[Congressional Record Volume 147, Number 158 (Thursday, November 15, 2001)]
[House]
[Pages H8202-H8210]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PARLIAMENTARY INQUIRY
Mr. BOEHNER. Parliamentary inquiry, Mr. Speaker.
The SPEAKER pro tempore (Mr. LaHood). The gentleman will state it.
Mr. BOEHNER. Mr. Speaker, we just have the remaining time we expect
to use. Who has the right to close, or what would the order of closing
be?
The SPEAKER pro tempore. The Committee on Ways and Means will finish
their time first, and then the gentleman from Ohio (Mr. Boehner) has
the right to close.
Mr. BOEHNER. I thank the Chair.
Mr. McDERMOTT. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, sometimes when I come out on this floor I think I have
entered the French theater of the absurd.
We are having a bill brought here to us about financial advice. I
remember, when this year started, that we had $5.6 trillion in surplus,
and all the discussion was about what should we do with it: Shall we
pay off the debt? Shall we save it for Social Security? Shall we save
it for Medicare?
The decision was, oh, the first thing we should do is give about $2
trillion of it away.
{time} 1230
We are going to do that with a tax break. We said it is 130 trillion,
but it
[[Page H8203]]
turned out to be more like two, and so we go.
We have now spent all the Social Security money. That is the advice
we are giving to the American people, and then we say, we want to turn
you over to the hands of these nice salesmen, they will take care of
you. We have taken away their medical security. We have not even put
the money that they contributed into the Medicare program. If we were
under ERISA, we would be before the courts for the way we are handling
the investments of our constituents.
We got so wild around here with our tax cuts and all the problems
after they figured it all out, and said, well, we need an economic
stimulus bill. So we come out here with a nonsense bill, give it
another $161 billion off to major companies in this country. This is
our advice to America. This is what we think and then this bill is the
follow-on.
That nonsense of the stimulus package has run into the ditch over in
the Senate. I never thought I would count on another body to save us
from ourselves. I know they are going to save us from this bill
ultimately. This really looks to me like, the other bill, sort of a
fund-raising bill, and when I stand here and think about it and listen
to all this talk, I cannot help thinking about my grandfather.
He was an Irish immigrant, went to the second grade. He could read
the newspaper a little bit and he could sign his name. That was the
basis of his education. He was a hod carrier down in central Illinois,
and in the 1920s, there was a scam in this country. A guy named Samuel
Insull was selling energy stock or utility stock all over the country,
and the whole rage in this little town where my grandparents lived,
Streator, Illinois, everybody was buying Insull stock, you have got to
buy Insull stock, you are going to get rich, real rich real quick.
Everybody in the neighborhood was borrowing and putting their money
into the Insull business.
My grandmother came to my grandfather and said, well, Jim, I think we
should buy some of that Insull stock, and he said to her, if this is
such a good idea, why are those boys from Chicago down here in the
cornfield selling it to us? He did not put any of his money in. He said
we have got $500 in the bank. I tell you what, Jane, you can take your
250 and put it in the stock, but I am keeping mine in the bank.
She followed his advice, and they had their money when Insull went
belly up in 1929, and everybody in Streator, Illinois, lost every
blooming dime they had put in it.
Investment advice to ordinary people is a big issue. If you are a hod
carrier or you are a cab driver or you are doing any one of a number of
jobs in this country and you are suddenly faced with this question of
what should I do with my money for when I get old and somebody comes to
you who has a conflict of interest about it, what do you do at that
point? You say to your employer, give me another advisor.
The bill does not allow that. It does not say you can give me this
guy with the vested interest, but I would also like one who is just
sort of on my side maybe, and maybe I can get back at him if he gives
me bad advice. We say to the workers of this country, we are going to
take this away from you at the very time when we are acting financially
as irresponsible as we could be.
We are the Congress. If it was run by the House of Representatives,
we would be borrowing money right now to give back to the companies of
this country $25 billion they paid back in 1986. That is the kind of
financial advice we are giving this country. We are saying, well, we
are going to stimulate things, we are going to give money back to IBM
and Ford and all those companies while they are laying people off. We
give $15 billion to the airlines because we do not want them to get in
trouble, right, and all those investment people are out there selling
those stocks, right, keep buying that American Airlines and United
Airlines and all those stocks.
So we give them $15 billion. We are going to stabilize it. We do not
give one single penny to the workers for their health insurance or for
their unemployment, and they lay off 100,000 people in the airline
industry, and Boeing lays off 30,000 because when the airline industry
goes down, so does Boeing go down and everybody else; but they have
still got their 401(k), and we say, well, we are going to give you an
advisor to tell you what to do with your money, and that is business.
I say this is bad legislation. It looks to me like a fund-raising
piece, not a real serious effort to take care of people's investments.
If the amendments that were offered here were accepted, all of us would
be in favor of it. We think people ought to have advice, but it has got
to be advice that is not conflicted, that does not have its own pocket
interest, and I think that we will have a substitute offered by the
gentleman from New Jersey (Mr. Andrews) and the gentleman from New York
(Mr. Rangel) which will fix this bill, but I urge people to vote
against the bill.
Mr. Speaker, I yield back the balance of my time.
Mr. SAM JOHNSON of Texas. Mr. Speaker, I yield myself such time as I
may consume.
There is a broad consensus that workers need access to expert
investment advice. I did not know we were going to talk about tax
relief and other subjects, but there are only 16 percent of 401(k)
participants that have access to investment advice through their
retirement plans, and only 17 percent have access through outside
advisors. Seventy-five percent of full-time employees surveyed said
they would take advantage of individualized advice service if their
employers offered it, and we have been hearing about banks.
Banks are regularly examined. Examinations occur frequently. Bank
tellers cannot provide investment advice. Bank trust departments have a
long history of trust investment, and they have been managing trusts
for over two centuries. Banks manage over $2 trillion in employment
benefit trusts, and banks have strong capital, which provides added
protection for funds being invested. I doubt there is a bank in this
country that would allow their trust department to make bad advice
because the bank would be out of business.
Recent market volatility tells us investment decisions must be based
on solid and experienced judgment. Yet, as of today, we continue to
deny our employees the same tools that corporations and unions are
allowed to use in making sound investment decisions for their defined
benefit plans. This bill changes that. Simply put, this measure ends
investment ignorance and provides workers full control over their
investment decisions. It repeals an outdated 1974 law that denies
millions of Americans access to investment advice that could help them
make the most of their retirement savings.
No longer will wealthy individuals be the only ones to enjoy the
luxury of being able to afford their own professional investment
advice. Now low and middle income Americans will have the same choice.
Since individuals bear the risk of stock market volatility in their
401(k) accounts, they are the ones who must have advice on how to
better diversify their portfolios so they are financially prepared for
retirement.
H.R. 2269 will permit employers to offer investment advice as an
employee benefit. This legislation does not require any employer to
contract with an investment advisor and no employee is under any
obligation to accept or follow any advice.
This bill is good policy for today's workers and tomorrow's retirees.
That is why the bill has been endorsed by the Department of Labor, the
Department of Treasury and the Department of Commerce.
