[House Report 104-238]
[From the U.S. Government Publishing Office]



                                                                       
104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    104-238
_______________________________________________________________________


 
RESTRICTIONS ON PROMOTION BY THE GOVERNMENT OF USE BY EMPLOYEE BENEFIT 
               PLANS OF ECONOMICALLY TARGETED INVESTMENTS

_______________________________________________________________________


 September 1, 1995.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______


     Mr. Goodling, from the Committee on Economic and Educational 
                 Opportunities, submitted the following

                              R E P O R T

                             together with

                     MINORITY AND ADDITIONAL VIEWS

                        [To accompany H.R. 1594]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Economic and Educational Opportunities, to 
whom was referred the bill (H.R. 1594) to place restrictions on 
the promotion by the Department of Labor and other Federal 
agencies and instrumentalities of economically targeted 
investments in connection with employee benefit plans, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SENSE OF THE CONGRESS.

  It is the sense of the Congress that it is inappropriate for the 
Department of Labor, as the principal enforcer of fiduciary standards 
in connection with employee pension benefit plans and employee welfare 
benefit plans (as defined in paragraphs (1) and (2) of section 3 of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(1), 
(2))), to take any action to promote or otherwise encourage 
economically targeted investments.

SEC. 2. PROHIBITIONS ON DEPARTMENT OF LABOR REGARDING ECONOMICALLY 
                    TARGETED INVESTMENTS.

  (a) In General.--Interpretive Bulletin 94-1, issued by the Secretary 
of Labor on June 23, 1994 (59 Fed. Reg. 32606; 29 C.F.R. 2509.94-1), is 
null and void and shall have no force or effect. The provisions of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et 
seq.) shall be interpreted and enforced without regard to such 
Interpretive Bulletin.
  (b) Restrictions on Department of Labor Regulations.--The Secretary 
of Labor may not issue any rule, regulation, or interpretive bulletin 
which promotes or otherwise encourages economically targeted 
investments as a specified class of investments.
  (c) Restrictions on Activities of the Department of Labor.--No 
officer or employee of the Department of Labor may travel, lecture, or 
otherwise expend resources available to such Department for the purpose 
of promoting, directly or indirectly, economically targeted 
investments.
  (d) Economically Targeted Investment Defined.--For purposes of this 
section, the term ``economically targeted investment'' has the meaning 
given such term in Interpretive Bulletin 94-1, as issued by the 
Secretary of Labor on June 23, 1994 (59 Fed. Reg. 32606; 29 C.F.R. 
2509.94-1).

SEC. 3. PROHIBITION ON FEDERAL AGENCIES AGAINST ESTABLISHING OR 
                    MAINTAINING ANY CLEARINGHOUSE OR OTHER DATABASE 
                    RELATING TO ECONOMICALLY TARGETED INVESTMENTS.

  (a) In General.--Part 5 of subtitle B of title I of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1131 et seq.) is 
amended by adding at the end the following new section:
 ``prohibition on federal agencies against establishing or maintaining 
 any clearinghouse or other database relating to economically targeted 
                              investments
  ``Sec. 516. (a) In General.--No agency or instrumentality of the 
Federal Government may establish or maintain, or contract with (or 
otherwise provide assistance to) any other party to establish or 
maintain, any clearinghouse, database, or other listing--
          ``(1) for the purpose of making available to employee benefit 
        plans information on economically targeted investments,
          ``(2) for the purpose of encouraging, or providing assistance 
        to, employee benefit plans or any other party related to an 
        employee benefit plan to undertake or evaluate economically 
        targeted investments, or
          ``(3) for the purpose of identifying economically targeted 
        investments with respect to which such agency or 
        instrumentality will withhold from undertaking enforcement 
        actions relating to employee benefit plans under any otherwise 
        applicable authority of such agency or instrumentality.
  ``(b) Economically Targeted Investment Defined.--For purposes of this 
section, the term `economically targeted investment' has the meaning 
given such term in Interpretive Bulletin 94-1, as issued by the 
Secretary on June 23, 1994 (59 Fed. Reg. 32606; 29 C.F.R. 2509.94-
1).''.
  (b) Clerical Amendment.--The table of contents in section 1 of such 
Act is amended by inserting at the end of the items relating to part 5 
of subtitle B of title I the following new item:

``Sec. 516. Prohibition on Federal agencies against establishing or 
maintaining any clearinghouse or other database relating to 
economically targeted investments.''.

SEC. 4. TERMINATION OF CONTRACTS.

  The head of each agency and instrumentality of the Government of the 
United States shall immediately take such actions as are necessary and 
appropriate to terminate any contract or other arrangement entered into 
by such agency or instrumentality which is in violation of the 
requirements of the provisions of this Act or the amendments made 
thereby.

SEC. 5. EFFECTIVE DATE.

  The preceding provisions of this Act (and the amendments made 
thereby) shall take effect on the date of the enactment of this Act.

                       Explanation of Amendments

    The provisions of the substitute are explained in this 
report.

    Prohibiting the Department of Labor From Promoting Economically 
   Targeted Investments, Nullifying Interpretive Bulletin 94-1, and 
                    Abolishing the ETI Clearinghouse

                                Purpose

    The purpose of H.R. 1594 is to prevent the Department of 
Labor, the guardian of fiduciary standards for the nation's 
pension plans, or any other federal agency or instrumentality 
from promoting so-called economically targeted investments by 
employee benefit plans.

                            COMMITTEE ACTION

    H.R. 1594 was introduced by Representative James Saxton on 
May 9, 1995. There were 39 original cosponsors, and the bill in 
its present form has over 100 cosponsors. The Subcommittee on 
Employer-Employee Relations held a hearing on H.R. 1594 and on 
the issue of so-called economically targeted investments (ETIs) 
on June 15, 1995. Testimony was received from: Representative 
James Saxton, sponsor of H.R. 1594; Olena Berg, the Assistant 
Secretary of Labor for Pension and Welfare Benefits; David 
Ball, the Assistant Secretary of Labor for Pension and Welfare 
Benefits under President Bush; Professor Edward Zelinsky, of 
the Benjamin Cardozo School of Law of Yeshiva University; Myra 
Drucker of Xerox Corporation, on behalf of the Financial 
Executives Institute (FEI), an organization that invests almost 
$900 billion in pension assets; and Robert Monks, a former 
Administrator of Pension and Welfare Benefits. In addition, on 
May 18, 1995, the Joint Economic Committee held a hearing on 
the issue of ETIs.
    On July 13, 1995, the Subcommittee on Employer-Employee 
Relations approved H.R. 1594, as amended, by a recorded vote of 
8-5. On July 20, 1995, the Committee on Economic and 
Educational Opportunities approved H.R. 1594, as amended (but 
in substance identical to the version reported by the 
Subcommittee), by a voice vote, a quorum being present, and by 
a recorded vote of 23-15 ordered the bill favorably reported.

                     COMMITTEE STATEMENT AND VIEWS

Statutory background

    The Employee Retirement Income Security Act of 1974 
(ERISA), imposes duties and responsibilities upon an individual 
who acts as a fiduciary with respect to an employee benefit 
plan. Section 404(a)(1) provides that a fiduciary must 
discharge his duties with respect to the plan ``solely in the 
interest of the participants and beneficiaries and for the 
exclusive purpose of: (i) providing benefits to participants 
and their beneficiaries; and (ii) defraying reasonable expenses 
of administering the plan.'' See also, Sec. 403(c)(1). 29 
U.S.C. Sec. Sec. 1103(c)(1), 1104(a)(1). In addition, section 
404(a)(1)(B) requires a plan fiduciary to act with ``the care, 
skill, prudence, and diligence under the circumstances then 
prevailing that a prudent man acting in a like capacity and 
familiar with such matters would use in the conduct of an 
enterprise of a like character and with like aims.'' 29 U.S.C. 
Sec. 1104(a)(1)(B).

Interpretive bulletin 94-1 creates confusion as to the state of the law 
        and implements subtle but substantive changes to it

    On June 23, 1994, the Department of Labor (DOL) issued 
Interpretive Bulletin 94-1 relating to the application of ERISA 
to so-called ``economically targeted investments'' or ETIs. The 
Bulletin defines ETIs only as ``investments that are selected 
for the economic benefits they create in addition to the 
investment return to the employee benefit plan.'' According to 
the DOL, these collateral economic benefits may include 
expanded employment opportunities, increased housing 
availability, improved social service facilities, and 
modernized infrastructure (see, e.g., June 13, 1995 letter from 
Assistant Secretary Berg to Chairman Fawell). ETIs are 
investments made for the ``social benefit'' they are perceived 
to generate rather than for the exclusive purpose of providing 
a financially sound return for pensioners. Thus, they may more 
accurately be described as politically targeted investments.
    The Bulletin states that the ERISA ``fiduciary standards 
applicable to ETI's are no different than the standards 
applicable to plan investments generally.'' It holds that a 
plan that selects an investment which meets the prudential and 
fiduciary requirements of ERISA sections 403 and 404 (i.e., 
provides a comparable rate of return with a commensurate degree 
of risk to alternative investments) will not violate the 
``exclusive purpose'' provision of those sections by also 
taking into account the economic benefits it creates apart from 
its investment return.
    Despite this innocuous description and the Administration's 
assertions to the contrary, the Bulletin actually represents a 
significant shift in the direction of ETI policy. Under 
previous administrations, a pension fund fiduciary would not be 
deemed to have violated ERISA by making an investment that 
incidentally produced some social benefit--as long as the 
investment was chosen for its economic return and safety. Under 
the new policy advanced by the DOL, however, a fiduciary may 
permissibly seek out an investment specifically for the 
benefits it creates for persons other than the plan's 
participants and beneficiaries. The Bulletin declares that 
``engaging in an investment course of action intended to result 
in the selection of ETIs will not violate'' sections 403 and 
404 of ERISA. Weeding out those investments inappropriate under 
ERISA's fiduciary rules may become a secondary task.
    By promoting ETIs, the DOL has reversed the direction 
mandated by the courts that fiduciaries keep an ``eye single'' 
on the sole interest of plan participants and beneficiaries. 
Investments could only ``incidentally'' result in a benefit to 
others. By contrast, the DOL is in effect saying to plan 
fiduciaries: invest in ETIs with an ``eye'' towards benefiting 
others, and only later go back and see if any investments 
violate ERISA's fiduciary rules. Furthermore, since the 
Bulletin asserts that the fiduciary standards applicable to 
ETIs are the same as those governing plan investments 
generally, this apparent weakening of the rules applicable to 
ETIs potentially calls into question ERISA's general fiduciary 
rules.
    As David Ball, Assistant Secretary of Labor for Pension and 
Welfare Benefits under President Bush, testified at the 
Subcommittee's June 15 hearing, ``It has been the Department's 
long-standing position that non-financial factors or incidental 
benefits cannot be allowed to take precedence over providing 
retirement income to participants and beneficiaries.'' The 
Department, however, has strayed from this position and is 
putting ``inappropriate pressure on investment managers and 
subject[ing] them to political and social demands'' to invest 
in various ETIs.
    Finally, the confusion inherent in the Bulletin has been 
compounded by the DOL's contradictory and confusing 
explanations of ETIs and of the effect of the Bulletin. For 
example, in Secretary Berg's June 13, 1995 letter responding to 
questions posed by Chairman Fawell, the DOL makes the following 
inconsistent assertions: ``The bulletin defines ETIs in terms 
of the process by which an investment is chosen rather than 
treating ETIs as a particular class of investments.'' (p. 1) 
``There is no specific process * * * necessary to trigger the 
`selection' criteria.'' (p. 14) ``ETIs are defined in terms of 
the reasons for which they are chosen, not in terms of the 
nature of the economic benefits they create.'' (p. 15) Thus, 
the DOL states that ETIs are defined by their selection 
process, even though there is no particular selection process 
that denotes an ETI. Alternatively, ETIs are defined by their 
motive for selection, even though the Bulletin offers no 
criteria for so subjective a standard. The Bulletin asserts 
that it was issued to clear up misperceptions in the investment 
community and ``clarify [the DOL's] position regarding the 
application of [ERISA's] fiduciary provisions to a decision to 
invest in an ETI.'' Unfortunately, all the Bulletin has done is 
to make the state of the law increasingly confused.

