[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 2282 Introduced in Senate (IS)]

<DOC>






118th CONGRESS
  1st Session
                                S. 2282

     To amend the Investment Advisers Act of 1940 and the Employee 
    Retirement Income Security Act of 1974 to specify requirements 
 concerning the consideration of pecuniary and non-pecuniary factors, 
                        and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 12, 2023

     Mr. Cotton (for himself, Mr. Braun, Mr. Budd, Mr. Risch, Mrs. 
    Blackburn, Mr. Cramer, and Mr. Scott of Florida) introduced the 
 following bill; which was read twice and referred to the Committee on 
                  Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
     To amend the Investment Advisers Act of 1940 and the Employee 
    Retirement Income Security Act of 1974 to specify requirements 
 concerning the consideration of pecuniary and non-pecuniary factors, 
                        and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Ensuring Sound Guidance Act''.

SEC. 2. DEFINITIONS.

    In this Act:
            (1) Commission.--The term ``Commission'' means the 
        Securities and Exchange Commission.
            (2) Municipal securities.--The term ``municipal 
        securities'' has the meaning given the term in section 3(a) of 
        the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).

SEC. 3. INVESTMENT ADVISORS ACT OF 1940 AMENDMENT.

    (a) In General.--Section 211(g) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b-11(g)) is amended--
            (1) by redesignating paragraph (2) as paragraph (3); and
            (2) by inserting after paragraph (1) the following:
            ``(2) Best interest based on pecuniary factors.--
                    ``(A) Definition.--In this paragraph, the term 
                `pecuniary factor' has the meaning given the term in 
                paragraph (3) of section 404(a) of the Employment 
                Retirement Income Security Act of 1974 (29 U.S.C. 
                1104(a)).
                    ``(B) Determination.--For purposes of paragraph 
                (1), the best interest of a customer shall be 
                determined using pecuniary factors, which may not be 
                subordinated to or limited by non-pecuniary factors, 
                unless the customer provides informed consent, in 
                writing, that such non-pecuniary factors be so 
                considered.
                    ``(C) Disclosure of pecuniary factors.--If a 
                customer provides a broker, dealer, or investment 
                adviser with the informed consent to consider non-
                pecuniary factors described in subparagraph (B), the 
                broker, dealer, or investment adviser shall also--
                            ``(i) disclose the expected pecuniary 
                        effects to the customer over a time period 
                        selected by the customer and not to exceed 3 
                        years; and
                            ``(ii) at the end of the time period 
                        described in clause (i), disclose, by 
                        comparison to a reasonably comparable index or 
                        basket of securities selected by the customer, 
                        the actual pecuniary effects of that time 
                        period, including all fees, costs, and other 
                        expenses incurred to so consider non-pecuniary 
                        factors.''.
    (b) Rulemaking.--Not later than 1 year after the date of enactment 
of this Act, the Commission shall revise or issue such rules as may be 
necessary to implement the amendment made by subsection (a).
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to actions taken by a broker, dealer, or investment adviser on or 
after the date that is 1 year after the date of enactment of this Act.

SEC. 4. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 AMENDMENT.

    (a) In General.--Section 404(a) of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1104(a)) is amended by adding at the 
end the following:
    ``(3) Interest Based on Pecuniary Factors.--
            ``(A) In general.--For purposes of paragraph (1), a 
        fiduciary of a plan shall be considered to act solely in the 
        interest of the participants and beneficiaries of the plan with 
        respect to an investment or investment course of action only if 
        the fiduciary's action with respect to such investment or 
        investment course of action is based, except as provided in 
        subparagraph (B), only on pecuniary factors. The weight given 
        to any such pecuniary factors by a fiduciary shall 
        appropriately reflect a prudent assessment of the impact of 
        such factor on the risk and return of the investment or 
        investment course of action. The duties under paragraph (1) 
        shall include the duty to not subordinate the interests of the 
        participants and beneficiaries in retirement income or 
        financial benefits under a plan to other objectives and the 
        duty to not sacrifice investment return or take on additional 
        investment risk to promote non-pecuniary benefits or goals.
            ``(B) Use of non-pecuniary factors for investment 
        alternatives.--Notwithstanding paragraph (A), if a fiduciary is 
        unable to distinguish between or among investment alternatives 
        or investment courses of action on the basis of pecuniary 
        factors alone, the fiduciary may use non-pecuniary factors as 
        the deciding factor in the selection or retention of an 
        investment if the fiduciary documents--
                    ``(i) why pecuniary factors were not sufficient to 
                select or retain a plan investment or investment course 
                of action;
                    ``(ii) how the selected investment compares to the 
                alternative investments with regard to the composition 
                of the portfolio with regard to diversification, the 
                liquidity and current return of the portfolio relative 
                to the anticipated cash flow requirements of the plan, 
                and the projected return of the portfolio relative to 
                the funding objectives of the plan; and
                    ``(iii) how the selected non-pecuniary factor is 
                consistent with the interests of the participants and 
                beneficiaries in their retirement income or financial 
                benefits under the plan.
            ``(C) Investment alternatives for participant-directed 
        individual account plans.--The consideration, selection, or 
        retention by a fiduciary of an investment option for a pension 
        plan described in subsection (c)(1)(A) that promotes, seeks, or 
        supports a non-pecuniary benefit or goal shall not constitute a 
        breach of fiduciary duties under paragraph (1) if--
                    ``(i) the fiduciary satisfies the requirements of 
                subparagraph (A) and paragraph (1) in selecting, 
                considering, or retaining any such investment option; 
                and
                    ``(ii) in the case of such an investment option in 
                which the investment objectives or goals or principal 
                investment strategy of the investment option include, 
                consider, or indicate the use of a non-pecuniary 
                factor, such investment option is not selected or 
                retained as, or included as a component of, a default 
                investment under subsection (c)(5) (or any other 
                default investment alternative).
            ``(D) Pecuniary factor defined.--For the purposes of this 
        paragraph, the term `pecuniary factor' means a factor that a 
        fiduciary prudently determines is expected to have a material 
        effect on the risk or return of an investment based on 
        appropriate investment horizons consistent with the plan's 
        investment objectives and the funding policy established 
        pursuant to section 402(b)(1).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to actions taken by a fiduciary on or after the date that is 12 
months after the date of enactment of this Act.

