[Congressional Record Volume 148, Number 17 (Tuesday, February 26, 2002)]
[Senate]
[Pages S1212-S1216]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HUTCHINSON (for himself, Mr. Lott, and Mr. Gregg):
  S. 1969. A bill to amend title I of the Employee Retirement Income 
Security Act of 1974 and the Internal Revenue Code of 1986 to provide 
additional protections to participants and beneficiaries in individual 
account plans from excessive investment in employer securities and to 
promote the provision of retirement investment advice to workers 
managing their retirement income assets, and to amend the Securities 
Exchange Act of 1934 to prohibit insider trades during any suspension 
of the ability of plan participants or beneficiaries to direct 
investment away from equity securities of the plan sponsor; to the 
Committee on Health, Education, Labor, and Pensions.
  Mr. HUTCHINSON. Mr. President, today I am introducing legislation 
along with Senator Lott and Senator Gregg which will protect the 
security of American workers retirement plans without chilling their 
growth. The Pension Security Act of 2002 is based on President Bush's 
proposal for pension reform made earlier this month. The President's 
proposal enhances protections for the 401(k) investments of 42 million 
American workers by providing individuals with better information about 
their accounts and significantly more control over their funds.
  The success of private pension plans has transformed worker 
retirement in America. Today, because of these

[[Page S1213]]

plans, the majority of retirees can experience the comfortable 
retirement that was once available only to few. But as the Enron 
situation has shown us, there are flaws in the system. When Enron stock 
plummeted 98.8 percent in one year, thousands of workers lost their 
retirement nesteggs.
  What could have prevented such massive losses? For some workers, 
better information about the wisdom of a diversified investment 
strategy would have prevented such heavy investment in company stock.
  Our bill will give employees better investment information in two 
ways. First, it will require plans to send quarterly benefits statement 
to plan participants. This statement will include easy-to-understand 
information about the importance of a well-balanced and diversified 
portfolio and the risk of holding a substantial portion of the 
portfolio in one security. Second, our bill amends complex and outdated 
laws, although intended to protect workers retirement funds, actually 
prevent them from obtaining affordable financial advice. This 
legislation will help employers to provide their workers with access to 
professional investment advice. This benefit would require full 
disclosure of any fees or potential conflicts and put strict safeguards 
in place to ensure that workers receive advice solely in their best 
interests.
  What else could have prevented the loss of so many Enron employees' 
retirement savings? Many were unable to control what was in their 
portfolio. Even when they wanted to sell off their company stock, they 
could not. Our bill addresses this problem as well. Under our proposal, 
workers could no longer be locked into a portfolio half-filled with 
company stock until retirement age. Rather, employees would be allowed 
to control 100 percent of their investment once they have participated 
in their plan for three years.
  Some Enron employees could not diversify their stock when they wanted 
to because of the well-publicized ``black-out'' or ``lockdown'' period. 
The Department of Labor is investigating several aspects of the 
practice of instituting black-out periods for necessary record-keeping 
adjustments and improvements. However, what has become obvious is that 
this practice needs legislative guidance. Our bill provides that 
guidance by requiring 30 days prior notice of any black-out period and 
codifying definitions associated with the practice. We are also 
proposing another measure to give workers more control over their 
investments. During these black-out periods, the law will place the 
entire burden of liability on the plan. This means that the plan 
providers would be personally liable for losses to the place caused by 
a breech of fiduciary duty, and this will be a powerful incentive to 
keep black-out periods as short as possible.
  One of the most infuriating spectacles of the Enron disaster was the 
Enron executives selling off their own personal shares of company stock 
while employees were prevented from doing the same during the black-out 
period. This was unconscionable, and our bill will put a stop to it. If 
this bill is enacted, what is good for the goose will be good for the 
gander. If workers cannot control their retirement investments due to a 
black-out period, neither can the company's owners, directors or 
officers purchase, acquire, transfer or sell company stock. That change 
will be a major incentive for companies to keep the necessary periods 
of time when employees do not control their investments as short as 
possible.