The ETI clearinghouse would promote imprudent investments

    In September 1994, the DOL awarded a contract to Hamilton 
Securities Advisory Services, Inc. to design, develop, and 
operate a clearinghouse for the collection and distribution of 
information on ETIs. The clearinghouse is intended to provide 
information on ETIs around the country and create a database 
for storing and retrieving this information. It would also 
provide technical assistance to pension funds and other parties 
in order to assist the investment community in their evaluation 
and selection of ETIs. The clearinghouse will cost taxpayers 
over $1 million--to promote investments the DOL acknowledges 
will not necessarily meet ERISA's fiduciary or prudential 
standards.
    While the DOL Bulletin requires that plans maintain ERISA's 
fiduciary and prudential standards, this clearinghouse could 
become an instrument for strongly encouraging plans to invest 
in certain ``socially beneficial'' projects and in selecting 
which projects are ``worthy'' of such investment. Moreover, the 
list of investments that the clearinghouse would produce 
bearing its imprimatur of approval could and likely would 
include some imprudent or even prohibited investments with 
respect to various employee benefit plans--since the DOL 
imposed no requirement that a project be a prudent investment 
for a plan before it may be placed on this list.
    Assistant Secretary Berg conceded, in a June 13, 1995 
letter to Chairman Fawell, that the clearinghouse ``is not 
intended to function as a guarantor of the fiduciary 
suitability of an investment'' that it lists. Thus, both 
pension managers and the public would inevitably be confused as 
to whether the investments receiving the clearinghouse's seal 
of approval are lawful or violate ERISA's prudential and 
fiduciary standards.
    Moreover, the criteria to be employed by the clearinghouse 
in determining which investments would be listed have been left 
to the clearinghouse itself to establish, subject only to the 
DOL's determination that all contract terms have been met. 
Thus, not only is there no guarantee of prudence by the 
clearinghouse, but also no check on its level of 
politicization.
    Many of these problems with the clearinghouse were foreseen 
by the DOL's Advisory Council on Employee Welfare and Pension 
Benefit Plans when it issued its November 1993 report on the 
possibility of an ETI clearinghouse. The report stated (at p. 
12):

          [T]here was a belief that the Department, given its 
        enforcement functions under ERISA, would run into at 
        least an appearance of conflict if it was operating a 
        clearinghouse listing ETI transactions. There was also 
        a belief that if a plan had selected an investment 
        listed within the clearinghouse or network, and the DOL 
        subsequently initiated an enforcement action regarding 
        that transaction, the plan might at least raise the 
        argument that the DOL had endorsed the investment 
        notwithstanding any disclaimers to the contrary 
        articulated through the clearinghouse or network.

Additional concerns with the promotion of ETIs

    Department officials have been directly promoting ETIs--
giving speeches, attending conferences, and making statements 
at congressional hearings that encourage investment in ETIs. 
Assistant Secretary Olena Berg has been particularly active in 
promoting ETIs through her speeches and travel. By promoting 
ETIs, the DOL has abdicated its role as the nation's ``pension 
watchdog'' and chief enforcer of ERISA's fiduciary standards. 
For the past twenty years, ERISA has protected the financial 
security of America's retirees. During that time, the DOL has 
served as the guardian of ERISA's fiduciary and prudential 
standards. Now, however, the Department has become the promoter 
of a particular class of investments--political investments--
which it conceded in the Interpretive Bulletin ``require a 
longer time to generate significant investment returns,'' are 
``less liquid,'' and require more expertise to evaluate.
    The history of such social investing is one of higher risk 
and lower return. Public pension funds have experimented with 
such investments and regretted it. A Kansas teachers' 
retirement plan, for example, invested in underwriting 
mortgages and lost $65 million. State employees' retirement 
funds in Connecticut and Missouri similarly lost millions 
investing in ETIs. Thus, promoting ETIs threatens to place at 
greater risk the $3.5 trillion in trust in the nation's private 
pension plans. Moreover, as Professor Edward Zelinsky pointed 
out in his June 15 testimony, if ETIs are just as sound as 
other investments, then promoting them through a clearinghouse 
is superfluous--the market will direct capital to them without 
the Department's cheerleading.
    The clearinghouse and the Bulletin are, at best, 
unnecessary. But at worst, they could place in jeopardy the 
pensions of millions of Americans. Myra Drucker, testifying on 
behalf of the Financial Executives Institute (FEI), best summed 
up the situation when she declared at the Subcommittee hearing 
that the employee benefits community did not find Interpretive 
Bulletin 94-1 or the ETI clearinghouse either necessary or 
helpful to understanding its ERISA fiduciary obligations.

The legislative remedy: The Pension Protection Act

    The Pension Protection Act (the ``PPA'') seeks to address 
the ETI issue by revoking the Bulletin and abolishing the 
clearinghouse. Because of concerns raised by the employee 
benefits community about its potential unintended consequences, 
the Subcommittee on Employer-Employee Relations amended the 
original bill. The Amendment in the Nature of a Substitute 
offered by Mr. Fawell at the Subcommittee mark-up encompassed 
technical changes to the bill that clarified and improved upon 
its basic thrust. The Amendment in the Nature of a Substitute 
offered by Mr. Goodling and adopted by the Committee is 
identical to the version reported by the Subcommittee.
    The reported bill eliminates the confusion caused by the 
issuance of the Bulletin and makes clear that the law is simply 
to remain as it was prior to the DOL's decision to promote ETIs 
by issuing the Bulletin and establishing the clearinghouse. As 
amended, the PPA declares (in section 2(a)) Interpretive 
Bulletin 94-1 to be null and void and states that ERISA shall 
be interpreted and enforced without regard to the Bulletin.
    The reported bill includes a new Sense of the Congress 
provision (in section 1) which states that it is inappropriate 
for the DOL, as the principal enforcer of fiduciary standards 
for ERISA employee benefit plans, to promote or otherwise 
encourage ETIs. It also (in section 2(b)) prohibits the DOL 
from issuing any rule, regulation, or interpretive bulletin 
that promotes or otherwise encourages ETIs and (in section 
2(c)) bars the DOL from expending any money to promote ETIs, 
through travel, lecture, or otherwise. It further (in sections 
3 and 4) terminates the clearinghouse contract with Hamilton 
Securities and bars the DOL and other federal agencies from 
establishing or maintaining ``any clearinghouse, database, or 
other listing'' which (1) makes available information to plans 
on ETIs, (2) provides assistance in developing, promoting, or 
evaluating ETIs, or (3) identifies investments at ETIs.
    The Goodling Amendment in the Nature of a Substitute 
adopted by the Committee deleted the potentially overly broad 
language in sections 1 and 2(a) of the original bill. The 
pension community raised certain concerns with the technical 
language of these provisions and their (unintended) potential 
consequences. The original section 2(a) of the bill essentially 
voided all regulations, interpretive bulletins, advisory 
opinions, information letters, and other determinations 
``reaching the same result as, or a similar result to, the 
result set forth'' in Interpretive Bulletin 94-1. The original 
Section 1 could potentially be read to have banned all ETIs and 
other investments creating collateral benefits. It declared it 
the sense of Congress that ETIs violate sections 403 and 404 of 
ERISA because they are made to benefit and to serve the 
interests of persons other than plan participants and 
beneficiaries.
    The Goodling Amendment replaced these two provisions and 
added a new section (new section 2(b)) which prohibits the DOL 
from issuing any rule, regulation, or interpretive bulletin 
that promotes or otherwise encourages ETIs. These changes were 
endorsed by the employee benefits community.
    These changes were made to the original bill in order to 
accomplish the following: The revised PPA cannot be interpreted 
to prohibit investments that may happen to provide collateral 
benefits, provided they meet ERISA's fiduciary and prudential 
standards. By invalidating only the Bulletin and not all 
documents reaching a similar result to the Bulletin (as the 
original bill did), the PPA does not disturb any other existing 
precedent which the DOL has developed such as advisory opinions 
regarding conditions under which exemptions would be allowed to 
ERISA's prohibited transaction provisions (under ERISA sections 
406 and 408). The impact of repealing the Bulletin is also 
minimalized by the fact that ``the Department has not, since 
the issuance of Interpretive Bulletin 94-1, rendered any 
opinions, rulings or other advice to plans concerning the 
application of IB 94-1.'' (See Secretary Berg's June 13 letter 
to Chairman Fawell, at p. 16). The PPA also leaves unchanged 
fiduciaries' ability to obtain individual advisory opinions or 
prohibited transaction exemptions from the DOL.

                                summary

    H.R. 1594, as amended, renders Interpretive Bulletin 94-1 
null and void, prohibits the DOL from issuing any rule or 
regulation that promotes or otherwise encourages ETIs, 
terminates the clearinghouse contract with Hamilton Securities 
and bars the DOL or any other federal agency from establishing 
any similar clearinghouse or database, and bars the DOL from 
expending any money to promote ETIs. The reported bill 
eliminates the confusion caused by the issuance of the Bulletin 
and makes clear that the law is simply to remain as it was 
prior to the DOL's decision to promote ETIs by issuing the 
Bulletin and establishing the clearinghouse.

          section-by-section analysis of h.r. 1594, as amended

Section 1

    In the view of the Committee, the DOL's actions have 
amounted to an improper effort to promote and encourage 
investments by employee benefit plans in a specific type of 
investment, so-called ETIs. It is inappropriate for the DOL to 
take any action to promote or otherwise encourage any specified 
type of investment. Therefore, section 1 expresses the Sense of 
Congress that it is inappropriate for the Department of Labor, 
as the principal enforcer of fiduciary standards for ERISA 
employee benefit plans, to take any action to promote or 
otherwise encourage ETIs.