In testifying before my subcommittee, Department of Labor Assistant
Secretary Ann Combs praised the bill and said, ``We believe the bill
creates a strong protective framework for the provision of investment
advice to participants. Both the Committee on Ways and Means and the
Committee on Education and the Workforce have worked hard to take a
balanced approach for increasing worker access to advice while
including safeguards to protect employees' interests.
I urge Members to join all of us in supporting H.R. 2269. Without it,
millions of Americans will be in the dark in protecting and growing
their retirement nest egg.
Mr. Speaker, I yield back the balance of my time.
[[Page H8204]]
Mr. ANDREWS. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I urge my colleagues to vote against this bill. People
need investment advice, that is true, but it is also true they are
getting it from the independent sources that are out there in
increasingly high numbers.
Just 2 years ago only 17 percent of employers were offering
investment advice options; today it is up to 31 percent, nearly double,
and it is growing. When someone goes for investment advice and the
advice is being given by a conflicted advisor, that conflict ought to
be disclosed at the time of the decision. That does not happen under
this bill.
The advisor ought to be completely qualified and accountable. That
does not happen under this bill. The person receiving the advice ought
to know that he or she has other independent choices. That does not
happen under this bill. And if the advice that is given is bad and
hurts the investor, there ought to be adequate remedies to make that
investor whole. That does not happen under this bill.
For all of these reasons, and the others stated by my colleagues, I
would urge a vote against the underlying legislation.
Mr. Speaker, I yield back the balance of my time.
Mr. BOEHNER. Mr. Speaker, I yield myself the balance of my time.
Mr. Speaker, I think all of us agree that we want to do everything
possible to improve the retirement security of all American workers.
And I think, based on what we have heard here today, all of the Members
believe that providing investment advice for those employees who have
self-directed pension accounts is vital.
In 1974, when ERISA was enacted, 95 percent of pension assets were in
defined benefit programs. And no one in 1974 with the enactment of
ERISA ever envisioned that we would have the number of self-directed
accounts, such as 401(k) accounts, and the amount of participation and
the huge shift in assets away from defined benefit plans towards
defined contribution plans.
What that has done is leave us in a situation today, where millions
of American workers have trillions of dollars in their retirement
savings, that basically they are left to their own ability to hire an
investment advisor, because under the law as written in 1974, we have
so protected and insulated American workers that there is really no
place they can turn for advice. And so where do they turn for advice?
They turn to Bob at the coffee shop.
So what we are trying to do here in this bill today is to provide a
mechanism for providing specific investment advice to employees while
providing safeguards to protect their retirement security. We believe
that there has to be a balance between the offering of the advice and
the amount of protections.
Is there risk involved in this bill? Yes, there is. Do we think
American workers are smart enough and bright enough to make these
decisions? Yes, they are.
It is a completely voluntary program for employers and employees.
Once the advice is given within the safeguards that will be outlined in
this bill, the employee has no inhibitions about making their own
decisions about how they want to allocate their assets and their needs
based on their own retirements.
The problem that we have with the additional safeguards that are
being proposed here is that they will so restrict the ability to get
advice that we will get what we have today and that is no advice at
all. Now, if our goal truly is to provide more investment advice for
American workers, we have got to strike a balance, a balance that will
work for employers and those who would be there to provide advice.
Now, we are hearing an awful lot of criticism about people who sell
products and the fact that under this bill they would be able to give
advice after they have disclosed any potential conflicts, after they
have disclosed their fees, and with other protections.
Now, what they really want to do is, they want to eliminate this
sector from being able to give advice. These are the most respected
investment firms in the country, with the best track record of
investment advice in the country, that we would want to shove out of
this market and prevent these people from giving their expertise and
advice to the American workers. I just do not think that that makes any
sense in the marketplace we are in. And so I think if we all step back
and look at where we are trying to go, I have worked with Members on
both sides of the aisle trying to craft a proper set of balances.
{time} 1245
And in the debate today, the gentleman from North Dakota (Mr.
Pomeroy) and I came to an agreement to add additional protections to
this bill that I do think will protect American workers more without
hindering the ability of employers or their agents to provide the kind
of investment advice that American workers so sorely need and want
today.
So I would ask my colleagues, as we continue to move this process
along, that we continue to work together to try to find the right
balance, because, as we know, the action in the House today will not be
the end of the process. It is actually the beginning of the process.
This bill will have to go through the Senate, and I am confident that
we will be able to continue to move this in a strong bipartisan manner.
I ask all of my colleagues today to support the underlying bill and
do what we can to help American workers increase their retirement
security.
Mr. STARK. Mr. Speaker, I oppose H.R. 2269, the falsely named
Retirement Security Advice Act of 2001, introduced by Representative
Boehner. The bill not only neglects to provide any type of security for
workers' retirement, but it actually puts worker retirement plans at
greater risk for fraudulent activity.
Workers need independent financial advice, not advice plagued by
self-interest. Current pension law ensures that those who manage or
administer assets of a pension plan cannot engage in any transaction
under the plan in which they have a financial or other conflict of
interest. These rules, known as the prohibited transaction rules, are
designed to ensure that the best interest of the investor is
maintained. When these rules are eliminated, as H.R. 2269 calls for,
the integrity of the pension system is threatened by fraud and abuse.
For example, one of our nation's premier investment companies,
Prudential, in 1996, agreed to pay at least $410 million in restitution
and fines to compensate investors who suffered losses to fraud as far
back as 1980. Many Wall Street brokerage firms sold limited
partnerships in the 1980's to customers seeking tax deductions and the
potential for profit from asset appreciation. However, these
investments were typically suitable only for wealthy investors because
of their speculative nature. Prudential made nearly $1 billion in
commissions and fees from the sale of its partnerships. In addition to
the limited partnership claims, widespread securities law violations
were made at various Prudential branches across the country. These
practices included:
Lying about risk--Selling risky real estate and energy partnerships
to pension funds, retirees and other individual investors who were told
their investments were safe.
Lying about return--Publishing promotional material that misled
investors about the return they could expect on their money.
Turning a blind eye to a subsidiary--Inadequately supervising the
subsidiary that advertised and sold the partnerships.
Turning a blind eye to employees--Inadequately supervising employees
in nine branch offices, whose fraudulent practices resulted in losses
of hundreds of thousands of dollars from customers.
Churning--Trading excessively without authorization in clients'
accounts to increase brokers' commissions.
The settlement affected 8 million investors in every state, the
District of Columbia and Puerto Rico. Many of the investors were
elderly and faced the risk of not being compensated in their lifetime.
Workers should have access to investment advice they can be certain
is neither influenced by corporate profit motives or driven by a
company's need to unload undesirable financial products. H.R. 2269
undermines that certainty by permitting advisors to provide plan
participants with self-interested advice regarding the investment
options under the plan, as well as asset allocation. Under H.R. 2269,
both financially sophisticated and financially inexperienced workers
would lose access to independent investment advice under their 401(k)
plans. Clearly, this provides less security than employees currently
receive and has the potential for fraudulent activity that would be
virtually impossible to remedy under our judicial system.
