic 
                should be added in United States Sentencing Guideline 
                section 2B1.1 in order to provide for stronger 
                penalties for fraud when the crime is committed by a 
                corporate officer or director;
            (3) assure reasonable consistency with other relevant 
        directives and sentencing guidelines;
            (4) account for any additional aggravating or mitigating 
        circumstances that might justify exceptions to the generally 
        applicable sentencing ranges;
            (5) make any necessary conforming changes to the sentencing 
        guidelines; and
            (6) assure that the guidelines adequately meet the purposes 
        of sentencing as set forth in section 3553(a)(2) of title 18, 
        United States Code.

SEC. 111. TEMPORARY FREEZE AUTHORITY FOR THE SECURITIES AND EXCHANGE 
              COMMISSION.

    (a) In General.--The Securities Exchange Act of 1934 is amended by 
inserting after section 21C(c)(2) (15 U.S.C. 78u-3(c)(2)) the 
following:
            ``(3) Temporary freeze.--(A) Whenever, during the course of 
        a lawful investigation involving possible violations of the 
        Federal securities laws by an issuer of publicly traded 
        securities or any of its directors, officers, partners, 
        controlling persons, agents, or employees, it shall appear to 
        the Commission that it is likely that the issuer will make 
        extraordinary payments (whether compensation or otherwise) to 
        any of the foregoing persons, the Commission may petition a 
        Federal district court for a temporary order requiring the 
        issuer to escrow, subject to court supervision, those payments 
        in an interest-bearing account for 45 days. Such an order shall 
        be entered, if the court finds that the issuer is likely to 
        make such extraordinary payments, only after notice and 
        opportunity for a hearing, unless the court determines that 
        notice and hearing prior to entry of the order would be 
        impracticable or contrary to the public interest. A temporary 
        order shall become effective immediately and shall be served 
        upon the parties subject to it and, unless set aside, limited 
        or suspended by court of competent jurisdiction, shall remain 
        effective and enforceable for 45 days. The period of the order 
        may be extended by the court upon good cause shown for not 
        longer than 45 days, provided that the combined period of the 
        order not exceed 90 days.
            ``(B) If the individual affected by such order is charged 
        with violations of the Federal securities laws by the 
        expiration of the 45 days (or the expiration of any extended 
        period), the escrow would continue, subject to court approval, 
        until the conclusion of any legal proceedings. The issuer and 
        the affected director, officer, partner, controlling person, 
        agent or employee would have the right to petition the court 
        for review of the order. If the individual affected by such 
        order is not charged, the escrow will terminate at the 
        expiration of the 45 days (or the expiration of any extended 
        period), and the payments (with accrued interest) returned to 
        the issuer.''.
    (b) Technical Amendment.--Section 21C(c)(2) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is amended by striking 
``This'' and inserting ``Paragraph (1) of this''.

SEC. 112. INCREASED CRIMINAL PENALTIES UNDER SECURITIES EXCHANGE ACT OF 
              1934.

    Section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78ff(a)) is amended--
            (1) by striking ``$1,000,000, or imprisoned not more than 
        10 years'' and inserting ``$5,000,000, or imprisoned not more 
        than 20 years''; and
            (2) by striking ``$2,500,000'' and inserting 
        ``$25,000,000''.

SEC. 113. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.

    (a) In General.--Chapter 63 of title 18, United States Code, is 
amended by adding at the end the following:
``Sec. 1348. Failure of corporate officers to certify financial reports
    ``(a) Certification of Periodic Financial Reports.--Each periodic 
report containing financial statements filed by an issuer with the 
Securities Exchange Commission pursuant to section 13(a) or 15(d) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall 
be accompanied by a written statement by the chairman of the board, 
chief executive officer, and chief financial officer (or equivalent 
thereof) of the issuer.
    ``(b) Content.--The statement required under subsection (a) shall 
certify the appropriateness of the financial statements and disclosures 
contained in the periodic report or financial report, and that those 
financial statements and disclosures fairly present, in all material 
respects, the operations and financial condition of the issuer.
    ``(c) Criminal Penalties.--Notwithstanding any other provision of 
law--
            ``(1) any person who recklessly and knowingly violates any 
        provision of this section shall upon conviction be fined not 
        more than $1,000,000, or imprisoned not more than 10 years, or 
        both; or
            ``(2) any person who willfully violates any provision of 
        this section shall upon conviction be fined not more than 
        $5,000,000, or imprisoned not more than 20 years, or both.''.
    (b) Technical and Conforming Amendment.--The section analysis for 
chapter 63 of title 18, United States Code, is amended by adding at the 
end the following:

``1348. Failure of corporate officers to certify financial reports.''.

                 TITLE II--STOPPING OFFSHORE TAX HAVENS

SEC. 201. PREVENTION OF CORPORATE EXPATRIATION TO AVOID UNITED STATES 
              INCOME TAX.

    (a) In General.--Paragraph (4) of section 7701(a) of the Internal 
Revenue Code of 1986 (defining domestic) is amended to read as follows:
            ``(4) Domestic.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `domestic' when applied to a 
                corporation or partnership means created or organized 
                in the United States or under the law of the United 
                States or of any State unless, in the case of a 
                partnership, the Secretary provides otherwise by 
                regulations.
                    ``(B) Certain corporations treated as domestic.--
                            ``(i) In general.--The acquiring 
                        corporation in a corporate expatriation 
                        transaction shall be treated as a domestic 
                        corporation.
                            ``(ii) Corporate expatriation 
                        transaction.--For purposes of this 
                        subparagraph, the term `corporate expatriation 
                        transaction' means any transaction if--
                                    ``(I) a nominally foreign 
                                corporation (referred to in this 
                                subparagraph as the `acquiring 
                                corporation') acquires, as a result of 
                                such transaction, directly or 
                                indirectly substantially all of the 
                                properties held directly or indirectly 
                                by a domestic corporation, and
                                    ``(II) immediately after the 
                                transaction, more than 80 percent of 
                                the stock (by vote or value) of the 
                                acquiring corporation is held by former 
                                shareholders of the domestic 
                                corporation by reason of holding stock 
                                in the domestic corporation.
                            ``(iii) Lower stock ownership requirement 
                        in certain cases.--Subclause (II) of clause 
                        (ii) shall be applied by substituting `50 
                        percent' for `80 percent' with respect to any 
                        nominally foreign corporation if--
                                    ``(I) such corporation does not 
                                have substantial business activities 
                                (when compared to the total business 
                                activities of the expanded affiliated 
                                group) in the foreign country in which 
                                or under the law of which the 
                                corporation is created or organized, 
                                and
                                    ``(II) the stock of the corporation 
                                is publicly traded and the principal 
                                market for the public trading of such 
                                stock is in the United States.
                            ``(iv) Partnership transactions.--The term 
                        `corporate expatriation transaction' includes 
                        any transaction if--
                                    ``(I) a nominally foreign 
                                corporation (referred to in this 
                                subparagraph as the `acquiring 
                                corporation') acquires, as a result of 
                                such transaction, directly or 
                                indirectly properties constituting a 
                                trade or business of a domestic 
                                partnership,
                                    ``(II) immediately after the 
                                transaction, more than 80 percent of 
                                the stock (by vote or value) of the 
                                acquiring corporation is held by former 
                                partners of the domestic partnership or 
                                related foreign partnerships 
                                (determined without regard to stock of 
                                the acquiring corporation which is sold 
                                in a public offering related to the 
                                transaction), and
                                    ``(III) the acquiring corporation 
                                meets the requirements of subclauses 
                                (I) and (II) of clause (iii).
                            ``(v) Special rules.--For purposes of this 
                        subparagraph--
                                    ``(I) a series of related 
                                transactions shall be treated as 1 
                                transaction, and
                                    ``(II) stock held by members of the 
                                expanded affiliated group which 
                                includes the acquiring corporation 
                                shall not be taken into account in 
                                determining ownership.
                            ``(vi) Other definitions.--For purposes of 
                        this subparagraph--
                                    ``(I) Nominally foreign 
                                corporation.--The term `nominally 
                                foreign corporation' means any 
                                corporation which would (but for this 
                                subparagraph) be treated as a foreign 
                                corporation.
                                    ``(II) Expanded affiliated group.--
                                The term `expanded affiliated group' 
                                means an affiliated group (as defined 
                                in section 1504(a) without regard to 
                                section 1504(b)).
                                    ``(III) Related foreign 
                                partnership.--A foreign partnership is 
                                related to a domestic partnership if 
                                they are under common control (within 
                                the meaning of section 482), or they 
                                shared the same trademark or 
                                tradename.''
    (b) Effective Dates.--
            (1) In general.--The amendment made by this section shall 
        apply to corporate expatriation transactions completed after 
        September 11, 2001.
            (2) Special rule.--The amendment made by this section shall 
        also apply to corporate expatriation transactions completed on 
        or before September 11, 2001, but only with respect to taxable 
        years of the acquiring corporation beginning after December 31, 
        2003.

SEC. 202. INCLUSION IN INCOME OF CERTAIN DEFERRED AMOUNTS OF INSIDERS 
              OF CORPORATIONS WHICH EXPATRIATE TO AVOID UNITED STATES 
              INCOME TAX.

    (a) In General.--Part II of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically included 
in gross income) is amended by adding at the end the following new 
section:

``SEC. 91. UNREALIZED GAIN ON STOCK OPTIONS OF INSIDERS OF CORPORATIONS 
              WHICH EXPATRIATE TO AVOID UNITED STATES INCOME TAX.

    ``(a) In General.--In the case of a corporate insider of any 
expatriate corporation, the gross income of such insider (for the 
taxable year during which such corporation becomes an expatriate 
corporation) shall include as ordinary income the net unrealized built-
in gain on options held by such insider to acquire stock in such 
corporation or in any member of the expanded affiliated group which 
includes such corporation. Proper adjustments shall be made in the 
amount of any gain or loss subsequently realized with respect to such 
options for any amount included in gross income under the preceding 
sentence.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Corporate insider.--The term `corporate insider' 
        means, with respect to a corporation, any individual who is 
        subject to the requirements of section 16(a) of the Securities 
Exchange Act of 1934 with respect to such corporation.
            ``(2) Expatriate corporation.--The term `expatriate 
        corporation' means the acquiring corporation which is treated 
        as a domestic corporation under section 7701(a)(4)(B).
            ``(3) Net realized built-in gain.--The term `net unrealized 
        built-in gain' means, with respect to options to acquire stock 
        in any corporation, the amount which would be required to be 
        included in gross income were such options exercised.
            ``(4) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group (as defined in 
        section 1504(a) without regard to section 1504(b)).''
    (b) Clerical Amendment.--The table of sections for such part II is 
amended by adding at the end the following new item:

                              ``Sec. 91. Unrealized gain on stock 
                                        options of insiders of 
                                        corporations which expatriate 
                                        to avoid united states income 
                                        tax..''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to corporate expatriation transactions completed 
after September 11, 2001, and to taxable years ending after such date.

                TITLE III--MAKING EXECUTIVES ACCOUNTABLE

SEC. 301. PERFORMANCE-BASED COMPENSATION EXCEPTION TO $1,000,000 
              LIMITATION ON DEDUCTIBLE COMPENSATION NOT TO APPLY IN 
              CERTAIN CASES.

    (a) In General.--Paragraph (4) of section 162(m) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
subparagraph:
                    ``(G) Certain factors not permitted to be taken 
                into account in determining whether performance goals 
                are met.--Subparagraph (C) shall not apply if, in 
                determining whether the performance goals are met, any 
                of the following are taken into account:
                            ``(i) Cost savings as a result of changes 
                        to any qualified employer plan (as defined in 
                        section 4972(d)).
                            ``(ii) Excess assets of such a plan or 
                        earnings thereon.
                            ``(iii) Any excess of the amount assumed to 
                        be the return on the assets of such a plan over 
                        the actual return on such assets.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 302. INCLUSION IN GROSS INCOME OF FUNDED DEFERRED COMPENSATION OF 
              CORPORATE INSIDERS IF CORPORATION FUNDS DEFINED 
              CONTRIBUTION PLAN WITH EMPLOYER STOCK.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new section:

``SEC. 409A. DENIAL OF DEFERRAL FOR FUNDED DEFERRED COMPENSATION OF 
              CORPORATE INSIDERS IF CORPORATION FUNDS DEFINED 
              CONTRIBUTION PLAN WITH EMPLOYER STOCK.

    ``(a) In General.--If an employer maintains a defined contribution 
plan to which employer contributions are made in the form of employer 
stock and such employer maintains a funded deferred compensation plan--
            ``(1) compensation of any corporate insider which is 
        deferred under such funded deferred compensation plan shall be 
        included in the gross income of the insider or beneficiary for 
        the 1st taxable year in which there is no substantial risk of 
        forfeiture of the rights to such compensation, and
            ``(2) the tax treatment of any amount made available under 
        the plan to a corporate insider or beneficiary shall be 
        determined under section 72 (relating to annuities, etc.).
    ``(b) Funded Deferred Compensation Plan.--For purposes of this 
section--
            ``(1) In general.--The term `funded deferred compensation 
        plan' means any plan providing for the deferral of compensation 
        unless--
                    ``(A) the employee's rights to the compensation 
                deferred under the plan are no greater than the rights 
                of a general creditor of the employer, and
                    ``(B) all amounts set aside (directly or 
                indirectly) for purposes of paying the deferred 
                compensation, and all income attributable to such 
                amounts, remain (until made available to the 
                participant or other beneficiary) solely the property 
                of the employer (without being restricted to the 
                provision of benefits under the plan), and
                    ``(C) the amounts referred to in subparagraph (B) 
                are available to satisfy the claims of the employer's 
                general creditors at all times (not merely after 
                bankruptcy or insolvency).
        Such term shall not include a qualified employer plan.
            ``(2) Special rules.--
                    ``(A) Employee's rights.--A plan shall be treated 
                as failing to meet the requirements of paragraph (1)(A) 
                unless--
                            ``(i) the compensation deferred under the 
                        plan is paid only upon separation from service, 
                        death, or at a specified time (or pursuant to a 
                        fixed schedule), and
                            ``(ii) the plan does not permit the 
                        acceleration of the time such deferred 
                        compensation is paid by reason of any event.
                If the employer and employee agree to a modification of 
                the plan that accelerates the time for payment of any 
                deferred compensation, then all compensation previously 
                deferred under the plan shall be includible in gross 
                income for the taxable year during which such 
                modification takes effect and the taxpayer shall pay 
                interest at the underpayment rate on the underpayments 
                that would have occurred had the deferred compensation 
                been includible in gross income when deferred.
                    ``(B) Creditor's rights.--A plan shall be treated 
                as failing to meet the requirements of paragraph (1)(B) 
                with respect to amounts set aside in a trust unless--
                            ``(i) the employee has no beneficial 
                        interest in the trust,
                            ``(ii) assets in the trust are available to 
                        satisfy claims of general creditors at all 
                        times (not merely after bankruptcy or 
                        insolvency), and
                            ``(iii) there is no factor (such as the 
                        location of the trust outside the United 
                        States) that would make it more difficult for 
                        general creditors to reach the assets in the 
                        trust than it would be if the trust assets were 
                        held directly by the employer in the United 
                        States.
    ``(c) Corporate Insider.--For purposes of this section, the term 
`corporate insider' means, with respect to a corporation, any 
individual who is subject to the requirements of section 16(a) of the 
Securities Exchange Act of 1934 with respect to such corporation.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Plan includes arrangements, etc.--The term `plan' 
        includes any agreement or arrangement.
            ``(2) Substantial risk of forfeiture.--The rights of a 
        person to compensation are subject to a substantial risk of 
        forfeiture if such person's rights to such compensation are 
        conditioned upon the future performance of substantial services 
        by any individual.''
    (b) Clerical Amendment.--The table of sections for such subpart A 
is amended by adding at the end the following new item:

                              ``Sec. 409A. Denial of deferral for 
                                        funded deferred compensation of 
                                        corporate insiders if 
                                        corporation funds defined 
                                        contribution plan with employer 
                                        stock.''
    (b) Effective Date.--The amendments made by this section shall 
apply to amounts deferred after the date of the enactment of this Act.

SEC. 303. GOLDEN PARACHUTE EXCISE TAX TO APPLY TO DEFERRED COMPENSATION 
              PAID BY CORPORATION AFTER MAJOR DECLINE IN STOCK VALUE OR 
              CORPORATION DECLARES BANKRUPTCY.

    (a) In General.--Section 4999 of the Internal Revenue Code of 1986 
(relating to golden parachute payments) is amended by redesignating 
subsection (c) as subsection (d) and by inserting after subsection (b) 
the following new subsection:
    ``(c) Tax To Apply to Deferred Compensation Paid After Major Stock 
Value Decline or Bankruptcy.--
            ``(1) In general.--For purposes of this section, the term 
        `excess parachute payment' includes severance pay, and any 
        other payment of deferred compensation, which is received by a 
        corporate insider after the date that the insider ceases to be 
        employed by the corporation if--
                    ``(A) there is at least a 75-percent decline in the 
                value of the stock in such corporation during the 1-
                year period ending on such date, or
                    ``(B) such corporation becomes a debtor in a title 
                11 or similar case (as defined in section 368(a)(3)(A)) 
                during the 180-day period beginning 90 days before such 
                date.
        Such term shall not include any payment from a qualified 
        employer plan.
            ``(2) Corporate insider.--For purposes of paragraph (1), 
        the term `corporate insider' means, with respect to a 
        corporation, any individual who is subject to the requirements 
        of section 16(a) of the Securities Exchange Act of 1934 with 
        respect to such corporation.''
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to cessations of employment after the date of the 
enactment of this Act.

SEC. 304. GOVERNANCE PRACTICES TO PROHIBIT INSIDER LOANS.

    (a) Rulemaking Required.--
            (1) Prohibited loans.--Every national securities exchange 
        and national securities association shall adopt rules, 
        effective no later than 6 months after the date of enactment of 
        this Act, to require that the qualitative listing standards 
        concerning corporate governance of the exchange or association 
        prohibit loans or other extensions of credit that in the 
        aggregate exceed $50,000 to any corporate insider.
            (2) Definition of corporate insider.--For purposes of 
        paragraph (1), the term ``corporate insider'' with respect to 
        any issuer means any person who is a beneficial owner, officer, 
        or director who is required to file a statement under section 
        16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p) with 
        respect to ownership of the equity securities of such issuer.
            (3) Other definitions.--For purposes of paragraph (1), the 
        terms ``national securities exchange'' and ``national 
        securities association'' have the same meanings provided in 
        section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 
        78c).
    (b) Procedure.--The rules required by subsection (a) of this 
section shall be adopted by any national securities exchange or 
national securities association pursuant to section 19(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78s(b)). If the rules 
required by this section have not been adopted by any national 
securities exchange and national securities association and made 
effective by 9 months after the date of enactment of this Act, the 
Securities and Exchange Commission shall initiate proceedings to add 
the rules required by this section to the rules of such national 
securities exchange and national securities association.
    (c) No Adverse Inference.--Nothing in this section shall be 
construed to alter, impair, limit, or abrogate the Security and 
Exchange Commission's power under section 19(c) of the Securities 
Exchange Act of 1934 to abrogate, add to, and delete from the rules of 
a self-regulatory organization (other than a registered clearing 
agency) as the Securities and Exchange Commission deems necessary or 
appropriate.

SEC. 305. REMOVAL OF UNFIT CORPORATE OFFICERS.

    (a) Removal in Judicial Proceedings.--
            (1) Securities act of 1933.--Section 20(e) of the 
        Securities Act of 1933 (15 U.S.C. 77t(e)) is amended by 
        striking ``substantial unfitness'' and inserting ``unfitness''.
            (2) Securities exchange act of 1934.--Section 21(d)(2) of 
        the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is 
        amended by striking ``substantial unfitness'' and inserting 
        ``unfitness''.
    (b) Removal in Administrative Proceedings.--
            (1) Securities act of 1933.--Section 8A of the Securities 
        Act of 1933 (15 U.S.C. 77h-1) is amended by adding at the end 
        the following new subsection:
    ``(f) Authority To Prohibit Persons From Serving as Officers or 
Directors.--In any cease-and-desist proceeding under subsection (a), 
the Commission may issue an order to prohibit, conditionally or 
unconditionally, and permanently or for such period of time as it shall 
determine, any person who has violated section 17(a)(1) of this title 
from acting as an officer or director of any issuer that has a class of 
securities registered pursuant to section 12 of the Securities Exchange 
Act of 1934 or that is required to file reports pursuant to section 
15(d) of that Act if the person's conduct demonstrates unfitness to 
serve as an officer or director of any such issuer.''.
            (2) Securities exchange act of 1934.--Section 21C of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78u-3) is amended by 
        adding at the end the following new subsection:
    ``(f) Authority To Prohibit Persons From Serving as Officers or 
Directors.--In any cease-and-desist proceeding under subsection (a), 
the Commission may issue an order to prohibit, conditionally or 
unconditionally, and permanently or for such period of time as it shall 
determine, any person who has violated section 10(b) of this title or 
the rules or regulations thereunder from acting as an officer or 
director of any issuer that has a class of securities registered 
pursuant to section 12 of this title or that is required to file 
reports pursuant to section 15(d) of this title if the person's conduct 
demonstrates unfitness to serve as an officer or director of any such 
issuer.''.