Section 2

    The Bulletin was issued by the DOL as part of its effort to 
promote and encourage ETIs. Accordingly:
    Part (a): Declares Interpretive Bulletin 94-1 to be null 
and void, and states that ERISA shall be interpreted and 
enforced without regard to the Bulletin.
    Part (b): Prohibits the DOL from issuing any rule, 
regulation, or interpretive bulletin that promotes or otherwise 
encourages ETIs.
    Part (c): Prohibits any officer or employee of the DOL to 
travel, lecture, or expend any resources to promote ETIs, 
either directly or indirectly.
    Part (d): Defines an ETI, incorporating the definition 
employed in Interpretive Bulletin 94-1.
    Sections 2 (a) and (b) specifically repeal the Bulletin and 
bar the DOL from re-issuing it in any other form. These 
sections, as well as section 1, are not intended to affect any 
prior pronouncements by the DOL--specifically including prior 
advisory opinions cited in the Bulletin--but are limited solely 
to repealing the Bulletin and preventing its reissuance. It 
does not disturb existing DOL advisory opinions or exemptions 
regarding prohibited transactions, upon which pension managers 
have relied in making investment decisions. Therefore, upon 
enactment of the legislation, the state of the law with respect 
to investments subject to ERISA's fiduciary responsibility 
provisions will be as if the Bulletin had never been issued.
    In addition, except to the extent that the DOL may not 
promote or otherwise encourage ETIs as a specified class of 
investments, the bill is not intended to restrict or otherwise 
affect DOL's ability to issue rules, regulations, or 
interpretive bulletins implementing, interpreting, or providing 
guidance regarding the fiduciary responsibility provisions of 
ERISA. Nothing in the bill is intended to affect the ability of 
the DOL to issue advisory opinions, information letters, 
technical releases, prohibited transaction exemptions, or other 
pronouncements interpreting and applying ERISA's fiduciary 
responsibility rules to particular factual situations, or 
exempting specific transactions from the prohibited transaction 
provisions of ERISA (pursuant to 29 U.S.C. Sec. Sec.  1106, 
1108).

Section 3

    Section 3 amends ERISA (adding a new section 516) to 
prohibit all federal agencies from establishing or maintaining 
any clearinghouse, database, or other listing which (1) makes 
available informaiton to plans on ETIs, (2) provides assistance 
in promoting, developing, or evaluating ETIs, or (3) identifies 
investments as ETIs.

Section 4

    Section 4 instructs the heads of all federal agencies to 
immediately take the steps necessary to terminate any contract 
or other arrangement which is in violation of this bill. This 
will require the DOL to immediately terminate its September 
1994 contract with Hamilton Securities Advisory Services to 
design, develop, and operate a clearinghouse for the collection 
and distribution of information on ETIs.

Section 5

    Section 5 specifies that the provisions of the bill shall 
take effect on the date of enactment.

  Statement of Oversight Findings and Recommendations of the Committee

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives and clause 2(b)(1) of 
rule X of the Rules of the House of Representatives, the 
Committee's oversight findings and recommendaitons are 
reflected in the body of this report.

                     Inflationary Impact Statement

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the Committee estimates that 
the enactment into law of H.R. 1594 will have no significant 
inflationary impact on prices and costs in the operation of the 
national economy. It is the judgment of the Committee that the 
inflationary impact of this legislation as a component of the 
federal budget is negligible.

                    Government Reform and Oversight

    With respect to the requirement of clause 2(l)(3)(D) of 
rule XI of the Rules of the House of Representatives, the 
Committee has received no report of oversight findings and 
recommendations from the Committee on Government Reform and 
Oversight on the subject of H.R. 1594.

                           Committee Estimate

    Clause 7 of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs which would be incurred in carrying out 
H.R. 1594. However, clause 7(d) of that rule provides that this 
requirement does not apply when the Committee has included in 
its report a timely submitted cost estimate of the bill 
prepared by the Director of the Congressional Budget Office 
under section 403 of the Congressional Budget Act of 1974.

                Application of Law to Legislative Branch

    Section 102(b)(3) of Public Law 104-1 requires a 
description of the application of this bill to the legislative 
branch. This bill prohibits the Department of Labor from 
promoting economically targeted investments, nullifies 
Interpretive Bulletin 94-1, and abolishes the ETI 
clearinghouse; the bill does not prohibit legislative branch 
employees from receiving the benefits of this legislation.

                       Unfunded Mandate Statement

    Section 423 of the Congressional Budget and Impoundment 
Control Act requires a statement of whether the provisions of 
the reported bill include unfunded mandates. This bill 
prohibits the Department of Labor from promoting economically 
targeted investments, nullifies Interpretive Bulletin 94-1, and 
abolishes the ETI clearinghouse, and as such does not contain 
any unfunded mandates.

     Budget Authority and Congressional Budget Office Cost Estimate

    With respect to the requirement of clause 2(l)(3)(B) of 
rule XI of the House of Representatives and section 308(a) of 
the Congressional Budget Act of 1974 and with respect to 
requirements of clause 2(l)(3)(C) of rule XI of the House of 
Representatives and section 403 of the Congressional Budget Act 
of 1974, the Committee has received the following cost estimate 
for H.R. 1594 from the Director of the Congressional Budget 
Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 25, 1995.
Hon. William F. Goodling,
Chairman, Committee on Economic and Educational Opportunities, House of 
        Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 1594, the Pension Protection Act of 1995, as 
ordered reported by the Committee on Economic and Educational 
Opportunities on July 20, 1995. CBO estimates that enactment of 
H.R. 1594 would reduce federal spending by about $500,000 and 
would have no impact on the budgets of state and local 
governments. Because enactment of H.R. 1594 would not affect 
direct spending or receipts, pay-as-you-go procedures would not 
apply.
    H.R. 1594 would nullify interpretive bulletin 94-1, issued 
by the Assistant Secretary of Labor, Pension and Welfare 
Benefit Administration (PWBA), on June 17, 1994. This bulletin 
sets forth the view of the Department of Labor that 
economically targeted investments (ETIs) are appropriate 
investments for employee benefits plans, so long as ``the ETI 
has an expected rate of return that is commensurate to rates of 
return of alternative investments with similar risk 
characteristics that are available to the plan.'' The bill 
would prohibit employees of the Department of Labor from 
spending resources for the purposes of directly or indirectly 
promoting economically targeted investments. Section 3 would 
prohibit federal agencies from establishing or maintaining a 
clearing house or other database relating to these investments. 
Section 4 would require that agency heads take the steps 
necessary to terminate any contract that violates the bill.
    The Department of Labor has awarded one contract to design 
and operate a clearinghouse relating to ETIs. Under the terms 
of the contract, which was awarded in September 1994, the 
Department of Labor was to make $780,000 available to the 
contractor. The Department estimates that expenditures to date, 
including its liability for payment on services not yet billed 
and potential costs associated with a premature termination of 
the contract, total $260,000. Therefore, funds remaining after 
the contract's termination would total $520,000. The PWBA has 
no discrete funding for ETIs, and CBO cannot estimate how a 
restriction on spending regarding ETIs would affect outlays in 
future years.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Christina 
Hawley.
            Sincerely,
                                         June E. O'Neill, Director.

                             Rollcall Votes

    Rollcall No. 1 (by Mr. Green): An amendment adding a new 
section stating that nothing in the bill shall be construed as 
prohibiting benefit plans from investing in domestic, as 
opposed to foreign, investments. Defeated by a vote of 15-19.

------------------------------------------------------------------------
                       Member                            Aye       No   
------------------------------------------------------------------------
Chairman Goodling...................................  ........        X 
Mr. Petri...........................................  ........        X 
Mrs. Roukema........................................  ........        X 
Mr. Gunderson.......................................  ........        X 
Mr. Fawell..........................................  ........        X 
Mr. Ballenger.......................................  ........        X 
Mr. Barrett.........................................  ........        X 
Mr. Cunningham......................................  ........        X 
Mr. Hoekstra........................................  ........        X 
Mr. McKeon..........................................  ........        X 
Mr. Castle..........................................  ........        X 
Mrs. Meyers.........................................  ........        X 
Mr. Johnson.........................................  ........        X 
Mr. Talent..........................................  ........  ........
Mr. Greenwood.......................................  ........  ........
Mr. Hutchinson......................................  ........        X 
Mr. Knollenberg.....................................  ........  ........
Mr. Riggs...........................................  ........        X 
Mr. Graham..........................................  ........        X 
Mr. Weldon..........................................  ........        X 
Mr. Funderburk......................................  ........  ........
Mr. Souder..........................................  ........  ........
Mr. McIntosh........................................  ........        X 
Mr. Norwood.........................................  ........        X 
Mr. Clay............................................        X   ........
Mr. Miller..........................................  ........  ........
Mr. Kildee..........................................        X   ........
Mr. Williams........................................        X   ........
Mr. Martinez........................................        X   ........
Mr. Owens...........................................        X   ........
Mr. Sawyer..........................................        X   ........
Mr. Payne...........................................        X   ........
Mrs. Mink...........................................        X   ........
Mr. Andrews.........................................        X   ........
Mr. Reed............................................  ........  ........
Mr. Roemer..........................................        X   ........
Mr. Engel...........................................        X   ........
Mr. Becerra.........................................        X   ........
Mr. Scott...........................................        X   ........
Mr. Green...........................................        X   ........
Ms. Woolsey.........................................        X   ........
Mr. Romero-Barcelo..................................  ........  ........
Mr. Reynolds........................................  ........  ........
                                                     -------------------
      Total.........................................       15        19 
------------------------------------------------------------------------

    Rollcall No. 2 (by Mr. Payne): An amendment adding a new 
section stating that nothing in the bill shall be construed as 
prohibiting benefit plans from investing in infrastructure 
improvements. Defeated by a vote of 16-20.

------------------------------------------------------------------------
                       Member                            Aye       No   
------------------------------------------------------------------------
Chairman Goodling...................................  ........        X 
Mr. Petri...........................................  ........        X 
Mrs. Roukema........................................  ........        X 
Mr. Gunderson.......................................  ........        X 
Mr. Fawell..........................................  ........        X 
Mr. Ballenger.......................................  ........        X 
Mr. Barrett.........................................  ........        X 
Mr. Cunningham......................................  ........        X 
Mr. Hoekstra........................................  ........        X 
Mr. McKeon..........................................  ........        X 
Mr. Castle..........................................  ........        X 
Mrs. Meyers.........................................  ........        X 
Mr. Johnson.........................................  ........        X 
Mr. Talent..........................................  ........  ........
Mr. Greenwood.......................................  ........  ........
Mr. Hutchinson......................................  ........        X 
Mr. Knollenberg.....................................  ........        X 
Mr. Riggs...........................................  ........  ........
Mr. Graham..........................................  ........        X 
Mr. Weldon..........................................  ........        X 
Mr. Funderburk......................................  ........  ........
Mr. Souder..........................................  ........        X 
Mr. McIntosh........................................  ........        X 
Mr. Norwood.........................................  ........        X 
Mr. Clay............................................        X   ........
Mr. Miller..........................................  ........  ........
Mr. Kildee..........................................        X   ........
Mr. Williams........................................        X   ........
Mr. Martinez........................................        X   ........
Mr. Owens...........................................        X   ........
Mr. Sawyer..........................................        X   ........
Mr. Payne...........................................        X   ........
Mrs. Mink...........................................        X   ........
Mr. Andrews.........................................        X   ........
Mr. Reed............................................        X   ........
Mr. Roemer..........................................        X   ........
Mr. Engel...........................................        X   ........
Mr. Becerra.........................................        X   ........
Mr. Scott...........................................        X   ........
Mr. Green...........................................        X   ........
Ms. Woolsey.........................................        X   ........
Mr. Romero-Barcelo..................................  ........  ........
Mr. Reynolds........................................  ........  ........
                                                     -------------------
      Total.........................................       16        20 
------------------------------------------------------------------------

    Rollcall No. 3 (by Mr. Owens): An amendment adding a new 
section stating that nothing in the bill shall be construed as 
prohibiting benefit plans from investing in construction or 
renovation of housing for military families. Defeated by a vote 
of 16-22.

