[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1988 Introduced in House (IH)]

111th CONGRESS
  1st Session
                                H. R. 1988

To amend title I of the Employee Retirement Income Security Act of 1974 
   to provide for independent investment advice for participants and 
             beneficiaries under individual account plans.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 21, 2009

 Mr. Andrews introduced the following bill; which was referred to the 
                    Committee on Education and Labor

_______________________________________________________________________

                                 A BILL


 
To amend title I of the Employee Retirement Income Security Act of 1974 
   to provide for independent investment advice for participants and 
             beneficiaries under individual account plans.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Conflicted Investment Advice 
Prohibition Act of 2009''.

SEC. 2. FINDINGS.

    The Congress finds as follows:
            (1) The market downturn of 2008 had a devastating effect on 
        the retirement security income of millions of American workers.
            (2) According to the Congressional Budget Office, $2 
        trillion of Americans' retirement savings was wiped out over a 
        15-month period starting in 2008.
            (3) According to Congressional Budget Office estimates, the 
        value of pension funds and retirement accounts dropped by 
        roughly $1 trillion last year.
            (4) Individual average losses of participants in 401(k) 
        plans ranged from 7.2 percent to 11.2 percent in the first nine 
        months of 2008, according to an Employee Benefit Research 
        Institute analysis of 2.2 million retirements account 
        participants.
            (5) During the first nine months of 2008, stocks were down, 
        with the S&P 500 index losing more than 19 percent. With over 
        two-thirds of the assets in 401(k)-style defined contribution 
        plans invested in equities, either directly or through mutual 
        funds, participants are exposed to increased risk and lack 
        meaningful access to independent investment advise to help them 
        better plan for their retirement.
            (6) Currently, 401(k) plan account holders have access to a 
        self-interested or conflicted investment adviser.
            (7) In 2007, the Government Accountability Office concluded 
        that conflicts of interest can have an adverse affect on 
        defined benefit and defined contribution plans.

SEC. 3. INDEPENDENT INVESTMENT ADVISERS FOR INDIVIDUAL ACCOUNT PLANS.