The fraudulent Prudential activity illustrates the need for unbiased,
independent investment advice for employees. We cannot allow
[[Page H8205]]
motivation and campaign contributions from the securities, banking and
insurance industry to imperil the pensions of 42 million workers who
participate in self-directed pension plans. It is easy to see who will
benefit from this bill when organizations like Prudential and Citigroup
support the bill and organizations that oppose it include AARP and the
AFL-CIO.
Workers won't get the critical independent advice from the Boehner
bill, but they will from the Democratic substitute bill. The Democratic
substitute bill requires that if a conflict of interest exists, that
the investment advisor would be required to provide additional
independent advice at no additional charge to the investor. If
Prudential is going to make a greater profit by advising the investor
to invest in Prudential funds, then an independent advisor with no such
direct profit interest, must be available to either validate
Prudential's advice or provide alternative advice to give the employee
a less biased opinion.
The debate is clear. The bill before us will hurt the retirement of
millions of workers, but it will increase profits for investment
advisors and investment companies. I urge my colleagues to vote for the
Democratic substitute bill and vote no on H.R. 2269.
Mr. CARDIN. Mr. Speaker, over the past twenty years, this country has
witnessed a revolution in the way American workers save for their
retirement. The central feature of this revolution has been the shift
from defined benefit to defined contribution plans, and, in particular,
the explosion in the growth of 401(k) plans. Through employer-sponsored
401(k) plans, tens of millions of middle class Americans have entered
the investment class, many of them encountering their first exposure to
the workings of the stock markets.
This trend has important implications with respect to the retirement
security of these workers. Under the defined benefit model, the risk
and responsibility for making prudent investments rests with the
employer. At the end of the day, the employer is on the hook to provide
the promised benefits. Should the employer fail to meet this
obligation, the federal government, through the Pension Benefit
Guaranty Corporation, provides added protection to make sure those
benefits will be there when workers retire.
In the 401(k) world, however, the risk and the responsibility rest
with the worker. Individual investment choices and decisions can make a
huge difference in terms of the size of the retirement nest egg that a
worker accumulates. For many workers, this reality leads to one very
basic question: ``Where should I put my money?''
This bill recognizes the need to provide workers with a responsible,
reliable answer to that question. I commend the gentleman from Ohio,
the Chairman of the Education and the Workforce Committee, for his
leadership on this issue. He has recognized that the need for
retirement investment advice for America's workers is great, and
deserves our thanks for bringing this issue to the fore.
The bill does two things to make it more possible for workers to get
investment advice. First, it provides liability relief for employers.
Currently, surveys of employers tell us that a major impediment to
employers retaining investment advice firms for their employees is the
concern that they, the employer, will ultimately be held responsible
for the specific advice provided. The bill before the House says that
if the employer exercises prudence in selecting the adviser, he or she
will not be subject to liability for the advice provided. This is a
good, sensible reform, and I support it.
The second issue addressed by the bill goes to the current
restrictions within ERISA dealing with ``prohibited transactions.''
ERISA contains important protections that prevent investment advisers
from advising plan participants to invest in products where the adviser
has a conflict of interest. It is a sensible protection, and one that
should only be lifted with great care.
The bill before us does not, in my judgment, provide satisfactory
protections for workers faced with investment advisers providing
conflicted advice. The bill will require advisers to disclose that they
are in a position to make money on the advice they are offering. That
is an important provision, and the disclosure provisions were
strengthened by the amendment presented by the Chairman of the Ways and
Means Committee.
But disclosure of the conflict by itself is not enough. Workers need
to know more than that the person sitting in front of them will make
money if their advice is followed. They need to have a full range of
investment options. They need to know the range of fees that are
charged for different types of investments, and how those fees will
affect their long-term returns.
In short, this bill does not provide any assurance or requirement
that workers will have the information they need to make prudent
investment decisions. On the other hand, at the end of this debate, we
will have a substitute that attempts to address these problems. I
certainly commend the gentleman from New Jersey for his work on this
issue and for his long-standing commitment to expanding retirement
savings opportunities for American workers. But I am concerned that the
substitute imposes requirements that will make it unlikely that
employers will take the necessary first step of providing investment
advice to their workers.
Mr. Speaker, America's workers need investment advice on their
retirement savings accounts. Unfortunately, today we have two choices.
The Republican bill takes the position that bad advice is better than
no advice, and the substitute takes the position that no advice is
better than bad advice. The right answer, of course, is that what the
42 million Americans who participate in a 401(k) account need is not
bad advice, or no advice, but good advice. We need to put together a
bill that will give employers, workers, and the investment community
the chance to get that job done.
Mr. CRANE. Mr. Speaker, I rise in strong support of the Retirement
Security Advice Act of 2001. As a cosponsor of this legislation, I
would like to commend Mr. Johnson of Texas, Chairman Thomas, and
Chairman Boehner for crafting common sense legislation that will help
millions of hard-working Americans plan more wisely for their
retirement.
Mr. Speaker, while ERISA law is quite complicated, this legislation
is quite simple. It allows employers to provide their workers with
access to professional investment advice as long as the investment
advisers fully disclose their fees and any potential conflicts. At the
same time, it establishes significant safeguards to ensure that these
workers receive advice that is solely in their best interests.
Under current law, employers are discouraged from providing this
service because employers may be held liable for specific advice that
is provided to their employees. H.R. 2269 removes the barrier to
employers contracting with advice providers and their workers by
clarifying that employers are not responsible for the individual advice
given by professional advisers to individual participants.
Under this legislation, investment advice may only be offered by
``fiduciary advisors''--qualified entities that are already fully
regulated under other federal and state laws, such as registered
investment advisers, registered broker dealers, insurance companies,
and banks. Existing federal and state laws that regulate individual
industries will continue to apply. Moreover, employers will remain
responsible under ERISA fiduciary rules for the prudent selection and
periodic review of any investment advisor.
I urge my colleagues to support H.R. 2269 as amended by the rule.
Mr. BOEHNER. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mr. LaHood). All time for general debate on
this bill has expired.
Amendment in the Nature of a Substitute Offered by Mr. Andrews
Mr. ANDREWS. Mr. Speaker, as the designee of the gentleman from
California (Mr. George Miller), I offer an amendment in the nature of a
substitute.
The text of the amendment in the nature of a substitute is as
follows:
Amendment in the nature of a substitute printed in part B
of House Report 107-289 offered by Mr. Andrews:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Retirement Security Advice
Act of 2001''.
SEC. 2. PROHIBITED TRANSACTION EXEMPTION FOR THE PROVISION OF
INVESTMENT ADVICE.
(a) Amendments to the Internal Revenue Code of 1986.--
(1) In general.--Subsection (d) of section 4975 of the
Internal Revenue Code of 1986 (relating to exemptions from
tax on prohibited transactions) is amended by striking ``or''
at the end of paragraph (14), by striking the period at the
end of paragraph (15) and inserting ``; or''; and by adding
at the end the following new paragraph:
``(16) any transaction described in subsection (f)(7)(A) in
connection with the provision of investment advice described
in subsection (e)(3)(B), in any case in which--
``(A) the plan provides for individual accounts and permits
a participant or beneficiary to exercise control over assets
in his or her account,
``(B) the advice is qualified investment advice provided to
a participant or beneficiary of the plan by a fiduciary
adviser in connection with any sale, acquisition, or holding
of a security or other property for purposes of investment of
plan assets, and
``(C) the requirements of subsection (f)(7)(B) are met in
connection with each instance of the provision of the
advice.''.