------------------------------------------------------------------------
                       Member                            Aye       No   
------------------------------------------------------------------------
Chairman Goodling...................................  ........        X 
Mr. Petri...........................................  ........        X 
Mrs. Roukema........................................  ........        X 
Mr. Gunderson.......................................  ........        X 
Mr. Fawell..........................................  ........        X 
Mr. Ballenger.......................................  ........        X 
Mr. Barrett.........................................  ........        X 
Mr. Cunningham......................................  ........        X 
Mr. Hoekstra........................................  ........        X 
Mr. McKeon..........................................  ........        X 
Mr. Castle..........................................  ........        X 
Mrs. Meyers.........................................  ........        X 
Mr. Johnson.........................................  ........        X 
Mr. Talent..........................................  ........        X 
Mr. Greenwood.......................................  ........  ........
Mr. Hutchinson......................................  ........        X 
Mr. Knollenberg.....................................  ........        X 
Mr. Riggs...........................................  ........  ........
Mr. Graham..........................................  ........        X 
Mr. Weldon..........................................  ........        X 
Mr. Funderburk......................................  ........        X 
Mr. Souder..........................................  ........        X 
Mr. McIntosh........................................  ........        X 
Mr. Norwood.........................................  ........        X 
Mr. Clay............................................        X   ........
Mr. Miller..........................................  ........  ........
Mr. Kildee..........................................        X   ........
Mr. Williams........................................        X   ........
Mr. Martinez........................................        X   ........
Mr. Owens...........................................        X   ........
Mr. Sawyer..........................................        X   ........
Mr. Payne...........................................        X   ........
Mrs. Mink...........................................        X   ........
Mr. Andrews.........................................        X   ........
Mr. Reed............................................        X   ........
Mr. Roemer..........................................        X   ........
Mr. Engel...........................................        X   ........
Mr. Becerra.........................................        X   ........
Mr. Scott...........................................        X   ........
Mr. Green...........................................        X   ........
Ms. Woolsey.........................................        X   ........
Mr. Romero-Barcelo..................................  ........  ........
Mr. Reynolds........................................  ........  ........
                                                     -------------------
      Total.........................................       16        22 
------------------------------------------------------------------------

    Rollcall No. 4 (by Mr. Martinez): An amendment to Section 1 
of the bill deleting the Sense of the Congress provision 
declaring it inappropriate for the Department of Labor, as the 
principal enforcer of ERISA fiduciary standards, to promote 
ETIs, and replacing it with the Statement the Department should 
remain neutral regarding ETIs. It also would amend those 
portions of Sections 1, 2(b), 2(c), and 3(a) barring the 
Department from encouraging or promoting investment in ETIs to 
read encouraging or discouraging investment in ETIs. Defeated 
by a vote of 16-22.

------------------------------------------------------------------------
                       Member                            Aye       No   
------------------------------------------------------------------------
Chairman Goodling...................................  ........        X 
Mr. Petri...........................................  ........        X 
Mrs. Roukema........................................  ........        X 
Mr. Gunderson.......................................  ........        X 
Mr. Fawell..........................................  ........        X 
Mr. Ballenger.......................................  ........        X 
Mr. Barrett.........................................  ........        X 
Mr. Cunningham......................................  ........        X 
Mr. Hoekstra........................................  ........        X 
Mr. McKeon..........................................  ........        X 
Mr. Castle..........................................  ........        X 
Mrs. Meyers.........................................  ........  ........
Mr. Johnson.........................................  ........        X 
Mr. Talent..........................................  ........        X 
Mr. Greenwood.......................................  ........  ........
Mr. Hutchinson......................................  ........        X 
Mr. Knollenberg.....................................  ........        X 
Mr. Riggs...........................................  ........        X 
Mr. Graham..........................................  ........        X 
Mr. Weldon..........................................  ........        X 
Mr. Funderburk......................................  ........        X 
Mr. Souder..........................................  ........        X 
Mr. McIntosh........................................  ........        X 
Mr. Norwood.........................................  ........        X 
Mr. Clay............................................        X   ........
Mr. Miller..........................................  ........  ........
Mr. Kildee..........................................        X   ........
Mr. Williams........................................        X   ........
Mr. Martinez........................................        X   ........
Mr. Owens...........................................        X   ........
Mr. Sawyer..........................................        X   ........
Mr. Payne...........................................        X   ........
Mrs. Mink...........................................        X   ........
Mr. Andrews.........................................        X   ........
Mr. Reed............................................        X   ........
Mr. Roemer..........................................        X   ........
Mr. Engel...........................................        X   ........
Mr. Becerra.........................................        X   ........
Mr. Scott...........................................        X   ........
Mr. Green...........................................        X   ........
Ms. Woolsey.........................................        X   ........
Mr. Romero-Barcelo..................................  ........  ........
Mr. Reynolds........................................  ........  ........
                                                     -------------------
      Total.........................................       16        22 
------------------------------------------------------------------------

    Rollcall No. 5 (by Mr. Andrews): An amendment adding a new 
section to the bill amending ERISA to provide for a civil cause 
of action for plan participants and beneficiaries against a 
public employee pension plan and for review by a review board 
of changes in employer contributions to a public employee 
pension plan. Defeated by a vote of 17-22.

------------------------------------------------------------------------
                       Member                            Aye       No   
------------------------------------------------------------------------
Chairman Goodling...................................  ........        X 
Mr. Petri...........................................        X   ........
Mrs. Roukema........................................  ........        X 
Mr. Gunderson.......................................  ........        X 
Mr. Fawell..........................................  ........        X 
Mr. Ballenger.......................................  ........        X 
Mr. Barrett.........................................  ........        X 
Mr. Cunningham......................................  ........        X 
Mr. Hoekstra........................................  ........        X 
Mr. McKeon..........................................  ........        X 
Mr. Castle..........................................  ........        X 
Mrs. Meyers.........................................  ........        X 
Mr. Johnson.........................................  ........        X 
Mr. Talent..........................................  ........        X 
Mr. Greenwood.......................................  ........  ........
Mr. Hutchinson......................................  ........        X 
Mr. Knollenberg.....................................  ........        X 
Mr. Riggs...........................................  ........        X 
Mr. Graham..........................................  ........        X 
Mr. Weldon..........................................  ........        X 
Mr. Funderburk......................................  ........        X 
Mr. Souder..........................................  ........        X 
Mr. McIntosh........................................  ........        X 
Mr. Norwood.........................................  ........        X 
Mr. Clay............................................        X   ........
Mr. Miller..........................................  ........  ........
Mr. Kildee..........................................        X   ........
Mr. Williams........................................        X   ........
Mr. Martinez........................................        X   ........
Mr. Owens...........................................        X   ........
Mr. Sawyer..........................................        X   ........
Mr. Payne...........................................        X   ........
Mrs. Mink...........................................        X   ........
Mr. Andrews.........................................        X   ........
Mr. Reed............................................        X   ........
Mr. Roemer..........................................        X   ........
Mr. Engel...........................................        X   ........
Mr. Becerra.........................................        X   ........
Mr. Scott...........................................        X   ........
Mr. Green...........................................        X   ........
Ms. Woolsey.........................................        X   ........
Mr. Romero-Barcelo..................................  ........  ........
Mr. Reynolds........................................  ........  ........
                                                     -------------------
      Total.........................................       17        22 
------------------------------------------------------------------------

    Rollcall No. 6 (motion by Mr. Petri) to favorably report 
the bill with an amendment in the nature of a substitute to the 
House with the recommendation that the bill as amended do pass. 
Passed by a vote of 23-15.

------------------------------------------------------------------------
                        Member                            Aye       No  
------------------------------------------------------------------------
Chairman Goodling.....................................        X  .......
Mr. Petri.............................................        X  .......
Mrs. Roukema..........................................        X  .......
Mr. Gunderson.........................................        X  .......
Mr. Fawell............................................        X  .......
Mr. Ballenger.........................................        X  .......
Mr. Barrett...........................................        X  .......
Mr. Cunningham........................................        X  .......
Mr. Hoekstra..........................................        X  .......
Mr. McKeon............................................        X  .......
Mr. Castle............................................        X  .......
Mrs. Meyers...........................................        X  .......
Mr. Johnson...........................................        X  .......
Mr. Talent............................................        X  .......
Mr. Greenwood.........................................  .......  .......
Mr. Hutchinson........................................        X  .......
Mr. Knollenberg.......................................        X  .......
Mr. Riggs.............................................  .......  .......
Mr. Graham............................................        X  .......
Mr. Weldon............................................        X  .......
Mr. Funderburk........................................        X  .......
Mr. Souder............................................        X  .......
Mr. McIntosh..........................................        X  .......
Mr. Norwood...........................................        X  .......
Mr. Clay..............................................  .......        X
Mr. Miller............................................  .......  .......
Mr. Kildee............................................  .......        X
Mr. Williams..........................................  .......        X
Mr. Martinez..........................................  .......        X
Mr. Owens.............................................  .......        X
Mr. Sawyer............................................  .......        X
Mr. Payne.............................................  .......        X
Mrs. Mink.............................................  .......        X
Mr. Andrews...........................................  .......        X
Mr. Reed..............................................        X  .......
Mr. Roemer............................................  .......        X
Mr. Engel.............................................  .......        X
Mr. Becerra...........................................  .......        X
Mr. Scott.............................................  .......        X
Mr. Green.............................................  .......        X
Ms. Woolsey...........................................  .......        X
Mr. Romero-Barcelo....................................  .......  .......
Mr. Reynolds..........................................  .......  .......
                                                       -----------------
      Total...........................................       23       15
------------------------------------------------------------------------

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (new matter is printed 
in italic, existing law in which no change is proposed is shown 
in roman):

            EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

          * * * * * * *

                            TABLE OF CONTENTS

Sec. 1. Short title and table of contents.

             TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

                     Subtitle A--General Provisions

     * * * * * * *

                    Subtitle B--Regulatory Provisions

                    Part 1--Reporting and Disclosure

     * * * * * * *

                 Part 5--Administration and Enforcement

Sec. 501. Criminal penalties.
     * * * * * * *
Sec. 516. Prohibition on Federal agencies against establishing or 
          maintaining any clearinghouse or other database relating to 
          economically targeted investments.
          * * * * * * *

             TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

          * * * * * * *

                   Subtitle B--Regulatory Provisions

          * * * * * * *

                 Part 5--Administration and Enforcement

          * * * * * * *


prohibition on federal agencies against establishing or maintaining any 
   clearinghouse or other database relating to economically targeted 
                              investments


  Sec. 516. (a) In General.--No agency or instrumentality of 
the Federal Government may establish or maintain, or contract 
with (or otherwise provide assistance to) any other party to 
establish or maintain, any clearinghouse, database, or other 
listing--
          (1) for the purpose of making available to employee 
        benefit plans information on economically targeted 
        investments,
          (2) for the purpose of encouraging, or providing 
        assistance to, employee benefit plans or any other 
        party related to an employee benefit plan to undertake 
        or evaluate economically targeted investments, or
          (3) for the purpose of identifying economically 
        targeted investments with respect to which such agency 
        or instrumentality will withhold from undertaking 
        enforcement actions relating to employee benefit plans 
        under any otherwise applicable authority of such agency 
        or instrumentality.
  (b) Economically Targeted Investment Defined.--For purposes 
of this section, the term ``economically targeted investment'' 
has the meaning given such term in Interpretive Bulletin 94-1, 
as issued by the Secretary on June 23, 1994 (59 Fed. Reg. 
32606; 29 C.F.R. 2509.94-1).
          * * * * * * *
                             MINORITY VIEWS

                            I. Introduction

    H.R. 1594 is a solution in search of a problem. It could 
expose pension funds to frivolous litigation, at great expense 
to the participants and beneficiaries. And, it may well force 
pension fund managers to shift their investments overseas, at a 
significant cost to domestic investment and ultimately perhaps 
endangering American jobs.
    The original version of H.R. 1594, introduced by 
Representative Jim Saxton (R-NJ), is a cynical, dangerously 
partisan bill that, if enacted unaltered, would create enormous 
and completely unnecessary havoc in Federal pension policy. The 
Fawell substitute marginally improves that deplorable piece of 
legislation, but remains burdened by much of the same baggage.
    Last year, the Department of Labor (DOL) issued 
Interpretive Bulletin (IB) 94-1, stating that it was 
permissible for a pension fund to invest in economically 
targeted investments (ETIs) under very limited conditions. IB 
94-1 made it clear that a pension fund could consider ETIs only 
if the risk-adjusted return was comparable to alternative 
investments. The pension fund could not invest in ETIs if the 
return were less or the risk greater than comparable 
alternatives. There was no mandate to invest in ETIs. This 
interpretation was consistent with DOL interpretations dating 
back through the Reagan Administration.
    Nevertheless, in an apparent effort to provide cover for 
their efforts to slash Medicare, some of our Republican 
colleagues have seized an opportunity to demagogue and accuse 
the Clinton Administration of an alleged ``pension grab''. 
These baseless efforts are a sad departure from the bipartisan 
consensus that generally has prevailed on pension issues in the 
past.\1\
    \1\ Ironically, this demagoguery is taking place at the very same 
time the Republicans are slashing the budget of the Department of 
Labor's Pension and Welfare Benefits Administration (PWBA), the 
nation's pension watchdog. The PWBA estimates that if the proposed 
Republican budget cuts go into effect: $100 million or worker's pension 
money will not be recovered from those who misappropriated it; 20 
percent fewer pension criminals will be indicted for embezzlement and 
other crimes; and 30,000 requests for information and assistance from 
working families concerned about their health care and pension benefits 
will go unanswered. This small agency that is vested with the 
responsibility to oversee $3.5 trillion in pension assets has been 
characterized as the ``most highly leveraged operation of the entire 
federal government'' by the Brookings Institution. The proposed cuts in 
the PWBA will greatly disarm the agency.
---------------------------------------------------------------------------
    H.R. 1594 threatens to cause confusion and chaos in the 
pension fund community. It would impose burdensome new 
restrictions on the private sector for no reason and could lead 
to considerable litigation against pension fund managers who 
may have chosen investments with apparently forbidden 
collateral benefits.
    There is another serious implication of the Saxton bill. 
Pension managers increasingly have been investing U.S. fund 
assets offshore. The percentage of foreign investment by U.S. 
pension funds has increased from 3.7% in 1989 to 8% in 1994 to 
a projected 12.2% in 1999. If H.R. 1594 is enacted, this trend 
is likely to accelerate, leading to a further loss of American 
jobs. Pension fund managers faced with two equivalent 
investments, a domestic investment which creates jobs here, and 
a foreign investment which creates jobs overseas, will more 
likely choose the foreign investment. This will be the safe 
course of action to avoid any implication that the collateral 
benefits of the investment were even considered.
    As Secretary of Labor Robert Reich stated in a July 19 
letter to committee Chairman Bill Goodling:

          H.R. 1594 could have a significant adverse impact on 
        America's private sector pension funds, jeopardizing 
        the proven statutory arrangement that governs the 
        investment of over $3 trillion, investments critical to 
        the retirement income security of workers, retirees, 
        and their beneficiaries. For these reasons, the 
        Administration strongly opposes the bill.

   II. The Reported Version of H.R. 1594 is the Offspring of a Truly 
                             Terrible Bill

                      a. the original saxton bill

    The original Saxton bill (1) declares it the sense of 
Congress that ETIs violate the Employee Retirement Income 
Security Act (ERISA), (2) requires ERISA to be applied without 
regard to IB 94-1 and all similar interpretations, (3) forbids 
DOL employees from promoting ETIs, (4) forbids any Federal 
agency from maintaining an ETI clearinghouse, and (5) requires 
termination of the existing contract for the ETI clearinghouse.
    The original Saxton bill is strongly opposed by the pension 
fund community, and for good reason. It is a terribly misguided 
proposal, contaminated by gross misinterpretations and 
political hysteria.
    Since IB 94-1 is consistent with past practice, enactment 
of the Saxton bill would raise serious questions as to the 
appropriate fiduciary obligations of pension fund managers. 
Furthermore, inasmuch as most investments have collateral 
benefits, and may have been selected partly because of such 
collateral benefits, a pension fund manager would be exposed to 
the risk of liability every time an investment failed to 
perform adequately. This would subject pension plans to the 
possibility of frivolous and excessive litigation over every 
investment decision.
    Plan managers viewed the Saxton bill as a troublesome 
solution to a non-problem. In addition to creating the risk of 
excessive litigation, the bill raised a number of other 
concerns for pension managers. Certain types of fund 
investments with obvious collateral benefits, such as Employee 
Stock Ownership Plans (ESOPs), would be particularly vulnerable 
to attack. In addition, such routine transactions as loans to 
plan participants in defined contribution plans would be 
legally questionable if the Saxton bill passed.
    As the Council of Institutional Investors pointed out in a 
letter to Representative Saxton:

          Unfortunately, we believe that H.R. 1594 may 
        unwittingly create precisely the kinds of encroachments 
        on ERISA's critical investment standards that it is 
        thought to prevent. By creating exactly the kind of 
        political pressure you indicate is inappropriate, the 
        legislation imposes special constraints on some types 
        of investments not politically favored by the 
        supporters of the bill.

    Furthermore, the bill potentially puts into question every 
existing investment in a pension plan portfolio. If the 
original bill were enacted, pension plans could have to dump 
many existing holdings at fire sale prices. In addition, as 
discussed more fully below, the bill (in any form) is likely to 
encourage pension plans to invest overseas and thus lead to a 
loss of American jobs.

         b. demagoguery and hardball politics drive saxton bill

    As indicated, the business community opposed the Saxton 
bill. Yet, this legislation is apparently being shoved down 
their throats by a campaign of intimidation by the Republican 
leadership. In May, Representative Saxton sent a letter (see 
attached) to a number of corporate chief executives, stating:

          I am writing to express my serious concerns about 
        Economically Targeted Investments, or ETIs, and the 
        campaign currently underway within the Clinton Labor 
        Department to encourage and promote these kinds of 
        risky investments. ETIs are harmful to corporations' 
        pension plans because, to quote the Speaker of the 
        House, ``by inserting a non-economic goal in how you 
        invest pension funds, you are by definition lowering 
        the return on the investments, and you're by definition 
        increasing the risk.''
          In fact, your firm already may have been approached 
        by the Administration or its allies in an orchestrated 
        effort to give the impression that ETIs are permissible 
        under ERISA and to make the investment community 
        ``comfortable'' with ETIs.
          ETIs pose a serious and immediate threat to the 
        fiscal safety and soundness of your pension funds.

    The Saxton letter is chock full of false claims. Not only 
is there no truth to Representative Saxton's absurd charge that 
the Administration is trying to promote risky investments, but 
the allegations that ETIs are unduly risky or impose a ``threat 
to . . . fiscal safety'' are irresponsible and spurious. ERISA 
has always provided that, in order to be permissible under the 
law, ETIs must be prudent investments in terms of risk and 
return. And, contrary to the remarks attributed to Speaker 
Gingrich, IB 94-1 reaffirms DOL's position that ETIs are only 
permissible if they provide the plan with a competitive risk-
adjusted rate of return:

          The Department has construed the requirements that a 
        fiduciary act solely in the interest of, and for the 
        exclusive purpose of providing benefits to, 
        participants and beneficiaries as prohibiting a 
        fiduciary from subordinating the interests of 
        participants and beneficiaries in their retirement 
        income to unrelated objectives.

    With respect to the general performance of ETIs, the 
General Accounting Office (GAO) recently evaluated the 
performance of a number of ETIs used by non-Federal public 
pension plans in a report released in March, ``Public Pension 
Plans--Evaluation of Economically Targeted Investment 
Programs'' (GAO/PEMD-95-13). GAO concluded that ``the expected 
performance of ETI investments other than venture capital . . . 
was generally similar to the returns of benchmark 
investments.''
    While some ETIs perform poorly, it is equally true that 
investments of all kinds fail from time to time. There have 
also been notable ETI success stories. The majority report 
cites examples of ``higher risk and lower return'' from 
``social investing'' by public pension funds. It is important 
to note that public pension funds are not subject to the strict 
fiduciary standards of ERISA and, under the IB, acceptable 
ETIs, by definition, must have comparable risk-adjusted returns 
as alternative investments.
    In his letter, Representative Saxton also claims, without 
any support, that ``a number of companies and pension investors 
have felt subtle pressure from the Administration'' to invest 
in ETIs.\2\ The letter is full of inflammatory language and 
baseless allegations such as an alleged Administration plan for 
``compulsory ETI quotas''. The letter also includes 
unsubstantiated charges that the DOL engaged in ``coercive'' 
behavior, ``intimidat[ion]'', and other ``nefarious 
scheme[s]''. The letter even refers to a ``Clinton quota wolf 
''.
    \2\ Both the Majority's views and Chairman Fawell, in his opening 
statement at the Subcommittee markup, have quoted David Ball, a former 
Bush Administration official, as claiming that the Clinton 
Administration is putting ``inappropriate pressure'' on pension fund 
managers to invest in ETIs. Incredibly, no evidence has been proffered 
exposing such alleged coercion.
---------------------------------------------------------------------------
    One of the most egregious falsehoods is the alleged plan of 
the Clinton Administration to establish ``compulsory ETI 
quotas''. It is important to reiterate that IB 94-1 does not 
mandate ETIs nor does it in any way authorize investments in 
ETIs at a concessionary rate. In fact, the Clinton 
Administration is on the record in opposition to mandated ETIs, 
including in testimony before this Committee and testimony 
before Vice Chairman Saxton's Joint Economic Committee.
    Finally, the letter urges companies to support his 
legislation, including working within trade associations to 
generate support. The letter then requests a response as to 
whether the recipient will support his bill and requests a copy 
of any correspondence encouraging trade associations to oppose 
ETIs.\3\
    \3\ In its letter to Representative Saxton, the Council of 
Institutional Investors wrote that the rhetoric in his letter ``smacks 
of the pension equivalent of McCarthy-era scare tactics''.
---------------------------------------------------------------------------