  The proposal we are introducing here today will give workers better 
information, more choice in their investment options, and more security 
with their retirement funds. In order to prevent a knee-jerk reaction 
to the Enron tragedy, which could cause more harm than good, the 
President has given us a plan which makes retirement savings more 
secure while also preserving the ability of individuals to make their 
own choices, based on their own situation, when investing for their 
retirement. This bill not only preserves this right, it enhances it.
  Finally I would like to thank my colleagues Senator Gregg and Senator 
Lott for joining me in introducing this bill. This bill is important, 
and we will work tirelessly to see that America's workers and their 
retirement security are protected. I thank the President for his 
leadership on this issue and I commend Congressmen John Boehner and Sam 
Johnson for introducing this bill in the House.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1969

       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 ``Pension Security Act of 
     2002''.

     SEC. 2. IMPROVED DISCLOSURE OF PENSION BENEFIT INFORMATION BY 
                   INDIVIDUAL ACCOUNT PLANS.

       (a) Pension Benefit Statements Required on Periodic 
     Basis.--
       (1) In general.--Subsection (a) of section 105 of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1025) is amended by inserting ``and, in the case of an 
     applicable individual account plan, shall furnish at least 
     quarterly to each plan participant (and to each beneficiary 
     with a right to direct investments),'' after ``who so 
     requests in writing,''.
       (2) Information required from individual account plans.--
     Section 105 of such Act (29 U.S.C. 1025) is amended by adding 
     at the end the following new subsection:
       ``(e)(1) The quarterly statements required under subsection 
     (a) shall include (together with the information required in 
     subsection (a)) the following:
       ``(A) the value of investments allocated to the individual 
     account, including the value of any assets held in the form 
     of employer securities, without regard to whether such 
     securities were contributed by the plan sponsor or acquired 
     at the direction of the plan or of the participant or 
     beneficiary, and an explanation of any limitations or 
     restrictions on the right of the participant or beneficiary 
     to direct an investment; and
       ``(B) an explanation, written in a manner calculated to be 
     understood by the average plan participant, of the 
     importance, for the long-term retirement security of 
     participants and beneficiaries, of a well-balanced and 
     diversified investment portfolio, including a discussion of 
     the risk of holding substantial portions of a portfolio in 
     the security of any one entity, such as employer 
     securities.''.
       (3) Definition of applicable individual account plan.--
     Section 3 of such Act (29 U.S.C. 1002) is amended by adding 
     at the end the following new subsection:
       ``(42) The term `applicable individual account plan' means 
     any individual account plan, except that such term does not 
     include an employee stock ownership plan (within the meaning 
     of section 4975(e)(7) of the Internal Revenue Code of 1986) 
     unless there are any contributions to such plan (or earnings 
     thereunder) held within such plan that are subject to 
     subsection (k)(3) or (m)(2) of section 401 of the Internal 
     Revenue Code of 1986.''.
       (b) Civil Penalties for Failure To Provide Quarterly 
     Benefit Statements.--Section 502 of such Act (29 U.S.C. 1132) 
     is amended--
       (1) in subsection (a)(6), by striking ``(5), or (6)'' and 
     inserting ``(5), (6), or (7)'';
       (2) by redesignating paragraph (7) of subsection (c) as 
     paragraph (8); and
       (3) by inserting after paragraph (6) of subsection (c) the 
     following new paragraph:
       ``(7) The Secretary may assess a civil penalty against any 
     plan administrator of up to $1,000 a day from the date of 
     such plan administrator's failure or refusal to provide 
     participants or beneficiaries with a benefit statement on at 
     least a quarterly basis in accordance with section 105(a).''.

     SEC. 3. PROTECTION FROM SUSPENSIONS, LIMITATIONS, OR 
                   RESTRICTIONS ON ABILITY OF PARTICIPANT OR 
                   BENEFICIARY TO DIRECT OR DIVERSIFY PLAN ASSETS.

       (a) In General.--Section 101 of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1021) is amended--
       (1) by redesignating the second subsection (h) as 
     subsection (j); and
       (2) by inserting after the first subsection (h) the 
     following new subsection:
       ``(i) Notice of Suspension, Limitation, or Restriction on 
     Ability of Participant or Beneficiary To Direct Investments 
     in Individual Account Plan.--
       ``(1) In general.--In the case of an applicable individual 
     account plan, the administrator shall notify participants and 
     beneficiaries of any action that would have the affect of 
     suspending, limiting, or restricting the ability of 
     participants or beneficiaries to direct or diversify assets 
     credited to their accounts.
       ``(2) Notice requirements.--
       ``(A) In general.--The notices described in paragraph (1) 
     shall--
       ``(i) be written in a manner calculated to be understood by 
     the average plan participant and shall include the reasons 
     for the suspension, limitation, or restriction, an 
     identification of the investments affected, and the expected 
     period of the suspension, limitation, or restriction, and
       ``(ii) be furnished at least 30 days in advance of the 
     action suspending, limiting, or restricting the ability of 
     the participants or beneficiaries to direct or diversify 
     assets.