SEC. 5. STUDY OF STATE AND LOCAL PENSION PLANS.

    (a) Study.--The Comptroller General of the United States shall 
conduct a study on the potential impact of underfunded State and local 
pension plans on the Federal Government, including--
            (1) the extent to which such pension plans subordinate the 
        pecuniary interests of participants and beneficiaries to 
        environmental, social, governance, or other objectives; and
            (2) legislative and administrative actions that, if 
        implemented at the Federal level, would prevent such pension 
        plans from subordinating the interests of participants and 
        beneficiaries to environmental, social, or governance 
        objectives.
    (b) Report.--Not later than 12 months after the date of enactment 
of this Act, the Comptroller General submit to Congress a report 
containing the results of the study.

SEC. 6. STUDY ON CLIMATE CHANGE AND OTHER ENVIRONMENTAL DISCLOSURES IN 
              MUNICIPAL BOND MARKET.

    (a) In General.--The Commission shall solicit public comment and 
thereafter conduct a study to determine the extent to which issuers of 
municipal securities make disclosures to investors regarding climate 
change and other environmental matters (referred to in this section as 
``covered disclosures'').
    (b) Contents.--The study under subsection (a) shall consider and 
analyze, among other things--
            (1) the frequency of covered disclosures;
            (2) whether covered disclosures made by issuers of 
        municipal securities in connection with offerings of securities 
        align with covered disclosures made by issuers of municipal 
        securities in other contexts or to other audiences other than 
        investors;
            (3) any voluntary or mandatory disclosure standards 
        observed by issuers of municipal securities in the course of 
        making covered disclosures; and
            (4) the degree to which investors consider covered 
        disclosures in connection with making an investment decision.
    (c) Report.--
            (1) In general.--Not later than 1 year after the date of 
        enactment of this Act, the Commission shall submit to the 
        Committee on Banking, Housing, and Urban Affairs of the Senate 
        and the Committee on Financial Services of the House of 
        Representatives a report on the study required under this 
        section.
            (2) Contents.--The report required under paragraph (1) 
        shall include--
                    (A) a detailed discussion of--
                            (i) the financial risks to investors from 
                        investments in municipal securities; and
                            (ii) whether the risks described in clause 
                        (i) are being adequately disclosed; and
                    (B) a discussion of regulatory or legislative steps 
                that are recommended, or that may be necessary, to 
                address any concerns identified in the study required 
                under this section.

SEC. 7. STUDY ON SOLICITATION OF MUNICIPAL SECURITIES BUSINESS.

    (a) Definition.--In this section, the term ``covered rules'' 
means--
            (1) Rule G-38 of the Municipal Securities Rulemaking Board; 
        and
            (2) section 275.206(4)-5 of title 17, Code of Federal 
        Regulations, or any successor regulation.
    (b) Study.--The Commission shall solicit public comment and 
thereafter conduct a study to determine the effectiveness of the 
covered rules in preventing the payment of funds to elected officials 
or candidates for elected office in exchange for the receipt of 
government business in connection with the offer or sale of municipal 
securities.
    (c) Contents.--The study under subsection (b) shall consider and 
analyze, among other things--
            (1) whether the covered rules have had their intended 
        effects and any unintended adverse effects;
            (2) the frequency and scope of enforcement actions 
        undertaken under the covered rules;
            (3) the degree to which persons subject to the covered 
        rules have put in place policies and procedures intended to 
        ensure compliance with the covered rules;
            (4) the degree to which State and Federal regulations, 
        other than the covered rules, impact the solicitation of 
        municipal securities business; and
            (5) the degree to which persons subject to the covered 
        rules are disadvantaged from participating in the political 
        process, both as a general matter and relative to persons that 
        solicit or receive government business or government licenses, 
        permits, and approvals other than in connection with the offer 
        or sale of municipal securities.
    (d) Report.--
            (1) In general.--Not later than 1 year after the date of 
        enactment of this Act, the Commission shall submit to the 
        Committee on Banking, Housing, and Urban Affairs of the Senate 
        and the Committee on Financial Services of the House of 
        Representatives a report on the study required under this 
        section.
            (2) Contents.--The report required under paragraph (1) 
        shall include--
                    (A) a discussion of the extent to which persons 
                affiliated with small businesses, and persons 
                affiliated with minority- and women-opened businesses, 
                have been affected by the covered rules; and
                    (B) a discussion of regulatory or legislative steps 
                that are recommended, or that may be necessary, to 
                address any concerns identified in the study required 
                under this section.
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