       III. IB 94-1 Is Consistent With Past, Bipartisan Practice

                         A. the erisa standards

    The Employee Retirement Income Security Act governs private 
pension plans. Section 404 of ERISA requires plan fiduciaries 
to act solely in the interest of the participants and 
beneficiaries. More specifically, fiduciaries must act for the 
exclusive purpose of providing benefits to participants and 
their beneficiaries and defraying reasonable expenses of 
administering the plan. Furthermore, plan fiduciaries must act 
with care, skill, prudence, and diligence, and they must 
diversify the investments of a plan so as to minimize the risk 
of large losses, unless under the circumstances it is clearly 
prudent not to do so. Finally, fiduciaries must act in 
accordance with the documents governing the plan, to the extent 
consistent with ERISA.
    ERISA has been interpreted as requiring fiduciaries to act 
``with an eye single to the interests of the participants and 
beneficiaries.'' \4\ At the same time, plan trustees will not 
violate their duties as fiduciaries by taking action which, 
after careful and impartial investigation, they reasonably 
conclude best promotes the interests of plan participants and 
beneficiaries, simply because the investment incidentally 
benefits the corporation or themselves.\5\ More specifically, 
DOL has generally interpreted ERISA as not allowing external 
considerations to influence investment choice unless the 
proposed investment would be equal or superior to alternative 
investments.
    \4\ Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.), cert. 
denied, 459 U.S. 1069 (1982).
    \5\ See Id.
---------------------------------------------------------------------------
    Dennis Kass, former Assistant Secretary of Labor for 
Pension and Welfare Benefits, explained the policy in a July 
14, 1986 letter to Reed Larson of the National Right to Work 
Committee:

          We have construed the requirements that a fiduciary 
        act solely in the interest of, and for the exclusive 
        purpose of providing benefits to, participants and 
        beneficiaries as prohibiting a fiduciary from 
        subordinating the interests of participants and 
        beneficiaries to unrelated objectives. However, there 
        is nothing in ERISA which would require that the 
        decision to make an investment be wholly uninfluenced 
        by the desire to achieve such objectives, if the 
        investment, when judged solely on the basis of its 
        economic value to the plan, is equal or superior to 
        alternative investments available. [Italics added.]

    The legislative history of ERISA shows the clear intent of 
Congress that pension plan managers could consider collateral 
economic benefits as a factor in making investment decisions. 
The Conference Committee Report on ERISA included the following 
discussion in the context of an explanation of ERISA's section 
408 exemption procedures:

          [T]he conferees recognize that some individual 
        transactions between a plan and a party-in-interest may 
        provide substantial independent safeguards for the plan 
        participants and beneficiaries and may provide 
        substantial benefit to the community as a whole, so 
        that the transaction should be allowed under a 
        variance. H. Rept. 93-1280, 93rd Cong., 2nd Sess. 310 
        (1974).

    To illustrate, the conferees cited the example of a pension 
plan sponsored by a Dayton, Ohio employer. The pension managers 
were considering an investment in a construction project that 
was part of a larger redevelopment project. The conferees 
discussed evidence that the investment would be financially 
sound and urged DOL to approve the investment:

          It is expected that in this situation, because of the 
        substantial safeguards for the plan and its 
        participants and beneficiaries, because of the lack of 
        ``tax abuse'' aspects, because the transaction became 
        binding before the conferees' decisions were announced, 
        and because of the importance of the project to the 
        entire community of Dayton, Ohio, that the Secretary of 
        the Treasury and Secretary of Labor will grant a 
        variance to the transaction for its whole term. Id.

    By this direction, the Conferees were clearly indicating 
the acceptability of considering the collateral economic 
benefits of an otherwise prudent investment.

                       b. what exactly is an eti?

    IB 94-1 provides as follows: ``As used in this interpretive 
bulletin, an ETI is an investment that is selected for the 
economic benefit it creates, in addition to the investment 
return to the employee benefit plan investor. ETIs fall within 
a wide variety of asset categories including real estate, 
venture capital and small business investments.'' Notably, H.R. 
1594 incorporates the interpretative bulletin's definition of 
``ETI'' by reference.
    In a June 13, 1995 letter to Mr. Fawell, the Department of 
Labor explained:

          The bulletin defines ETIs in terms of the process by 
        which an investment is chosen rather than treating ETIs 
        as a particular class of investments. ETIs may be debt 
        instruments or equity investments. They may be publicly 
        traded securities or private placements. They may be 
        direct investments in real estate.

    Thus, ETIs are not, by definition or by agency 
interpretation, social or political investments. The allegation 
that they are is either inaccurate or, at the very least, 
incomplete and misleading.

                      c. the interpretive bulletin

    On June 23, 1994, the DOL published Interpretive Bulletin 
(IB) 94-1 in the Federal Register. The IB stated that ERISA 
does not prevent private pension funds from investing plan 
funds in ETIs, if the ETI has an expected rate of return that 
is commensurate to rates of return of alternative investments 
with similar risk characteristics that are available to the 
plan, and if the ETI is otherwise an appropriate investment for 
the plan in terms of such factors as diversification and the 
plan's investment policy.
    This interpretation restates and codifies prior DOL 
opinions, which emphasized that pension plans could consider 
other economic benefits of an investment only if the risk-
adjusted return of a particular investment was comparable to 
alternatives. And contrary to the assertion in the Majority's 
views, there is nothing in IB 94-1 that allows fiduciaries to 
invest in ETIs with one ``eye'' towards benefiting others, 
while only later going back, after the fact, to see if the 
investment violates ERISA's fiduciary rules. Under the IB, the 
investment could only be lawfully made in the first place if it 
were consistent with ERISA's standards.
    The consistency of IB 94-1 with past DOL practice was 
confirmed by the testimony of Robert Monks, who served as ERISA 
Administrator under President Reagan. Mr. Monks testified at 
the June 15 Subcommittee hearing that:

          I feel that the release issued about a year ago by 
        the Department was a very positive step. The reason . . 
        . is that since President Ford signed this on Labor Day 
        in 1974, we have had President Carter; we have had 
        President Reagan, President Bush, and President 
        Clinton; and it is extremely important . . . that there 
        be assurance of continuity.
          And so when you have a release that so painstakingly 
        . . . makes clear that it is a recodification of the 
        practice that has been consistently followed by both 
        parties over a 20-year period of time, I think that is 
        what you need in order to make the investment 
        professionals able to do what they have done terribly 
        well.
          So I view it as extremely useful, and I take it as 
        being unambiguous in the sense of not promoting 
        anything, but of being just a plain statement of what 
        each of the people who have the responsibility for 
        administering that statute took to be the law.

               d. eti's have never been a partisan issue

    Until this Congress, ETIs were generally not a partisan 
issue. Ronald Reagan himself expressed very strong support for 
ETIs. In 1981 President Reagan said the following about the 
benefits of investing pension funds in housing:

          This morning we had a group from the construction 
        industry in, and we have--over in the Labor 
        Department--made some definite changes in regulations. 
        Those changes are going to free up the billions and 
        billions of dollars in pension funds for--that they can 
        now be invested in home mortgages. Previous to this, 
        they have not been able to. The total pension money 
        available for investment in this country is over a 
        trillion dollars--will be 3 trillion by 1984--and for 
        the first time, this money will be made available for 
        that kind of investment, which we think should go a 
        long way toward beginning the revival of the housing 
        industry.

    In 1990, Jack Kemp, then Secretary of Housing and Urban 
Development, wrote Elizabeth Dole, then Secretary of Labor, to 
ask guidance on whether it would be permissible under ERISA to 
make below market investments in housing. In a letter dated 
November 23, 1990, Secretary Dole responded that ERISA does not 
permit an investment that sacrifices market rate returns. 
However, Secretary Dole went on to comment that DOL had worked 
with the building and construction trades unions to structure a 
program that allows investment in housing construction.
    More recently, the Bush Administration's ERISA Advisory 
Council, after months of review, concluded in 1992, with 
respect to ETIs, that ``. . . carefully-selected, skillfully-
structured investment portfolios can be created which meet both 
the targeting objectives which may be important to a plan's 
beneficiaries or its sponsor and the plan's fundamental need 
for a competitive return on investment.'' The Council 
recommended that ``The Department of Labor should encourage 
pensions to look beyond publicly-traded, financial instruments 
and to be creative in making their funds available to non-
traditional investments under traditionally-sound financial 
standards.'' In addition, the 1993 Council, composed of Bush 
Administration appointees, specifically recommended that the 
Labor Department issue an advisory opinion on DOL policy on 
ETIs.
    As Ronald D. Watson, Chief Executive Officer of Custodial 
Trust Company and Chairman of the Bush Administration ERISA 
Advisory Council ETI Work Group in 1992, pointed out, in a July 
17, 1995 letter to Ranking Member William L. Clay, the 
``conclusion that ETIs can have a place in pension portfolios 
was reached by a cautious and instinctively conservative group 
of advisors under a Republican Administration. . . .'' [Italics 
added.]
    And yet in another illustration of the extreme partisanship 
the Republican majority has injected into this issue, it has 
attacked the ETI Clearinghouse, trying to frame it as an 
initiative created by the Clinton Administration. At the 
Subcommittee hearing on June 15, David Ball, a former Bush 
Administration official, denied that the ERISA Advisory Council 
appointed by the Bush Administration recommended an ETI 
clearinghouse.\6\ But in November 1992, the Bush 
Administration's ERISA Advisory Council had specifically 
recommended that:
    \6\ Mr. Ball testified at the Subcommittee hearing, ``I would like 
to make it clear right at the beginning of my testimony that at no time 
in no way have I ever or would I ever endorse economically targeted 
investments.'' And yet, in November 1992, at a meeting of the ERISA 
Advisory Council, Mr. Ball had stated, ``all other things being equal, 
something with a social purpose can be taken into account.'' IB 94-1 
says nothing more subjective than what Mr. Ball said previously.

          The Department of Labor should take the initiative in 
        gathering information about the investment performance 
        and attributes of ETIs and making it available to the 
        pension community to aid its investment decisions. 
        (Report of the ERISA Advisory Council, Nov. 1992, p. 
---------------------------------------------------------------------------
        30.) [Italics added.]

    DOL has contracted with an outside firm, Hamilton 
Securities Advisory Services, to establish a clearinghouse of 
information on ETIs.\7\ This was entirely consistent with 
recommendations made by two working groups of The ERISA 
Advisory Councils, one in 1992 during the Bush Administration 
and one in 1993 during the Clinton Administration.
    \7\ Incidentally, Hamilton's Executive Director is Austin Fitts, a 
senior housing official in the Bush Administration, and the Deputy 
Director is Grace Morgan, a former aide to Senator Alfonse D'Amato (R-
NY).
---------------------------------------------------------------------------
    The Clearinghouse was supported by the business community. 
For example, Judy Mares, representing the Committee on 
Investment of Employee Benefit Assets (CIEBA) of the Financial 
Executives Institute, testified before the ETI Working Group of 
the ERISA Advisory Council on September 22, 1993 as follows:

          We do think that the clearinghouse could provide 
        important information--an important information base to 
        facilitate both us, our investment advisors and 
        packagers of securitized products in the evaluation of 
        the investment merits of a variety of investments, 
        which we could construe as economically targeted 
        investments.