[[Page S1214]]

       ``(B) Exception to 30-day notice requirement.--In any case 
     in which--
       ``(i) a fiduciary of the plan determines, in writing, that 
     a deferral of the suspension, limitation, or restriction 
     would violate the requirements of subparagraph (A) or (B) of 
     section 404(a)(1), or
       ``(ii) the inability to provide the 30-day advance notice 
     is due to circumstances beyond the reasonable control of the 
     plan administrator,

     subparagraph (A)(ii) shall not apply, and the notice shall be 
     furnished as soon as reasonably possible under the 
     circumstances.
       ``(3) Changes in expected period of suspension, limitation, 
     or restriction.--If, following the furnishing of the notice 
     pursuant to this subsection, there is a change in the 
     expected period of the suspension, limitation, or restriction 
     on the right of a participant or beneficiary to direct or 
     diversify assets, the administrator shall provide affected 
     participants and beneficiaries advance notice of the change. 
     Such notice shall meet the requirements of paragraph 
     (2)(A)(i) in relation to the extended suspension, limitation, 
     or restriction.''.
       (b) Civil Penalties for Failure To Provide Notice.--Section 
     502 of such Act (as amended by section 2(b)) is amended--
       (1) in subsection (a)(6), by striking ``(6), or (7)'' and 
     inserting ``(6), (7), or (8)'';
       (2) by redesignating paragraph (8) of subsection (c) as 
     paragraph (9); and
       (3) by inserting after paragraph (7) of subsection (c) the 
     following new paragraph:
       ``(8) The Secretary may assess a civil penalty against any 
     person of up to $100 a day from the date of the person's 
     failure or refusal to provide notice to participants and 
     beneficiaries in accordance with section 101(i). For purposes 
     of this paragraph, each violation with respect to any single 
     participant or beneficiary, shall be treated as a separate 
     violation.''.
       (c) Inapplicability of Relief From Fiduciary Liability 
     During Suspension of Ability of Participant or Beneficiary To 
     Direct Investments.--Section 404(c)(1) of such Act (29 U.S.C. 
     1104(c)(1)) is amended--
       (1) in subparagraph (B), by inserting before the period the 
     following: ``, except that this subparagraph shall not apply 
     for any period during which the ability of a participant or 
     beneficiary to direct the investment of assets in his or her 
     individual account is suspended by a plan sponsor or 
     fiduciary''; and
       (2) by adding at the end the following:
     ``Any limitation or restriction that may govern the frequency 
     of transfers between investment vehicles shall not be treated 
     as a suspension referred to in subparagraph (B) to the extent 
     such limitation or restriction is disclosed to participants 
     or beneficiaries through the summary plan description or 
     materials describing specific investment alternatives under 
     the plan.''.

     SEC. 4. LIMITATIONS ON RESTRICTIONS OF INVESTMENTS IN 
                   EMPLOYER SECURITIES.