SEC. 306. DISGORGEMENT REQUIRED.

    (a) Administrative Actions.--Within 30 days after the date of 
enactment of this Act, the Securities and Exchange Commission shall 
prescribe regulations to require disgorgement, in a proceeding pursuant 
to its authority under section 21A, 21B, or 21C of the Securities 
Exchange Act of 1934 (15 U.S.C. 78u-1, 78u-2, 78u-3), of salaries, 
commissions, fees, bonuses, options, profits from securities 
transactions, and losses avoided through securities transactions 
obtained by an officer or director of an issuer during or for a fiscal 
year or other reporting period if such officer or director engaged in 
misconduct resulting in, or made or caused to be made in, the filing of 
a financial statement for such fiscal year or reporting period which--
            (1) was at the time, and in the light of the circumstances 
        under which it was made, false or misleading with respect to 
        any material fact; or
            (2) omitted to state a material fact necessary in order to 
        make the statements made, in the light of the circumstances in 
        which they were made, not misleading,
    (b) Judicial Proceedings.--Section 21(d) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78u(d)) is amended by adding at the end the 
following new paragraph:
            ``(5) Additional disgorgement authority.--In any action or 
        proceeding brought or instituted by the Commission under the 
        securities laws against any person--
                    ``(A) for engaging in misconduct resulting in, or 
                making or causing to be made in, the filing of a 
                financial statement which--
                            ``(i) was at the time, and in the light of 
                        the circumstances under which it was made, 
                        false or misleading with respect to any 
                        material fact; or
                            ``(ii) omitted to state a material fact 
                        necessary in order to make the statements made, 
                        in the light of the circumstances in which they 
                        were made, not misleading; or
                    ``(B) for engaging in, causing, or aiding and 
                abetting any other violation of the securities laws or 
                the rules and regulations thereunder,
        such person, in addition to being subject to any other 
        appropriate order, may be required to disgorge any or all 
        benefits received from any source in connection with the 
        conduct constituting, causing, or aiding and abetting the 
        violation, including (but not limited to) salary, commissions, 
        fees, bonuses, options, profits from securities transactions, 
        and losses avoided through securities transactions.''.

SEC. 307. CEO AND CFO ACCOUNTABILITY FOR DISCLOSURE.

    (a) Regulations Required.--The Securities and Exchange Commission 
shall by rule require, for each company filing periodic reports under 
section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78m, 78o(d)), that the principal executive officer or officers and the 
principal financial officer or officers, or persons performing similar 
functions, certify in each annual or quarterly report filed or 
submitted under either such section of such Act that--
            (1) the signing officer has reviewed the report;
            (2) based on the officer's knowledge, the report does not 
        contain any untrue statement of a material fact or omit to 
        state a material fact necessary in order to make the statements 
        made, in light of the circumstances under which such statements 
        were made, not misleading;
            (3) based on such officer's knowledge, the financial 
        statements, and other financial information included in the 
        report, fairly present in all material respects the financial 
        condition and results of operations of the issuer as of, and 
        for, the periods presented in the report;
            (4) the signing officers--
                    (A) are responsible for establishing and 
                maintaining internal controls;
                    (B) have designed such internal controls to ensure 
                that material information relating to the issuer and 
                its consolidated subsidiaries is made known to such 
                officers by others within those entities, particularly 
                during the period in which the periodic reports are 
                being prepared;
                    (C) have evaluated the effectiveness of the 
                issuer's internal controls as of a date within 90 days 
                prior to the report; and
                    (D) have presented in the report their conclusions 
                about the effectiveness of their internal controls 
                based on their evaluation as of that date;
            (5) the signing officers have disclosed to the issuer's 
        auditors and the audit committee of the board of directors (or 
        persons fulfilling the equivalent function)--
                    (A) all significant deficiencies in the design or 
                operation of internal controls which could adversely 
                affect the issuer's ability to record, process, 
                summarize, and report financial data and have 
                identified for the issuer's auditors any material 
                weaknesses in internal controls; and
                    (B) any fraud, whether or not material, that 
                involves management or other employees who have a 
                significant role in the issuer's internal controls; and
            (6) the signing officers have indicated in the report 
        whether or not there were significant changes in internal 
        controls or in other factors that could significantly affect 
        internal controls subsequent to the date of their evaluation, 
        including any corrective actions with regard to significant 
        deficiencies and material weaknesses.
    (b) Enforcement.--A violation by any person of this section, any 
rule or regulation of the Commission issued under this section, shall 
be treated for all purposes in the same manner as a violation of the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or the rules 
and regulations issued thereunder, consistent with the provisions of 
this section, and any such person shall be subject to the same 
penalties, and to the same extent, as for a violation of that Act or 
such rules or regulations.
    (c) Deadline.--The rules required by subsection (a) shall be 
effective not later than 30 days after the date of enactment of this 
Act.

SEC. 308. INCREASED COMPENSATION LIMIT NOT TO RESULT IN REDUCED 
              BENEFITS FOR THE NONHIGHLY COMPENSATED.

    (a) In General.--Paragraph (17) of section 401(a) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
subparagraph:
                    ``(C) Benefits may not decrease.--Subparagraphs (A) 
                and (B) shall be applied by substituting `$150,000' for 
                `$200,000' with respect to a plan for any year if any 
                employee's benefit under the plan would decrease were 
                the $200,000 amount used by the plan instead of the 
                $150,000 amount.''
    (b) Deduction Limitation.--Subsection (l) of section 404 of such 
Code is amended by adding at the end the following new sentence: ``The 
preceding sentences of this subsection shall be applied by substituting 
`$150,000' for `$200,000' with respect to a plan for any year if any 
employee's benefit under the plan would decrease were the $200,000 
amount used by the plan instead of the $150,000 amount.''
    (c) Simplified Employee Pensions.--Subsection (k) of section 408 of 
such Code is amended by redesignating paragraph (9) as paragraph (10) 
and by inserting after paragraph (8) the following new paragraph:
            ``(9) Lower compensation limitation if benefits decrease.--
        Paragraphs (3)(C) and (6)(D) shall be applied by substituting 
        `$150,000' for `$200,000' with respect to a plan for any year 
        if any employee's benefit under the plan would decrease were 
        the $200,000 amount used by the plan instead of the $150,000 
        amount.''
    (d) Certain Tax-Exempt Organizations.--Paragraph (7) of section 
505(b) of such Code is amended by adding at the end the following new 
sentence: ``The preceding sentences of this subsection shall be applied 
by substituting `$150,000' for `$200,000' with respect to a plan for 
any year if any employee's benefit under the plan would decrease were 
the $200,000 amount used by the plan instead of the $150,000 amount.''
    (e) Effective Date.--The amendments made by this section shall 
apply to years beginning after the date of the enactment of this Act.

SEC. 309. MATCHING CONTRIBUTIONS NOT TAKEN INTO ACCOUNT FOR MINIMUM 
              CONTRIBUTION REQUIREMENTS UNDER TOP-HEAVY PLAN RULES.

    (a) In General.--Subparagraph (A) of section 416(c)(2) of the 
Internal Revenue Code of 1986 is amended by striking the last sentence.
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after the date of the enactment of this Act.

TITLE IV--ASSURING THE INTEGRITY OF WALL STREET AND RESTORING FAITH IN 
                              THE MARKETS

Subtitle A--Improving Corporate Governance and Providing Investors with 
                           Honest Information

SEC. 401. REAL-TIME DISCLOSURE OF FINANCIAL INFORMATION.

    (a) Real-Time Issuer Disclosures Required.--
            (1) Obligations.--Every issuer of a security registered 
        under section 12 of the Securities Exchange Act of 1934 (15 
        U.S.C. 78l) shall file with the Commission and disclose to the 
        public, on a rapid and essentially contemporaneous basis, such 
        information concerning the financial condition or operations of 
        such issuer as the Commission determines by rule is necessary 
        in the public interest and for the protection of investors. 
        Such rule shall--
                    (A) specify the events or circumstances giving rise 
                to the obligation to disclose or update a disclosure;
                    (B) establish requirements regarding the rapidity 
                and timeliness of such disclosure;
                    (C) identify the means whereby the disclosure 
                required shall be made, which shall ensure the broad, 
                rapid, and accurate dissemination of the information to 
                the public via electronic or other communications 
                device;
                    (D) identify the content of the information to be 
                disclosed; and
                    (E) without limiting the Commission's general 
                exemptive authority, specify any exemptions or 
                exceptions from such requirements.
            (2) Enforcement.--The Commission shall have exclusive 
        authority to enforce this section and any rule or regulation 
        hereunder in civil proceedings.
    (b) Electronic Disclosure of Insider Transactions.--
            (1) Disclosures of trading.--The Commission shall, by rule, 
        require--
                    (A) that a disclosure required by section 16 of the 
                Securities Exchange Act of 1934 (15 U.S.C. 78p) of the 
                sale of any securities of an issuer, or any security 
                futures product (as defined in section 3(a)(56) of the 
                Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(56))) 
                or any security-based swap agreement (as defined in 
section 206B of the Gramm-Leach-Bliley Act) that is based in whole or 
in part on the securities of such issuer, by an officer or director of 
the issuer of those securities, or by a beneficial owner of such 
securities, shall be made available electronically to the Commission 
and to the issuer by such officer, director, or beneficial owner before 
the end of the next business day after the day on which the transaction 
occurs;
                    (B) that the information in such disclosure be made 
                available electronically to the public by the 
                Commission, to the extent permitted under applicable 
                law, upon receipt, but in no case later than the end of 
                the next business day after the day on which the 
                disclosure is received under subparagraph (A); and
                    (C) that, in any case in which the issuer maintains 
                a corporate website, such information shall be made 
                available by such issuer on that website, before the 
                end of the next business day after the day on which the 
                disclosure is received by the Commission under 
                subparagraph (A).
            (2) Transactions included.--The rule prescribed under 
        paragraph (1) shall require the disclosure of the following 
        transactions:
                    (A) Direct or indirect sales or other transfers of 
                securities of the issuer (or any interest therein) to 
                the issuer or an affiliate of the issuer.
                    (B) Loans or other extensions of credit extended to 
                an officer, director, or other person affiliated with 
                the issuer on terms or conditions not otherwise 
                available to the public.
            (3) Other formats; forms.--In the rule prescribed under 
        paragraph (1), the Commission shall provide that electronic 
        filing and disclosure shall be in lieu of any other format 
        required for such disclosures on the day before the date of 
        enactment of this subsection. The Commission shall revise such 
        forms and schedules required to be filed with the Commission 
        pursuant to paragraph (1) as necessary to facilitate such 
        electronic filing and disclosure.

SEC. 402. IMPROVED TRANSPARENCY OF CORPORATE DISCLOSURES.

    (a) Modification of Regulations Required.--The Commission shall 
revise its regulations under the securities laws pertaining to the 
disclosures required in periodic financial reports and registration 
statements to require such reports to include adequate and appropriate 
disclosure of--
            (1) the issuer's off-balance sheet transactions and 
        relationships with unconsolidated entities or other persons, to 
        the extent they are not disclosed in the financial statements 
        and are reasonably likely to materially affect the liquidity or 
        the availability of, or requirements for, capital resources, or 
        the financial condition or results of operations of the issuer; 
        and
            (2) loans extended to officers, directors, or other persons 
        affiliated with the issuer on terms or conditions that are not 
        otherwise available to the public.
    (b) Deadline for Rulemaking.--The Commission shall--
            (1) within 90 days after the date of enactment of this Act, 
        propose, and
            (2) within 270 days after such date, prescribe,
the revisions to its regulations required by subsection (a).
    (c) Analysis Required.--
            (1) Transparency, completeness, and usefulness of financial 
        statements.--The Commission shall conduct an analysis of the 
        extent to which, consistent with the protection of investors 
        and the public interest, disclosure of additional or 
        reorganized information may be required to improve the 
        transparency, completeness, or usefulness of financial 
        statements and other corporate disclosures filed under the 
        securities laws.
            (2) Alternatives to be considered.--In conducting the 
        analysis required by paragraph (1), the Commission shall 
        consider--
                    (A) requiring the identification of the key 
                accounting principles that are most important to the 
                issuer's reported financial condition and results of 
                operation, and that require management's most 
                difficult, subjective, or complex judgments;
                    (B) requiring an explanation, where material, of 
                how different available accounting principles applied, 
                the judgments made in their application, and the 
                likelihood of materially different reported results if 
                different assumptions or conditions were to prevail;
                    (C) in the case of any issuer engaged in the 
                business of trading non-exchange traded contracts, 
                requiring an explanation of such trading activities 
                when such activities require the issuer to account for 
                contracts at fair value, but for which a lack of market 
                price quotations necessitates the use of fair value 
                estimation techniques;
                    (D) establishing requirements relating to the 
                presentation of information in clear and understandable 
                format and language; and
                    (E) requiring such other disclosures, included in 
                the financial statements or in other disclosure by the 
                issuer, as would in the Commission's view improve the 
                transparency of such issuer's financial statements and 
                other required corporate disclosures.
            (3) Rules required.--If the Commission, on the basis of the 
        analysis required by this subsection, determines that it is 
        necessary in the public interest or for the protection of 
        investors and would improve the transparency of issuer 
        financial statements, the Commission may prescribe rules 
        reflecting the results of such analysis and the considerations 
        required by paragraph (2). In prescribing such rules, the 
        Commission may seek to minimize the paperwork and cost burden 
        on the issuer consistent with achieving the public interest and 
        investor protection purposes of such rules.

SEC. 403. IMPROVEMENTS IN REPORTING ON INSIDER TRANSACTIONS AND 
              RELATIONSHIPS.

    (a) Specific Objectives.--The Commission shall initiate a 
proceeding to propose changes in its rules and regulations with respect 
to financial reporting to improve the transparency and clarity of the 
information available to investors and to require increased financial 
disclosure with respect to the following:
            (1) Insider relationships and transactions.--Relationships 
        and transactions--
                    (A) between the issuer, affiliates of the issuer, 
                and officers, directors, or employees of the issuer or 
                such affiliates; and
                    (B) between officers, directors, employees, or 
                affiliates of the issuer and entities that are not 
                otherwise affiliated with the issuer,
        to the extent such arrangement or transaction creates a 
        conflict of interest for such persons. Such disclosure shall 
        provide a description of such elements of the transaction as 
        are necessary for an understanding of the business purpose and 
        economic substance of such transaction (including 
        contingencies). The disclosure shall provide sufficient 
        information to determine the effect on the issuer's financial 
        statements and describe compensation arrangements of interested 
        parties to such transactions.
            (2) Relationships with philanthropic organizations.--
        Relationships between the registrant or any executive officer 
        of the registrant and any not-for-profit organization on whose 
        board a director or immediate family member serves or of which 
        a director or immediate family member serves as an officer or 
        in a similar capacity. Relationships that shall be disclosed 
        include contributions to the organization in excess of $10,000 
        made by the registrant or any executive officer in the last 
        five years and any other activity undertaken by the registrant 
        or any executive officer that provides a material benefit to 
        the organization. Material benefit includes lobbying.
            (3) Insider-controlled affiliates.--Relationships in which 
        the registrant or any executive officer exercises significant 
        control over an entity in which a director or immediate family 
        member owns an equity interest or to which a director or 
        immediate family member has extended credit. Significant 
        control should be defined with reference to the contractual and 
        governance arrangements between the registrant or executive 
        officer, as the case may be, and the entity.
            (4) Joint ownership.--Joint ownership by a registrant or 
        executive officer and a director or immediate family member of 
        any real or personal property.
            (5) Provision of services by related persons.--The 
        provision of any professional services, including legal, 
        financial advisory or medical services, by a director or 
        immediate family member to any executive officer of the 
        registrant in the last five years.
    (b) Deadlines.--The Commission shall complete the rulemaking 
required by this section within 180 days after the date of enactment of 
this Act.

SEC. 404. ANALYST CONFLICTS OF INTEREST.

    Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) 
is amended--
            (1) in subsection (c), by adding at the end the following 
        new paragraph:
            ``(9) Analyst conflicts of interest.--
                    ``(A) Rules required.--Except as the Commission may 
                otherwise provide pursuant to section 36, no broker, 
                dealer, or person associated with a broker or dealer 
                shall violate such rules as the Commission shall 
                prescribe as necessary and appropriate in the public 
                interest and for the protection of investors to prevent 
                conflicts of interest in the preparation and rendering 
                of equity security analyst recommendations. Such rules 
                shall--
                            ``(i) prohibit equity research analysts 
                        from holding any beneficial interest in any 
                        equity security in any issuer covered by such 
                        analyst;
                            ``(ii) require a broker or dealer to 
                        include a legend on the first page of each 
                        equity security research report that investors 
                        should assume that the broker or dealer is 
                        seeking or will seek investment banking or 
                        other business from the company covered by such 
                        report (hereinafter in this paragraph referred 
                        to as the `covered company');
                            ``(iii) require a broker or dealer to 
                        include on each equity security research report 
                        a specific disclosure, on a percentage basis, 
                        of the aggregate distribution, calculated 
                        quarterly, of the intermediate-term rating 
                        category used by the broker or dealer for--
                                    ``(I) all stocks in the sector or 
                                industry group applicable to the 
                                covered company;
                                    ``(II) all stocks in the sector or 
                                industry group applicable to the 
                                covered company for which, over the 
                                prior 12 months, the broker or dealer 
                                performed services in publicly 
                                announced equity underwritings and 
                                merger and acquisition transactions for 
                                which compensation was received or to 
                                which the broker or dealer is entitled;
                                    ``(III) all stocks covered by the 
                                broker's or dealer's equity security 
                                research; and
                                    ``(IV) all stocks covered by the 
                                broker's or dealer's equity security 
                                research for which, over the prior 12 
                                months, the broker or dealer performed 
                                services in publicly announced equity 
                                security underwriting or merger and 
                                acquisition transactions for which 
                                compensation was received or to which 
                                the broker or dealer is entitled;
                            ``(iv) require a broker or dealer to 
                        separate completely the evaluation and 
                        determination of compensation for United 
                        States-based equity research analysts from the 
                        broker's or dealer's investment banking 
                        business by--
                                    ``(I) requiring that research 
                                analysts be compensated for only those 
                                activities and services intended to 
                                benefit the broker's or dealer's 
                                investor clients;
                                    ``(II) with respect to analyst 
                                compensation, requiring the broker or 
                                dealer to prohibit anyone responsible 
                                for determining research analysts' 
                                compensation from soliciting from any 
                                analyst, or considering in determining 
                                any analyst's compensation, either (aa) 
                                the amount of investment banking 
                                revenue received from clients covered 
                                by such analyst, or (bb) the analyst's 
                                participation in investment banking 
                                transactions, except to the extent such 
                                activities and services are intended to 
                                benefit investors, as specifically 
                                contemplated by subclause (I);
                                    ``(III) prohibiting research 
                                analysts from being evaluated by 
                                investment bankers for any work such 
                                analysts may do to generate investment 
                                banking business, including 
                                participation in investment banking 
                                client solicitations;
                                    ``(IV) prohibiting investment 
                                bankers from communicating with 
                                research analysts or with anyone 
                                responsible for determining analysts' 
                                compensation for the purpose of 
                                calculating or influencing an 
                                individual analyst's compensation; and
                                    ``(V) prohibiting consideration of 
                                any such input from investment bankers 
                                by anyone responsible for determining 
                                research analysts' compensation;
                            ``(v) require a broker or dealer to 
                        establish or designate a specific management 
                        structure to have responsibility for 
                        determining research analyst compensation and 
                        to evaluate analysts for compensation purposes 
                        based primarily upon--
                                    ``(I) quality of analysts' research 
                                and performance of their investment 
                                recommendations;
                                    ``(II) competitive compensation 
                                factors;
                                    ``(III) surveys and input from 
                                investor clients; and
                                    ``(IV) surveys and input from the 
                                broker's or dealer's institutional 
                                sales, equity trading, and private 
                                client divisions, but not from the 
                                investment banking division;
                            ``(vi) require a broker or dealer to 
                        establish or designate a specific management 
                        structure to supervise equity research 
                        recommendations for objectivity, integrity, and 
                        a rigorous analytical framework in the 
                        development of all recommendations;
                            ``(vii) require a broker or dealer to 
                        implement a system to monitor electronic 
                        communications between investment bankers and 
                        equity security research analysts;
                            ``(viii) require that equity security 
                        research analyst participation with investment 
                        bankers in solicitations for any potential 
                        investment banking transaction be approved in 
                        advance by the management structure established 
                        under clause (v) and be disclosed to the 
                        management structure established under clause 
                        (vi);
                            ``(ix) require that each equity security 
                        research report covering a particular company 
                        to disclose whether, within the prior 12 
                        months, any equity security research analyst 
                        covering such company has participated in a 
                        solicitation with or at the request of 
                        investment bankers for an investment banking 
                        transaction underwritten by the broker or 
                        dealer;
                            ``(x) prohibit equity security analysts, 
                        investment bankers, or any other employees of 
                        the broker or dealer from promising, implying, 
                        offering, or communicating in any way that a 
                        specific recommendation or change of an 
                        existing recommendation will be made in 
                        exchange for the awarding of an investment 
                        banking transaction to the broker or dealer;
                            ``(xi) prohibit equity security analysts 
                        from changing any research recommendation 
                        because of the subject company's decision not 
                        to retain the broker or dealers for investment 
                        banking services;
                            ``(xii) require that the materials used in 
                        connection with any solicitation for a public 
                        equity underwriting by the broker or dealer 
                        include a written disclosure that--
                                    ``(I) the broker or dealer 
                                prohibits employees from, directly or 
                                indirectly, offering a favorable 
                                research rating or specific price 
                                target, or offering to change a rating 
                                or price target to a subject company as 
                                consideration or inducement for the 
                                receipt of business or for 
                                compensation; and
                                    ``(II) equity security research 
                                analysts are prohibited from being 
                                compensated for involvement in 
                                investment banking transactions except 
                                to the extent that such participation 
                                is intended to benefit investor 
                                clients;
                            ``(xiii) require that, whenever a broker or 
                        dealer terminates coverage of any issuer, the 
                        broker or dealer publish a report disclosing--
                                    ``(I) the broker's or dealer's 
                                termination of coverage;
                                    ``(II) the rationale for the 
                                decision to terminate coverage; and
                                    ``(III) that, effective upon the 
                                termination of coverage, the last 
                                recommendation issued for the 
                                particular stock should not be relied 
                                upon going forward;
                            ``(xiv) require a broker or dealer to 
                        designate an employee or group of employees as 
                        a compliance monitor to ensure compliance with 
                        the policies required by this paragraph, and to 
                        be available to research analysts to address 
                        issues of actual or perceived undue influence 
                        or pressure from investment banking or any 
                        other source; and
                            ``(xv) otherwise prohibit conflicts of 
                        interest in the preparation or rendering of 
                        equity research analyst recommendations.
                    ``(B) Consultation.--The Commission shall consult 
                periodically the securities commissions (or any agency 
                or office performing like functions) of the States 
                concerning the adequacy of the requirements established 
                under this paragraph.''.