  IV. The Fawell Substitute--A Negligible Improvement Over the Saxton 
                                  Bill

                              a. generally

    The original Saxton bill effectively voided all pasts 
interpretations that allow the consideration of collateral 
benefits. The Republican staff of the Committee then negotiated 
a ``compromise'' with elements of the pension fund community 
which that community could accept, albeit reluctantly.
    While the Fawell substitute is a modest improvement over 
the original Saxton bill, it will still bear terrible 
consequences. By proposing to repeal IB-94-1, it casts grave 
doubt on the longstanding precedents upon which the 
interpretive bulletin was based as well as on the pension 
policy set forth in the interpretive bulletin. Accordingly, the 
Fawell substitute raises serious doubts about the acceptability 
of considering collateral benefits in pension fund investment 
decisions. It runs the risk of exposing pension funds to 
vexatious litigation, at the expense of their participants and 
beneficiaries. And it runs the risk of forcing pension funds to 
invest overseas rather than domestically, to avoid any 
implication of consideration of collateral benefits.
    Mr. Fawell's wishful thinking notwithstanding, the 
firestorm created by the Fawell substitute cannot be contained 
to the interpretive bulletin. And no amount of legislative 
history can preclude the uncertainty and chaos the language of 
the proposal will engender.

       b. the fawell substitute raises its own troubling problems

    The Republicans have spoken out of both sides of their 
mouths concerning whether the true intent of H.R. 1594 is to 
effect neutrality with regard to ETIs. In Chairman Fawell's 
opening statement before the Subcommittee markup on July 13, he 
insisted that ETIs are horrible investments, and he even 
referred to them as ``political investments'', with ``higher 
risk and lower return''. And yet, in other instances, the 
Republicans insist they harbor no subjective ill views toward 
ETIs. For example, a subcommittee staffer was quoted in the 
July 14 BNA Daily Labor Report saying that ``our goal is to be 
neutral on ETIs.''
    In the interpretive bulletin, DOL emphasized that ETIs were 
acceptable only to the extent they produce comparable risk-
adjusted returns as other investments; consequently acceptable 
ETIs under the IB 94-1 cannot include ``political 
investments'', with ``higher risk and lower return.''
    What, then, could the true purpose of H.R. 1594 possibly 
be? If the majority genuinely wants to effect neutral 
government policy on ETIs why did it categorically reject 
amendments offered by the Democrats that would have written 
that purpose in stone?
    There is abundant evidence of the deep animus of the 
Republican leadership toward ETIs, evidence found beyond the 
original introduction of the Saxton bill and this Committee's 
actions thus far. For instance, the FY 1996 Labor-HHS 
Appropriations bill (H.R. 2127) prohibits the use of funds by 
DOL for various ETI-related activities. The purported merit of 
this starkly partisan abuse of the appropriations process is 
explained in the accompanying Committee Report:

          The bill . . . prohibits the Department of Labor from 
        taking any steps to promote so-called ``economically 
        targeted investments (ETI's)'' by private pension funds 
        covered by ERISA. These include such things as 
        investing in low-cost housing, infrastructure 
        improvement, and small business development. . . . 
        Investing in ETI's could jeopardize pension funds. 
        (House Appropriations Committee Report on the 
        Departments of Labor, Health and Human Services, and 
        Education, and Related Agencies Appropriation Bill for 
        Fiscal Year 1996 (H. Rept. 104-209) at 24.)

    By alleging that ETI investments in such initiatives as 
low-cost housing, infrastructure investment, and small business 
development could jeopardize pension funds, the House 
Republican leadership is hardly interested in making a neutral 
statement about ETIs.

  c. the prohibition on promoting eti's is vague and dangerous micro-
                               management

    Chairman Fawell has stated that his substitute permits 
pension funds ``to continue to obtain individual advisory 
opinions from the Department regarding the legality of specific 
proposed transactions.'' Yet, his substitute provides that no 
officer or employee of the Department of Labor may travel, 
lecture, or otherwise expend resources available to such 
Department for the purpose of promoting, directly or 
indirectly, economically targeted investments.
    This standard is vague, overbroad, and nearly unlimited. 
Just exactly what constitutes ``indirect promotion?'' How do 
you determine that someone has a ``purpose'' to ``indirectly 
promote?''
    The standard is so overbroad that it would lead to some 
absurd results. For instance, recall that in 1981 President 
Ronald Reagan spoke in support of investing pension funds in 
housing. H.R. 1594 would prohibit any DOL employee from 
restating what President Reagan said. In fact, if H.R. 1594 had 
been the law in 1981, it would have prohibited DOL staff from 
helping to draft the speech or driving the President to the 
location where the speech was delivered.
    Here is another example of the absurdity: Recall Secretary 
Kemp's 1990 letter to Labor Secretary Elizabeth Dole, asking 
for guidance on whether it would be permissible under ERISA to 
make below market investments in housing. In her response, 
Secretary Dole commented that the DOL had worked with the 
building and construction trades unions to structure a program 
that allows investment in housing construction. If H.R. 1594 
had been the law, Secretary Dole's letter would have been 
construed as promoting ETIs, as would any work the DOL did with 
the building and construction trades to structure the program. 
Secretary Dole's letter would have violated the law.
    The most ridiculous and perhaps worst consequence of H.R. 
1594's prohibition on ``promoting'' ETIs is that it would 
effectively prohibit the DOL from providing advisory opinions 
or guidance in response to questions regarding ETIs. Any 
accurate reflection of what ERISA provides with regard to ETIs 
could be characterized as indirect or perhaps even direct 
promotion. Although, H.R. 1594 claims to limit its scope to 
repealing IB 94-1, the ban on ``promotion'' has the effect of 
repealing all previous interpretations by preventing the DOL 
from ever repeating or citing them. At the very least, this 
prohibitive language portends a chilling effect on the 
decisions of DOL personnel with respect to investments that 
have any collateral benefits.

  d. h.r. 1594 would unnecessarily direct pension investments overseas

    Ambiguity about the propriety of considering collateral 
benefits and the ``chilling effect'' caused by Republican 
hysteria surrounding ETIs are likely to bring about increased 
investments of U.S. pension assets overseas. The attached 
charts graphically illustrate the current trend in that 
direction. H.R. 1594 would accelerate that trend, and a 
correlative loss of American jobs would result.
    Consider this: If the bill were enacted and a pension fund 
manager were faced with a choice of two equivalent investments, 
one in the United States and one abroad, the safe course would 
be to invest overseas, thus avoiding implications that the 
manager inappropriately considered the domestic nature of the 
alternative investment.
    Committee Republicans dismissed this very legitimate 
concern, and rejected an amendment that would have merely 
clarified that nothing in the bill prohibited domestic 
investments by pension plans.

   V. The Republicans Rejected All Attempts To Ensure DOL Neutrality

    Democratic members of the Committee offered several 
amendments at both the subcommittee and full committee in an 
attempt to clarify the true intent of the bill. Adoption of the 
amendments would have advanced legislative clarity. The Fawell 
substitute, as reported, suffers mightily from confusion of 
purpose. Indeed the greatest beneficiaries of this needless 
vagueness and ambiguity likely will be the nation's pension 
lawyers.

        a. amendments offered at subcommittee markup on july 13

    At the July 13 Subcommittee markup, Democratic members 
offered amendments to clarify that certain investments would 
continue to be permissible and to make the legislation truly 
neutral on ETIs. All of the amendments were rejected by the 
majority, thus casting further doubt on the effect of the 
legislation.
    The first amendment, offered by Representative Martinez, 
stated the further Sense of Congress that it is not 
inappropriate for pension plans to consider the collateral 
economic benefits of a potential investment, assuming 
equivalent risk adjusted returns. This is consistent with past 
interpretations of ERISA. The Republicans complained such an 
amendment was not necessary and was micro-management.
    The second amendment was a ``truth in legislation'' 
amendment offered by Representative Martinez. It stated that 
further Sense of Congress that, therefore, it is inappropriate 
for pension plans to select investments because they provide 
domestic economic benefits. If the first amendment was not 
consistent with the intent of the bill, then the second 
amendment must be. Either it is appropriate to consider 
collateral benefits, or it is not, depending on the intent of 
the proponents of the bill. While Democratic Members never 
intended to support this amendment, it was surprising that no 
Republican Member did either, in light of the vote on the 
earlier amendment.
    The third amendment, offered by Representative Martinez, 
stated the further Sense of Congress that just as DOL should 
not encourage ETIs, it should not discourage them either. This 
amendment would have preserved DOL neutrality, but was 
rejected.
    The fourth amendment, offered by Representative Owens, 
clarified that nothing in the bill prohibits pension plan 
investments in programs administered by the Department of 
Defense intended to encourage the use of private capital for 
the construction, replacement, or renovation of military 
housing. The fiscal year 1996 Defense Department authorization 
bill (H.R. 1530), recently passed by the House, includes a 
program designed to encourage private investment in the 
construction of military housing. The Republicans again 
complained about alleged micro-management.
    Similar to the Owens amendment, the fifth amendment, 
offered by Representative Payne, clarified that nothing in the 
bill precludes pension plan investments in infrastructure 
improvements. Again the Republicans cried ``micro-management''.

       b. amendments offered at full committee markup on july 20

    Democratic Members again sought to clarify the intent of 
the bill at the Full Committee markup on July 20.
    An amendment offered by Representative Green was similar in 
purpose to the Owens and Payne amendments and attempted to 
clarify that nothing in the bill prohibited domestic (as 
opposed to foreign) investments by pension plans. This 
clarifying amendment was also rejected by a party line vote, 
leading to the conclusion that the Republican Members of the 
Committee care little whether pension plans invest overseas, 
rather than domestically and thus care little about the 
inevitable loss of American jobs.
    Representative Martinez offered an amendment to state 
clearly and unequivocally that DOL should remain neutral on 
ETIs. The amendment was defeated by another party-line vote.
    Representative Sawyer then offered an amendment to 
condition the effect of the legislation on certification by the 
Secretary of Labor that adequate funding exists for the PWBA to 
carry out its tasks during fiscal year 1996, including pension 
enforcement. This most reasonable amendment was defeated by 
voice vote. It is simply ironic that the Republicans 
irresponsibly accuse the Clinton Administration of engaging in 
a ``pension grab'' at the same time the Republicans are cutting 
the budget to enforce the protections of ERISA.
    Finally, Representative Andrews offered an amendment 
related to public employee pension plans, which was also 
defeated.