       (a) Amendments to the Employee Retirement Income Security 
     Act of 1974.--Section 407 of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1107) is amended by adding at 
     the end the following new subsection:
       ``(g)(1) An applicable individual account plan may not 
     acquire or hold any employer securities with respect to which 
     there is any restriction on divestment by a participant or 
     beneficiary on or after the date on which the participant has 
     completed 3 years of participation (as defined in section 
     204(b)(4)) under the plan or (if the plan so provides) 3 
     years of service (as defined in section 203(b)(2)) with the 
     employer.
       ``(2) For purposes of paragraph (1), the term `restriction 
     on divestment' includes--
       ``(A) any failure to offer at least 3 diversified 
     investment options in which a participant or beneficiary may 
     direct the proceeds from the divestment of employer 
     securities, and
       ``(B) any restriction on the ability of a participant or 
     beneficiary to choose from all otherwise available investment 
     options in which such proceeds may be so directed.''.
       (b) Amendments to the Internal Revenue Code of 1986.--
       (1) In general.--Subsection (a) of section 401 of the 
     Internal Revenue Code of 1986 (relating to requirements for 
     qualification) is amended by inserting after paragraph (34) 
     the following new paragraph:
       ``(35) Limitations on restrictions under applicable defined 
     contribution plans on investments in employer securities.--
       ``(A) In general.--A trust forming a part of an applicable 
     defined contribution plan shall not constitute a qualified 
     trust under this subsection if the plan acquires or holds any 
     employer securities with respect to which there is any 
     restriction on divestment by a participant or beneficiary on 
     or after the date on which the participant has completed 3 
     years of participation (as defined in section 411(b)(4)) 
     under the plan or (if the plan so provides) 3 years of 
     service (as defined in section 411(a)(5)) with the employer.
       ``(B) Definitions.--For purposes of subparagraph (A)--
       ``(i) Applicable defined contribution plan.--The term 
     `applicable defined contribution plan' means any defined 
     contribution plan, except that such term does not include an 
     employee stock ownership plan (as defined in section 
     4975(e)(7)) unless there are any contributions to such plan 
     (or earnings thereunder) held within such plan that are 
     subject to subsections (k)(3) or (m)(2).
       ``(ii) Restriction on divestment.--The term `restriction on 
     divestment' includes--

       ``(I) any failure to offer at least 3 diversified 
     investment options in which a participant or beneficiary may 
     direct the proceeds from the divestment of employer 
     securities, and
       ``(II) any restriction on the ability of a participant or 
     beneficiary to choose from all otherwise available investment 
     options in which such proceeds may be so directed.''.

       (2) Conforming amendment.--Section 401(a)(28)(B) of such 
     Code (relating to diversification of investments) is amended 
     by adding at the end the following new clause:
       ``(v) Exception.--This subparagraph shall not apply to an 
     applicable defined contribution plan (as defined in paragraph 
     (35)(B)(i)).''.

     SEC. 5. PROHIBITED TRANSACTION EXEMPTION FOR THE PROVISION OF 
                   INVESTMENT ADVICE.

       (a) Amendments to the Employee Retirement Income Security 
     Act of 1974.--
       (1) Exemption from prohibited transactions.--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 investment of assets of the plan is subject to 
     the direction of plan participants or beneficiaries,
       ``(ii) the advice is provided to the plan or a participant 
     or beneficiary of the plan by a fiduciary adviser in 
     connection with any sale, acquisition, or holding of a 
     security or other property for purposes of investment of plan 
     assets, and
       ``(iii) the requirements of subsection (g) are met in 
     connection with the provision of the advice.
       ``(B) The transactions described in this subparagraph are 
     the following:
       ``(i) the provision of the advice to the plan, participant, 
     or beneficiary;
       ``(ii) the sale, acquisition, or holding of a security or 
     other property (including any lending of money or other 
     extension of credit associated with the sale, acquisition, or 
     holding of a security or other property) pursuant to the 
     advice; and
       ``(iii) the direct or indirect receipt of fees or other 
     compensation by the fiduciary adviser or an affiliate thereof 
     (or any employee, agent, or registered representative of the 
     fiduciary adviser or affiliate) in connection with the 
     provision of the advice or in connection with a sale, 
     acquisition, or holding of a security or other property 
     pursuant to the advice.''.
       (2) Requirements.--Section 408 of such Act is amended by 
     adding at the end the following new subsection:
       ``(g) Requirements Relating to Provision of Investment 
     Advice by Fiduciary Advisers.--
       ``(1) In general.--The requirements of this subsection are 
     met in connection with the provision of investment advice 
     referred to in section 3(21)(A)(ii), provided to an employee 
     benefit plan or a participant or beneficiary of an employee 
     benefit plan by a fiduciary adviser with respect to 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--
       ``(A) in the case of the initial provision of the advice 
     with regard to the security or other property by the 
     fiduciary adviser to the plan, participant, or beneficiary, 
     the fiduciary adviser provides to the recipient of the 
     advice, at a time reasonably contemporaneous with the initial 
     provision of the advice, a written notification (which may 
     consist of notification by means of electronic 
     communication)--
       ``(i) of all fees or other compensation relating to the 
     advice that the fiduciary adviser or any affiliate thereof is 
     to receive (including compensation provided by any third 
     party) in connection with the provision of the advice or in 
     connection with the sale, acquisition, or holding of the 
     security or other property,
       ``(ii) of any material affiliation or contractual 
     relationship of the fiduciary adviser or affiliates thereof 
     in the security or other property,
       ``(iii) of any limitation placed on the scope of the 
     investment advice to be provided by the fiduciary adviser 
     with respect to any such sale, acquisition, or holding of a 
     security or other property,
       ``(iv) of the types of services provided by the fiduciary 
     adviser in connection with the provision of investment advice 
     by the fiduciary adviser, and
       ``(v) that the adviser is acting as a fiduciary of the plan 
     in connection with the provision of the advice,
       ``(B) the fiduciary adviser provides appropriate 
     disclosure, in connection with the sale, acquisition, or 
     holding of the security or other property, in accordance with 
     all applicable securities laws,
       ``(C) the sale, acquisition, or holding occurs solely at 
     the direction of the recipient of the advice,
       ``(D) the compensation received by the fiduciary adviser 
     and affiliates thereof in connection with the sale, 
     acquisition, or holding of the security or other property is 
     reasonable, and
       ``(E) 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.
       ``(2) Standards for presentation of information.--The 
     notification required to be