(2) Rules relating to Investment advice provided by
fiduciary advisers.--Subsection (f) of section 4975 of such
Code (relating to other definitions and special rules) is
amended by adding at the end the following new paragraph:
``(7) Investment advice provided by fiduciary advisers.--
[[Page H8206]]
``(A) Allowable transactions.--The transactions described
in this subsection, in connection with the provision of
investment advice by a fiduciary adviser, are the following:
``(i) the provision of the advice to the participant or
beneficiary;
``(ii) the sale, acquisition, or holding of a security or
other property (including any lending of money or other
extension of credit associated with the sale, acquisition, or
holding of a security or other property) pursuant to the
advice; and
``(iii) the direct or indirect receipt of fees or other
compensation by the fiduciary adviser or an affiliate thereof
(or any employee, agent, or registered representative of the
fiduciary adviser or affiliate) in connection with the
provision of the advice.
``(B) Requirements for exemption from prohibited
transactions with respect to provision of investment
advice.--The requirements of this subparagraph are met in
connection with the provision of qualified investment advice
provided to a participant or beneficiary of an employee
benefit plan by a fiduciary adviser with respect to the plan
in connection with any sale, acquisition, or holding of a
security or other property for purposes of investment of
amounts held by the plan, if the requirements of the
following clauses are met:
``(i) Written or electronic disclosures.--At a time
contemporaneous with the provision of the advice in
connection with the sale, acquisition, or holding of the
security or other property, the fiduciary adviser shall
provide to the recipient of the advice a clear and
conspicuous notification, written (or by electronic means) in
a manner to be reasonably understood by the average plan
participant pursuant to regulations which shall be prescribed
by the Secretary (including mathematical examples), of the
following:
``(I) Interests held by the fiduciary adviser.--Any
interest of the fiduciary adviser in, or any affiliation or
contractual relationship of the fiduciary adviser (or
affiliates thereof) with any third party having an interest
in, the security or other property.
``(II) Related fees or compensation in connection with the
provision of the advice.--All fees or other compensation
relating to the advice (including fees or other compensation
itemized with respect to each security or other property with
respect to which the advice is provided) that the fiduciary
adviser (or any affiliate thereof) is to receive (including
compensation provided by any third party) in connection with
the provision of the advice or in connection with the sale,
acquisition, or holding of the security or other property.
``(III) Ongoing fees or compensation in connection with the
security or property involved.--All fees or other
compensation that the fiduciary adviser (or any affiliate
thereof) is to receive, on an ongoing basis, in connection
with any security or other property with respect to which the
fiduciary adviser gives the advice.
``(IV) Applicable limitations on scope of advice.--Any
limitation placed (in accordance with the requirements of
this subsection) on the scope of the advice to be provided by
the fiduciary adviser with respect to the sale, acquisition,
or holding of the security or other property.
``(V) Types of services generally offered.--The types of
services offered by the fiduciary adviser in connection with
the provision of qualified investment advice by the fiduciary
adviser.
``(VI) Fiduciary status of the fiduciary adviser.--That the
fiduciary advisor is a fiduciary of the plan.
``(ii) Disclosure by fiduciary adviser in accordance with
applicable securities laws.--The fiduciary adviser shall
provide appropriate disclosure, in connection with the sale,
acquisition, or holding of the security or other property, in
accordance with all applicable securities laws.
``(iii) Transaction occurring solely at direction of
recipient of advice.--The sale, acquisition, or holding of
the security or other property shall occur solely at the
direction of the recipient of the advice.
``(iv) Reasonable compensation.--The compensation received
by the fiduciary adviser and affiliates thereof in connection
with the sale, acquisition, or holding of the security or
other property shall be reasonable.
``(v) Arm's length transaction.--The terms of the sale,
acquisition, or holding of the security or other property
shall be at least as favorable to the plan as an arm's length
transaction would be.
``(C) Continued availability of information for at least 1
year.--The requirements of subparagraph (B)(i) shall be
deemed not to have been met in connection with the initial or
any subsequent provision of advice described in subparagraph
(B) if, at any time during the 1-year period following the
provision of the advice, the fiduciary adviser fails to
maintain the information described in subclauses (I) through
(IV) of subparagraph (B)(i) in currently accurate form or to
make the information available, upon request and without
charge, to the recipient of the advice.
``(D) Evidence of compliance maintained for at least 6
years.--A fiduciary adviser referred to in subparagraph (B)
who has provided advice referred to in such subparagraph
shall, for a period of not less than 6 years after the
provision of the advice, maintain any records necessary for
determining whether the requirements of the preceding
provisions of this paragraph and of subsection (d)(16) have
been met. A transaction prohibited under subsection (c)(1)
shall not be considered to have occurred solely because the
records are lost or destroyed prior to the end of the 6-year
period due to circumstances beyond the control of the
fiduciary adviser.
``(E) Model disclosure forms.--The Secretary shall
prescribe regulations setting forth model disclosure forms to
assist fiduciary advisers in complying with the disclosure
requirements of under this paragraph.
``(F) Annual reviews by the Secretary.--The Secretary shall
conduct annual reviews of randomly selected fiduciary
advisers providing qualified investment advice to
participants and beneficiaries. In the case of each review,
the Secretary shall review the following:
``(i) Compliance by advice computer models with reasonable
investment methodologies.--The extent to which advice
computer models employed by the fiduciary adviser comply with
reasonable investment methodologies.
``(ii) Compliance with disclosure requirements.--The extent
to which disclosures provided by the fiduciary adviser have
complied with the requirements of this subsection.
``(iii) Extent of violations.--The extent to which any
violations of fiduciary duties have occurred in connection
with the provision of the advice.
``(iv) Extent of reported complaints.--The extent to which
complaints to relevant agencies have been made in connection
with the provision of the advice.
Any proprietary information obtained by the Secretary shall
be treated as confidential.
``(G) Duty of conflicted fiduciary adviser to provide for
alternative independent advice.--
``(i) In general.--In connection with any qualified
investment advice provided by a fiduciary adviser to a
participant or beneficiary regarding any security or other
property, if the fiduciary adviser--
``(I) has an interest in the security or other property, or
``(II) has an affiliation or contractual relationship with
any third party that has an interest in the security or other
property,
the requirements of subparagraph (B) shall be treated as not
met in connection with the advice unless the fiduciary
adviser has arranged, as an alternative to the advice that
would otherwise be provided by the fiduciary advisor, for
qualified investment advice with respect to the security or
other property provided by at least one alternative
investment adviser meeting the requirements of clause (ii).
``(ii) Independence and qualifications of alternative
investment adviser.--Any alternative investment adviser whose
qualified investment advice is arranged for by a fiduciary
adviser pursuant to clause (i)--
``(I) shall have 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 investment adviser is providing the
advice, and
``(II) shall meet the requirements of a fiduciary adviser
under subparagraph (H)(ii) and (iii), except that an
alternative investment adviser may not be a fiduciary of the
plan other than in connection with the provision of the
advice.