SEC. 405. INDEPENDENT DIRECTORS AND OTHER CORPORATE GOVERNANCE 
              REQUIREMENTS.

    (a) In General.--The Securities and Exchange Commission shall by 
rule require each national securities exchange and national securities 
association to adopt rules, effective no later than 6 months after the 
date of enactment of this Act, to require that the qualitative listing 
standards concerning corporate governance of the exchange or 
association require that an issuer meet the following requirements:
            (1) Independent directors.--
                    (A) Majority requirement.--An issuer shall have a 
                majority of independent directors.
                    (B) Qualification as independent director.--
                            (i) No director may qualify as an 
                        independent director unless the board of 
                        directors affirmatively determines that the 
                        director has no material relationship with the 
                        issuer, either directly or as a partner, 
                        shareholder, or officer of an organization that 
                        has a close relationship with the issuer.
                            (ii) No director who is a former employee 
                        of the issuer may qualify as an independent 
                        director until 5 years after the employment has 
                        ended.
                            (iii) No director who is, or in the past 5 
                        years has been, affiliated with or employed by 
                        a present or former auditor of the issuer (or 
                        of an affiliate) may qualify as an independent 
                        director until 5 years after the end of either 
                        the affiliation, the employment, or the 
                        auditing relationship.
                            (iv) No director may qualify as an 
                        independent director if such director is, or in 
                        the past 5 years has been, part of an 
                        interlocking directorate in which an executive 
                        officer of the issuer serves on the 
                        compensation committee of another company that 
                        employs the director.
                            (v) No director may qualify as an 
                        independent director if an immediate family 
                        member of such director would not qualify as an 
                        independent director under clauses (i) through 
                        (iv).
            (2) Non-management directors.--The non-management directors 
        of an issuer shall meet at regularly scheduled executive 
        sessions without management, and such directors shall be 
        required to designate who will preside at such sessions.
            (3) Nominating and corporate governance committee.--
                    (A) In general.--An issuer shall have a nominating 
                and corporate governance committee composed entirely of 
                independent directors.
                    (B) Written charter.--The nominating and corporate 
                governance committee shall have a written charter that 
                specifies--
                            (i) the committee's purpose, which, at 
                        minimum, shall be to identify individuals 
                        qualified to become board members, and to 
                        select, or to recommend that the board select, 
                        the director nominees for the next annual 
                        meeting of shareholders, and to develop and 
                        recommend to the board a set of corporate 
                        governance principles applicable to the issuer;
                            (ii) the committee's goals and 
                        responsibilities, which shall reflect, at 
                        minimum, the board's criteria for selecting new 
                        directors, and oversight of the evaluation of 
                        the board and management; and
                            (iii) the criteria for an annual 
                        performance evaluation of the committee.
            (4) Compensation committee.--
                    (A) In general.--An issuer shall have a 
                compensation committee composed entirely of independent 
                directors.
                    (B) Written charter.--The compensation committee 
                shall have a written charter that specifies--
                            (i) the committee's purpose, which, at 
                        minimum, shall be to discharge the board's 
                        responsibilities relating to compensation of 
                        the issuer's executives, and to produce an 
                        annual report on executive compensation for 
                        inclusion in the issuer's proxy statement, in 
                        accordance with applicable rules and 
                        regulations;
                            (ii) the committee's duties and 
                        responsibilities, which, at minimum, shall be 
                        to review and improve corporate goals and 
                        objectives relevant to executive compensation, 
                        evaluate the executives' performance in light 
                        of these goals and objectives, and set the 
                        executive compensation level based on this 
                        evaluation, and to make recommendations to the 
                        board with respect to incentive-compensation 
                        plans and equity-based plans; and
                            (iii) the criteria for an annual 
                        performance evaluation of the compensation 
                        committee.
            (5) Independence requirements for membership on audit 
        committee.--An issuer shall implement the following additional 
        requirements regarding audit committees:
                    (A) Director's fees shall be the only compensation 
                that an audit committee member may receive from the 
                issuer.
                    (B) A director who is an independent director 
                within the requirements of paragraph (1), but who also 
                holds 20 percent or more of an issuer's stock, or who 
                is general partner, controlling shareholder, or officer 
                of any such holder, shall not chair, or be a voting 
                member of, the audit committee.
                    (C) The audit committee chair shall have accounting 
                or related financial management expertise.
            (6) Increased authority and written charter of audit 
        committee.--An issuer shall grant to the audit committee the 
        sole authority to hire and fire independent auditors, and shall 
        approve any significant non-audit relationship of the issuer 
        with the independent auditors. The audit committee shall have a 
        written charter that specifies--
                    (A) the committee's purpose, which, at minimum, 
                shall be--
                            (i) to assist board oversight of--
                                    (I) the integrity of the issuer's 
                                financial statements;
                                    (II) the issuer's compliance with 
                                legal and regulatory requirements;
                                    (III) the independent auditor's 
                                qualifications and independence; and
                                    (IV) audit function and independent 
                                auditors; and
                            (ii) to prepare the report that the 
                        Commission's rules require be included in the 
                        issuer's annual proxy statement;
                    (B) the duties and responsibilities of the audit 
                committee, which, at minimum, shall be--
                            (i) to retain and terminate the issuer's 
                        independent auditors;
                            (ii) to obtain and review, on an annual 
                        basis, a report by the independent auditor 
                        describing the firm's internal quality control 
                        standards and any material issues raised by the 
                        most recent internal quality control review, or 
                        peer review, of the firm, or by any inquiry or 
                        investigation by governmental or professional 
                        authorities, within the preceding 5 years, 
                        respecting one or more independent audits 
                        carried out by the firm, and any steps to be 
                        taken to deal with any such issues;
                            (iii) to examine all relationships between 
                        the independent auditor and the issuer in order 
                        to assess the auditor's independence;
                            (iv) to discuss the audited financial 
                        statements and quarterly financial statements 
                        with management and the independent auditor;
                            (v) to discuss earnings press releases, as 
                        well as financial information and earnings 
                        guidance provided to analysts and rating 
                        agencies;
                            (vi) to discuss policies with respect to 
                        risk assessment and risk management;
                            (vii) to meet separately, on at least a 
                        quarterly basis, with management, with internal 
                        auditors, and with independent auditors;
                            (viii) to review with the independent 
                        auditor any audit problems or difficulties and 
                        management's response;
                            (ix) to set clear hiring policies for 
                        employees or former employees of the 
                        independent auditors; and
                            (x) to report regularly to the board of 
                        directors on the performance of the duties and 
                        responsibilities of the committee as outlined 
                        in this subparagraph; and
                    (C) the criteria for an annual performance 
                evaluation of the audit committee.
            (7) Shareholder control of equity-compensation plans.--An 
        issuer shall provide shareholders of the issuer the opportunity 
        to vote on all equity-compensation plans.
            (8) Corporate governance guidelines.--An issuer shall adopt 
        and disclose its corporate governance guidelines. Such 
        corporate governance guidelines shall specify--
                    (A) director qualification standards;
                    (B) director responsibilities;
                    (C) director access to management and independent 
                advisers;
                    (D) director compensation;
                    (E) director orientation and continuing education;
                    (F) management succession; and
                    (G) annual performance evaluation of the board.
            (9) Code of business conduct and ethics standards.--An 
        issuer shall adopt and disclose a code of business conduct and 
        ethics standards for directors, officers, and employees which, 
        at minimum, includes standards on--
                    (A) conflicts of interest;
                    (B) use of corporate property, information, or 
                position for personal gain;
                    (C) confidentiality;
                    (D) issues of fair dealing with the issuer's 
                customers, suppliers, competitors, and employees;
                    (E) protection and proper use of the issuer's 
                assets;
                    (F) compliance with laws, rules, and regulations 
                (including insider trading laws); and
                    (G) methods of encouraging the reporting of any 
                illegal or unethical behavior.

 Subtitle B--Strengthening Auditor Independence and Industry Oversight

                    Chapter 1--Auditor Independence

SEC. 411. SERVICES OUTSIDE THE SCOPE OF PRACTICE OF AUDITORS.

    (a) Prohibited Activities.--Section 10A of the Securities Exchange 
Act of 1934 (15 U.S.C. 78j-1) is amended by adding at the end the 
following:
    ``(g) Prohibited Activities.--It shall be unlawful for a registered 
public accounting firm (and any associated person of that firm, to the 
extent determined appropriate by the Commission) that performs for any 
issuer any audit required by this title or the rules of the Commission 
under this title or the rules of the public regulatory organization 
established under section 421, to provide to that issuer, 
contemporaneously with the audit, any non-audit service, including--
            ``(1) bookkeeping or other services related to the 
        accounting records or financial statements of the audit client;
            ``(2) financial information systems design and 
        implementation;
            ``(3) appraisal or valuation services, fairness opinions, 
        or contribution-in-kind reports;
            ``(4) actuarial services;
            ``(5) internal audit outsourcing services;
            ``(6) management functions or human resources;
            ``(7) broker or dealer, investment adviser, or investment 
        banking services;
            ``(8) legal services and expert services unrelated to the 
        audit; and
            ``(9) any other service that the public regulatory 
        organization established under section 421 determines, by 
        regulation, is impermissible.
    ``(h) Preapproval Required for Non-Audit Services.--A registered 
public accounting firm may engage in any non-audit service, including 
tax services, that is not described in any of paragraphs (1) through 
(9) of subsection (g) for an audit client, only if the activity is 
approved in advance by the audit committee of the issuer, in accordance 
with subsection (i).''.
    (b) Exemption Authority.--The public regulatory organization 
established under section 421 may, on a case by case basis, exempt any 
person, issuer, public accounting firm, or transaction from the 
prohibition on the provision of services under section 10A(g) of the 
Securities Exchange Act of 1934 (as added by this section), to the 
extent that such exemption is necessary or appropriate in the public 
interest and is consistent with the protection of investors, and 
subject to review by the Commission in the same manner as for rules of 
the public regulatory organization established under section 421 under 
section 107.

SEC. 412. PREAPPROVAL REQUIREMENTS.

    Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the 
following:
    ``(i) Preapproval Requirements.--
            ``(1) In general.--
                    ``(A) Audit committee action.--All auditing 
                services (which may entail providing comfort letters in 
                connection with securities underwritings) and non-audit 
                services, other than as provided in subparagraph (B), 
                provided to an issuer by the auditor of the issuer 
                shall be preapproved by the audit committee of the 
issuer.
                    ``(B) De minimus exception.--The preapproval 
                requirement under subparagraph (A) is waived with 
                respect to the provision of non-audit services for an 
                issuer, if--
                            ``(i) the aggregate amount of all such non-
                        audit services provided to the issuer 
                        constitutes not more than 5 percent of the 
                        total amount of revenues paid by the issuer to 
                        its auditor;
                            ``(ii) such services were not recognized by 
                        the issuer at the time of the engagement to be 
                        non-audit services; and
                            ``(iii) such services are promptly brought 
                        to the attention of the audit committee of the 
                        issuer and approved by the audit committee 
                        prior to the completion of the audit, by 1 or 
                        more members of the audit committee who are 
                        members of the board of directors to whom 
                        authority to grant such approvals has been 
                        delegated by the audit committee.
            ``(2) Disclosure to investors.--Approval by an audit 
        committee of an issuer under this subsection of a non-audit 
        service to be performed by the auditor of the issuer shall be 
        disclosed to investors in periodic reports required by section 
        13(a).
            ``(3) Delegation authority.--The audit committee of an 
        issuer may delegate to 1 or more designated members of the 
        audit committee who are independent directors of the board of 
        directors, the authority to grant preapprovals required by this 
        subsection. The decisions of any member to whom authority is 
        delegated under this paragraph to preapprove an activity under 
        this subsection shall be presented to the full audit committee 
        at each of its scheduled meetings.
            ``(4) Approval of audit services for other purposes.--In 
        carrying out its duties under subsection (m)(2), if the audit 
        committee of an issuer approves an audit service within the 
        scope of the engagement of the auditor, such audit service 
        shall be deemed to have been preapproved for purposes of this 
        subsection.''.

SEC. 413. AUDIT PARTNER ROTATION.

    Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the 
following:
    ``(j) Audit Partner Rotation.--It shall be unlawful for a 
registered public accounting firm to provide audit services to an 
issuer if the lead audit partner (having primary responsibility for the 
audit) or the audit partner responsible for reviewing the audit that is 
assigned to perform those audit services has performed audit services 
for that issuer in each of the 5 previous fiscal years of that 
issuer.''.

SEC. 414. AUDITOR REPORTS TO AUDIT COMMITTEES.

    Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the 
following:
    ``(k) Reports to Audit Committees.--Each registered public 
accounting firm that performs for any issuer any audit required by this 
title shall timely report to the audit committee of the issuer--
            ``(1) all critical accounting policies and practices to be 
        used;
            ``(2) all alternative treatments of financial information 
        within generally accepted accounting principles that have been 
        discussed with management officials of the issuer, 
        ramifications of the use of such alternative disclosures and 
        treatments, and the treatment preferred by the registered 
        public accounting firm; and
            ``(3) other material written communications between the 
        registered public accounting firm and the management of the 
        issuer, such as any management letter or schedule of unadjusted 
        differences.''.

SEC. 415. CONFORMING AMENDMENTS.

    (a) Definitions.--Section 3(a) of the Securities Exchange Act of 
1934 (15 U.S.C. 78c(a)) is amended by adding at the end the following:
            ``(58) Audit committee.--The term `audit committee' means--
                    ``(A) a committee (or equivalent body) established 
                by and amongst the board of directors of an issuer for 
                the purpose of overseeing the accounting and financial 
                reporting processes of the issuer and audits of the 
                financial statements of the issuer; and
                    ``(B) if no such committee exists with respect to 
                an issuer, the entire board of directors of the issuer.
            ``(59) Registered public accounting firm.--The term 
        `registered public accounting firm' has the same meaning as in 
        section 3 of the Public Company Accounting Reform and Investor 
        Protection Act of 2002.''.
    (b) Auditor Requirements.--Section 10A of the Securities Exchange 
Act of 1934 (15 U.S.C. 78j-1) is amended--
            (1) by striking ``an independent public accountant'' each 
        place that term appears and inserting ``a registered public 
        accounting firm'';
            (2) by striking ``the independent public accountant'' each 
        place that term appears and inserting ``the registered public 
        accounting firm'';
            (3) in subsection (c), by striking ``No independent public 
        accountant'' and inserting ``No registered public accounting 
        firm''; and
            (4) in subsection (b)--
                    (A) by striking ``the accountant'' each place that 
                term appears and inserting ``the firm'';
                    (B) by striking ``such accountant'' each place that 
                term appears and inserting ``such firm''; and
                    (C) in paragraph (4), by striking ``the 
                accountant's report'' and inserting ``the report of the 
                firm''.
    (c) Other References.--The Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.) is amended--
            (1) in section 12(b)(1) (15 U.S.C. 78l(b)(1)), by striking 
        ``independent public accountants'' each place that term appears 
        and inserting ``a registered public accounting firm''; and
            (2) in subsections (e) and (i) of section 17 (15 U.S.C. 
        78q), by striking ``an independent public accountant'' each 
        place that term appears and inserting ``a registered public 
        accounting firm''.

SEC. 416. CONFLICTS OF INTEREST.

    Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-
1), as amended by this Act, is amended by adding at the end the 
following:
    ``(l) Conflicts of Interest.--It shall be unlawful for a registered 
public accounting firm to perform for an issuer any audit service 
required by this title, if a chief executive officer, controller, chief 
financial officer, chief accounting officer or any person serving in an 
equivalent position for the issuer was employed by that registered 
independent public accounting firm and participated in any capacity in 
the audit of that issuer during the 1-year period preceding the date of 
the initiation of the audit.''.

SEC. 417. STUDY OF MANDATORY ROTATION OF REGISTERED PUBLIC ACCOUNTING 
              FIRMS.

    (a) Study and Review Required.--The Comptroller General of the 
United States shall conduct a study and review of the potential effects 
of requiring the mandatory rotation of registered public accounting 
firms.
    (b) Report Required.--Not later than 1 year after the date of 
enactment of this Act, the Comptroller General shall submit a report to 
the Committee on Banking, Housing, and Urban Affairs of the Senate and 
the Committee on Financial Services of the House of Representatives on 
the results of the study and review required by this section.
    (c) Definition.--For purposes of this section, the term ``mandatory 
rotation'' refers to the imposition of a limit on the period of years 
in which a particular registered public accounting firm may be the 
auditor of record for a particular issuer.

SEC. 418. COMMISSION AUTHORITY.

    (a) Commission Regulations.--Not later than 180 days after the date 
of enactment of this Act, the Commission shall issue final regulations 
to carry out each of subsections (g) through (l) of section 10A of the 
Securities Exchange Act of 1934, as added by this title.
    (b) Auditor Independence.--It shall be unlawful for any registered 
public accounting firm (or an associated person thereof, as applicable) 
to prepare or issue any audit report with respect to any issuer, if the 
firm or associated person engages in any activity with respect to that 
issuer prohibited by any of subsections (g) through (l) of section 10A 
of the Securities Exchange Act of 1934, as added by this title, or any 
rule or regulation of the Commission or of the public regulatory 
organization established under section 421 issued thereunder.

SEC. 419. CONSIDERATIONS BY APPROPRIATE STATE REGULATORY AUTHORITIES.

    It is the intention of this Act that, in supervising nonregistered 
public accounting firms and their associated persons, appropriate State 
regulatory authorities should make an independent determination of the 
proper standards applicable, particularly taking into consideration the 
size and nature of the business of the accounting firms they supervise. 
The standards applied by the public regulatory organization established 
under section 421 under this Act should not be presumed to be 
applicable for purposes of this section for small- and medium-sized 
nonregistered public accounting firms.

                     Chapter 2--Industry Oversight

SEC. 421. AUDITOR OVERSIGHT.