[[Page S1215]]

     provided to participants and beneficiaries under paragraph 
     (1)(A) shall be written in a clear and conspicuous manner and 
     in a manner calculated to be understood by the average plan 
     participant and shall be sufficiently accurate and 
     comprehensive to reasonably apprise such participants and 
     beneficiaries of the information required to be provided in 
     the notification.
       ``(3) Exemption conditioned on continued availability of 
     required information on request for 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) to the plan, participant, 
     or beneficiary if, at any time during the provision of 
     advisory services to the plan, participant, or beneficiary, 
     the fiduciary adviser fails to maintain the information 
     described in clauses (i) through (iv) of subparagraph (A) in 
     currently accurate form and in the manner described in 
     paragraph (2) or fails--
       ``(A) to provide, without charge, such currently accurate 
     information to the recipient of the advice no less than 
     annually,
       ``(B) to make such currently accurate information 
     available, upon request and without charge, to the recipient 
     of the advice, or
       ``(C) in the event of a material change to the information 
     described in clauses (i) through (iv) of paragraph (1)(A), to 
     provide, without charge, such currently accurate information 
     to the recipient of the advice at a time reasonably 
     contemporaneous to the material change in information.
       ``(4) Maintenance for 6 years of evidence of compliance.--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.
       ``(5) Exemption for plan sponsor and certain other 
     fiduciaries.--
       ``(A) In general.--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 investment advice referred to in section 
     3(21)(A)(ii) (or solely by reason of contracting for or 
     otherwise arranging for the provision of the 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 investment advice referred to in such 
     section,
       ``(ii) the terms of the arrangement require compliance by 
     the fiduciary adviser with the requirements of this 
     subsection, and
       ``(iii) the terms of the arrangement include a written 
     acknowledgment by the fiduciary adviser that the fiduciary 
     adviser is a fiduciary of the plan with respect to the 
     provision of the advice.
       ``(B) Continued duty of prudent selection of adviser and 
     periodic review.--Nothing in subparagraph (A) shall be 
     construed to exempt a plan sponsor or other person who is a 
     fiduciary from any requirement of this part for the prudent 
     selection and periodic review of a fiduciary adviser with 
     whom the plan sponsor or other person enters into an 
     arrangement for the provision of advice referred to in 
     section 3(21)(A)(ii). 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 fiduciary adviser to 
     any particular recipient of the advice.
       ``(C) Availability of plan assets for payment for advice.--
     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).
       ``(6) Definitions.--For purposes of this subsection and 
     subsection (b)(14)--
       ``(A) Fiduciary adviser.--The term `fiduciary adviser' 
     means, with respect to a plan, a person who is a fiduciary of 
     the plan by reason of the provision of investment advice by 
     the person to the plan or to a participant or beneficiary and 
     who is--
       ``(i) registered as an investment adviser under the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) or 
     under the laws of the State in which the fiduciary maintains 
     its principal office and place of business,
       ``(ii) a bank or similar financial institution referred to 
     in section 408(b)(4),
       ``(iii) an insurance company qualified to do business under 
     the laws of a State,
       ``(iv) a person registered as a broker or dealer under the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.),
       ``(v) an affiliate of a person described in any of clauses 
     (i) through (iv), or
       ``(vi) an employee, agent, or registered representative of 
     a person described in any of clauses (i) through (v) who 
     satisfies the requirements of applicable insurance, banking, 
     and securities laws relating to the provision of the advice.
       ``(B) Affiliate.--The term `affiliate' of another entity 
     means an affiliated person of the entity (as defined in 
     section 2(a)(3) of the Investment Company Act of 1940 (15 
     U.S.C. 80a-2(a)(3))).
       ``(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 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).''.
       (b) Amendments to the Internal Revenue Code of 1986.--
       (1) Exemption from prohibited transactions.--Subsection (d) 
     of section 4975 of the Internal Revenue Code of 1986 
     (relating to exemptions from tax on prohibited transactions) 
     is amended--