    (a) In General.--Section 3 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1002) is amended by adding at the end 
the following new paragraph:
            ``(43) Independent investment adviser.--
                    ``(A) In general.--The term `independent investment 
                adviser' means, with respect to an individual account 
                plan that permits a participant or beneficiary to 
                direct the investment of assets in their individual 
                account, a person who is a fiduciary of the plan by 
                reason of the provision of investment advice referred 
                to in section 3(21)(A)(ii) by the person to the plan or 
                a participant or beneficiary of the plan and who meets 
                the requirements of either subparagraph (B) or (C).
                    ``(B) Requirements applicable to investment 
                adviser.--An investment adviser meets the requirements 
                of this subparagraph, if--
                            ``(i) such adviser is--
                                    ``(I) registered as an investment 
                                adviser under the Investment Advisers 
                                Act of 1940 (15 U.S.C. 80b-1 et seq.) 
                                or under the laws of the State in which 
                                the adviser maintains its principal 
                                office and place of business,
                                    ``(II) a bank or similar financial 
                                institution referred to in section 
                                408(b)(4) or a savings association (as 
                                defined in section 3(b)(1) of the 
                                Federal Deposit Insurance Act (12 
                                U.S.C. 1813(b)(1))), but only if the 
                                investment advice referred to in 
                                section 3(21)(A)(ii) which is provided 
                                by such bank or institution is provided 
                                through a trust department of the bank 
                                or similar financial institution or 
                                savings association which is subject to 
                                periodic examination and review by 
                                Federal or State banking authorities, 
                                or
                                    ``(III) any other person, but only 
                                if every individual providing the 
                                investment advice referred to in 
                                section 3(21)(A)(ii) on behalf of such 
                                person (or on behalf of any affiliate 
                                thereof) is a registered 
                                representative,
                            ``(ii) such adviser (and any affiliate 
                        thereof) does not provide or manage any 
                        investments in which plan assets of any 
                        individual account plan is invested,
                            ``(iii) the fees or other compensation 
                        received, directly or indirectly, by such 
                        adviser (and any affiliate thereof) with 
                        respect to the provision of investment advice 
                        to any individual account plan or the 
                        participants or beneficiaries of such a plan 
                        either--
                                    ``(I) are not received from any 
                                person or persons (or anyone affiliated 
                                with such persons) that market, sell, 
                                manage or provide investments in which 
                                plan assets of any individual account 
                                plan are invested, or
                                    ``(II) do not vary depending on the 
                                basis of any investment option 
                                selected, and are calculated pursuant 
                                to one or more of the following bases--
                                            ``(aa) a flat-dollar basis,
                                            ``(bb) a flat percentage of 
                                        total plan assets basis, or
                                            ``(cc) a per-participant 
                                        basis, and
                            ``(iv) such adviser provides the investment 
                        advice pursuant to a written arrangement with 
                        the individual account plan that--
                                    ``(I) provides that the investment 
                                adviser is a fiduciary of the plan with 
                                respect to the provision of the advice,
                                    ``(II) requires that the advice be 
                                provided only by registered 
                                representatives of the investment 
                                adviser or an affiliate thereof,
                                    ``(III) discloses whether the 
                                investment adviser or any affiliate 
                                thereof has any material financial, 
                                referral, or other relationship or 
                                arrangement with a money manager, 
                                broker, other client of the investment 
                                adviser or any affiliate thereof, other 
                                service provider to the plan, or any 
                                other entity that creates or may create 
                                a conflict of interest for the 
                                investment adviser in performing 
                                services pursuant to the arrangement 
                                with the plan and, if so, includes a 
                                description of such relationship or 
                                arrangement,
                                    ``(IV) includes a representation by 
                                the investment adviser that, before the 
                                arrangement was entered into (or 
                                extended or renewed), the investment 
                                adviser provided to the plan fiduciary 
                                that has authority to cause the 
                                employee benefit plan to enter into (or 
                                extend or renew) the arrangement a 
                                written statement disclosing all fees 
                                or other compensation that the 
                                investment adviser or any affiliate 
                                thereof anticipates to receive with 
                                respect to the advice during the first 
                                year, or other period if less than a 
                                year, of the arrangement, and
                                    ``(V) provides that the investment 
                                adviser will provide to such plan 
                                fiduciary (and the participant and 
                                beneficiary receiving the advice, if 
                                applicable) a statement annually 
                                disclosing all fees or other 
                                compensation that the investment 
                                adviser or any affiliate thereof has 
                                received with respect to the advice 
                                during the prior year.
                    ``(C) Advice provided to participants and 
                beneficiaries under an investment advice program 
                meeting requirements.--An investment adviser meets the 
                requirements of this subparagraph if the investment 