    (a) Certified Financial Statement Requirements.--If a financial 
statement is required by the securities laws or any rule or regulation 
thereunder to be certified by an independent public or certified 
accountant, an accountant shall not be considered to be qualified to 
certify such financial statement, and the Securities and Exchange 
Commission shall not accept a financial statement certified by an 
accountant, unless such accountant--
            (1) is subject to a system of review by a public regulatory 
        organization that complies with the requirements of this 
        section and the rules prescribed by the Commission under this 
        section; and
            (2) has not been determined in the most recent review 
        completed under such system to be not qualified to certify such 
        a statement.
    (b) Establishment of PRO.--
            (1) Establishment required.--Not later than 90 days after 
        the date of enactment of this section, the Commission shall 
        establish a public regulatory organization to perform the 
        duties set forth in this section.
            (2) Chairman.--The Chairman of the public regulatory 
        organization shall be appointed by the Commission for a term of 
        5 years.
            (3) Appointment of public regulatory organization 
        members.--There shall be 6 additional public regulatory 
        organization members, who shall be selected jointly by the 
        Chairman of the public regulatory organization and the Chairman 
        of the Commission.
            (4) Accountant members.--Up to 2 of the members may be 
        present or former certified public accountants, provided such 
        members--
                    (A) are not currently in public practices;
                    (B) have not been a person associated with a public 
                accounting firm for a period of at least 3 years; and
                    (C) agree to not be a person associated with a 
                public accounting firm or to receive consulting fees 
                from a public accounting firm for a period of 5 years 
                after leaving the public regulatory organization.
            (5) Nominations.--In making appointments of members, the 
        Chairman of the public regulatory organization and the Chairman 
        of the Commission shall consult with, and make appointments 
        from nominations received from--
                    (A) institutional investors;
                    (B) public employee pension plans;
                    (C) pension plans organized pursuant to the 
                Employee Retirement Income Security Act of 1974; and
                    (D) pension plans organized pursuant to the Taft-
                Hartley Act.
            (6) Terms.--The members of the public regulatory 
        organization shall have terms of 4 years, except that the 
        Chairman of the public regulatory organization and the Chairman 
        of the Commission shall adopt procedures for staggering the 
        initial terms of the members first so appointed to provide for 
        a reasonable overlapping of the terms of office of subsequently 
        elected members.
            (7) Full-time basis.--The members of the public regulatory 
        organization shall serve on a full-time basis, severing all 
        business ties with former firms or employers prior to beginning 
        service on the public regulatory organization.
            (8) Rules.--Following selection of the initial members of 
        the public regulatory organization, the public regulatory 
        organization shall propose and adopt rules, which shall provide 
        for--
                    (A) the operation and administration of the public 
                regulatory organization, including the compensation of 
                the members of the public regulatory organization, 
                which shall be at a level comparable to similar 
                professional positions in the private sector;
                    (B) the appointment and compensation of such 
                employees, attorneys, and consultants as may be 
                necessary or appropriate to carry out the public 
                regulatory organization's functions under this section;
                    (C) the registration of public accounting firms 
                with the public regulatory organization pursuant to 
                subsection (c); and
                    (D) the matters described in subsections (d) and 
                (e).
            (9) Funding of the public regulatory organization.--
                    (A) Self-financing.--The public regulatory 
                organization shall establish rules for the assessment 
                and collection of fees sufficient to recover the costs 
                and expenses of the public regulatory organization and 
                to permit the public regulatory organization to operate 
                on a self-financing basis.
                    (B) Assessment and collection.--The fees shall be 
                assessed on issuers that file any financial statements, 
                reports, or other documents with the Commission under 
                the securities laws that must be certified by a public 
                accounting firm. The fees shall be collected through 
                the public accounting firm that certifies such 
                statement, report, or document.
                    (C) Payment a condition of registration.--The 
                public regulatory organization shall terminate or 
                suspend the registration under subsection (c) of any 
                public accounting firm that fails to collect and 
                transmit a fee assessed under this subsection.
    (c) Registration With Public Regulatory Organization.--
            (1) Registration required.--Beginning 1 year after the date 
        on which all initial members of the public regulatory 
        organization have been selected in accordance with subsection 
        (b), it shall be unlawful for a public accounting firm to 
        furnish an accountant's report on any financial statement, 
        report, or other document required to be filed with the 
        Commission under any Federal securities law, unless such firm 
        is registered with the public regulatory organization.
            (2) Application for registration.--A public accounting firm 
        may be registered under this subsection by filing with the 
        public regulatory organization an application for registration 
        in such form and containing such information as the public 
        regulatory organization, by rule, may prescribe. Each 
        application shall include--
                    (A) the names of all clients of the public 
                accounting firm for which the firm furnishes 
                accountant's reports on financial statements, reports, 
                or other documents filed with the Commission;
                    (B) financial information of the public accounting 
                firm for its most recent fiscal year, including its 
                annual revenues from accounting and auditing services, 
                its assets, and its liabilities;
                    (C) a statement of the public accounting firm's 
                policies and procedures with respect to quality control 
                of its accounting and auditing practice;
                    (D) information relating to criminal, civil, or 
                administrative actions or formal disciplinary 
                proceedings pending against such firm, or any person 
                associated with such firm, in connection with an 
                accountant's report furnished by such firm;
                    (E) a list of persons associated with the public 
                accounting firm who are certified public accountants, 
                including any State professional license or 
                certification number for each such person; and
                    (F) such other information that is reasonably 
                related to the public regulatory organization's 
                responsibilities as the public regulatory organization 
                considers necessary or appropriate.
            (3) Periodic reports.--Once in each year, or more 
        frequently as the public regulatory organization, by rule, may 
        prescribe, each public accounting firm registered with the 
        public regulatory organization shall submit reports to the 
        public regulatory organization updating the information 
        contained in its application for registration and containing 
        such additional information that is reasonably related to the 
        public regulatory organization's responsibilities as the public 
        regulatory organization, by rule, may prescribe.
            (4) Exemptions.--The Commission, by rule or order, upon its 
        own motion or upon application, may conditionally or 
        unconditionally exempt any public accounting firm or any 
        accountant's report, or any class of public accounting firms or 
        any class of accountant's reports, from any provisions of this 
        section or the rules or regulations issued hereunder, if the 
        Commission finds that such exemption is consistent with the 
        public interest, the protection of investors, and the purposes 
        of this section.
            (5) Confidentiality.--The public regulatory organization 
        may, by rule, designate portions of the filings required 
        pursuant to paragraphs (2) and (3) as privileged and 
        confidential. This paragraph shall be considered to be a 
        statute described in section 552(b)(3)(B) of title 5, United 
        States Code, for purposes of that section 552.
    (d) Duties Regarding Quality Control.--
            (1) Objectives; attainment.--The public regulatory 
        organization shall seek to promote a high level of professional 
        conduct among public accounting firms registered with the 
        public regulatory organization, to improve the quality of audit 
        services provided by such firms, and, in general, to protect 
        investors and promote the public interest. The public 
        regulatory organization shall attain these objectives--
                    (A) by establishing standards regarding the 
                performance of financial audits in accordance with the 
                requirements of paragraph (2);
                    (B) by the direct performance of quality reviews 
                and inspections of audits in accordance with the 
                requirements of paragraphs (3) and (4); and
                    (C) by the supervision and oversight of peer review 
                organizations in accordance with the requirements of 
                paragraph (5).
            (2) Audit quality standards.--
                    (A) In general.--The public regulatory organization 
                shall, by rule, establish quality standards applicable 
                to the conduct of audit services provided by public 
                accounting firms. Such standards shall include--
                            (i) independence standards;
                            (ii) quality control standards;
                            (iii) professional and ethical standards; 
                        and
                            (iv) such other standards as the public 
                        regulatory organization determines to be 
                        necessary to carry out the objectives specified 
                        in paragraph (1).
                    (B) Specific contents of standards.--In 
                establishing the quality standards required by 
                subparagraph (A), the public regulatory organization 
                shall also establish--
                            (i) procedures for the monitoring by public 
                        accounting firms of their compliance with 
                        professional ethical standards established by 
                        the public regulatory organization, including 
                        its independence from its audit clients;
                            (ii) procedures for the assignment of 
                        personnel to audit engagements;
                            (iii) procedures for consultation within a 
                        public accounting firm or with other 
                        accountants relating to accounting and auditing 
                        questions;
                            (iv) procedures for the supervision of 
                        audit work;
                            (v) procedures for the review of decisions 
                        to accept and retain audit clients;
                            (vi) procedures for the internal inspection 
                        of the public accounting firms own compliance 
                        with such policies and procedures;
                            (vii) requirements for public accounting 
                        firms to prepare and maintain for a period of 
                        no less than 7 years, audit work papers and 
                        other information related to any audit report, 
                        in sufficient detail to support the conclusions 
                        reached in an audit report issued by a public 
                        accounting firm; and
                            (viii) procedures establishing 
                        ``concurring'' or ``second'' partner review 
                        systems for the evaluation and review of audit 
                        work by a partner that is not in charge of the 
                        conduct of the audit.
            (3) Direct reviews of public accounting firms.--The public 
        regulatory organization shall, by rule, establish procedures 
        for the conduct of a continuing program of inspections of each 
        public accounting firm registered with the public regulatory 
        organization to assess compliance by such firm, and by persons 
        associated with such firm, with applicable provisions of this 
        title, the securities laws, the rules and regulations 
        thereunder, the rules adopted by the public regulatory 
        organization, and professional standards. Except as provided in 
        paragraph (5), the public regulatory organization shall 
        annually inspect each public accounting firm that audits more 
        than 100 issuers on an ongoing annual basis, to the extent 
        practicable, and all other public accounting firms no less than 
        at least once every 3 years. In conducting such inspections, 
        the public regulatory organization shall, among other things, 
        inspect selected audit and review engagements. The review shall 
        include evaluations of the firm's quality control procedures 
        and compliance with all legal and ethical requirements. In 
        connection with each review, the public regulatory organization 
        shall prepare a report of its findings and such report, 
        accompanied by any letter of comments by the public regulatory 
        organization or reviewer and any letter of response from the 
        firm under review, shall be made available to the public. The 
        public regulatory organization shall take any appropriate 
        disciplinary or remedial action based on its findings after 
        completion of such review and an opportunity for a hearing.
            (4) Quality review of individual audits.--The public 
        regulatory organization shall, by rule, establish procedures 
        for the conduct of direct inspection and review of individual 
        audits of issuers and standards under which it will evaluate 
        audit service quality. A finding by the public regulatory 
        organization that an individual audit of an issuer did or did 
        not meet the standards of the public regulatory organization 
        with respect to the quality of the audit shall not be construed 
        in any action arising out of the securities laws as indicative 
        of compliance or noncompliance with the securities laws or with 
        any standard of liability arising thereunder.
            (5) Use of professional peer review organizations.--
                    (A) Option to utilize peer review organizations.--
                The public regulatory organization may, by rule, 
                establish requirements for the use of peer review 
                organizations for the purposes of conducting the 
                continuing program of inspections to assess compliance 
                as required by paragraph (3) of each public accounting 
                firm registered with the public regulatory 
                organization. Such rule shall provide for appropriate 
                oversight and supervision of such peer review 
                organization by the public regulatory organization to 
                ensure that such inspections meet the requirements of 
                such paragraph.
                    (B) Penalties.--If the public regulatory 
                organization establishes requirements for the conduct 
                of peer reviews under subparagraph (A), the violation 
                by a public accounting firm or a person associated with 
                such a firm of a rule of the peer review organization 
                to which the firm belongs shall constitute grounds 
                for--
                            (i) the imposition of disciplinary 
                        sanctions by the public regulatory organization 
                        pursuant to subsection (e); and
                            (ii) denial to the public accounting firm 
                        or person associated with such firm of the 
                        privilege of appearing or practicing before the 
                        Commission.
            (6) Confidentiality.--Except as otherwise provided by this 
        section, all reports, memoranda, and other information provided 
        to the public regulatory organization solely for purposes of 
        paragraph (3) or (4), or to a peer review organization 
        certified by the public regulatory organization, shall be 
        confidential, unless such confidentiality is expressly waived 
        by the person or entity that created or provided the 
        information.
    (e) Disciplinary Duties of Public Regulatory Organization.--The 
public regulatory organization shall have the following duties and 
powers:
            (1) Investigations and disciplinary proceedings.--The 
        public regulatory organization shall establish fair procedures 
        for investigating and disciplining public accounting firms 
        registered with the public regulatory organization, and persons 
        associated with such firms, for violations of the Federal 
        securities laws, the rules or regulations issued thereunder, 
        the rules adopted by the public regulatory organization, or 
        professional standards in connection with the preparation of an 
        accountant's report on a financial statement, report, or other 
        document filed with the Commission.
            (2) Investigation procedures.--
                    (A) In general.--The public regulatory organization 
                may conduct an investigation of any act, practice, or 
                omission by a public accounting firm registered with 
                the public regulatory organization, or by any person 
                associated with such firm, in connection with the 
                preparation of an accountant's report on a financial 
                statement, report, or other document filed with the 
                Commission that may violate any applicable provision of 
                the Federal securities laws, the rules and regulations 
                issued thereunder, the rules adopted by the public 
                regulatory organization, or professional standards, 
                whether such act, practice, or omission is the subject 
                of a criminal, civil, or administrative action, or a 
                disciplinary proceeding, or otherwise is brought to the 
                attention of the public regulatory organization.
                    (B) Powers of public regulatory organization.--For 
                purposes of an investigation under this paragraph, the 
                public regulatory organization may, in addition to such 
                other actions as the public regulatory organization 
                determines to be necessary or appropriate--
                            (i) require the testimony of any person 
                        associated with a public accounting firm 
                        registered with the public regulatory 
                        organization, with respect to any matter which 
                        the public regulatory organization considers 
                        relevant or material to the investigation;
                            (ii) require the production of audit 
                        workpapers and any other document or 
                        information in the possession of a public 
                        accounting firm registered with the public 
                        regulatory organization, or any person 
                        associated with such firm, wherever domiciled, 
                        that the public regulatory organization 
                        considers relevant or material to the 
                        investigation, and may examine the books and 
                        records of such firm to verify the accuracy of 
                        any documents or information so supplied; and
                            (iii) request the testimony of any person 
                        and the production of any document in the 
                        possession of any person, including a client of 
                        a public accounting firm registered with the 
                        public regulatory organization, that the public 
                        regulatory organization considers relevant or 
                        material to the investigation.
                    (C) Suspension or revocation of registration for 
                noncompliance.--The refusal of any person associated 
                with a public accounting firm registered with the 
                public regulatory organization to testify, or the 
                refusal of any such person to produce documents or 
                otherwise cooperate with the public regulatory 
                organization, in connection with an investigation or 
                hearing under this section, shall be cause for 
                suspending or barring such person from associating with 
                a public accounting firm registered with the public 
                regulatory organization, or such other appropriate 
                sanction authorized by paragraph (3)(B) as the public 
                regulatory organization shall determine. The refusal of 
                any public accounting firm registered with the public 
                regulatory organization to produce documents or 
                otherwise cooperate with the public regulatory 
                organization, in connection with an investigation or 
                hearing under this section, shall be cause for the 
                suspension or revocation of the registration of such 
                firm, or such other appropriate sanction authorized by 
                paragraph (3)(B) as the public regulatory organization 
                shall determine.
                    (D) Referral to commission.--
                            (i) In general.--If the public regulatory 
                        organization is unable to conduct or complete 
                        an investigation or hearing under this section 
                        because of the refusal of any client of a 
                        public accounting firm registered with the 
                        public regulatory organization, or any other 
                        person, to testify, produce documents, or 
                        otherwise cooperate with the public regulatory 
                        organization in connection with such 
                        investigation, the public regulatory 
                        organization shall report such refusal to the 
                        Commission.
                            (ii) Investigation.--The Commission may 
                        designate the public regulatory organization or 
                        one or more officers of the public regulatory 
                        organization who shall be empowered, in 
                        accordance with such procedures as the 
                        Commission may adopt, to subpoena witnesses, 
                        compel their attendance, and require the 
                        production of any books, papers, 
                        correspondence, memoranda, or other records 
                        relevant to any investigation by the public 
                        regulatory organization. Attendance of 
                        witnesses and the production of any records may 
                        be required from any place in the United States 
                        or any State at any designated place of 
                        hearing. Enforcement of a subpoena issued by 
                        the public regulatory organization, or an 
                        officer of the public regulatory organization, 
                        pursuant to this subparagraph shall occur in 
                        the manner provided for in section 21(c) of the 
                        Securities Exchange Act of 1934 (15 U.S.C. 
                        78u(c)). Examination of witnesses subpoenaed 
                        pursuant to this subparagraph shall be 
                        conducted before an officer authorized to 
                        administer oaths by the laws of the United 
                        States or of the place where the examination is 
                        held.
                            (iii) Referrals to commission.--The public 
                        regulatory organization may refer any 
                        investigation to the Commission, as the public 
                        regulatory organization deems appropriate.
                    (E) Immunity from civil liability.--An employee of 
                the public regulatory organization engaged in carrying 
                out an investigation or disciplinary proceeding under 
                this section shall be immune from any civil liability 
                arising out of such investigation or disciplinary 
                proceeding in the same manner and to the same extent as 
                an employee of the Federal Government in similar 
                circumstances.
            (3) Disciplinary procedures.--
                    (A) Decision to discipline.--In a proceeding by the 
                public regulatory organization to determine whether a 
                public accounting firm, or a person associated with 
                such firm, should be disciplined, the public regulatory 
                organization shall bring specific charges, notify such 
                firm or person of the charges, give such firm or person 
                an opportunity to defend against such charges, and keep 
                a record of such actions.
                    (B) Sanctions.--If the public regulatory 
                organization, after conducting a review and providing 
                an opportunity for a hearing, finds that a public 
                accounting firm, or a person associated with such firm, 
                has engaged in any act, practice, or omission in 
                violation of the Federal securities laws, the rules or 
                regulations issued thereunder, the rules adopted by the 
                public regulatory organization, or professional 
                standards, the public regulatory organization may 
                impose such disciplinary sanctions as it deems 
                appropriate, including--
                            (i) temporary or permanent revocation or 
                        suspension of registration under this section;
                            (ii) limitation of activities, functions, 
                        and operations;
                            (iii) fine;
                            (iv) censure;
                            (v) in the case of a person associated with 
                        a public accounting firm, suspension or bar 
                        from being associated with a public accounting 
                        firm registered with the public regulatory 
                        organization; and
                            (vi) any such other disciplinary sanction 
                        or remedial action as the public regulatory 
                        organization has established by rule that the 
                        public regulatory organization determines to be 
                        appropriate to prevent the recurrence of the 
                        violation.
                    (C) Statement required.--A determination by the 
                public regulatory organization to impose a disciplinary 
                sanction shall be supported by a written statement by 
                the public regulatory organization that shall be made 
                available to the public and that sets forth--
                            (i) any act or practice in which the public 
                        accounting firm or person associated with such 
                        firm has been found to have engaged, or which 
                        such firm or person has been found to have 
                        omitted;
                            (ii) the specific provision of the Federal 
                        securities laws, the rules or regulations 
                        issued thereunder, the rules adopted by the 
                        public regulatory organization, or professional 
                        standards which any such act, practice, or 
                        omission is deemed to violate; and
                            (iii) the sanction imposed and the reasons 
                        therefor.
                    (D) Prohibition on association.--It shall be 
                unlawful--
                            (i) for any person as to whom a suspension 
                        or bar is in effect willfully to be or to 
                        become associated with a public accounting firm 
                        registered with the public regulatory 
                        organization, in connection with the 
                        preparation of an accountant's report on any 
                        financial statement, report, or other document 
                        filed with the Commission, without the consent 
                        of the public regulatory organization or the 
                        Commission; and
                            (ii) for any public accounting firm 
                        registered with the public regulatory 
                        organization to permit such a person to become, 
                        or remain, associated with such firm without 
                        the consent of the public regulatory 
                        organization or the Commission, if such firm 
                        knew or, in the exercise of reasonable care 
                        should have known, of such suspension or bar.
            (4) Reporting of sanctions.--If the public regulatory 
        organization imposes a disciplinary sanction against a public 
        accounting firm, or a person associated with such firm, the 
        public regulatory organization shall report such sanction to 
        the Commission, to the appropriate State or foreign licensing 
        public regulatory organization or public regulatory 
        organizations with which such firm or such person is licensed 
        or certified to practice public accounting, and to the public. 
        The information reported shall include--
                    (A) the name of the public accounting firm, or 
                person associated with such firm, against whom the 
                sanction is imposed;
                    (B) a description of the acts, practices, or 
                omissions upon which the sanction is based;
                    (C) the nature of the sanction; and
                    (D) such other information respecting the 
                circumstances of the disciplinary action (including the 
                name of any client of such firm affected by such acts, 
                practices, or omissions) as the public regulatory 
                organization deems appropriate.
            (5) Discovery and admissibility of public regulatory 
        organization material.--
                    (A) Discoverability.--
                            (i) In general.--Except as provided in 
                        subparagraph (C), all reports, memoranda, and 
                        other information prepared, collected, or 
                        received by the public regulatory organization, 
                        and the deliberations and other proceedings of 
                        the public regulatory organization and its 
                        employees and agents in connection with an 
                        investigation or disciplinary proceeding under 
this section shall not be subject to any form of civil discovery, 
including demands for production of documents and for testimony of 
individuals, in connection with any proceeding in any State or Federal 
court, or before any State or Federal administrative agency. This 
subparagraph shall not apply to any information provided to the public 
regulatory organization that would have been subject to discovery from 
the person or entity that provided it to the public regulatory 
organization, but is no longer available from that person or entity.
                            (ii) Exemption.--Submissions to the public 
                        regulatory organization by or on behalf of a 
                        public accounting firm or person associated 
                        with such a firm or on behalf of any other 
                        participant in a public regulatory organization 
                        proceeding (other than a public hearing), 
                        including documents generated by the public 
                        regulatory organization itself, shall be exempt 
                        from discovery to the same extent as the 
                        material described in clause (i), whether in 
                        the possession of the public regulatory 
                        organization or any other person, if such 
                        submission--
                                    (I) is prepared specifically for 
                                the purpose of the public regulatory 
                                organization proceeding; and
                                    (II) addresses the merits of the 
                                issues under investigation by the 
                                public regulatory organization.
                            (iii) Hearings public.--Except as otherwise 
                        ordered by the public regulatory organization 
                        on its own motion or on the motion of a party, 
                        all hearings under this paragraph shall be open 
                        to the public.
                    (B) Admissibility.--
                            (i) In general.--Except as provided in 
                        subparagraph (C), all reports, memoranda, and 
                        other information prepared, collected, or 
                        received by the public regulatory organization, 
                        the deliberations and other proceedings of the 
                        public regulatory organization and its 
                        employees and agents in connection with an 
                        investigation or disciplinary proceeding under 
                        this section, the fact that an investigation or 
                        disciplinary proceeding has been commenced, and 
                        the public regulatory organization's 
                        determination with respect to any investigation 
                        or disciplinary proceeding shall be 
                        inadmissible in any proceeding in any State or 
                        Federal court or before any State or Federal 
                        administrative agency.
                            (ii) Treatment of certain documents.--
                        Submissions to the public regulatory 
                        organization by or on behalf of a public 
                        accounting firm or person associated with such 
                        a firm or on behalf of any other participant in 
                        a public regulatory organization proceeding, 
                        including documents generated by the public 
                        regulatory organization itself, shall be 
                        inadmissible to the same extent as the material 
                        described in clause (i), if such submission--
                                    (I) is prepared specifically for 
                                the purpose of the public regulatory 
                                organization proceedings; and
                                    (II) addresses the merits of the 
                                issues under investigation by the 
                                public regulatory organization.
                    (C) Availability and admissibility of 
                information.--
                            (i) In general.--All information referred 
                        to in subparagraphs (A) and (B) shall be--
                                    (I) available to the Commission;
                                    (II) available to any other Federal 
                                department or agency in connection with 
                                the exercise of its regulatory 
                                authority to the extent that such 
                                information would be available to such 
                                agency from the Commission as a result 
                                of a Commission enforcement 
                                investigation;
                                    (III) available to Federal and 
                                State authorities in connection with 
                                any criminal investigation or 
                                proceeding;
                                    (IV) admissible in any action 
                                brought by the Commission or any other 
                                Federal department or agency pursuant 
                                to its regulatory authority, to the 
                                extent that such information would be 
                                available to such agency from the 
                                Commission as a result of a Commission 
                                enforcement investigation and in any 
                                criminal action; and
                                    (V) available to State licensing 
                                public regulatory organizations to the 
                                extent authorized in paragraph (6).
                            (ii) Other limitations.--Any documents or 
                        other information provided to the Commission or 
                        other authorities pursuant to clause (i) shall 
                        be subject to the limitations on discovery and 
                        admissibility set forth in subparagraphs (A) 
                        and (B).
            (6) Participation by state licensing public regulatory 
        organizations.--
                    (A) Notice.--When the public regulatory 
                organization institutes an investigation pursuant to 
                paragraph (2)(A), it shall notify the State licensing 
                public regulatory organizations in the States in which 
                the public accounting firm or person associated with 
                such firm engaged in the act or failure to act alleged 
                to have violated professional standards, of the 
                pendency of the investigation, and shall invite the 
                State licensing public regulatory organizations to 
                participate in the investigation.
                    (B) Acceptance by state public regulatory 
                organization.--If a State licensing public regulatory 
                organization elects to join in the investigation, its 
                representatives shall participate, pursuant to rules 
                established by the public regulatory organization, in 
                investigating the matter and in presenting the evidence 
                justifying the charges in any hearing pursuant to 
                paragraph (3)(A).
                    (C) State sanctions permitted.--If the public 
                regulatory organization or the Commission imposes a 
                sanction upon a public accounting firm or person 
                associated with such a firm, and that determination 
                either is not subjected to judicial review or is upheld 
                on judicial review, a State licensing public regulatory 
                organization may impose a sanction on the basis of the 
                public regulatory organization's report pursuant to 
                paragraph (4). Any sanction imposed by the State 
                licensing public regulatory organization under this 
                clause shall be inadmissible in any proceeding in any 
                State or Federal court or before any State or Federal 
                administrative agency.
    (f) Review and Approval of Rules.--
            (1) Submission, publication, and comment.--Each recognized 
        public regulatory organization shall file with the Commission, 
        in accordance with such rules as the Commission may prescribe, 
copies of any proposed rule or any proposed change in, addition to, or 
deletion from the rules of such recognized public regulatory 
organization (hereinafter in this subsection collectively referred to 
as a ``proposed rule change'') accompanied by a concise general 
statement of the basis and purpose of such proposed rule change. The 
Commission shall, upon the filing of any proposed rule change, publish 
notice thereof together with the terms of substance of the proposed 
rule change or a description of the subjects and issues involved. The 
Commission shall give interested persons an opportunity to submit 
written data, views, and arguments concerning such proposed rule 
change. No proposed rule change shall take effect unless approved by 
the Commission or otherwise permitted in accordance with the provisions 
of this subsection.
            (2) Approval or proceedings.--Within 35 days of the date of 
        publication of notice of the filing of a proposed rule change 
        in accordance with paragraph (1) of this subsection, or within 
        such longer period as the Commission may designate up to 90 
        days of such date if it finds such longer period to be 
        appropriate and publishes its reasons for so finding or as to 
        which the recognized public regulatory organization consents, 
        the Commission shall--
                    (A) by order approve such proposed rule change; or
                    (B) institute proceedings to determine whether the 
                proposed rule change should be disapproved. Such 
                proceedings shall include notice of the grounds for 
                disapproval under consideration and opportunity for 
                hearing and be concluded within 180 days of the date of 
                publication of notice of the filing of the proposed 
                rule change. At the conclusion of such proceedings the 
                Commission, by order, shall approve or disapprove such 
                proposed rule change. The Commission may extend the 
                time for conclusion of such proceedings for up to 60 
                days if it finds good cause for such extension and 
                publishes its reasons for so finding or for such longer 
                period as to which the recognized public regulatory 
                organization consents.
            (3) Basis for approval or disapproval.--The Commission 
        shall approve a proposed rule change of a recognized public 
        regulatory organization if it finds that such proposed rule 
        change is consistent with the requirements of this title and 
        the rules and regulations thereunder applicable to such 
        organization. The Commission shall disapprove a proposed rule 
        change of a recognized public regulatory organization if it 
        does not make such finding. The Commission shall not approve 
        any proposed rule change prior to the 30th day after the date 
        of publication of notice of the filing thereof, unless the 
        Commission finds good cause for so doing and publishes its 
        reasons for so finding.
            (4) Rules effective upon filing.--
                    (A) Notwithstanding the provisions of paragraph (2) 
                of this subsection, a proposed rule change may take 
                effect upon filing with the Commission if designated by 
                the recognized public regulatory organization as (i) 
                constituting a stated policy, practice, or 
                interpretation with respect to the meaning, 
                administration, or enforcement of an existing rule of 
                the recognized public regulatory organization, (ii) 
                establishing or changing a due, fee, or other charge 
                imposed by the recognized public regulatory 
                organization, or (iii) concerned solely with the 
                administration of the recognized public regulatory 
                organization or other matters which the Commission, by 
                rule, consistent with the public interest and the 
                purposes of this subsection, may specify as outside the 
                provisions of such paragraph (2).
                    (B) Notwithstanding any other provision of this 
                subsection, a proposed rule change may be put into 
                effect summarily if it appears to the Commission that 
                such action is necessary for the protection of 
                investors, or otherwise in accordance with the purposes 
                of this title. Any proposed rule change so put into 
                effect shall be filed promptly thereafter in accordance 
                with the provisions of paragraph (1) of this 
                subsection.
                    (C) Any proposed rule change of a recognized public 
                regulatory organization which has taken effect pursuant 
                to subparagraph (A) or (B) of this paragraph may be 
                enforced by such organization to the extent it is not 
                inconsistent with the provisions of this title, the 
                securities laws, the rules and regulations thereunder, 
                and applicable Federal and State law. At any time 
                within 60 days of the date of filing of such a proposed 
                rule change in accordance with the provisions of 
                paragraph (1) of this subsection, the Commission 
                summarily may abrogate the change in the rules of the 
                recognized public regulatory organization made thereby 
                and require that the proposed rule change be refiled in 
                accordance with the provisions of paragraph (1) of this 
                subsection and reviewed in accordance with the 
                provisions of paragraph (2) of this subsection, if it 
                appears to the Commission that such action is necessary 
                or appropriate in the public interest, for the 
                protection of investors, or otherwise in furtherance of 
                the purposes of this title. Commission action pursuant 
                to the preceding sentence shall not affect the validity 
                or force of the rule change during the period it was in 
                effect, shall not be subject to court review, and shall 
                not be deemed to be ``final agency action'' for 
                purposes of section 704 of title 5, United States Code.
    (g) Commission Action To Change Rules.--The Commission, by rule, 
may abrogate, add to, and delete from (hereinafter in this subsection 
collectively referred to as ``amend'') the rules of a recognized public 
regulatory organization as the Commission deems necessary or 
appropriate to insure the fair administration of the recognized public 
regulatory organization, to conform its rules to requirements of this 
title, the securities laws, and the rules and regulations thereunder 
applicable to such organization, or otherwise in furtherance of the 
purposes of this title, in the following manner:
            (1) The Commission shall notify the recognized public 
        regulatory organization and publish notice of the proposed 
        rulemaking in the Federal Register. The notice shall include 
        the text of the proposed amendment to the rules of the 
        recognized public regulatory organization and a statement of 
        the Commission's reasons, including any pertinent facts, for 
        commencing such proposed rulemaking.
            (2) The Commission shall give interested persons an 
        opportunity for the oral presentation of data, views, and 
        arguments, in addition to an opportunity to make written 
        submissions. A transcript shall be kept of any oral 
        presentation.
            (3) A rule adopted pursuant to this subsection shall 
        incorporate the text of the amendment to the rules of the 
        recognized public regulatory organization and a statement of 
        the Commission's basis for and purpose in so amending such 
        rules. This statement shall include an identification of any 
        facts on which the Commission considers its determination so to 
        amend the rules of the recognized public regulatory agency to 
        be based, including the reasons for the Commission's 
conclusions as to any of such facts which were disputed in the 
rulemaking.
            (4)(A) Except as provided in paragraphs (1) through (3) of 
        this subsection, rulemaking under this subsection shall be in 
        accordance with the procedures specified in section 553 of 
        title 5, United States Code, for rulemaking not on the record.
            (B) Nothing in this subsection shall be construed to impair 
        or limit the Commission's power to make, or to modify or alter 
        the procedures the Commission may follow in making, rules and 
        regulations pursuant to any other authority under the 
        securities laws.
            (C) Any amendment to the rules of a recognized public 
        regulatory organization made by the Commission pursuant to this 
        subsection shall be considered for all purposes to be part of 
        the rules of such recognized public regulatory organization and 
        shall not be considered to be a rule of the Commission.
    (h) Commission Oversight of the PRO.--
            (1) Records and examinations.--A public regulatory 
        organization shall make and keep for prescribed periods such 
        records, furnish such copies thereof, and make and disseminate 
        such reports as the Commission, by rule, prescribes as 
        necessary or appropriate in the public interest, for the 
        protection of investors, or otherwise in furtherance of the 
        purposes of this title or the securities laws.
            (2) Additional duties; special reviews.--A public 
        regulatory organization shall perform such other duties or 
        functions as the Commission, by rule or order, determines are 
        necessary or appropriate in the public interest or for the 
        protection of investors and to carry out the purposes of this 
        title and the securities laws, including conducting a special 
        review of a particular public accounting firm's quality control 
        system or a special review of a particular aspect of some or 
        all public accounting firms' quality control systems.
            (3) Annual report; proposed budget.--
                    (A) Submission of annual report and budget.--A 
                public regulatory organization shall submit an annual 
                report and its proposed budget to the Commission for 
                review and approval, by order, at such times and in 
                such form as the Commission shall prescribe.
                    (B) Contents of annual report.--Each annual report 
                required by subparagraph (A) shall include--
                            (i) a detailed description of the 
                        activities of the public regulatory 
                        organization;
                            (ii) the audited financial statements of 
                        the public regulatory organization;
                            (iii) a detailed explanation of the fees 
                        and charges imposed by the public regulatory 
                        organization under subsection (b)(9); and
                            (iv) such other matters as the public 
                        regulatory organization or the Commission deems 
                        appropriate.
                    (C) Transmittal of annual report to congress.--The 
                Commission shall transmit each approved annual report 
                received under subparagraph (A) to the Committee on 
                Financial Services of the United States House of 
                Representatives and the Committee on Banking, Housing, 
                and Urban Affairs of the United States Senate. At the 
                same time it transmits a public regulatory 
                organization's annual report under this subparagraph, 
                the Commission shall include a written statement of its 
                views of the functioning and operations of the public 
                regulatory organization.
                    (D) Public availability.--Following transmittal of 
                each approved annual report under subparagraph (C), the 
                Commission and the public regulatory organization shall 
                make the approved annual report publicly available.
            (4) Disapproval of election of pro member.--The Commission 
        is authorized, by order, if in its opinion such action is 
        necessary or appropriate in the public interest, for the 
        protection of investors, or otherwise in furtherance of the 
        purposes of this title or the securities laws, to disapprove 
        the election of any member of a public regulatory organization 
        if the Commission determines, after notice and opportunity for 
        hearing, that the person elected is unfit to serve on the 
        public regulatory organization.
    (i) Clarification of Application of PRO Authority.--The authority 
granted to any such organization in this section shall only apply to 
the actions of accountants related to the certification of financial 
statements required by securities laws and not other actions or actions 
for other clients of the accounting firm or any accountant that does 
not certify financial statements for publicly traded companies.
    (j) Deadline for Rulemaking.--The Commission shall--
            (1) within 90 days after the date of enactment of this Act, 
        propose, and
            (2) within 270 days after such date, prescribe,
rules to implement this section.
    (k) Effective Date; Transition Provisions.--
            (1) Effective date.--Except as provided in paragraph (2), 
        subsection (a) of this section shall be effective with respect 
        to any certified financial statement for any fiscal year that 
        ends more than one year after the Commission recognizes a 
        public regulatory organization pursuant to this section.
            (2) Delay in establishment of board.--If the Commission has 
        failed to recognize any public regulatory organization pursuant 
        to this section within one year after the date of enactment of 
        this Act, the Commission shall perform the duties of such 
        organization with respect to any certified financial statement 
        for any fiscal year that ends before one year after any such 
        board is recognized by the Commission.