       (A) in paragraph (14), by striking ``or'' at the end;
       (B) in paragraph (15), by striking the period at the end 
     and inserting ``; or''; and
       (C) by adding at the end the following new paragraph:
       ``(16) any transaction described in subsection (f)(7)(A) in 
     connection with the provision of investment advice described 
     in subsection (e)(3)(B), in any case in which--
       ``(A) the investment of assets of the plan is subject to 
     the direction of plan participants or beneficiaries,
       ``(B) the advice is provided to the plan or a participant 
     or beneficiary of the plan by a fiduciary adviser in 
     connection with any sale, acquisition, or holding of a 
     security or other property for purposes of investment of plan 
     assets, and
       ``(C) the requirements of subsection (f)(7)(B) are met in 
     connection with the provision of the advice.''.
       (2) Allowed transactions and requirements.--Subsection (f) 
     of such section 4975 (relating to other definitions and 
     special rules) is amended by adding at the end the following 
     new paragraph:
       ``(7) Provisions relating to investment advice provided by 
     fiduciary advisers.--
       ``(A) Transactions allowable in connection with investment 
     advice provided by fiduciary advisers.--The transactions 
     referred to in subsection (d)(16), in connection with the 
     provision of investment advice by a fiduciary adviser, are 
     the following:
       ``(i) the provision of the advice to the plan, participant, 
     or beneficiary;
       ``(ii) the sale, acquisition, or holding of a security or 
     other property (including any lending of money or other 
     extension of credit associated with the sale, acquisition, or 
     holding of a security or other property) pursuant to the 
     advice; and
       ``(iii) the direct or indirect receipt of fees or other 
     compensation by the fiduciary adviser or an affiliate thereof 
     (or any employee, agent, or registered representative of the 
     fiduciary adviser or affiliate) in connection with the 
     provision of the advice or in connection with a sale, 
     acquisition, or holding of a security or other property 
     pursuant to the advice.
       ``(B) Requirements relating to provision of investment 
     advice by fiduciary advisers.--The requirements of this 
     subparagraph (referred to in subsection (d)(16)(C)) are met 
     in connection with the provision of investment advice 
     referred to in subsection (e)(3)(B), provided to a plan or a 
     participant or beneficiary of a plan by a fiduciary adviser 
     with respect to the plan in connection with any sale, 
     acquisition, or holding of a security or other property for 
     purposes of investment of amounts held by the plan, if--
       ``(i) in the case of the initial provision of the advice 
     with regard to the security or other property by the 
     fiduciary adviser to the plan, participant, or beneficiary, 
     the fiduciary adviser provides to the recipient of the 
     advice, at a time reasonably contemporaneous with the initial 
     provision of the advice, a written notification (which may 
     consist of notification by means of electronic 
     communication)--

       ``(I) of all fees or other compensation relating to the 
     advice that the fiduciary adviser or any affiliate thereof is 
     to receive (including compensation provided by any third 
     party) in connection with the provision of the advice or in 
     connection with the sale, acquisition, or holding of the 
     security or other property,
       ``(II) of any material affiliation or contractual 
     relationship of the fiduciary adviser or affiliates thereof 
     in the security or other property,
       ``(III) of any limitation placed on the scope of the 
     investment advice to be provided by the fiduciary adviser 
     with respect to any such sale, acquisition, or holding of a 
     security or other property,
       ``(IV) of the types of services provided by the fiduciary 
     adviser in connection with the provision of investment advice 
     by the fiduciary adviser, and
       ``(V) that the adviser is acting as a fiduciary of the plan 
     in connection with the provision of the advice,

       ``(ii) the fiduciary adviser provides appropriate 
     disclosure, in connection with the sale, acquisition, or 
     holding of the security or other property, in accordance with 
     all applicable securities laws,
       ``(iii) the sale, acquisition, or holding occurs solely at 
     the direction of the recipient of the advice,
       ``(iv) the compensation received by the fiduciary adviser 
     and affiliates thereof in connection with the sale, 
     acquisition, or holding of the security or other property is 
     reasonable, and
       ``(v) the terms of the sale, acquisition, or holding of the 
     security or other property are at least as favorable to the 
     plan as an arm's length transaction would be.