``(iii) Scope and fees of alternative investment advice.--
Any qualified investment advice provided pursuant to this
subparagraph by an alternative investment adviser shall be of
the same type and scope, and provided under the same terms
and conditions (including no additional charge to the
participant or beneficiary), as apply with respect to the
qualified investment advice to be provided by the fiduciary
adviser.
``(H) Fiduciary adviser defined.--For purposes of this
paragraph and subsection (d)(16)--
``(i) In general.--The term `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) meets the qualifications of clause (ii), and
``(III) meets the additional requirements of clause (iii).
``(ii) Qualifications.--A person meets the qualifications
of this clause 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 subsection (d)(4),
``(V) is an insurance company qualified to do business
under the laws of a State, or
``(VI) is any other comparable qualified entity which
satisfies such criteria as the Secretary determines
appropriate consistent with the purpose of this subsection.
[[Page H8207]]
``(iii) Additional requirements with respect to certain
employees or other agents of certain advisers.--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 (ii), or
``(III) such other comparable qualified individual who
satisfies such criteria as the Secretary determines
appropriate consistent with the purpose of this subsection.
``(I) Additional definitions.--For purposes of this
paragraph and subsection (d)(16)--
``(i) Qualified investment advice.--The term `qualified
investment advice' means, in connection with a participant or
beneficiary, investment advice referred to in subsection
(e)(3)(B) which--
``(I) consists of an individualized recommendation to the
participant or beneficiary with respect to the purchase,
sale, or retention of securities or other property for the
individual account of the participant or beneficiary, in
accordance with generally accepted investment management
principles, and
``(II) takes into account all investment options under the
plan.
``(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 such 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 such entity for the
investment adviser referred to in such section).''.
(3) Assumption of liability.--Subsection (b) of section
4975 of such Code is amended--
(A) by striking ``Person.--In'' and inserting ``Person.--
``(1) In general.--In'', and moving the text 2 ems to the
right, and
(B) by adding at the end the following new paragraph:
``(2) Assumption of liability.--If a court determines that
a fiduciary advisor has breached his fiduciary responsibility
as a result of a failure to meet the requirements of
subparagraph (B), (C), (D), or (G) of subsection (e)(7),
then, notwithstanding any other provision of this title or
the Employee Retirement Income Security Act of 1974, the
fiduciary advisor shall be liable for any monetary losses
suffered by a participant or beneficiary as a result of such
breach.''.
(b) Amendments to the Employee Retirement Income Security
Act of 1974.--
(1) In general.--Section 408(b) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1108(b)) is amended by
adding at the end the following new paragraph:
``(14)(A) Any transaction described in subparagraph (B) in
connection with the provision of investment advice described
in section 3(21)(A)(ii), in any case in which--
``(i) the plan provides for individual accounts and permits
a participant or beneficiary to exercise control over assets
in his or her account,
``(ii) the advice is qualified investment advice provided
to a participant or beneficiary of the plan by a fiduciary
adviser in connection with any sale, acquisition, or holding
of a security or other property for purposes of investment of
plan assets, and
``(iii) the requirements of subsection (g) are met in
connection with each instance of the provision of the advice.
``(B) The transactions described in this subparagraph are
the following:
``(i) the provision of the advice to the participant or
beneficiary;
``(ii) the sale, acquisition, or holding of a security or
other property (including any lending of money or other
extension of credit associated with the sale, acquisition, or
holding of a security or other property) pursuant to the
advice; and
``(iii) the direct or indirect receipt of fees or other
compensation by the fiduciary adviser or an affiliate thereof
(or any employee, agent, or registered representative of the
fiduciary adviser or affiliate) in connection with the
provision of the advice.''.
(2) Requirements.--Section 408 of such Act is amended
further by adding at the end the following new subsection:
``(g) Requirements for Exemption from Prohibited
Transactions with Respect to Provision of Investment
Advice.--
``(1) In general.--The requirements of this subsection are
met in connection with the provision of qualified investment
advice provided to a participant or beneficiary of an
employee benefit plan by a fiduciary adviser with respect to
the plan in connection with any sale, acquisition, or holding
of a security or other property for purposes of investment of
amounts held by the plan, if the requirements of the
following subparagraphs are met:
``(A) Written disclosures.--At a time contemporaneous with
the provision of the advice in connection with the sale,
acquisition, or holding of the security or other property,
the fiduciary adviser shall provide to the recipient of the
advice a clear and conspicuous notification, written in a
manner to be reasonably understood by the average plan
participant pursuant to regulations which shall be prescribed
by the Secretary (including mathematical examples), of the
following:
``(i) Interests held by the fiduciary adviser.--Any
interest of the fiduciary adviser in, or any affiliation or
contractual relationship of the fiduciary adviser (or
affiliates thereof) with any third party having an interest
in, the security or other property.
``(ii) Related fees or compensation in connection with the
provision of the advice.--All fees or other compensation
relating to the advice (including fees or other compensation
itemized with respect to each security or other property with
respect to which the advice is provided) that the fiduciary
adviser (or any affiliate thereof) is to receive (including
compensation provided by any third party) in connection with
the provision of the advice or in connection with the sale,
acquisition, or holding of the security or other property.
``(iii) Ongoing fees or compensation in connection with the
security or property involved.--All fees or other
compensation that the fiduciary adviser (or any affiliate
thereof) is to receive, on an ongoing basis, in connection
with any security or other property with respect to which the
fiduciary adviser gives the advice.
``(iv) Applicable limitations on scope of advice.--Any
limitation placed (in accordance with the requirements of
this subsection) on the scope of the advice to be provided by
the fiduciary adviser with respect to the sale, acquisition,
or holding of the security or other property.
``(v) Types of services generally offered.--The types of
services offered by the fiduciary adviser in connection with
the provision of qualified investment advice by the fiduciary
adviser.
``(vi) Fiduciary status of the fiduciary adviser.--That the
fiduciary advisor is a fiduciary of the plan.
``(B) Disclosure by fiduciary adviser in accordance with
applicable securities laws.--The fiduciary adviser shall
provide appropriate disclosure, in connection with any the
sale, acquisition, or holding of the security or other
property, in accordance with all applicable securities laws.
``(C) Transaction occurring solely at direction of
recipient of advice.--The sale, acquisition, or holding of
the security or other property shall occur solely at the
direction of the recipient of the advice.
``(D) Reasonable compensation.--The compensation received
by the fiduciary adviser and affiliates thereof in connection
with the sale, acquisition, or holding of the security or
other property shall be reasonable.
``(E) Arm's length transaction.--The terms of the sale,
acquisition, or holding of the security or other property
shall be at least as favorable to the plan as an arm's length
transaction would be.
``(2) Continued availability of information for at least 1
year.--The requirements of paragraph (1)(A) shall be deemed
not to have been met in connection with the initial or any
subsequent provision of advice described in paragraph (1) if,
at any time during the 1-year period following the provision
of the advice, the fiduciary adviser fails to maintain the
information described in clauses (i) through (iv) of
subparagraph (A) in currently accurate form or to make the
information available, upon request and without charge, to
the recipient of the advice.