SEC. 422. IMPROPER INFLUENCE ON CONDUCT OF AUDITS.

    (a) Rules To Prohibit.--It shall be unlawful in contravention of 
such rules or regulations as the Commission shall prescribe as 
necessary and appropriate in the public interest or for the protection 
of investors for any officer, director, or affiliated person of an 
issuer of any security registered under section 12 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78l) to take any action to fraudulently 
influence, coerce, manipulate, or mislead any independent public or 
certified accountant engaged in the performance of an audit of the 
financial statements of such issuer for the purpose of rendering such 
financial statements materially misleading. In any civil proceeding, 
the Commission shall have exclusive authority to enforce this section 
and any rule or regulation hereunder.
    (b) No Preemption of Other Law.--The provisions of subsection (a) 
shall be in addition to, and shall not supersede or preempt, any other 
provision of law or any rule or regulation thereunder.
    (c) Deadline for Rulemaking.--The Commission shall--
            (1) within 90 days after the date of enactment of this Act, 
        propose, and
            (2) within 270 days after such date, prescribe,
the rules or regulations required by this section.

SEC. 423. ENHANCED OVERSIGHT OF PERIODIC DISCLOSURES BY ISSUERS.

    (a) Regular and Systematic Review.--The Securities and Exchange 
Commission shall review disclosures made by issuers pursuant to the 
Securities Exchange Act of 1934 (including reports filed on form 10-K) 
on a basis that is more regular and systematic than that in practice on 
the date of enactment on this Act. Such review shall include a review 
of an issuer's financial statements.
    (b) Risk Rating System.--For purposes of the reviews required by 
subsection (a), the Commission shall establish a risk rating system 
whereby issuers receive a risk rating by the Commission, which shall be 
used to determine the frequency of such reviews. In designing such a 
risk rating system the Commission shall consider, among other factors 
the following:
            (1) Emerging companies with disparities in price to earning 
        ratios.
            (2) Issuers with the largest market capitalization.
            (3) Issuers whose operations significantly impact any 
        material sector of the economy.
            (4) Systemic factors such as the effect on niche markets or 
        important subsectors of the economy.
            (5) Issuers that experience significant volatility in their 
        stock price as compared to other issuers.
            (6) Any other factor the Commission may consider relevant.
    (c) Minimum Review Period.--In no event shall an issuer be reviewed 
less than once every three years by the Commission.
    (d) Prohibition of Disclosure of Risk Rating.--Notwithstanding any 
other provision of law, the Commission shall not disclose the risk 
rating of any issuer described in subsection (b).

SEC. 424. RETENTION OF RECORDS.

    (a) Duty To Retain Records.--Any independent public or certified 
accountant who certifies a financial statement as required by the 
securities laws or any rule or regulation thereunder shall prepare and 
maintain for a period of no less than 7 years, final audit work papers 
and other information related to any accountants report on such 
financial statements in sufficient detail to support the opinion or 
assertion reached in such accountants report. The Commission may 
prescribe rules specifying the application and requirements of this 
section.
    (b) Accountant's Report.--For purposes of subsection (a), the term 
``accountant's report'' means a document in which an accountant 
identifies a financial statement and sets forth his opinion regarding 
such financial statement or an assertion that an opinion cannot be 
expressed.

SEC. 425. AUTHORIZATION OF APPROPRIATIONS OF THE SECURITIES AND 
              EXCHANGE COMMISSION.

    In addition to any other funds authorized to be appropriated to the 
Securities and Exchange Commission, there are authorized to be 
appropriated to carry out the functions, powers, and duties of the 
Commission, $776,000,000 for fiscal year 2003, of which--
            (1) not less that $134,000,000 shall be available for the 
        Division of Corporate Finance and for the Office of Chief 
        Accountant;
            (2) not less than $326,000,000 shall be available for the 
        Division of Enforcement; and
            (3) not less than $76,000,000 shall be available to 
        implement section 8 of the Investor and Capital Markets Fee 
        Relief Act, relating to pay comparability.

SEC. 426. ENFORCEMENT OF AUDIT COMMITTEE GOVERNANCE PRACTICES.

    The Commission shall revise its regulations pertaining to auditor 
independence to require that an accountant shall not be considered to 
be independent for purposes of certifying the financial statements or 
other documents of an issuer required to be filed with the Commission 
under the securities laws unless--
            (1) an issuer's auditor is appointed by and reports 
        directly to the audit committee of the board of directors or, 
        in the absence of an audit committee, the board committee 
        performing equivalent functions or the entire board of 
        directors;
            (2) the audit committee meets with the accountants engaged 
        to perform such audit on a regular basis, at least quarterly; 
        and
            (3) the audit committee is provided with the opportunity to 
        meet with such accountants without the attendance at such 
        meetings of any officer, director, or other member of the 
        issuer's senior management.

SEC. 427. REVIEW OF CORPORATE GOVERNANCE PRACTICES.

    (a) Study of Corporate Practices.--The Commission shall conduct a 
study and review of current corporate governance standards and 
practices to determine whether such standards and practices are serving 
the best interests of shareholders. Such study and review shall include 
an analysis of--
            (1) whether current standards and practices promote full 
        disclosure of relevant information to shareholders;
            (2) whether corporate codes of ethics are adequate to 
        protect shareholders, and to what extent deviations from such 
        codes are tolerated;
            (3) to what extent conflicts of interests are aggressively 
        reviewed, and whether adequate means for redressing such 
        conflicts exist;
            (4) to what extent sufficient legal protections exist or 
        should be adopted to ensure that any manager who attempts to 
        manipulate or unduly influence an audit will be subject to 
        appropriate sanction and liability, including liability to 
        investors or shareholders pursuing a private cause of action 
        for such manipulation or undue influence;
            (5) whether rules, standards, and practices relating to 
        determining whether independent directors are in fact 
        independent are adequate;
            (6) whether rules, standards, and practices relating to the 
        independence of directors serving on audit committees are 
        uniformly applied and adequate to protect investor interests; 
        and
            (7) what further or additional practices or standards might 
        best protect investors and promote the interests of 
        shareholders.
    (b) Participation of State Regulators.--In conducting the study 
required under subsection (a), the Commission shall seek the views of 
the securities and corporate regulators of the various States.
    (c) Report Required.--The Commission shall submit a report on the 
analysis required under subsection (a) as a part of the Commission's 
next annual report submitted after the date of enactment of this Act.