                advice provided by the adviser, to the extent that such 
                advice is provided to participants and beneficiaries of 
                individual account plans, is provided under an 
                investment advice program with respect to which the 
                requirements of clauses (i) through (x) are met.
                            ``(i) Adviser requirements.--The 
                        requirements of this clause are met if the 
                        investment adviser providing the investment 
                        advice under the program is--
                                    ``(I) described in subclauses (I) 
                                or (II) of subparagraph (B)(i),
                                    ``(II) an insurance company 
                                qualified to do business under the laws 
                                of a State,
                                    ``(III) a person registered as a 
                                broker or dealer under the Securities 
                                Exchange Act of 1934 (15 U.S.C. 78a et 
                                seq.),
                                    ``(IV) an affiliate of a person 
                                described in any of subclauses (I) 
                                through (III), or
                                    ``(V) an employee, agent, or 
                                registered representative of a person 
                                described in subclauses (I) through 
                                (IV) who satisfies the requirements of 
                                applicable insurance, banking, and 
                                securities laws relating to the 
                                provision of the advice.
                            ``(ii) Computer model.--The requirements of 
                        this clause are met if the investment advice 
                        provided under the investment advice program is 
                        provided pursuant to a computer model that--
                                    ``(I) applies generally accepted 
                                investment theories that take into 
                                account the historic returns of 
                                different asset classes over defined 
                                periods of time,
                                    ``(II) utilizes relevant 
                                information about the participant, 
                                which may include age, life expectancy, 
                                retirement age, risk tolerance, other 
                                assets or sources of income, and 
                                preferences as to certain types of 
                                investments,
                                    ``(III) utilizes prescribed 
                                objective criteria to provide asset 
                                allocation portfolios comprised of 
                                investment options available under the 
                                plan,
                                    ``(IV) operates in a manner that is 
                                not biased in favor of investments 
                                offered by the investment adviser or 
                                any person with a material affiliation 
                                or contractual relationship with the 
                                investment adviser, and
                                    ``(V) takes into account all 
                                investment options under the plan in 
                                specifying how a participant's account 
                                balance should be invested and is not 
                                inappropriately weighted with respect 
                                to any investment option.
                            ``(iii) Certification.--
                                    ``(I) In general.--The requirements 
                                of this clause are met with respect to 
                                the program if an eligible investment 
                                expert certifies, prior to the 
                                utilization of the computer model and 
                                in accordance with rules prescribed by 
                                the Secretary, that the computer model 
                                meets the requirements of clause (ii).
                                    ``(II) Renewal of certifications.--
                                If, as determined under regulations 
                                prescribed by the Secretary, there are 
                                material modifications to the computer 
                                model, the requirements of this 
                                subparagraph are met only if a 
                                certification described in subclause 
                                (I) is obtained with respect to the 
                                computer model as so modified.
                                    ``(III) Eligible investment 
                                expert.--For purposes of this clause, 
                                the term `eligible investment expert' 
                                means any person--
                                            ``(aa) which meets such 
                                        requirements as the Secretary 
                                        may provide, and
                                            ``(bb) does not bear any 
                                        material affiliation or 
                                        contractual relationship with 
                                        any investment adviser or a 
                                        related person thereof (or any 
                                        employee, agent, or registered 
                                        representative of the 
                                        investment adviser or related 
                                        person).
                            ``(iv) Exclusivity of recommendation.--The 
                        requirements of this clause are met with 
                        respect to the program, if--
                                    ``(I) the only investment advice 
                                provided under the program is the 
                                advice generated by the computer model 
                                described in clause (ii), and
                                    ``(II) any transaction pursuant to 
                                the investment advice occurs solely at 
                                the direction of the participant or 
                                beneficiary.
                            ``(v) Express authorization by separate 
                        fiduciary.--The requirements of this clause are 
                        met with respect to the program if the program 
                        is expressly authorized by a plan fiduciary 
                        other than--
                                    ``(I) the person offering the 
                                program,
                                    ``(II) any person providing 
                                investment options under the plan, and
                                    ``(III) any affiliate of either 
                                person described in subclause (I) or 
                                (II).
                            ``(vi) Annual audit.--The requirements of 
                        this clause are met with respect to the program 
                        if an independent auditor, who has appropriate 
                        technical training or experience and 
                        proficiency and so represents in writing--
                                    ``(I) conducts an annual audit of 
                                the program for compliance with the 
                                requirements of this subparagraph, and