                             VI. Conclusion

    The Democratic Members of the Committee tried to amend the 
bill to clarify its true intent, to ensure DOL neutrality, and 
to ensure that pension funds could continue to invest 
domestically. Unfortunately, all of our effort were rejected. 
We regret that Republican members of this committee have 
allowed themselves to be cowed by transparent demagoguery and 
bullied into reporting out this politically-driven, 
intellectually dishonest legislation. If the legislation were 
innocuous it would be bad enough, but H.R. 1594 is dangerous 
public policy.
    We are dismayed that the Committee's Republican leadership 
chooses to waste precious time and effort attending to this 
kind of legislative chicanery when instead the Committee should 
be focusing on matters far more critical to its jurisdiction, 
such as consideration of a long overdue increase in the minimum 
wage.
    Attachments: Reich letter, Saxton letter, charts of foreign 
investment by pension plans.
                          U.S. Department of Labor,
                                        Secretary of Labor,
                                     Washington, DC, July 19, 1995.
Hon. William F. Goodling,
Chairman, Committee on Economic and Educational Opportunities, House of 
        Representatives, Washington, DC.
    Dear Chairman Goodling: I understand that the Committee on 
Economic and Educational Opportunities will shortly be marking 
up H.R. 1594, as amended. This bill would declare the 
Department of Labor's Interpretive Bulletin 94-1 null and void, 
substantially restrict the activities of Department personnel 
regarding the interpretation of the Employee Retirement Income 
Security Act of 1974 (ERISA), and prevent the Department's 
participation in an informational clearinghouse on economically 
targeted investments (ETIs).
    H.R. 1594 could have a significant adverse impact on 
America's private sector pension funds, jeopardizing the proven 
statutory arrangement that governs the investment of over $3 
trillion, investments critical to the retirement income 
security of workers, retirees, and their beneficiaries. For 
these reasons, the Administration strongly opposes the bill.
    By repealing Interpretive Bulletin 94-1, the bill would 
throw into doubt the Department's longstanding legal position 
on the extent to which pension plan fiduciaries may consider 
benefits to the local or national economy in selecting plan 
investments. Under administrations from President Reagan to the 
present, the Department has consistently maintained that 
fiduciaries may consider such collateral benefits when choosing 
among investment opportunities that are equally attractive in 
terms of the direct financial benefit they would bring to the 
plan. This position was explicitly articulated by the conferees 
at the time of ERISA's passage. If H.R. 1594 were enacted, 
fiduciaries could be exposed to strict liability for investment 
decisions simply by a showing that they considered such 
benefits, even though the investments were in every respect 
prudent. As a result, the bill is likely to interfere with the 
ability of plan fiduciaries to make investment decisions in the 
best interests of plan participants and free of unnecessary 
government interference.
    At a minimum, the bill would increase the risk of 
litigation to fiduciaries, even when they are choosing 
financial opportunities in which they now commonly invest, such 
as mortgage loans, participant loans, and ESOPs. The bill's 
language could also cripple the Department's ability to use its 
exemption-granting authority, essential to the investment of 
pension funds in our financial markets, because these 
exemptions commonly provide collateral benefits. Moreover, by 
preventing the Department's participation in an ETI 
clearinghouse--an idea proposed by the business community and 
endorsed by a bipartisan advisory panel appointed by the Bush 
Administration--the bill could deny to plan fiduciaries a 
supply of relevant and timely information, the life blood of 
productive investing.
    Beyond these damaging immediate effects, I am concerned 
that the contentious debate touched off by H.R. 1594 has the 
alarming potential to do longlasting damage to the private 
pension system. Traditionally, Congressional treatment of ERISA 
issues has been marked by strong bipartisan support for the 
protection of the employer-sponsored private pension system. 
This system has flourished in the 20 years since ERISA's 
enactment because investment decisions have been left in the 
hands of responsible fiduciaries. Rather than departing from 
this proven approach, the well-settled rules embodied in ERISA 
and enforced by the Labor Department should be preserved.
    The Office of Management and Budget advises that there is 
no objection to the submission of this report to the Congress 
from the standpoint of the Administration's program.
    Please contact me if I can provide any additional 
information to assist you in this matter.
            Sincerely,
                                                   Robert B. Reich.
                              ----------                              

                     Congress of the United States,
                                  Joint Economic Committee,
                                      Washington, DC, May 24, 1995.
    I am writing to express my serious concerns about 
Economically Targeted Investments, or ETIs, and the campaign 
currently underway within the Clinton Labor Department to 
encourage and promote these kinds of risky investments. ETIs 
are harmful to corporations' pension plans because, to quote 
the Speaker of the House, ``by inserting a non-economic goal in 
how you invest pension funds, you are by definition lowering 
the return on the investments, and you're by definition 
increasing the risk.'' The Speaker's description of the problem 
is backed up by the leading experts in pension and trust law.
    Unfortunately, the Clinton Labor Department has undertaken 
an aggressive campaign to encourage and promote ETIs. In fact, 
your firm already may have been approached by the 
Administration or its allies in an orchestrated effort to give 
the impression that ETIs are permissible under ERISA and to 
make the investment community ``comfortable'' with ETIs.
    ETIs pose a serious and immediate threat to the fiscal 
safety and soundness of your pension funds. Moreover, it is 
highly inappropriate for a Department of Labor official to go 
around the country promoting ETIs.
    I have also received indications that a number of companies 
and pension investors have felt subtle pressure from the 
Administration during meetings and conversations with Labor 
Department officials to initiate or expand their ETI 
activities. I fully appreciate the coercive potential of a 
seemingly innocuous promotional visit when the promotional 
pitch is being made by the very federal agency that regulates 
the firm.
    Now I realize that you may not be worried about ETIs 
because you would never have your company's pension plan become 
involved with ETIs. You should be worried about the 
Administration's activities, however, because their ultimate 
objective is to mandate social investing through compulsory ETI 
quotas, similar to the lending quotas now imposed on financial 
institutions by the Clinton Administration. Allowing ETIs to 
pass muster under ERISA would be a significant step forward 
along the path of making ETIs permissible. What the 
Administration seeks to make permissible today, it wishes to 
make compulsory tomorrow.
    Based upon my contacts with the pension fund community, it 
appears that the Clinton Administration may have been at least 
partially successful in convincing some companies to initiate 
or expand their involvement with ETIs. To the extent that 
companies are allowing themselves to be lured or intimidated 
into ETI activity, they are exposing themselves and others to 
an increased financial and legal risk.
    I have introduced the Pension Protection Act of 1995 (H.R. 
1594) to stop the Clinton pension fund grab. Not only will my 
bill stop the Clinton Administration from unduly pressuring you 
into ETIs, it will thwart Clinton's long range objective to 
gain access to private pension funds through compulsory ETI 
quotas. It will not arbitrarily limit investments of any 
category, but it would protect the pension's assets from 
Secretary Reich's and President Clinton's spending schemes.
    You cannot afford to wait until the Clinton quota wolf is 
at your door. If you do, history records in the cases of 
employment and lending quotas that you will be left with the 
Hobbesian Choice between litigation (or some other coercive 
threat) and signing a ``voluntary'' consent decree to adopt 
quotas.
    Proof of this threat to you is the Interpretive Bulletin 
that Secretary Reich issued on July 28, 1994 (IB 94-2) which 
encourages shareholder activism on the part of pension fund 
managers. Secretary Reich wants pension funds to vote their 
shares of stock to influence corporations towards social goals 
that have nothing to do with the economic performance of the 
firm. For instance, TIAA-CREF initiated in 1993 a set of 
corporate governance guidelines calling for quotas of 
minorities and women on corporate boards. I intend to introduce 
legislation soon to address this nefarious scheme.
    Please write me back indicating whether you support my 
efforts against ETIs. Then write your own Congressmen and 
Senators and urge them to pass H.R. 1594 and its Senate 
companion, S. 774. Finally, I also urge you to work actively 
within your trade associations such as CIEBA, APPWP, BRT, and 
NAM to stop these pension threats. I would appreciate a copy of 
any correspondence that you send encouraging organizations to 
oppose ETIs.
    Thank you for your assistance in this matter.
            Sincerely,
                                         Jim Saxton, Vice Chairman.


                                   William (Bill) Clay.
                                   Dale E. Kildee.
                                   Matthew G. Martinez.
                                   George Miller.
                                   Tom Sawyer.
                                   Mel Reynolds.
                                   Robert E. Andrews.
                                   Carlos Romero-Barcelo.
                                   Eliot L. Engel.
                                   Pat Williams.
                                   Lynn C. Woolsey.
                                   Bobby Scott.
                                   Xavier Becerra.
                                   Donald M. Payne.
                                   Patsy T. Mink.
                                   Major R. Owens.
                                   Gene Green.
                 ADDITIONAL VIEWS BY JAMES C. GREENWOOD

    Under the Employee Retirement Income Security Act (ERISA), 
private pension funds are required to be invested for the 
exclusive benefit of plan participants and beneficiaries. In 
June 1994, however, the Department of Labor issued interpretive 
bulletin 94-1 stating that the ERISA ``fiduciary standards 
applicable to ETIs are no different than the standards 
applicable to plan investments generally.'' In other words, 
according to the DOL, the prudential and fiduciary requirements 
of ERISA do not violate the exclusive purpose by first taking 
into account the economic benefits an investment creates apart 
from the actual investment return. Through my support for H.R. 
1594, the Pension Protection Act, I hope to restore the DOL to 
its proper role as the watchdog of the nation's pension fund. 
By declaring the bulletin null and void and by prohibiting the 
DOL from issuing rules, regulations, or from expending money to 
promote ETIs in any way, H.R. 1594 once again makes the pension 
participant the principle beneficiary.
    During the Committee's consideration of H.R. 1594, I missed 
several roll call votes because I was unavoidably detained by a 
meeting with the Speaker of the House on Medicare Reform.
    Had I been present for roll call vote number one, 
Congressman Green's amendment to insert section 5, the 
Protection of Domestic Investments, I would have voted ``No.'' 
Had I been present for roll call vote number two, Congressman 
Payne's amendment to insert section 5, the Protection of 
Investments in Infrastructure Improvements, I would have voted 
``No.'' Had I been present for roll call vote number three, 
Congressman Owens' amendment to insert section 5, the 
Protection of Investments Under Defense Programs Providing for 
Military Family Housing and Ancillary Supporting Facilities, I 
would have voted ``No.'' Had I been present for roll call vote 
number four, Congressman Martinez's amendment to the amendment 
in the nature of a substitute to strike language regarding the 
discouraging of ETIs, I would have voted ``No.'' Had I been 
present for roll call vote number five, Congressman Andrews' 
amendment to ERISA to provide for a civil cause of action for 
plan participants and beneficiaries against a public employee 
pension plan, I would have voted ``No.'' Had I been present for 
roll call vote number six, to Report the bill, I would have 
voted ``Aye.'' In each instance, I was meeting with the Speaker 
of the House on Medicare Reform.
    If enacted, this important legislation will effectively 
restore the Department of Labor to its proper role of chief 
enforcer of ERISA's fiduciary standards. I believe that this 
nation's $4.8 trillion pension fund deserves the protection and 
the attention that will be revived by the enactment of H.R. 
1594.
    I also strongly support H.R. 1114, a bill to amend the Fair 
Labor Standards Act to allow individuals who are 16 and 17 to 
load materials into cardboard balers and compactors. Despite 
advances in technology, the Department of Labor has failed to 
update Hazardous Order 12, which prohibits minors from loading 
balers and compactors. I believe that 16- and 17-year-olds are 
capable of safely loading cardboard balers and compactors that 
meet ANSI standards.
    During the Committee's consideration of H.R. 1114, I missed 
several roll call votes due to a simultaneous meeting with 
constituents in the Capitol.
    Had I been present for roll call vote one, Congressman 
Owens' amendment to the amendment in the nature of a substitute 
requiring DOL certification, I would have voted ``No.'' Had I 
been present for roll call vote two, to Report the bill, I 
would have voted ``Aye.'' In each instance, I was detailed with 
constituents in the Capitol.
    I believe this legislation will enable teenagers to obtain 
employment experience in the food industry while maintaining a 
maximum level of safety. If enacted, H.R. 1114 will allow food 
retailers to hire teenagers without fear of a costly fine or a 
serious injury.

                                                   James Greenwood.