SEC. 428. STUDY OF ENFORCEMENT ACTIONS.

    (a) Study Required.--The Commission shall review and analyze all 
enforcement actions by the Commission involving violations of reporting 
requirements imposed under the securities laws, and restatements of 
financial statements, over the last five years to identify areas of 
reporting that are most susceptible to fraud, inappropriate 
manipulation, or inappropriate earnings management, such as revenue 
recognition and the accounting treatment of off-balance sheet special 
purpose entities.
    (b) Report Required.--The Commission shall report its findings to 
the Committee on Financial Services of the House of Representatives and 
the Committee on Banking, Housing, and Urban Affairs of the Senate 
within 180 days of the date of enactment of this Act and shall use such 
findings to revise its rules and regulations, as necessary. The report 
shall include a discussion of regulatory or legislative steps that are 
recommended or that may be necessary to address concerns identified in 
the study.

SEC. 429. STUDY OF CREDIT RATING AGENCIES.

    (a) Study Required.--The Commission shall conduct a study of the 
role and function of credit rating agencies in the operation of the 
securities market. Such study shall examine--
            (1) the role of the credit rating agencies in the 
        evaluation of issuers of securities;
            (2) the importance of that role to investors and the 
        functioning of the securities markets;
            (3) any impediments to the accurate appraisal by credit 
        rating agencies of the financial resources and risks of issuers 
        of securities;
            (4) any measures which may be required to improve the 
        dissemination of information concerning such resources and 
        risks when credit rating agencies announce credit ratings;
            (5) any barriers to entry into the business of acting as a 
        credit rating agency, and any measures needed to remove such 
        barriers; and
            (6) any conflicts of interest in the operation of credit 
        rating agencies and measures to prevent such conflicts or 
        ameliorate the consequences of such conflicts.
    (b) Report Required.--The Commission shall submit a report on the 
analysis required by subsection (a) to the President, the Committee on 
Financial Services of the House of Representatives, and the Committee 
on Banking, Housing, and Urban Affairs of the Senate within 180 days 
after the date of enactment of this Act. The report shall include a 
discussion of regulatory or legislative steps that are recommended or 
that may be necessary to address concerns identified in the study.

SEC. 430. STUDY OF INVESTMENT BANKS

    (a) GAO Study.--The Comptroller General shall conduct a study on 
whether investment banks and financial advisors assisted public 
companies in manipulating their earnings and obfuscating their true 
financial condition. The study should address the role of the 
investment banks--
            (1) in the collapse of the Enron Corporation, including 
        with respect to the design and implementation of derivatives 
        transactions, transactions involving special purpose vehicles, 
        and other financing arrangements that may have had the effect 
        of altering the company's reported financial statements in ways 
        that obscured the true financial picture of the company;
            (2) in the failure of Global Crossing, including with 
        respect to transactions involving swaps of fiber optic cable 
        capacity, in designing transactions that may have had the 
        effect of altering the company's reported financial statements 
        in ways that obscured the true financial picture of the 
        company; and
            (3) generally, in creating and marketing transactions which 
        may have been designed solely to enable companies to manipulate 
        revenue streams, obtain loans, or move liabilities off balance 
        sheets without altering the economic and business risks faced 
        by the companies or any other mechanism to obscure a company's 
        financial picture.
    (b) Report.--The General Accounting Office shall report to the 
Congress within 180 days after the date of enactment of this Act on the 
results of the study required by this section. The report shall include 
a discussion of regulatory or legislative steps that are recommended or 
that may be necessary to address concerns identified in the study.

SEC. 431. STUDY OF MODEL RULES FOR ATTORNEYS OF ISSUERS.

    (a) In General.--The Comptroller General shall conduct a study of 
the Model Rules of Professional Conduct promulgated by the American Bar 
Association and rules of professional conduct applicable to attorneys 
established by the Commission to determine--
            (1) whether such rules provide sufficient guidance to 
        attorneys representing corporate clients who are issuers 
required to file periodic disclosures under section 13 or 15 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o), as to the ethical 
responsibilities of such attorneys to--
                    (A) warn clients of possible fraudulent or illegal 
                activities of such clients and possible consequences of 
                such activities;
                    (B) disclose such fraudulent or illegal activities 
                to appropriate regulatory or law enforcement 
                authorities; and
                    (C) manage potential conflicts of interests with 
                clients; and
            (2) whether such rules provide sufficient protection to 
        corporate shareholders, especially with regards to conflicts of 
        interest between attorneys and their corporate clients.
    (b) Report Required.--The Comptroller General shall report to the 
Committee on Financial Services of the House of Representatives and the 
Committee on Banking, Housing, and Urban Affairs of the Senate on the 
results of the study required by this section. Such report shall 
include any recommendations of the General Accounting Office with 
regards to--
            (1) possible changes to the Model Rules and the rules of 
        professional conduct applicable to attorneys established by the 
        Commission to provide increased protection to shareholders;
            (2) whether restrictions should be imposed to require that 
        an attorney, having represented a corporation or having been 
        employed by a firm which represented a corporation, may not be 
        employed as general counsel to that corporation until a certain 
        period of time has expired; and
            (3) regulatory or legislative steps that are recommended or 
        that may be necessary to address concerns identified in the 
        study.

                     Subtitle C--General Provisions

SEC. 441. ENFORCEMENT AUTHORITY.

    (a) Regulatory Action.--The Commission shall promulgate such rules 
and regulations, as may be necessary or appropriate in the public 
interest or for the protection of investors, and in furtherance of this 
title.
    (b) Enforcement.--
            (1) In general.--A violation by any person of this title, 
        any rule or regulation of the Commission issued under this 
        title, or any rule of the public regulatory organization 
        established under section 421, shall be treated for all 
        purposes in the same manner as a violation of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78a et seq.) or the rules and 
        regulations issued thereunder, consistent with the provisions 
        of this title, and any such person shall be subject to the same 
        penalties, and to the same extent, as for a violation of that 
        Act or such rules or regulations.
            (2) Investigations, injunctions, and prosecution of 
        offenses.--Section 21 of the Securities Exchange Act of 1934 
        (15 U.S.C. 78u) is amended
                    (A) in subsection (a)(1), by inserting ``the rules 
                of the public regulatory organization established under 
                section 421 of the Investors' and Employees' Bill of 
                Rights Act of 2002, of which such person is a 
                registered public accounting firm or a person 
                associated with such a firm,'' after ``is a 
                participant,'';
                    (B) in subsection (d)(1), by inserting ``the rules 
                of the public regulatory organization established under 
                section 421 of the Investors' and Employees' Bill of 
                Rights Act of 2002, of which such person is a 
                registered public accounting firm or a person 
                associated with such a firm,'' after ``is a 
                participant,'';
                    (C) in subsection (e), by inserting ``the rules of 
                the public regulatory organization established under 
                section 421 of the Investors' and Employees' Bill of 
                Rights Act of 2002, of which such person is a 
                registered public accounting firm or a person 
                associated with such a firm,'' after ``is a 
                participant,''; and
                    (D) in subsection (f), by inserting ``the public 
                regulatory organization established under section 421 
                of the Investors' and Employees' Bill of Rights Act of 
                2002'' after ``self-regulatory organization'' each 
                place that term appears.
            (3) Cease-and-desist proceedings.--Section 21C(c)(2) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78u-3(c)(2)) is 
        amended by inserting ``registered public accounting firm (under 
        section 421(d) of the Investors' and Employees' Bill of Rights 
        Act of 2002),'' after ``government securities dealer,''.
    (c) Effect on Commission Authority.--Nothing in this title or the 
rules of the public regulatory organization established under section 
421 shall be construed to impair or limit--
            (1) the authority of the Commission to regulate the 
        accounting profession, accounting firms, or persons associated 
        with such firms for purposes of enforcement of the securities 
        laws;
            (2) the authority of the Commission to set standards for 
        accounting or auditing practices or auditor independence, 
        derived from other provisions of the securities laws or the 
        rules or regulations thereunder, for purposes of the 
        preparation and issuance of any audit report, or otherwise 
        under applicable law; or
            (3) the ability of the Commission to take, on the 
        initiative of the Commission, legal, administrative, or 
        disciplinary action against any registered public accounting 
        firm or any associated person thereof.

SEC. 442. EXCLUSION FOR INVESTMENT COMPANIES.

    Sections 401, 402, 403, 405, and 421 of this title shall not apply 
to an investment company registered under section 8 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-8).

SEC. 443. DEFINITIONS.

    As used in this title:
            (1) Blackout period.--The term ``blackout period'' with 
        respect to the equity securities of any issuer--
                    (A) means any period during which the ability of at 
                least fifty percent of the participants or 
                beneficiaries under all applicable individual account 
                plans maintained by the issuer to purchase (or 
                otherwise acquire) or sell (or otherwise transfer) an 
                interest in any equity of such issuer is suspended by 
                the issuer or a fiduciary of the plan; but
                    (B) does not include--
                            (i) a period in which the employees of an 
                        issuer may not allocate their interests in the 
                        individual account plan due to an express 
                        investment restriction--
                                    (I) incorporated into the 
                                individual account plan; and
                                    (II) timely disclosed to employees 
                                before joining the individual account 
                                plan or as a subsequent amendment to 
                                the plan; or
                            (ii) any suspension described in 
                        subparagraph (A) that is imposed solely in 
                        connection with persons becoming participants 
                        or beneficiaries, or ceasing to be participants 
                        or beneficiaries, in an applicable individual 
                        account plan by reason of a corporate merger, 
                        acquisition, divestiture, or similar 
                        transaction.
            (2) Boards of accountancy of the states.--The term ``boards 
        of accountancy of the States'' means any organization or 
        association chartered or approved under the law of any State 
        with responsibility for the registration, supervision, or 
        regulation of accountants.
            (3) Commission.--The term ``Commission'' means the 
        Securities and Exchange Commission.
            (4) Individual account plan.--The term ``individual account 
        plan'' has the meaning provided such term in section 3(34) of 
        the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1002(34)).
            (5) Issuer.--The term ``issuer'' shall have the meaning set 
        forth in section 2(a)(4) of the Securities Act of 1933 (15 
        U.S.C. 77b(a)(4)).
            (6) Person associated with an accountant.--The term 
        ``person associated with an accountant'' means any partner, 
        officer, director, or manager of such accountant (or any person 
        occupying a similar status or performing similar functions), 
        any person directly or indirectly controlling, controlled by, 
        or under common control with such accountant, or any employee 
        of such accountant who performs a supervisory role in the 
        auditing process.
            (7) Public regulatory organization.--The term ``public 
        regulatory organization'' means the public regulatory 
        organization established by the Commission under subsection (b) 
        of section 421.
            (8) Securities laws.--The term ``securities laws'' means 
        the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
        Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), the 
        Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the 
        Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b et seq.), and 
        the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa 
        et seq.), notwithstanding any contrary provision of any such 
        Act.

          TITLE V--ENHANCING PENSION PROTECTION FOR EMPLOYEES

                 Subtitle A--Improvements in Disclosure

SEC. 501. PENSION BENEFIT INFORMATION.

    (a) Pension Benefit Statements Required on Periodic Basis.--
            (1) In general.--Subsection (a) of section 105 of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1025) is amended--
                    (A) by striking ``shall furnish to any plan 
                participant or beneficiary who so requests in 
                writing,'' and inserting ``shall furnish at least once 
                every 3 years, in the case of a participant in a 
                defined benefit plan who has attained age 35, and 
                annually, in the case of an individual account plan, to 
                each plan participant, and shall furnish to any plan 
                participant or beneficiary who so requests,'', and
                    (B) by adding at the end the following flush 
                sentence:
``Information furnished under the preceding sentence to a participant 
in a defined benefit plan (other than at the request of the 
participant) may be based on reasonable estimates determined under 
regulations prescribed by the Secretary.''.
            (2) Model statement.--Section 105 of such Act (29 U.S.C. 
        1025) is amended by adding at the end the following new 
        subsection:
    ``(e)(1) The Secretary of Labor shall develop a model benefit 
statement which shall be used by plan administrators in complying with 
the requirements of subsection (a). Such statement shall include--
            ``(A) the amount of nonforfeitable accrued benefits as of 
        the statement date which is payable at normal retirement age 
        under the plan,
            ``(B) the amount of accrued benefits which are forfeitable 
        but which may become nonforfeitable under the terms of the 
        plan,
            ``(C) the amount or percentage of any reduction due to 
        integration of the benefit with the participant's Social 
        Security benefits or similar governmental benefits,
            ``(D) information on early retirement benefit and joint and 
        survivor annuity reductions, and
            ``(E) the percentage of the net return on investment of 
        plan assets for the preceding plan year (or, with respect to 
        investments directed by the participant, the net return on 
        investment of plan assets for such year so directed), itemized 
        with respect to each type of investment, and, stated 
        separately, the administrative and transaction fees incurred in 
        connection with each such type of investment, and
            ``(F) in the case of an individual account plan, the amount 
        and percentage of assets in the individual account that 
        consists of employer securities and employer real property (as 
defined in paragraphs (1) and (2), respectively, of section 407(d)), as 
determined as of the most recent valuation date of the plan.
    ``(2) The Secretary shall also develop a separate notice, which 
shall be included by the plan administrator with the information 
furnished pursuant to subsection (a), which advises participants and 
beneficiaries of generally accepted investment principles, including 
principles of risk management and diversification for long-term 
retirement security and the risks of holding substantial assets in a 
single asset such as employer securities.''.
            (3) Rule for multiemployer plans.--Subsection (d) of 
        section 105 of such Act (29 U.S.C. 1025) is amended to read as 
        follows:
    ``(d) Each administrator of a plan to which more than 1 
unaffiliated employer is required to contribute shall furnish to any 
plan participant or beneficiary who so requests in writing, a statement 
described in subsection (a).''.
    (b) Disclosure of Benefit Calculations.--
            (1) In general.--Section 105 of such Act (as amended by 
        subsection (a)) is amended further--
                    (A) by redesignating subsections (b), (c), (d), and 
                (e) as subsections (c), (d), (e), and (f), 
                respectively; and
                    (B) by inserting after subsection (a) the following 
                new subsection:
    ``(b)(1) In the case of a participant or beneficiary who is 
entitled to a distribution of a benefit under an employee pension 
benefit plan, the administrator of such plan shall provide to the 
participant or beneficiary the information described in paragraph (2) 
upon the written request of the participant or beneficiary.
    ``(2) The information described in this paragraph includes--
            ``(A) a worksheet explaining how the amount of the 
        distribution was calculated and stating the assumptions used 
        for such calculation,
            ``(B) upon written request of the participant or 
        beneficiary, any documents relating to the calculation (if 
        available), and
            ``(C) such other information as the Secretary may 
        prescribe.
Any information provided under this paragraph shall be in a form 
calculated to be understood by the average plan participant.''.
            (2) Conforming amendments.--
                    (A) Section 101(a)(2) of such Act (29 U.S.C. 
                1021(a)(2)) is amended by striking ``105(a) and (c)'' 
                and inserting ``105(a), (b), and (d)''.
                    (B) Section 105(c) of such Act (as redesignated by 
                paragraph (1)(A) of this subsection) is amended by 
                inserting ``or (b)'' after ``subsection (a)''.
                    (C) Section 106(b) of such Act (29 U.S.C. 1026(b)) 
                is amended by striking ``sections 105(a) and 105(c)'' 
                and inserting ``subsections (a), (b), and (d) of 
                section 105''.
    (c) Amendments to Internal Revenue Code of 1986.--
            (1) Excise tax on failure of defined contribution plans to 
        provide notice of generally accepted investment principles.--
        Chapter 43 of the Internal Revenue Code of 1986 (relating to 
        qualified pension, etc., plans) is amended by adding at the end 
        the following new section:

``SEC. 4980I. FAILURE OF DEFINED CONTRIBUTION PLANS TO PROVIDE NOTICE 
              OF GENERALLY ACCEPTED INVESTMENT PRINCIPLES.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any defined contribution plan to meet the requirements of 
subsection (e) with respect to any participant or beneficiary.
    ``(b) Amount of Tax.--The amount of the tax imposed by subsection 
(a) on any failure with respect to any participant or beneficiary shall 
be $1,000 for each day on which such failure is not corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply to failures corrected as soon as 
        reasonably practicable.--No tax shall be imposed by subsection 
        (a) on any failure if--
                    ``(A) any person subject to liability for the tax 
                under subsection (d) exercised reasonable diligence to 
                meet the requirements of subsection (e), and
                    ``(B) such person provides the notice described in 
                subsection (e) as soon as reasonably practicable after 
                the first date such person knew, or exercising 
                reasonable diligence should have known, that such 
                failure existed.
            ``(2) Overall limitation for unintentional failures.--
                    ``(A) In general.--If the person subject to 
                liability for tax under subsection (d) exercised 
                reasonable diligence to meet the requirements of 
                subsection (e), the tax imposed by subsection (a) for 
                failures during the taxable year of the employer (or, 
                in the case of a multiemployer plan, the taxable year 
                of the trust forming part of the plan) shall not exceed 
                $500,000. For purposes of the preceding sentence, all 
                multiemployer plans of which the same trust forms a 
                part shall be treated as 1 plan.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this paragraph, if 
                all persons who are treated as a single employer for 
                purposes of this section do not have the same taxable 
                year, the taxable years taken into account shall be 
                determined under principles similar to the principles 
                of section 1561.
            ``(3) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
            ``(1) In the case of a plan other than a multiemployer 
        plan, the employer.
            ``(2) In the case of a multiemployer plan, the plan.
    ``(e) Requirements Relating to Notice of Generally Accepted 
Investment Principles.--The plan administrator of any defined 
contribution plan shall provide annually a separate notice which 
advises participants and beneficiaries of generally accepted investment 
principles, including principles of risk management and diversification 
for long-term retirement security and the risks of holding substantial 
assets in a single asset such as employer securities.''.
            (2) Clerical amendment.--The table of sections for chapter 
        43 of such Code is amended by adding at the end the following 
        new item:

                               ``Sec. 4980I. Failure of defined 
                                        contribution plans to provide 
                                        notice of generally accepted 
                                        investment principles.''.

SEC. 502. IMMEDIATE WARNING OF EXCESSIVE STOCK HOLDINGS.

    Section 105 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1025) (as amended by section 501 of this Act) is amended 
further by adding at the end the following new subsection:
    ``(g)(1) Upon receipt of information by the plan administrator of 
an individual account plan indicating that the individual account of 
any participant which had not been excessively invested in employer 
securities is excessively invested in such securities (or that such 
account, as initially invested, is excessively invested in employer 
securities), the plan administrator shall immediately provide to the 
participant a separate, written statement--
            ``(A) indicating that the participant's account has become 
        excessively invested in employer securities,
            ``(B) setting forth the notice described in subsection 
        (e)(7), and
            ``(C) referring the participant to investment education 
        materials and investment advice which shall be made available 
        by or under the plan.
In any case in which such a separate, written statement is required to 
be provided to a participant under this paragraph, each statement 
issued to such participant pursuant to subsection (a) thereafter shall 
also contain such separate, written statement until the plan 
administrator is made aware that such participant's account has ceased 
to be excessively invested in employer securities or the employee, in 
writing, waives the receipt of the notice and acknowledges 
understanding the importance of diversification.
    ``(2) Each notice required under this subsection shall be provided 
in a form and manner which shall be prescribed in regulations of the 
Secretary. Such regulations shall provide for inclusion in the notice a 
prominent reference to the risks of large losses in assets available 
for retirement from excessive investment in employer securities.
    ``(3) For purposes of paragraph (1), a participant's account is 
`excessively invested' in employer securities if more than 10 percent 
of the balance in such account is invested in employer securities (as 
defined in section 407(d)(1)).''.

SEC. 503. ADDITIONAL FIDUCIARY PROTECTIONS RELATING TO LOCKDOWNS.