``(3) Evidence of compliance maintained for at least 6
years.--A fiduciary adviser referred to in paragraph (1) who
has provided advice referred to in such paragraph shall, for
a period of not less than 6 years after the provision of the
advice, maintain any records necessary for determining
whether the requirements of the preceding provisions of this
subsection and of subsection (b)(14) have been met. A
transaction prohibited under section 406 shall not be
considered to have occurred solely because the records are
lost or destroyed prior to the end of the 6-year period due
to circumstances beyond the control of the fiduciary adviser.
``(4) Model disclosure forms.--The Secretary shall
prescribe regulations setting forth model disclosure forms to
assist fiduciary advisers in complying with the disclosure
requirements of under this subsection.
``(5) Exemption for employers contracting for qualified
investment advice.--
``(A) Reliance on contractual arrangements.--Subject to
subparagraph (B), a plan sponsor or other person who is a
fiduciary (other than a fiduciary adviser) shall not be
treated as failing to meet the requirements of this part
solely by reason of the provision of qualified investment
advice (or solely by reason of contracting for or otherwise
arranging for the provision of the investment advice), if--
``(i) the advice is provided by a fiduciary adviser
pursuant to an arrangement between the plan sponsor or other
fiduciary and the fiduciary adviser for the provision by the
fiduciary adviser of qualified investment advice, and
``(ii) the terms of the arrangement require compliance by
the fiduciary adviser with the requirements of this
subsection.
``(B) Continued duty for employer to prudently select and
review fiduciary advisers.--Nothing in subparagraph (A) shall
be construed to exempt a plan sponsor or other person who is
a fiduciary from any requirement of this part for the prudent
selection and periodic review of a fiduciary adviser with
whom the plan sponsor or other person enters into an
arrangement for the
[[Page H8208]]
provision of qualified investment advice. The plan sponsor or
other person who is a fiduciary shall not be liable under
this part with respect to the specific qualified investment
advice given by the fiduciary adviser to any particular
recipient of the advice. Pursuant to regulations which shall
be prescribed by the Secretary, the fiduciary adviser shall
provide appropriate disclosures to the plan sponsor to enable
the plan sponsor to fulfill its fiduciary responsibilities
under this part. In connection with the provision of the
advice by a fiduciary adviser on an ongoing basis, such
regulations shall provide for such disclosures on at least an
annual basis.
``(C) Plan assets may be used to pay reasonable expenses.--
Nothing in this part shall be construed to preclude the use
of plan assets to pay for reasonable expenses in providing
qualified investment advice.
``(6) Annual reviews by the Secretary.--The Secretary shall
conduct annual reviews of randomly selected fiduciary
advisers providing qualified investment advice to
participants and beneficiaries. In the case of each review,
the Secretary shall review the following:
``(A) Compliance by advice computer models with generally
accepted investment management principles.--The extent to
which advice computer models employed by the fiduciary
adviser comply with generally accepted investment management
principles.
``(B) Compliance with disclosure requirements.--The extent
to which disclosures provided by the fiduciary adviser have
complied with the requirements of this subsection.
``(C) Extent of violations.--The extent to which any
violations of fiduciary duties have occurred in connection
with the provision of the advice.
``(D) Extent of reported complaints.--The extent to which
complaints to relevant agencies have been made in connection
with the provision of the advice.
Any proprietary information obtained by the Secretary shall
be treated as confidential.
``(7) Duty of conflicted fiduciary adviser to provide for
alternative independent advice.--
``(A) In general.--In connection with any qualified
investment advice provided by a fiduciary adviser to a
participant or beneficiary regarding any security or other
property, if the fiduciary adviser--
``(i) has an interest in the security or other property, or
``(ii) has an affiliation or contractual relationship with
any third party that has an interest in the security or other
property,
the requirements of paragraph (1) shall be treated as not met
in connection with the advice unless the fiduciary adviser
has arranged, as an alternative to the advice that would
otherwise be provided by the fiduciary advisor, for qualified
investment advice with respect to the security or other
property provided by at least one alternative investment
adviser meeting the requirements of subparagraph (B).
``(B) Independence and qualifications of alternative
investment adviser.--Any alternative investment adviser whose
qualified investment advice is arranged for by a fiduciary
adviser pursuant to subparagraph (A)--
``(i) shall have 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 investment adviser is providing the
advice, and
``(ii) shall meet the requirements of a fiduciary adviser
under paragraph (7)(A), except that an alternative investment
adviser may not be a fiduciary of the plan other than in
connection with the provision of the advice.
``(C) Scope and fees of alternative investment advice.--Any
qualified investment advice provided pursuant to this
paragraph by an alternative investment adviser shall be of
the same type and scope, and provided under the same terms
and conditions (including no additional charge to the
participant or beneficiary), as apply with respect to the
qualified investment advice to be provided by the fiduciary
adviser.
``(8) Fiduciary adviser defined.--For purposes of this
subsection and subsection (b)(14)--
``(A) In general.--The term `fiduciary adviser' means, with
respect to a plan, a person--
``(i) who is a fiduciary of the plan by reason of the
provision of qualified investment advice by such person to a
participant or beneficiary,
``(ii) who--
``(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, and
``(iii) who is an entity meeting the requirements of
subparagraph (B).
``(B) Additional requirements with respect to certain
employees or other agents of certain advisers.--The
requirements of this subparagraph are met if every individual
who is employed (or otherwise compensated) by a person
described subparagraph (A)(ii) 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 subparagraph (A)(ii), or
``(iii) such other comparable qualified individual as may
be designated in regulations of the Secretary.
``(9) Additional definitions.--For purposes of this
subsection and subsection (b)(14)--
``(A) Qualified investment advice.--The term `qualified
investment advice' means, in connection with a participant or
beneficiary, investment advice referred to in section
3(21)(A)(ii) which--
``(i) consists of an individualized recommendation to the
participant or beneficiary with respect to the purchase,
sale, or retention of securities or other property for the
individual account of the participant or beneficiary, in
accordance with generally accepted investment management
principles, and
``(ii) takes into account all investment options under the
plan.
``(B) Affiliate.--The term `affiliate' of another entity
means an affiliated person of such entity (as defined in
section 2(a)(3) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a)(3))).
``(C) 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 such 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 such entity for the
investment adviser referred to in such section).''.
(c) Enforcement.--
(1) Liability for breach.--
(A) Liability in connection with individual account
plans.--Section 409 of such Act (29 U.S.C. 1109) is amended
by adding at the end the following new subsection:
``(c)(1) In any case in which the provision by a fiduciary
adviser of qualified investment advice to a participant or
beneficiary regarding any security or other property consists
of a breach described in subsection (a), the fiduciary
adviser shall be personally liable to make good to the
individual account of the participant or beneficiary any
losses to the individual account resulting from the breach,
and to restore to the individual account any profits of the
fiduciary adviser which have been made through use of assets
of the individual account by--
``(A) the fiduciary adviser, or
``(B) any other party with respect to whom a material
affiliation or contractual relationship of the fiduciary
adviser resulted in a violation of section 408(g)(1)(A) in
connection with the advice.