                                    ``(II) following completion of the 
                                annual audit, issues a written report 
                                to the fiduciary who authorized use of 
                                the program which presents its specific 
                                findings regarding compliance of the 
                                program with the requirements of this 
                                subsection.
                        For purposes of this clause, an auditor is 
                        considered independent if it is not related to 
                        the person offering the program to the plan and 
                        is not affiliated with any person providing 
                        investment options under the plan.
                            ``(vii) Disclosure.--The requirements of 
                        this clause are met with respect to the 
                        program, if--
                                    ``(I) the investment adviser 
                                provides to the participant or 
                                beneficiary receiving investment advice 
                                under the program with regard to any 
                                security or other property offered as 
                                an investment option, before providing 
                                the advice, a written notification 
                                (which may consist of notification by 
                                means of electronic communication)--
                                            ``(aa) of the role of any 
                                        party that has a material 
                                        affiliation or contractual 
                                        relationship with the 
                                        investment adviser in the 
                                        development of the investment 
                                        advice program and in the 
                                        selection of investment options 
                                        available under the plan,
                                            ``(bb) of all fees or other 
                                        compensation relating to the 
                                        advice that the investment 
                                        adviser or any affiliate 
                                        thereof is to receive 
                                        (including compensation 
                                        provided by any third party) in 
                                        connection with the provision 
                                        of the advice or in connection 
                                        with the sale, acquisition, or 
                                        holding of the security or 
                                        other property,
                                            ``(cc) of any material 
                                        affiliation or contractual 
                                        relationship of the investment 
                                        adviser or affiliates thereof 
                                        in the security or other 
                                        property,
                                            ``(dd) of the manner, and 
                                        under what circumstances, any 
                                        information relating to the 
                                        participant or beneficiary 
                                        which is provided under the 
                                        program will be used or 
                                        disclosed,
                                            ``(ee) of the types of 
                                        services provided by the 
                                        investment adviser in 
                                        connection with the provision 
                                        of investment advice by the 
                                        investment adviser, and
                                            ``(ff) that a recipient of 
                                        the advice may separately 
                                        arrange for the provision of 
                                        advice by another adviser, that 
                                        could have no material 
                                        affiliation with, and could 
                                        receive no fees or other 
                                        compensation, in connection 
                                        with the security or other 
                                        property, and
                                    ``(II) at all times during the 
                                provision of advisory services to the 
                                participant or beneficiary, the 
                                investment adviser--
                                            ``(aa) maintains the 
                                        information described in 
                                        subclause (I) in accurate form 
                                        and in the manner described in 
                                        clause (ix),
                                            ``(bb) provides, without 
                                        charge, accurate information to 
                                        the recipient of the advice no 
                                        less frequently than annually,
                                            ``(cc) provides, without 
                                        charge, accurate information to 
                                        the recipient of the advice 
                                        upon request of the recipient, 
                                        and
                                            ``(dd) provides, without 
                                        charge, accurate information to 
                                        the recipient of the advice 
                                        concerning any material change 
                                        to the information required to 
                                        be provided to the recipient of 
                                        the advice at a time reasonably 
                                        contemporaneous to the change 
                                        in information.
                            ``(viii) Other conditions.--The 
                        requirements of this clause are met with 
                        respect to the program, if--
                                    ``(I) the investment adviser 
                                provides appropriate disclosure, in 
                                connection with the sale, acquisition, 
                                or holding of the security or other 
                                property with respect to which the 
                                investment advice is provided under the 
                                program, in accordance with all 
                                applicable securities laws,
                                    ``(II) the sale, acquisition, or 
                                holding occurs solely at the direction 
                                of the recipient of the advice,
                                    ``(III) the compensation received 
                                by the investment adviser and 
                                affiliates thereof in connection with 
                                the sale, acquisition, or holding of 
                                the security or other property is 
                                reasonable, and
                                    ``(IV) the terms of the sale, 
                                acquisition, or holding of the security 
                                or other property are at least as 
                                favorable to the plan as an arm's 