    (a) Amendment to Employee Retirement Income Security Act of 1974.--
Section 404 of the Employee Retirement Income Security Act of 1974 (29 
U.S.C. 1104) is amended by adding at the end the following new 
subsection:
    ``(e)(1) In the case of any eligible individual account plan (as 
defined in section 407(d)(3)) no lockdown may take effect until at 
least 30 days after written notice of such lockdown is provided by the 
plan administrator to such participant or beneficiary (and to each 
employee organization representing any such participant).
    ``(2) Subject to such regulations as the Secretary may prescribe, 
the requirements of paragraph (1) shall not apply in cases of 
emergency.
    ``(3) A plan described in paragraph (1) shall provide that each 
participant and beneficiary required to receive a notice under 
paragraph (1)(A) is entitled to direct the plan to divest within 3 
business days (but in no event later than the beginning of the 
lockdown) any security or other property in which any assets allocated 
to the account of such individual are invested and to reinvest such 
assets in any other investment option offered under the plan.
    ``(4) For purposes of this subsection, the term `lockdown' means 
any temporary lockdown, blackout, or freeze with respect to, suspension 
of, or similar limitation on the ability of a participant or 
beneficiary to exercise control over the assets in his or her account 
as otherwise generally provided under the plan (as determined under 
regulations of the Secretary), including the ability to direct 
investments, obtain loans, or obtain distributions.''.
    (b) Amendments to Internal Revenue Code of 1986.--
            (1) Excise tax on failures with respect to lockdowns.--
        Chapter 43 of the Internal Revenue Code of 1986 (relating to 
        qualified pension, etc., plans) is amended by adding at the end 
        the following new section:

``SEC. 4980G. FAILURE OF DEFINED CONTRIBUTION PLANS WITH RESPECT TO 
              LOCKDOWNS.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any defined contribution plan to meet the requirements of 
subsection (e) with respect to any participant or beneficiary.
    ``(b) Amount of Tax.--The amount of the tax imposed by subsection 
(a) on any failure with respect to any participant or beneficiary shall 
be $100.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply to failures corrected as soon as 
        reasonably practicable.--No tax shall be imposed by subsection 
        (a) on any failure if--
                    ``(A) any person subject to liability for the tax 
                under subsection (d) exercised reasonable diligence to 
                meet the requirements of subsection (e), and
                    ``(B) such person meets the requirements of 
                subsection (e) as soon as reasonably practicable after 
                the first date such person knew, or exercising 
                reasonable diligence should have known, that such 
                failure existed.
            ``(2) Overall limitation for unintentional failures.--
                    ``(A) In general.--If the person subject to 
                liability for tax under subsection (d) exercised 
                reasonable diligence to meet the requirements of 
                subsection (e), the tax imposed by subsection (a) for 
                failures during the taxable year of the employer (or, 
                in the case of a multiemployer plan, the taxable year 
                of the trust forming part of the plan) shall not exceed 
                $500,000. For purposes of the preceding sentence, all 
                multiemployer plans of which the same trust forms a 
                part shall be treated as 1 plan.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this paragraph, if 
                all persons who are treated as a single employer for 
                purposes of this section do not have the same taxable 
                year, the taxable years taken into account shall be 
                determined under principles similar to the principles 
                of section 1561.
            ``(3) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
            ``(1) In the case of a plan other than a multiemployer 
        plan, the employer.
            ``(2) In the case of a multiemployer plan, the plan.
    ``(e) Requirements Relating to Lockdowns.--
            ``(1) In general.--In the case of any defined contribution 
        plan no lockdown may take effect until at least 30 days after 
        written notice of such lockdown is provided by the plan 
        administrator to each participant or beneficiary (and to each 
        employee organization representing any such participant).
            ``(2) Exception for emergency.--Subject to such regulations 
        as the Secretary may prescribe, the requirements of paragraph 
        (1) shall not apply in cases of emergency.
            ``(3) Requirement relating to divestment.--A plan described 
        in paragraph (1) shall provide that each participant and 
        beneficiary required to receive a notice under paragraph (1)(A) 
        is entitled to direct the plan to divest within 3 business days 
        (but in no event later than the beginning of the lockdown) any 
        security or other property in which any assets allocated to the 
        account of such individual are invested and to reinvest such 
        assets in any other investment option offered under the plan.
            ``(4) Lockdown defined.--For purposes of this subsection, 
        the term `lockdown' means any temporary lockdown, blackout, or 
        freeze with respect to, suspension of, or similar limitation on 
        the ability of a participant or beneficiary to exercise control 
        over the assets in his or her account as otherwise generally 
        provided under the plan (as determined under regulations of the 
        Secretary), including the ability to direct investments, obtain 
        loans, or obtain distributions.''.
            (2) Clerical amendment.--The table of sections for chapter 
        43 of such Code is amended by adding at the end the following 
        new item:

                               ``Sec. 4980G. Failure of defined 
                                        contribution plans with respect 
                                        to lockdowns.''.

SEC. 504. REPORT TO PARTICIPANTS AND BENEFICIARIES OF TRADES IN 
              EMPLOYER SECURITIES.

    (a) In General.--Section 104 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1024) is amended--
            (1) by redesignating subsection (d) as subsection (e); and
            (2) by inserting after subsection (c) the following new 
        subsection:
    ``(d)(1) In any case in which assets in the individual account of a 
participant or beneficiary under an individual account plan include 
employer securities, if any person engages in a transaction 
constituting a direct or indirect purchase or sale of employer 
securities and--
            ``(A) such transaction is required under section 16 of the 
        Securities Exchange Act of 1934 to be reported by such person 
        to the Securities and Exchange Commission, or
            ``(B) such person is a named fiduciary of the plan,
such person shall comply with the requirements of paragraph (2).
    ``(2) A person described in paragraph (1) complies with the 
requirements of this paragraph in connection with a transaction 
described in paragraph (1) if such person provides to the plan 
administrator of the plan a written notification of the transaction not 
later than 1 business day after the date of the transaction.
    ``(3)(A) If the plan administrator is made aware, on the basis of 
notifications received pursuant to paragraph (2) or otherwise, that the 
proceeds from any transaction described in paragraph (1), constituting 
direct or indirect sales of employer securities by any person described 
in paragraph (1), exceed $100,000, the plan administrator of the plan 
shall provide to each participant and beneficiary a notification of 
such transaction. Such notification shall be in writing, except that 
such notification may be in electronic or other form to the extent that 
such form is reasonably accessible to the participant or beneficiary.
    ``(B) In any case in which the proceeds from any transaction 
described in paragraph (1) (with respect to which a notification has 
not been provided pursuant to this paragraph), together with the 
proceeds from any other such transaction or transactions described in 
paragraph (1) occurring during the preceding one-year period, 
constituting direct or indirect sales of employer securities by any 
person described in paragraph (1), exceed (in the aggregate) $100,000, 
such series of transactions by such person shall be treated as a 
transaction described in subparagraph (A) by such person.
    ``(C) Each notification required under this paragraph shall be 
provided as soon as practicable, but not later than 3 business days 
after receipt of the written notification or notifications indicating 
that the transaction (or series of transactions) requiring such notice 
has occurred.
    ``(4) Each notification required under paragraph (2) or (3) shall 
be made in such form and manner as may be prescribed in regulations of 
the Secretary and shall include the number of shares involved in each 
transaction and the price per share, and the notification required 
under paragraph (3) shall be written in language designed to be 
understood by the average plan participant. The Secretary may provide 
by regulation, in consultation with the Securities and Exchange 
Commission, for exemptions from the requirements of this subsection 
with respect to specified types of transactions to the extent that such 
exemptions are consistent with the best interests of plan participants 
and beneficiaries. Such exemptions may relate to transactions involving 
reinvestment plans, stock splits, stock dividends, qualified domestic 
relations orders, and similar matters.
    ``(5) For purposes of this subsection, the term `employer security' 
has the meaning provided in section 407(d)(1).''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to transactions occurring on or after October 1, 
2002.

SEC. 505. PROVISION TO PARTICIPANTS AND BENEFICIARIES OF MATERIAL 
              INVESTMENT INFORMATION IN ACCURATE FORM.

    Section 404(c) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1104(c)) is amended by adding at the end the following 
new paragraph:
    ``(4) The plan sponsor and plan administrator of a pension plan 
described in paragraph (1) shall have a fiduciary duty to ensure that 
each participant and beneficiary under the plan, in connection with the 
investment by the participant or beneficiary of plan assets in the 
exercise of his or her control over assets in his account, is provided 
with all material investment information regarding investment of such 
assets to the extent that the provision of such information is 
generally required to be disclosed by the plan sponsor to investors in 
connection with such an investment under applicable securities laws. 
The provision by the plan sponsor or plan administrator of any 
misleading investment information shall be treated as a violation of 
this paragraph.''.

SEC. 506. ENFORCEMENT OF INFORMATION AND DISCLOSURE REQUIREMENTS.

    (a) In General.--Section 502(c) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1132(c)) is amended--
            (1) by redesignating paragraph (7) as paragraph (8); and
            (2) by inserting after paragraph (6) the following new 
        paragraph:
    ``(7) The Secretary may assess a civil penalty against any person 
required to provide any notification under the provisions of section 
104(d), any statement under the provisions of subsection (a), (d), or 
(f) of section 105, any information under the provisions of section 
404(c)(4), or any notice under the provisions of section 404(f)(1) of 
up to $1,000 a day from the date of any failure by such person to 
provide such notification, statement, information, or notice in 
accordance with such provisions.''.
    (b) Conforming Amendment.--Section 502(a)(6) of such Act (29 U.S.C. 
1132(a)(6)) (as amended by section 502(b) of this Act) is amended 
further by striking ``(5), or (6)'' and inserting ``(5), (6), or (7)''.

                Subtitle B--Diversification Requirements

SEC. 511. FREEDOM TO MAKE INVESTMENT DECISIONS WITH PLAN ASSETS.

    (a) Amendments to the Employee Retirement Income Security Act of 
1974.--Section 404 of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1104) (as amended by section 503 of this Act) is 
amended further by adding at the end the following new subsection:
    ``(f)(1)(A)(i) Subject to clause (ii), an individual account plan 
under which a participant or beneficiary is permitted to exercise 
control over assets in his or her account shall provide that--
            ``(I) any such participant or beneficiary has the right to 
        allocate all assets in his or her account (and any portion 
        thereof) attributable to employee contributions to any 
        investment option provided under the plan, and
            ``(II) any such participant who has completed 3 years of 
        service (as defined in section 203(b)(2)) with the employer, or 
        any such beneficiary of such a participant, has the right to 
        allocate all assets in his or her account (and any portion 
        thereof) attributable to employer contributions to any 
        investment option provided under the plan.
The application of any penalty or any restriction based on age or years 
of service in connection with any exercise of such right as provided 
under this clause shall be construed as a violation of this clause.
    ``(ii) Clause (i) shall apply only to so much of a nonforfeitable 
accrued benefit as consists of employer securities which are readily 
tradable on an established securities market.
    ``(B)(i) Except as provided in clause (ii), within 5 days after the 
date of any election by a participant or beneficiary allocating his or 
her nonforfeitable accrued benefit to any investment option provided 
under the plan, the plan administrator shall take such actions as are 
necessary to effectuate such allocation.
    ``(ii) In any case in which the plan provides for elections 
periodically during prescribed periods, the 5-day period described in 
clause (i) shall commence at the end of each such prescribed period.
    ``(C) Nothing in this paragraph shall be construed to limit the 
authority of a plan to impose limitations on the portion of plan assets 
in any account which may be invested in employer securities to the 
extent that any such limitation is consistent with this title and not 
more restrictive than is permitted under this title.
    ``(2) Not later than 30 days prior to the date on which the right 
of a participant under an individual account plan to his or her accrued 
benefit becomes nonforfeitable, the plan administrator shall provide to 
such participant and his or her beneficiaries a written notice--
            ``(A) setting forth their rights under this section with 
        respect to the accrued benefit, and
            ``(B) describing the importance of diversifying the 
        investment of account assets.''.
    (b) Amendments to the Internal Revenue Code of 1986.--
            (1) Excise tax on failure to permit diversification of 
        employer securities.--Chapter 43 of the Internal Revenue Code 
        of 1986 (relating to qualified pension, etc., plans) is amended 
        by adding at the end the following new section:

``SEC. 4980H. FAILURE OF DEFINED CONTRIBUTION PLANS TO PERMIT 
              DIVERSIFICATION OF EMPLOYER SECURITIES.

    ``(a) Imposition of Tax.--There is hereby imposed a tax on the 
failure of any defined contribution plan to meet the requirements of 
subsection (e) with respect to any participant or beneficiary.
    ``(b) Amount of Tax.--The amount of the tax imposed by subsection 
(a) on any failure with respect to any participant or beneficiary shall 
be $1,000 for each day for which the failure is not corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply to failures corrected as soon as 
        reasonably practicable.--No tax shall be imposed by subsection 
        (a) on any failure if--
                    ``(A) any person subject to liability for the tax 
                under subsection (d) exercised reasonable diligence to 
                meet the requirements of subsection (e), and
                    ``(B) such person meets the requirements of 
                subsection (e) as soon as reasonably practicable after 
                the first date such person knew, or exercising 
                reasonable diligence should have known, that such 
                failure existed.
            ``(2) Overall limitation for unintentional failures.--
                    ``(A) In general.--If the person subject to 
                liability for tax under subsection (d) exercised 
                reasonable diligence to meet the requirements of 
                subsection (e), the tax imposed by subsection (a) for 
                failures during the taxable year of the employer (or, 
                in the case of a multiemployer plan, the taxable year 
                of the trust forming part of the plan) shall not exceed 
                $500,000. For purposes of the preceding sentence, all 
                multiemployer plans of which the same trust forms a 
                part shall be treated as 1 plan.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this paragraph, if 
                all persons who are treated as a single employer for 
                purposes of this section do not have the same taxable 
                year, the taxable years taken into account shall be 
                determined under principles similar to the principles 
                of section 1561.
            ``(3) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by 
        subsection (a) to the extent that the payment of such tax would 
        be excessive or otherwise inequitable relative to the failure 
        involved.
    ``(d) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a):
            ``(1) In the case of a plan other than a multiemployer 
        plan, the employer.
            ``(2) In the case of a multiemployer plan, the plan.
    ``(e) Requirements Relating to Diversification of Employer 
Security.--
            ``(1) In general.--The requirements of this subsection are 
        the requirements of paragraphs (2), (3), and (4).
            ``(2) Right to direct investments.--
                    ``(A) In general.--Subject to subparagraph (B), a 
                plan meets the requirements of this paragraph if, under 
                the plan--
                            ``(i) any participant or beneficiary who is 
                        permitted to exercise control over assets in 
                        his or her account has the right to allocate 
                        all assets in his or her account (and any 
                        portion thereof) attributable to employee 
                        contributions to any investment option provided 
                        under the plan, and
                            ``(ii) any such participant who has 
                        completed 3 years of service (as defined in 
                        section 411(a)(5)) with the employer, or any 
                        such beneficiary of such a participant, has the 
                        right to allocate all assets in his or her 
                        account (and any portion thereof) attributable 
                        to employer contributions to any investment 
                        option provided under the plan.
                The application of any penalty or any restriction based 
                on age or years of service in connection with any 
                exercise of such right as provided under this clause 
                shall be construed as a violation of this clause.
                    ``(B) Limitation to readily tradable employer 
                securities.--Subparagraph (A) shall apply only to so 
                much of a nonforfeitable accrued benefit as consists of 
                employer securities which are readily tradable on an 
                established securities market.
            ``(3) Prompt compliance with directions to allocate 
        investments.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a plan meets the requirements of this 
                paragraph if the plan provides that, within 5 days 
                after the date of any election by a participant or 
                beneficiary allocating his or her nonforfeitable 
                accrued benefit to any investment option provided under 
                the plan, the plan administrator shall take such 
                actions as are necessary to effectuate such allocation.
                    ``(B) Special rule for periodic elections.--In any 
                case in which the plan provides for elections 
                periodically during prescribed periods, the 5-day 
                period described in subparagraph (A) shall commence at 
                the end of each such prescribed period.
            ``(4) Notice of rights and of importance of 
        diversification.--A plan meets the requirements of this 
        paragraph if the plan provides that, not later than 30 days 
        prior to the date on which the right of a participant under the 
plan to his or her accrued benefit becomes nonforfeitable, the plan 
administrator shall provide to such participant and his or her 
beneficiaries a written notice--
                    ``(A) setting forth their rights under this section 
                with respect to the accrued benefit, and
                    ``(B) describing the importance of diversifying the 
                investment of account assets.
            ``(5) Preservation of authority of plan to limit 
        investment.--Nothing in this subsection shall be construed to 
        limit the authority of a plan to impose limitations on the 
        portion of plan assets in any account which may be invested in 
        employer securities.''.
            (2) Clerical amendment.--The table of sections for chapter 
        43 of such Code is amended by adding at the end the following 
        new item:

                               ``Sec. 4980H. Failure of defined 
                                        contribution plans to permit 
                                        diversification of employer 
                                        securities.''.
    (c) Recommendations Relating to Non-Publicly Traded Stock.--Within 
1 year after the date of the enactment of this Act, the Secretary of 
Labor and the Secretary of the Treasury shall jointly transmit to the 
Committee on Education and the Workforce and the Committee on Ways and 
Means of the House of Representatives and the Committee on Health, 
Education, Labor, and Pensions and the Committee on Finance of the 
Senate their recommendations regarding legislative changes relating to 
treatment, under section 404(e) of the Employee Retirement Income 
Security Act of 1974 and section 401(a)(35) of the Internal Revenue 
Code of 1986 (as added by this section), of individual account plans 
under which a participant or beneficiary is permitted to exercise 
control over assets in his or her account, in cases in which such 
assets do not include employer securities which are readily tradable 
under an established securities market.

SEC. 512. EFFECTIVE DATE OF SUBTITLE.

    (a) In General.--Subject to subsection (b), the amendments made by 
this subtitle shall apply with respect to plan years beginning on or 
after January 1, 2003.
    (b) Delayed Effective Date for Existing Holdings.--In any case in 
which a portion of the nonforfeitable accrued benefit of a participant 
or beneficiary is held in the form of employer securities (as defined 
in section 407(d)(1) of the Employee Retirement Income Security Act of 
1974) immediately before the first date of the first plan year to which 
the amendments made by this subtitle apply, such portion shall be taken 
into account only with respect to plan years beginning on or after 
January 1, 2004.

                  Subtitle C--Employee Representation

SEC. 521. PARTICIPATION OF PARTICIPANTS IN TRUSTEESHIP OF INDIVIDUAL 
              ACCOUNT PLANS.

    (a) In General.--Section 403(a) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1103(a)) is amended--
            (1) by redesignating paragraphs (1) and (2) as 
        subparagraphs (A) and (B), respectively;
            (2) by inserting ``(1)'' after ``(a)''; and
            (3) by adding at the end the following new paragraph:
    ``(2)(A) The assets of a single-employer plan which is an 
individual account plan and under which some or all of the assets are 
derived from employee contributions shall be held in trust by a joint 
board of trustees, which shall consist of two or more trustees 
representing on an equal basis the interests of the employer or 
employers maintaining the plan and the interests of the participants 
and their beneficiaries and having equal voting rights.
    ``(B)(i) Except as provided in clause (ii), in any case in which 
the plan is maintained pursuant to one or more collective bargaining 
agreements between one or more employee organizations and one or more 
employers, the trustees representing the interests of the participants 
and their beneficiaries shall be designated by such employee 
organizations.
    ``(ii) Clause (i) shall not apply with respect to a plan described 
in such clause if the employee organization (or all employee 
organizations, if more than one) referred to in such clause file with 
the Secretary, in such form and manner as shall be prescribed in 
regulations of the Secretary, a written waiver of their rights under 
clause (i).
    ``(iii) In any case in which clause (i) does not apply with respect 
to a single-employer plan because the plan is not described in clause 
(i) or because of a waiver filed pursuant to clause (ii), the trustee 
or trustees representing the interests of the participants and their 
beneficiaries shall be selected by the plan participants in accordance 
with regulations of the Secretary.
    ``(C) An individual shall not be treated as ineligible for 
selection as trustee solely because such individual is an employee of 
the plan sponsor, except that the employee so selected may not be a 
highly compensated employee (as defined in section 414(q) of the 
Internal Revenue Code of 1986).
    ``(D) The Secretary shall provide by regulation for the appointment 
of a neutral individual, in accordance with the procedures under 
section 203(f) of the Labor Management Relations Act, 1947 (29 U.S.C. 
173(f)), to cast votes as necessary to resolve tie votes by the 
trustees.''.
    (b) Regulations.--The Secretary of Labor shall prescribe the 
initial regulations necessary to carry out the provisions of the 
amendments made by this section not later than 90 days after the date 
of the enactment of this Act.

                      Subtitle D--Executive Parity

SEC. 531. INSIDER TRADES DURING PENSION FUND BLACKOUT PERIODS 
              PROHIBITED.