``(2) In the case of any action under this title by a
participant or beneficiary against a fiduciary adviser for
relief under this subsection in connection with the provision
of any qualified investment advice--
``(A) if the participant or beneficiary shows that the
fiduciary adviser had any interest in, or had any affiliation
or contractual relationship with a third party having an
interest in, the security or other property, there shall be a
presumption (rebuttable by a preponderance of the evidence)
that the fiduciary adviser failed to meet the requirements of
subparagraphs (A) and (B) of section 404(a)(1) in connection
with the provision of the advice, and
``(B) the dispute may be settled by arbitration, but only
pursuant to terms and conditions established by agreement
entered into voluntarily by both parties after the
commencement of the dispute.
``(3) For purposes of this subsection, the terms `fiduciary
adviser' and `qualified investment advice' shall have the
meanings provided such terms in subparagraphs (A) and (B),
respectively, of section 406(g)(7).''.
(B) Limitation on exemption from liability.--Section 404(c)
of such Act (29 U.S.C. 1104(c)) is amended--
(i) by redesignating paragraph (2) as paragraph (3) (and by
adjusting the margination of such paragraph to full measure
and adjusting the margination of subparagraphs (A) through
(B) thereof accordingly); and
(ii) by inserting after paragraph (1) the following new
paragraph:
``(2)(A) In any case in which--
``(i) a participant or beneficiary exercises control over
the assets in his or her account by means of a sale,
acquisition, or holding of a security or other property with
regard to which qualified investment advice was provided by a
fiduciary adviser, and
``(ii) any transaction in connection with the exercise of
such control is not a prohibited transaction solely by reason
of section 408(b)(14),
paragraph (1) shall not apply with respect to the fiduciary
adviser in connection with the provision of the advice.
``(B) For purposes of this subsection, the terms `fiduciary
adviser' and `qualified investment advice' shall have the
meanings provided such terms in subparagraphs (A) and (B),
respectively, of section 408(g)(7).''.
[[Page H8209]]
(2) Attorney's fees.--Section 502(g) of such Act (29 U.S.C.
1132(g)) is amended--
(A) in paragraph (1), by inserting ``or (3)'' after
``paragraph (2)''; and
(B) by adding at the end the following new paragraph:
``(3) In any action under this title by the participant or
beneficiary against a fiduciary adviser for relief under
section 409(c) in which the plaintiff prevails, the court
shall allow a reasonable attorney's fee and costs of action
to the prevailing plaintiff.''.
(3) Applicability of state fraud laws.--Section 514(b) of
such Act (29 U.S.C. 1144(b)) is amended--
(A) by redesignating paragraph (9) as paragraph (10); and
(B) by inserting after paragraph (8) the following new
paragraph:
``(9) Nothing in this title shall be construed to supersede
any State action for fraud against a fiduciary adviser for
any act or failure to act by the fiduciary adviser
constituting a violation of section 409(c).''.
SEC. 3. EFFECTIVE DATE.
The amendments made by this Act shall apply with respect to
advice referred to in section 3(21)(A)(ii) of the Employee
Retirement Income Security Act of 1974 or section
4975(e)(3)(B) of the Internal Revenue Code of 1986 provided
on or after January 1, 2002.
The SPEAKER pro tempore. Pursuant to House Resolution 288, the
gentleman from New Jersey (Mr. Andrews) and a Member opposed each will
control 30 minutes.
The Chair recognizes the gentleman from New Jersey (Mr. Andrews).
Mr. ANDREWS. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, this piece of legislation is about a person who is at
the age of 30 or 40 in his or her life and starting to think about
retirement, hopefully sooner than that, and they find they have a few
thousand dollars in an account, in an IRA or a 401(k). They pick up the
newspaper and they see wild fluctuations in the Dow Jones average, and
they hear from some of their neighbors that they are doing great in
their investments, and from others they are not doing so well; and they
realize they need some help. They need some good sound advice as to
what to do with this very crucial asset.
Both sides of this debate agree that the present situation is not
very good; that the advice does come from people who are like Bob at
the coffee shop, the friend of the gentleman from Ohio (Mr. Boehner),
someone who is not really qualified, that people get advice through
hearsay, and we think something should be done about that. The proposal
the gentleman from New York (Mr. Rangel) and myself are putting forward
now, we think, is a more sensible way to address this need.
We think that when this individual goes to get advice as to what to
do with his or her money, that there ought to be some choices of the
advisor. We do not rule out the prospect of an advisor who has an
interest in a fund that he or she is advising about. We do say, though,
that if such advice is going to be given, if the person giving the
advice has a vested interest in our hypothetical investor putting his
or her money in one fund as opposed to another, if there is a higher
commission or some other gain that derives to that advisor, we say the
following:
Each time a decision is made by the investor as to what to do, the
advisor has to tell the investor in plain language, in plain math, in
an understandable way what the nature of the advisor's interest is. The
advisor has to say to the investor, You know, if you put your money in
fund A instead of fund B, I make a little more money than I otherwise
would, and you ought to know that before you make the decision.
Our substitute says that the person giving that advice must be
qualified, and not most of the time but all of the time. The person
giving the advice must have proper education. The person giving the
advice must be part of a regulated industry, whether he or she is a
broker or some other form of advisor. And if the person gives advice
that is in violation of law, that is a violation of what we call the
fiduciary duty, then the person must lose their license, and not most
of the time, but all of the time, to make sure that the advisor is
properly qualified.
Our substitute says that there must be some mechanism so that when
our investor goes to ask for advice, and the advice may be given by a
conflicted advisor, by someone having an interest in one or more of the
funds, the employee should also be told that there is at least one
other choice; that if they do not want to take advice from this person
who has an interest in some of the funds that he or she is advising
about, there is somewhere else that individual can go, to a person who
has no interest whatsoever in the advice that he or she is giving. At
least one other option on the menu so that the investor knows that
there is somewhere else to go.
Finally, this substitute differs from the underlying bill because the
substitute provides that if the advisor gives advice that is so bad
that it is a violation of the law, so bad that it subverts and violates
the fiduciary duty of that advisor, the investor can be made whole. He
or she can get their pension money back, get back any lost profits or
gains they would have had while they were waiting to get it back, and
can get the cost of recovering those funds back in attorneys' fees as
well. The investor does not have to wait for some bureaucracy in
Washington to take action on his or her behalf; they do not have to
hope that they can get represented in a case that is not worth very
much money to an attorney, but worth an awful lot to them. They have
the ability to be made whole.
The proposal that the gentleman from New York and I are putting
forward provides for more advice for people who need it, but it does so
in a way that is careful and it does so in a way that does not subvert
and discard the 27-year history of the ERISA statute that has provided
safer pensions and sounder investments for our citizens.
Mr. Speaker, I urge Members of both sides to consider this proposal,
and I urge a ``yes'' vote on it.
Mr. Speaker, I reserve the balance of my time.
The SPEAKER pro tempore. Does the gentleman from Ohio (Mr. Boehner)
claim the time in opposition?