[[Page S1216]]

       ``(C) Standards for presentation of information.--The 
     notification required to be provided to participants and 
     beneficiaries under subparagraph (B)(i) shall be written in a 
     clear and conspicuous manner and in a manner calculated to be 
     understood by the average plan participant and shall be 
     sufficiently accurate and comprehensive to reasonably apprise 
     such participants and beneficiaries of the information 
     required to be provided in the notification.
       ``(D) Exemption conditioned on making required information 
     available annually, on request, and in the event of material 
     change.--The requirements of subparagraph (B)(i) shall be 
     deemed not to have been met in connection with the initial or 
     any subsequent provision of advice described in subparagraph 
     (B) to the plan, participant, or beneficiary if, at any time 
     during the provision of advisory services to the plan, 
     participant, or beneficiary, the fiduciary adviser fails to 
     maintain the information described in subclauses (I) through 
     (IV) of subparagraph (B)(i) in currently accurate form and in 
     the manner required by subparagraph (C), or fails--
       ``(i) to provide, without charge, such currently accurate 
     information to the recipient of the advice no less than 
     annually,
       ``(ii) to make such currently accurate information 
     available, upon request and without charge, to the recipient 
     of the advice, or
       ``(iii) in the event of a material change to the 
     information described in subclauses (I) through (IV) of 
     subparagraph (B)(i), to provide, without charge, such 
     currently accurate information to the recipient of the advice 
     at a time reasonably contemporaneous to the material change 
     in information.
       ``(E) Maintenance for 6 years of evidence of compliance.--A 
     fiduciary adviser referred to in subparagraph (B) who has 
     provided advice referred to in such subparagraph shall, for a 
     period of not less than 6 years after the provision of the 
     advice, maintain any records necessary for determining 
     whether the requirements of the preceding provisions of this 
     paragraph and of subsection (d)(16) have been met. A 
     transaction prohibited under subsection (c)(1) shall not be 
     considered to have occurred solely because the records are 
     lost or destroyed prior to the end of the 6-year period due 
     to circumstances beyond the control of the fiduciary adviser.
       ``(F) Exemption for plan sponsor and certain other 
     fiduciaries.--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 section 
     solely by reason of the provision of investment advice 
     referred to in subsection (e)(3)(B) (or solely by reason of 
     contracting for or otherwise arranging for the provision of 
     the 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 investment advice referred to in such 
     section,
       ``(ii) the terms of the arrangement require compliance by 
     the fiduciary adviser with the requirements of this 
     paragraph,
       ``(iii) the terms of the arrangement include a written 
     acknowledgment by the fiduciary adviser that the fiduciary 
     adviser is a fiduciary of the plan with respect to the 
     provision of the advice, and
       ``(iv) the requirements of part 4 of subtitle B of title I 
     of the Employee Retirement Income Security Act of 1974 are 
     met in connection with the provision of such advice.
       ``(G) Definitions.--For purposes of this paragraph and 
     subsection (d)(16)--
       ``(i) Fiduciary adviser.--The term `fiduciary adviser' 
     means, with respect to a plan, a person who is a fiduciary of 
     the plan by reason of the provision of investment advice by 
     the person to the plan or to a participant or beneficiary and 
     who is--

       ``(I) registered as an investment adviser under the 
     Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) or 
     under the laws of the State in which the fiduciary maintains 
     its principal office and place of business,
       ``(II) a bank or similar financial institution referred to 
     in subsection (d)(4),
       ``(III) an insurance company qualified to do business under 
     the laws of a State,
       ``(IV) a person registered as a broker or dealer under the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.),
       ``(V) an affiliate of a person described in any of 
     subclauses (I) through (IV), or
       ``(VI) an employee, agent, or registered representative of 
     a person described in any of subclauses (I) through (V) who 
     satisfies the requirements of applicable insurance, banking, 
     and securities laws relating to the provision of the advice.