    (a) Prohibition.--It shall be unlawful for any person who is 
directly or indirectly the beneficial owner of more than 10 percent of 
any class of any equity security (other than an exempted security) 
which is registered under section 12 of the Securities Exchange Act of 
1934 (15 U.S.C. 78l) or who is a director or an officer of the issuer 
of such security, directly or indirectly, to purchase (or otherwise 
acquire) or sell (or otherwise transfer) any equity security of any 
issuer (other than an exempted security), during any blackout period 
with respect to such equity security.
    (b) Remedy.--Any profit realized by such beneficial owner, 
director, or officer from any purchase (or other acquisition) or sale 
(or other transfer) in violation of this section shall inure to and be 
recoverable by the issuer irrespective of any intention on the part of 
such beneficial owner, director, or officer in entering into the 
transaction. Suit to recover such profit may be instituted at law or in 
equity in any court of competent jurisdiction by the issuer, or by the 
owner of any security of the issuer in the name and in behalf of the 
issuer if the issuer shall fail or refuse to bring such suit within 60 
days after request or shall fail diligently to prosecute the same 
thereafter; but no such suit shall be brought more than 2 years after 
the date such profit was realized. This subsection shall not be 
construed to cover any transaction where such beneficial owner was not 
such both at the time of the purchase and sale, or the sale and 
purchase, of the security or security-based swap (as defined in section 
206B of the Gramm-Leach-Bliley Act) involved, or any transaction or 
transactions which the Commission by rules and regulations may exempt 
as not comprehended within the purposes of this subsection.
    (c) Rulemaking Permitted.--The Commission may issue rules to 
clarify the application of this subsection, to ensure adequate notice 
to all persons affected by this subsection, and to prevent evasion 
thereof.
    (d) As used in this section:
            (1) Beneficial owner.--The term ``beneficial owner'' has 
        the meaning provided such term in rules or regulations issued 
        by the Commission under section 16 of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78p).
            (2) Blackout period.--The term ``blackout period'' with 
        respect to the equity securities of any issuer--
                    (A) means any period during which the ability of at 
                least fifty percent of the participants or 
                beneficiaries under all applicable individual account 
                plans maintained by the issuer to purchase (or 
                otherwise acquire) or sell (or otherwise transfer) an 
                interest in any equity of such issuer is suspended by 
                the issuer or a fiduciary of the plan; but
                    (B) does not include--
                            (i) a period in which the employees of an 
                        issuer may not allocate their interests in the 
                        individual account plan due to an express 
                        investment restriction--
                                    (I) incorporated into the 
                                individual account plan; and
                                    (II) timely disclosed to employees 
                                before joining the individual account 
                                plan or as a subsequent amendment to 
                                the plan;
                            (ii) any suspension described in 
                        subparagraph (A) that is imposed solely in 
                        connection with persons becoming participants 
                        or beneficiaries, or ceasing to be participants 
                        or beneficiaries, in an applicable individual 
                        account plan by reason of a corporate merger, 
                        acquisition, divestiture, or similar 
                        transaction.
            (3) Commission.--The term ``Commission'' means the 
        Securities and Exchange Commission.
            (4) Individual account plan.--The term ``individual account 
        plan'' has the meaning provided such term in section 3(34) of 
        the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1002(34)).
            (5) Issuer.--The term ``issuer'' shall have the meaning set 
        forth in section 2(a)(4) of the Securities Act of 1933 (15 
        U.S.C. 77b(a)(4)).

                  Subtitle E--Increased Accountability

SEC. 541. BONDING OR INSURANCE ADEQUATE TO PROTECT INTEREST OF 
              PARTICIPANTS AND BENEFICIARIES.

    Section 412 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1112) is amended by adding at the end the following new 
subsection:
    ``(f) Notwithstanding the preceding provisions of this section, 
each fiduciary of an individual account plan shall be bonded or 
insured, in accordance with regulations which shall be prescribed by 
the Secretary, in an amount sufficient to ensure coverage by the bond 
or insurance of financial losses due to any failure to meet the 
requirements of this part.''.

SEC. 542. LIABILITY FOR BREACH OF FIDUCIARY DUTY.

    (a) Liability for Participating In or Concealing Fiduciary 
Breach.--
            (1) Application to participants and beneficiaries of 401(k) 
        plans.--
                    (A) In general.--Part 4 of subtitle B of title I of 
                the Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1101 et seq.) is amended by adding after section 
                409 the following new section:

``SEC. 409A. LIABILITY FOR BREACH OF FIDUCIARY DUTY IN 401(K) PLANS.

    ``(a) Any person who is a fiduciary with respect to an individual 
account plan that includes a qualified cash or deferred arrangement 
under section 401(k) of the Internal Revenue Code of 1986 who breaches 
any of the responsibilities, obligations, or duties imposed upon 
fiduciaries by this title shall be personally liable to make good to 
each participant and beneficiary of the plan any losses to such 
participant or beneficiary resulting from each such breach, and to 
restore to such participant or beneficiary any profits of such 
fiduciary which have been made through use of assets of the plan by the 
fiduciary, and shall be subject to such other equitable or remedial 
relief as the court may deem appropriate, including removal of such 
fiduciary. A fiduciary may also be removed for a violation of section 
411 of this Act.
    ``(b) The right of participants and beneficiaries under subsection 
(a) to sue for breach of fiduciary duty with respect to an individual 
account plan that includes a qualified cash or deferred arrangement 
under section 401(k) of such Code shall be in addition to all existing 
rights that participants and beneficiaries have under section 409, 
section 502, and any other provision of this title, and shall not be 
construed to give rise to any inference that such rights do not already 
exist under section 409, section 502, or any other provision of this 
title.
    ``(c) No fiduciary shall be liable with respect to a breach of 
fiduciary duty under this title if such breach was committed before he 
or she became a fiduciary or after he or she ceased to be a 
fiduciary.''
                    (B) Conforming amendment.--The table of contents 
                for part 4 of subtitle B of title I of such Act is 
                amended by inserting the following new item after the 
                item relating to section 409:

                              ``Sec. 409A. Liability for breach of 
                                        fiduciary duty in 401(k) 
                                        plans.''
            (2) Insider liability.--
                    (A) In general.--Section 409 of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 1109) 
                is amended by redesignating subsection (b) as 
                subsection (c) and by inserting after subsection (a) 
                the following new subsection:
    ``(b)(1)(A) If an insider with respect to the plan sponsor of an 
employer individual account plan that holds employer securities that 
are readily tradable on an established securities market--
            ``(i) knowingly participates in a breach of fiduciary 
        responsibility to which subsection (a) applies, or
            ``(ii) knowingly undertakes to conceal such a breach,
such insider shall be personally liable under this subsection for such 
breach in the same manner as the fiduciary who commits such breach.
    ``(B) For purposes of subparagraph (A), the term `insider' means, 
with respect to any plan sponsor of a plan to which subparagraph (A) 
applies--
            ``(i) any officer or director with respect to the plan 
        sponsor, or
            ``(ii) any independent qualified public accountant of the 
        plan or of the plan sponsor.
    ``(3) Any relief provided under this subsection or section 409A--
            ``(A) to an individual account plan shall inure to the 
        individual accounts of the affected participants or 
        beneficiaries, and
            ``(B) to a participant or beneficiary shall be payable to 
        the individual account plan on behalf of such participant or 
        beneficiary unless such plan has been terminated.''
                    (B) Conforming amendment.--Section 409(c) of such 
                Act (29 U.S.C. 1109(c)), as redesignated by 
                subparagraph (A), is amended by inserting before the 
                period the following: ``, unless such liability arises 
                under subsection (b)''.
    (b) Maintenance of Fiduciary Liability.--Section 404(c)(1)(B) of 
such Act (29 U.S.C. 1104(c)(1)(B)) is amended by inserting before the 
period the following: ``, except that this subparagraph shall not be 
construed to exempt any fiduciary from liability for any violation of 
this section''.

SEC. 543. PRESERVATION OF RIGHTS OR CLAIMS.

    Section 502 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1132) is amended by adding at the end the following new 
subsection:
    ``(n)(1) The rights under this title (including the right to 
maintain a civil action) may not be waived, deferred, or lost pursuant 
to any agreement not authorized under this title with specific 
reference to this subsection.
    ``(2) Paragraph (1) shall not apply to an agreement providing for 
arbitration or participation in any other nonjudicial procedure to 
resolve a dispute if the agreement is entered into knowingly and 
voluntarily by the parties involved after the dispute has arisen or is 
pursuant to the terms of a collective bargaining agreement.''.

SEC. 544. OFFICE OF PENSION PARTICIPANT ADVOCACY.

    (a) In General.--Title III of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 3001 et seq.) is amended by adding at 
the end the following:

               ``Subtitle C--Pension Participant Advocacy

                ``office of pension participant advocacy

    ``Sec. 3051. (a) Establishment of Office.--
            ``(1) In general.--There is established in the Department 
        of Labor an office to be known as the `Office of Pension 
        Participant Advocacy'.
            ``(2) Pension participant advocate.--The Office of Pension 
        Participant Advocacy shall be under the supervision and 
        direction of an official to be known as the `Pension 
        Participant Advocate' who shall--
                    ``(A) have demonstrated experience in the area of 
                pension participant assistance, and
                    ``(B) be selected by the Secretary after 
                consultation with pension participant advocacy 
                organizations.
        The Pension Participant Advocate shall report directly to the 
        Secretary and shall be entitled to compensation at the same 
        rate as the highest rate of basic pay established for the 
        Senior Executive Service under section 5382 of title 5, United 
        States Code.
    ``(b) Functions of Office.--It shall be the function of the Office 
of Pension Participant Advocacy to--
            ``(1) evaluate the efforts of the Federal Government, 
        business, and financial, professional, retiree, labor, women's, 
        and other appropriate organizations in assisting and protecting 
        pension plan participants, including--
                    ``(A) serving as a focal point for, and actively 
                seeking out, the receipt of information with respect to 
                the policies and activities of the Federal Government, 
                business, and such organizations which affect such 
                participants,
                    ``(B) identifying significant problems for pension 
                plan participants and the capabilities of the Federal 
                Government, business, and such organizations to address 
                such problems, and
                    ``(C) developing proposals for changes in such 
                policies and activities to correct such problems, and 
                communicating such changes to the appropriate 
                officials,
            ``(2) promote the expansion of pension plan coverage and 
        the receipt of promised benefits by increasing the awareness of 
        the general public of the value of pension plans and by 
        protecting the rights of pension plan participants, including--
                    ``(A) enlisting the cooperation of the public and 
                private sectors in disseminating information, and
                    ``(B) forming private-public partnerships and other 
                efforts to assist pension plan participants in 
                receiving their benefits,
            ``(3) advocating for the full attainment of the rights of 
        pension plan participants, including by making pension plan 
        sponsors and fiduciaries aware of their responsibilities,
            ``(4) giving priority to the special needs of low and 
        moderate income participants,
            ``(5) developing needed information with respect to pension 
        plans, including information on the types of existing pension 
        plans, levels of employer and employee contributions, vesting 
        status, accumulated benefits, benefits received, and forms of 
        benefits, and
            ``(6) pursuing claims on behalf of participants and 
        beneficiaries and providing appropriate assistance in the 
        resolution of disputes between participants and beneficiaries 
        and pension plans, including assistance in obtaining settlement 
        agreements.
    ``(c) Reports.--
            ``(1) Annual report.--Not later than December 31 of each 
        calendar year, the Pension Participant Advocate shall report to 
        the Committee on Education and the Workforce of the House of 
        Representatives and the Committee on Health, Education, Labor, 
        and Pensions of the Senate on its activities during the fiscal 
        year ending in the calendar year. Such report shall--
                    ``(A) identify significant problems the Advocate 
                has identified,
                    ``(B) include specific legislative and regulatory 
                changes to address the problems, and
                    ``(C) identify any actions taken to correct 
                problems identified in any previous report.
        The Advocate shall submit a copy of such report to the 
        Secretary and any other appropriate official at the same time 
        it is submitted to the committees of Congress.
            ``(2) Specific reports.--The Pension Participant Advocate 
        shall report to the Secretary or any other appropriate official 
        any time the Advocate identifies a problem which may be 
        corrected by the Secretary or such official.
            ``(3) Reports to be submitted directly.--The report 
        required under paragraph (1) shall be provided directly to the 
        committees of Congress without any prior review or comment than 
        the Secretary or any other Federal officer or employee.
    ``(d) Specific Powers.--
            ``(1) Receipt of information.--Subject to such 
        confidentiality requirements as may be appropriate, the 
        Secretary and other Federal officials shall, upon request, 
        provide such information (including plan documents) as may be 
        necessary to enable the Pension Participant Advocate to carry 
        out the Advocate's responsibilities under this section.
            ``(2) Appearances.--The Pension Participant Advocate may 
        represent the views and interests of pension plan participants 
        before any Federal agency, including, upon request of a 
        participant, in any proceeding involving the participant.
            ``(3) Contracting authority.--In carrying out 
        responsibilities under subsection (b)(5), the Pension 
        Participant Advocate may, in addition to any other authority 
        provided by law--
                    ``(A) contract with any person to acquire 
                statistical information with respect to pension plan 
                participants, and
                    ``(B) conduct direct surveys of pension plan 
                participants.''
    (b) Conforming Amendment.--The table of contents for title III of 
such Act is amended by adding at the end the following:

               ``Subtitle C--Pension Participant Advocacy

``3051. Office of Pension Participant Advocacy.''.
    (c) Effective Date.--The amendment made by this section shall take 
effect on January 1, 2003.

SEC. 545. ADDITIONAL CRIMINAL PENALTIES.

    Section 501 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1131) is amended--
            (1) by inserting ``(a)'' after ``Sec. 501.'';
            (2) by striking ``$5,000'' and inserting ``$50,000'' and by 
        striking ``$100,000'' and inserting ``$500,000'';
            (2) by adding at the end the following new subsection:
    ``(b) Any person described in subsection (a) of section 532 of the 
Investors' and Employees' Bill of Rights Act of 2002 who willfully 
violates such section or section 104(d) or causes an individual account 
plan to fail to meet the requirements of section 409A of the Internal 
Revenue Code of 1986 shall upon conviction be fined not more than 
$500,000 or imprisoned not more than one year, or both.''.

SEC. 546. STUDY REGARDING INSURANCE SYSTEM FOR INDIVIDUAL ACCOUNT 
              PLANS.

    (a) Study.--As soon as practicable after the date of the enactment 
of this Act, the Pension Benefit Guaranty Corporation shall contract to 
carry out a study relating to the establishment of an insurance system 
for individual account plans. In conducting such study, the Corporation 
shall consider--
            (1) the feasibility and impact of such a system, and
            (2) options for developing such a system.
    (b) Report.--Not later than 3 years after the date of the enactment 
of this Act, the Corporation shall report the results of its study, 
together with any recommendations for legislative changes, to the 
Committee on Education and the Workforce and the Committee on Ways and 
Means of the House of Representatives and the Committee on Health, 
Education, Labor, and Pensions and the Committee on Finance of the 
Senate.

    Subtitle F--Investment Advice for Participants and Beneficiaries

SEC. 551. INDEPENDENT INVESTMENT ADVICE.

    (a) In General.--Section 404(c)(1) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1104(c)(1)) (as amended by 
section 542(b) of this Act) is amended further--
            (1) by redesignating subparagraphs (A) and (B) as clauses 
        (i) and (ii), respectively, and by inserting ``(A)'' after 
        ``(c)(1)''; and
            (2) by adding at the end the following new subparagraphs:
    ``(B)(i) In the case of a pension plan described in subparagraph 
(A) which provides investment in employer securities as at least one 
option for investment of plan assets at the direction of the 
participant or beneficiary, such plan shall make available to the 
participant or beneficiary the services of a qualified fiduciary 
adviser for purposes of providing investment advice described in 
section 3(21)(A)(ii) regarding investment in such securities.
    ``(ii) No person who is otherwise a fiduciary shall be liable by 
reason of any investment advice provided by a qualified fiduciary 
adviser pursuant to a request under clause (i) if--
            ``(I) the plan provides for selection and monitoring of 
        such adviser in a prudent and effective manner, and
            ``(II) such adviser is a named fiduciary under the plan in 
        connection with the provision of such advice.
    ``(iii) Subparagraph (A)(ii) shall not apply with respect to a 
fiduciary of a plan in connection with the exercise of control by a 
participant or beneficiary over the assets in his account if--
            ``(I) such exercise of control is undertaken pursuant to 
        investment advice described in section 3(21)(A)(ii) provided by 
        such fiduciary, or
            ``(II) at the time of such exercise of control, the plan 
        fails to meet the requirements of clause (i).
    ``(C) For purposes of subparagraph (B)--
            ``(i) The term `qualified fiduciary adviser' means, with 
        respect to a plan, a person who--
                    ``(I) is a fiduciary of the plan by reason of the 
                provision of qualified investment advice by such person 
                to a participant or beneficiary,
                    ``(II) has no material interest in, and no material 
                affiliation or contractual relationship with any third 
                party having a material interest in, the security or 
                other property with respect to which the person is 
                providing the advice,
                    ``(III) meets the qualifications of clause (ii), 
                and
                    ``(IV) meets the additional requirements of clause 
                (iii).
            ``(ii) A person meets the qualifications of this 
        subparagraph if such person--
                            ``(I) is registered as an investment 
                        adviser under the Investment Advisers Act of 
                        1940 (15 U.S.C. 80b-1 et seq.),
                            ``(II) if not registered as an investment 
                        adviser under such Act by reason of section 
                        203A(a)(1) of such Act (15 U.S.C. 80b-
                        3a(a)(1)), is registered under the laws of the 
                        State in which the fiduciary maintains its 
                        principal office and place of business, and, at 
                        the time the fiduciary last filed the 
                        registration form most recently filed by the 
                        fiduciary with such State in order to maintain 
                        the fiduciary's registration under the laws of 
                        such State, also filed a copy of such form with 
                        the Secretary,
                            ``(III) is registered as a broker or dealer 
                        under the Securities Exchange Act of 1934 (15 
                        U.S.C. 78a et seq.),
                            ``(IV) is a bank or similar financial 
                        institution referred to in section 408(b)(4),
                            ``(V) is an insurance company qualified to 
                        do business under the laws of a State, or
                            ``(VI) is any other comparable entity which 
                        satisfies such criteria as the Secretary 
                        determines appropriate.
                    ``(iii) A person meets the additional requirements 
                of this clause if every individual who is employed (or 
                otherwise compensated) by such person and whose scope 
                of duties includes the provision of qualified 
                investment advice on behalf of such person to any 
                participant or beneficiary is--
                            ``(I) a registered representative of such 
                        person,
                            ``(II) an individual described in subclause 
                        (I), (II), or (III) of clause (i), or
                            ``(III) such other comparable qualified 
                        individual as may be designated in regulations 
                        of the Secretary.''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to investment advice provided in plan years 
beginning on or after January 1, 2003.

SEC. 552. TAX TREATMENT OF QUALIFIED RETIREMENT PLANNING SERVICES.

    (a) In General.--Subsection (m) of section 132 of the Internal 
Revenue Code of 1986 (defining qualified retirement services) is 
amended by adding at the end the following new paragraph:
            ``(4) No constructive receipt.--No amount shall be included 
        in the gross income of any employee solely because the employee 
        may choose between any qualified retirement planning services 
        provided by a qualified investment advisor and compensation 
        which would otherwise be includible in the gross income of such 
        employee. The preceding sentence shall apply to highly 
        compensated employees only if the choice described in such 
        sentence is available on substantially the same terms to each 
        member of the group of employees normally provided education 
        and information regarding the employer's qualified employer 
        plan.''.
    (b) Conforming Amendments.--
            (1) Section 403(b)(3)(B) of such Code is amended by 
        inserting ``132(m)(4),'' after ``132(f)(4),''.
            (2) Section 414(s)(2) of such Code is amended by inserting 
        ``132(m)(4),'' after ``132(f)(4),''.
            (3) Section 415(c)(3)(D)(ii) of such Code is amended by 
        inserting ``132(m)(4),'' after ``132(f)(4),''.
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2002.

                     Subtitle G--General Provisions

SEC. 561. GENERAL EFFECTIVE DATE OF TITLE.

    (a) In General.--Except as otherwise provided in this title, the 
amendments made by this title shall apply with respect to plan years 
beginning on or after January 1, 2003.
    (b) Special Rule for Collectively Bargained Plans.--In the case of 
a plan maintained pursuant to 1 or more collective bargaining 
agreements between employee representatives and 1 or more employers 
ratified on or before the date of the enactment of this Act, subsection 
(a) shall be applied to benefits pursuant to, and individuals covered 
by, any such agreement by substituting for ``January 1, 2003'' the date 
of the commencement of the first plan year beginning on or after the 
earlier of--
            (1) the later of--
                    (A) January 1, 2004, or
                    (B) the date on which the last of such collective 
                bargaining agreements terminates (determined without 
                regard to any extension thereof after the date of the 
                enactment of this Act), or
            (2) January 1, 2005.

SEC. 562. PLAN AMENDMENTS.

    If any amendment made by this title requires an amendment to any 
plan, such plan amendment shall not be required to be made before the 
first plan year beginning on or after the effective date specified in 
section 561 of this Act, if--
            (1) during the period after such amendment made by this 
        title takes effect and before such first plan year, the plan is 
        operated in accordance with the requirements of such amendment 
        made by this title, and
            (2) such plan amendment applies retroactively to the period 
        after such amendment made by this title takes effect and before 
        such first plan year.
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