Mr. BOEHNER. Mr. Speaker, I am opposed to the amendment, and I do so
claim the time.
The SPEAKER pro tempore. The gentleman from Ohio is recognized for 30
minutes.
Mr. BOEHNER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I first want to thank the gentleman from New Jersey (Mr.
Andrews) and the gentleman from New York (Mr. Rangel) for the serious
and hard work they have brought to our debate today. The entire process
has been marked by bipartisan respect, and I am glad to see that is
continuing today. I look forward to working with both my friends as
this process continues.
Nonetheless, I must oppose their amendment because it falls into the
trap of so overprotecting people from one set of dangers that, instead,
we push them into another. If the Andrews-Rangel amendment were
adopted, we could say that workers would never receive misleading or
self-serving advice, but it is almost certain that they would not
receive any advice at all. Despite my good friends' intentions, I
believe the substitute would practically guarantee that no employers
would provide investment advice at all to their workers.
First, the substitute unnecessarily intrudes upon an extensive and
effective regulatory regime that protects investors who are paying for
advice with their own money outside of an ERISA plan. In addition to
this regulatory scheme, which includes banking, securities, insurance
laws, regulations, and agencies at the Federal and State levels, the
substitute requires Department of Labor qualitative oversight on
computer models of advice, the substantive qualifications of financial
advisors, and the adequacy of disclosure forms. Now, this not only
creates overlapping and confusing jurisdiction between the Department
of Labor and the Securities and Exchange Commission, it adds additional
and unnecessary regulations to existing securities laws.
H.R. 2269, the underlying bill, seeks to reduce and streamline
regulatory burdens on employers and financial advisors rather than to
create additional rules and regulations. The new and unnecessary
burdens created by the substitute will only drive up the cost of
investment advice, discourage competition, and, in the end, mean that
fewer numbers of American workers will ever get real investment advice.
The substitute also requires that if investment advice is offered,
two investment advisors must be offered to plan participants. Employers
have told us that this simply will not work.
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When we are trying to make investment advice more accessible and
affordable, I do not see any sense in driving up costs and compliance
effort by, in effect, forcing employers to select and monitor two
advisors instead of just one.
Finally, the substitute creates huge problems with ERISA's remedy
structure and would subject employers to a stream of unfair and costly
lawsuits by reversing the burden of proof and dramatically increasing
ERISA's already intimidating remedies provisions. The substitute also
erodes ERISA's careful preemption which gives employers legal certainty
and clarity amongst our 50 States.
The underlying bill is meant to make very minor change to ERISA to
allow employers to offer investment advice to their employees. H.R.
2269 works within the existing ERISA structure to do this without
affecting ERISA's important protections or modifying the flexibility
that courts have to fashion appropriate remedies within ERISA.
Amending ERISA's remedy structure will likely have unintended
consequences on all ERISA claims. And before significantly changing
ERISA's structure, we should look at the remedies offered in more
detail. ERISA's current remedies structure permits courts to flexibly
fashion appropriate remedies, including attorneys' fees, economic
damages, disgorgement of profits, and banning advisors. Moreover,
reversing the assumption of proof will not protect plan participants,
but will only line the pockets of trial attorneys. So I urge my
colleagues to vote against the substitutes for these reasons.
Put yourself in the place of an employer. Why would you offer
investment advice to your workers if your litigation risks were so high
that you might lose your entire business? Or in the place of an
advisor, why would you even try to enter the investment advice market
when, by doing so, would subject yourself to 50 different standards of
litigation, 50 States under a standard of proof that guarantees you
costly litigation, even if you have done nothing wrong?
H.R. 2269 effectively protects plan participants in a way that still
makes employer-provided investment advice economically viable to
employers and their employees. The fiduciary duty that it imposes on
employers and advisers alike is the highest duty of loyalty in the law.
Its disclosure requirements are actually more consumer friendly than
the Andrews-Rangel substitute because it requires disclosure on an
annual basis, or when there is a material change in disclosure. And it
provides for the most vital consumer protection of all, a vibrant
competitive marketplace, by opening the field to many of the most
highly regarded investment advice firms in the country. The underlying
bill reaches the right balance of increasing worker access to advice
while safeguarding the interests of the American workers without
discouraging employers from offering any advice at all.
Mr. Speaker, the Andrews-Rangel substitute, I do not believe, will
protect workers; and I do think it will discourage any employer from
offering advice. This will not help workers that desperately need this
kind of advice to try to increase their own retirement securities. So I
urge my colleagues to oppose the substitute.
Mr. Speaker, I reserve the balance of my time.
Mr. ANDREWS. Mr. Speaker, I yield myself 30 seconds.
The liability provisions in this substitute do not impose new
liability upon employers. What they do is impose new responsibility and
liability upon advisors who breach their fiduciary duty.
And the employer-protection provisions in this substitute are
essentially identical to those in the underlying bill.
Mr. Speaker, I yield 4 minutes to the gentleman from Washington (Mr.
McDermott), a member of the Committee on Ways and Means.
Mr. McDERMOTT. Mr. Speaker, I rise in support of the Andrews-Rangel
substitute. I told a story earlier which sort of makes you wonder about
why it is that the employee groups are not here saying this is such a
good deal. Where is the AFL-CIO? Why are they not running in here? Why
is the AARP not coming in here saying we want old folks to have this
investment? Because the bill is not a good one, that is why.
Now, the substitute that has been offered, really deals with the four
issues that we need to deal with: one is the disclosure of conflicts,
and that has to be done in a way that people actually hear it and know
what is going on. Under the disclosure requirements contained in this
substitute, plan participants or beneficiaries under the plan would
receive adequate disclosure of fees and other compensation that would
be received by the advisor with respect to the product being
recommended.
{time} 1300
So they would know at the time they are getting this pitch, who is
doing what.
Secondly, the qualification of advisors. We hear a lot of talk about
banks are regulated. Yes, banks are regulated. But the fact is that
under the Investors' Advisors Act, that is, the Federal law that
controls advisors on money, banks are exempted. So all this talk about
banks are regulated, blah, blah, blah, but not in this area. Our
substitute closes that loophole.
Now, the ability to get some nonconflicted advice, investors should
be able to have at least two, one that is selling something and someone
who is not selling something.
The fourth area is the question of remedies. If someone sells us
something, and most Americans do not know what is going on in the stock
market, if somebody says this is the thing to buy, and they know that
it is about to take a dive, maybe they have even sold short. Who knows?
I do not know that. Here is somebody that is gives me that advice. We
close that possibility by the conflicted question, and then we give a
remedy.
Mr. Speaker, to do any less than this is to say to people, yes, we
are going to give Members another chance. Maybe Members can get it in
the Senate or in the conference committee; or maybe we will pass a bill
next year and fix this. This ought to be fixed right now. We have the
opportunity. We know what the problems are.
We have the chairman suggesting he agrees with the gentleman from
North Dakota (Mr. Pomeroy). We should be able to do it. There is a real
question here that we cannot do what we all agree from the chairman on
down is the thing to do. I urge Members to vote for this Andrews-Rangel
substitute, and then we will have a pretty good bill.
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