       ``(ii) Affiliate.--The term `affiliate' of another entity 
     means an affiliated person of the entity (as defined in 
     section 2(a)(3) of the Investment Company Act of 1940 (15 
     U.S.C. 80a-2(a)(3))).
       ``(iii) Registered representative.--The term `registered 
     representative' of another entity means a person described in 
     section 3(a)(18) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78c(a)(18)) (substituting the entity for the broker or 
     dealer referred to in such section) or a person described in 
     section 202(a)(17) of the Investment Advisers Act of 1940 (15 
     U.S.C. 80b-2(a)(17)) (substituting the entity for the 
     investment adviser referred to in such section).''.

     SEC. 6. INSIDER TRADES DURING PENSION PLAN SUSPENSION PERIODS 
                   PROHIBITED.

       Section 16 of the Securities Exchange Act of 1934 (15 
     U.S.C. 78p) is amended by adding at the end the following new 
     subsection:
       ``(h) Insider Trades During Pension Plan Suspension Periods 
     Prohibited.--
       ``(1) Prohibition.--It shall be unlawful for any such 
     beneficial owner, director, or officer of an issuer, directly 
     or indirectly, to purchase (or otherwise acquire) or sell (or 
     otherwise transfer) any equity security of such issuer (other 
     than an exempted security), during any pension plan 
     suspension period with respect to such equity security.
       ``(2) Remedy.--Any profit realized by such beneficial 
     owner, director, or officer from any purchase (or other 
     acquisition) or sale (or other transfer) in violation of this 
     subsection shall inure to and be recoverable by the issuer 
     irrespective of any intention on the part of such beneficial 
     owner, director, or officer in entering into the transaction.
       ``(3) Rulemaking permitted.--The Commission may issue rules 
     to clarify the application of this subsection, to ensure 
     adequate notice to all persons affected by this subsection, 
     and to prevent evasion thereof.
       ``(4) Definitions.--For purposes of this subsection--
       ``(A) Pension plan suspension period.--The term `pension 
     plan suspension period' means, with respect to an equity 
     security, any period during which the ability of a 
     participant or beneficiary under an applicable individual 
     account plan maintained by the issuer to direct the 
     investment of assets in his or her individual account away 
     from such equity security is suspended by the issuer or a 
     fiduciary of the plan. Such term does not include any 
     limitation or restriction that may govern the frequency of 
     transfers between investment vehicles to the extent such 
     limitation and restriction is disclosed to participants and 
     beneficiaries through the summary plan description or 
     materials describing specific investment alternatives under 
     the plan.
       ``(B) Applicable individual account plan.--The term 
     `applicable individual account plan' has the meaning provided 
     such term in section 3(42) of the Employee Retirement Income 
     Security Act of 1974.''.

     SEC. 7. EFFECTIVE DATES AND RELATED RULES.

       (a) In General.--Except as provided in subsection (b), the 
     amendments made by sections 2, 3, 4, and 6 shall apply with 
     respect to plan years beginning on or after January 1, 2003.
       (b) Special Rule for Collectively Bargained Plans.--In the 
     case of a plan maintained pursuant to 1 or more collective 
     bargaining agreements between employee representatives and 1 
     or more employers ratified on or before the date of the 
     enactment of this Act, subsection (a) shall be applied to 
     benefits pursuant to, and individuals covered by, any such 
     agreement by substituting for ``January 1, 2003'' the date of 
     the commencement of the first plan year beginning on or after 
     the earlier of--
       (1) the later of--
       (A) January 1, 2004, or
       (B) the date on which the last of such collective 
     bargaining agreements terminates (determined without regard 
     to any extension thereof after the date of the enactment of 
     this Act), or
       (2) January 1, 2005.
       (c) Plan Amendments.--If the amendments made by sections 2, 
     3, and 4 of this Act require an amendment to any plan, such 
     plan amendment shall not be required to be made before the 
     first plan year beginning on or after January 1, 2005, if--
       (1) during the period after such amendments made by this 
     Act take effect and before such first plan year, the plan is 
     operated in accordance with the requirements of such 
     amendments made by this Act, and
       (2) such plan amendment applies retroactively to the period 
     after such amendments made by this Act take effect and before 
     such first plan year.
       (d) Amendments Relating to Investment Advice.--The 
     amendments made by section 5 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(c)(3)(B) of the Internal Revenue Code of 1986 provided 
     on or after January 1, 2003.

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