                                length transaction would be.
                            ``(ix) Standards for presentation of 
                        information.--
                                    ``(I) In general.--The requirements 
                                of this clause are met with respect to 
                                the program if the notification 
                                required to be provided to participants 
                                and beneficiaries under clause (vii)(I) 
                                is written in a clear and conspicuous 
                                manner and in a manner calculated to be 
                                understood by the average plan 
                                participant and is sufficiently 
                                accurate and comprehensive to 
                                reasonably apprise such participants 
                                and beneficiaries of the information 
                                required to be provided in the 
                                notification.
                                    ``(II) Model form for disclosure of 
                                fees and other compensation.--The 
                                Secretary shall issue a model form for 
                                the disclosure of fees and other 
                                compensation required in clause 
                                (vii)(I)(bb) which meets the 
                                requirements of subclause (I).
                            ``(x) Maintenance for 6 years of evidence 
                        of compliance.--The requirements of this clause 
                        are met with respect to the program if the 
                        investment adviser who provides advice under 
                        the program maintains, for a period of not less 
                        than 6 years after the provision of the advice, 
                        any records necessary for determining whether 
                        the requirements of the preceding provisions of 
                        this subparagraph and of subsection (b)(14) 
                        have been met. A transaction prohibited under 
                        section 406 shall not be considered to have 
                        occurred solely because the records are lost or 
                        destroyed prior to the end of the 6-year period 
                        due to circumstances beyond the control of the 
                        investment adviser.
                    ``(D) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Affiliate.--The term `affiliate' of 
                        an investment adviser means any person directly 
                        or indirectly (through one or more 
                        intermediaries) controlling, controlled by, or 
                        under common control with the investment 
                        adviser, or any officer, director, agent, or 
                        employee of, or partner with, the investment 
                        adviser.
                            ``(ii) Registered representative.--The term 
                        `registered representative' of another entity 
                        means a person described in section 3(a)(18) of 
                        the Securities Exchange Act of 1934 (15 U.S.C. 
                        78c(a)(18)) (substituting the entity for the 
                        broker or dealer referred to in such section) 
                        or a person described in section 202(a)(17) of 
                        the Investment Advisers Act of 1940 (15 U.S.C. 
                        80b-2(a)(17)) (substituting the entity for the 
                        investment adviser referred to in such 
                        section).
                            ``(iii) Fees or other compensation.--The 
                        term `fees or other compensation' includes 
                        money or any other thing of monetary value (for 
                        example, gifts, awards, and trips) received, or 
                        to be received, directly from the plan or plan 
                        sponsor or indirectly (i.e., from any source 
                        other than the plan or the plan sponsor) by the 
                        investment adviser or any affiliate thereof in 
                        connection with the advice to be provided 
                        pursuant to the arrangement or because of the 
                        investment adviser's or any affiliate's 
                        position with the plan. Fees or other 
                        compensation may be expressed in terms of a 
                        monetary amount, percentage of the plan's 
                        assets, or per capita charge for each 
                        participant or beneficiary of the plan. The 
                        manner in which compensation or fees are 
                        expressed shall contain sufficient information 
                        to enable the plan fiduciary to evaluate the 
                        reasonableness of such compensation or fees.''.
    (b) Fiduciary Duties With Respect to Investment Advice.--Section 
404(a) of such Act (29 U.S.C. 1104(a)) is amended by adding at the end 
the following new paragraph:
    ``(3)(A) The fiduciary of an individual account plan that permits a 
participant or beneficiary to direct the investment of assets in the 
individual account shall not appoint, contract with, or otherwise 
arrange for an investment adviser to provide investment advice referred 
to in section 3(21)(A)(ii) to the plan or the participant or 
beneficiary unless the investment adviser is an independent investment 
adviser (as defined in section 3(43)(A)).
    ``(B) The independent investment adviser providing investment 
advice to a plan or to a participant or beneficiary shall provide, 
before the initial provision of the advice, a written notification 
(which may consist of notification by means of electronic 
communication)--
            ``(i) of the past performance and historical rates of 
        return of the investment options available with respect to the 
        plan and comparisons of such options to relevant benchmarks, 
        and
            ``(ii) that the investment adviser is acting as a fiduciary 
        of the plan in connection with the provision of the advice.
    ``(C) Nothing in this paragraph shall be construed to exempt a plan 
sponsor or other person who is a fiduciary from any requirement of this 
part for the prudent selection and periodic review of an independent 
investment adviser with whom the plan sponsor or other person enters 
into an arrangement for the provision of investment advice referred to 
in section 3(21)(A)(ii). The plan sponsor or other person who is a 
fiduciary has no duty under this part to monitor the specific 
investment advice given by the independent investment adviser to any 
particular recipient of the advice.
    ``(D) Nothing in this part shall be construed to preclude the use 
of plan assets to pay for reasonable expenses in providing investment 
advice referred to in section 3(21)(A)(ii).''.
    (c) Conforming Amendments.--Section 408 of such Act (29 U.S.C. 
1108) is amended--
            (1) by striking subsection (g); and
            (2) by striking subsection (b)(14)(B) and inserting the 
        following:
                    ``(B) the investment advice is provided by an 
                independent investment adviser (as defined in section 
                3(43)).''.
    (d) Regulatory Authority.--The Secretary of Labor may issue 
regulations providing that an investment adviser can still be 
considered as meeting the requirements of section 3(43)(B) of the 
Employee Retirement Income Security Act of 1974 despite the receipt of 
a de minimus amount of compensation that fails to meet the requirements 
of section 3(43)(B)(iii) of such Act due to the existence of previously 
existing contracts.
    (e) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after one year after the date of the 
enactment of this Act.
                                 <all>