[Senate Report 107-226]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 525
107th Congress                                                   Report
                                 SENATE
 2d Session                                                     107-226
======================================================================
 
               PROTECTING AMERICA'S PENSIONS ACT OF 2002

                                _______
                                

                 July 26, 2002.--Ordered to be printed

                                _______
                                

   Mr. Kennedy, from the Committee on Health, Education, Labor, and 
                   Pensions, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                         [To accompany S. 1992]

    The Committee on Health, Education, Labor, and Pensions, to 
which was referred the bill (S. 1992) to amend the Employee 
Retirement Income Security Act of 1974 to improve 
diversification of plan assets for participants in individual 
account plans, to improve disclosure, account access, and 
accountability under individual account plans, and for other 
purposes, having considered the same, reports favorably thereon 
with amendments and recommends that the bill (as amended) do 
pass.







                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................2
 II. Background and History of the Legislation........................3
III. Committee Action................................................18
 IV. Explanation of the Bill and Committee Views.....................19
  V. Section-by-Section Analysis.....................................23
 VI. Cost Estimate...................................................26
VII. Regulatory Impact Statement.....................................31
VIII.Application of Law to the Legislative Branch....................32

 IX. Minority Views..................................................33
  X. Changes in Existing Law.........................................57








                         I. Purpose and Summary

    S. 1992, the Protecting America's Pensions Act of 2002, is 
an important step in meaningful 401(k) reform to strengthen 
workers' rights and protections. The committee recognizes that 
retirement security is a particularly compelling issue for 
workers who rely on individual 401(k) accounts for their 
retirement security. Originally expected to merely supplement 
traditional defined benefit pension plans, today 401(k) plans 
are the primary retirement vehicle for 47 million American 
workers.
    The loss of $1 billion of retirement savings by thousands 
of Enron workers has focused attention on the need for a review 
of 401(k) plans, particularly on the risks of overinvesting in 
company stock and the need for asset diversification. Enron 
workers' 401(k) retirement accounts have vaporized because they 
consisted largely of Enron stock.
    The committee held a hearing, ``Protecting the Pensions of 
Working Americans: Lessons From the Enron Debacle'' on February 
7, 2002. At that hearing, the Committee reviewed the abuses at 
Enron that led to the loss of the Enron workers' retirement 
savings and concluded that greater protections were needed for 
worker 401(k) plans.
    The committee believes that S. 1992 includes basic reforms 
that are necessary to ensure that there are no more Enrons. The 
bill achieves its goals by giving workers real investment 
choices without employer pressure or intimidation, by giving 
workers access to independent, unbiased investment advice, by 
giving workers expanded access to recover their investment 
losses, and by giving workers a voice on the boards that govern 
their 401(k) plans.

Diversification

    S. 1992 permits employers to either contribute company 
stock to a 401(k) plan or offer company stock as an investment 
option, but not both. The bill makes an important exception for 
companies that also provide a substantial defined benefit 
pension plan. Because the goal is worker retirement security, 
greater investment risks are acceptable in a 401(k) plan if it 
is truly a supplemental plan and not the worker's primary 
retirement vehicle. The bill also addresses the ``captive 
investor'' problem that many workers face by giving them the 
right to sell company stock contributed by the employer after 3 
years of service.
    The committee believes that S. 1992 accomplishes this goal 
in a reasonable and moderate way. Instead of limiting workers' 
options with arbitrary caps on holdings of company stock, the 
bill is a targeted approach to dealing with the inherent 
conflict of interest for employers that include company stock 
in their 401(k) plans. Studies have consistently shown the 
power of the ``endorsement effect''--that is, when employers 
make their own contributions to 401(k) plans in company stock, 
workers are likely to allocate as much as 40 percent of their 
own contributions to that same stock. This level of 
concentration in one stock would be unacceptable in any other 
investment arena.

Investment advice

    While investment advisers agree that workers should limit 
their 401(k) investment in company stock, many workers never 
receive this advice. Because workers are responsible for 
choosing their own 401(k) investments, unbiased investment 
advice would improve their retirement security. Employers 
already exert both direct and indirect influence on workers to 
invest in company stock. S. 1992 gives workers access to 
independent, non-conflicted investment advisors who will 
impress on them the risks of over-investing in company stock.

Executive penalties

    The bill provides real penalties for employers who mislead 
workers about their investments. The bill empowers workers to 
hold top executives accountable when they knowingly abuse 
workers' pensions. If workers lose their retirement savings due 
to deliberate corporate mismanagement, then they will have the 
legal right to hold those top executives accountable in a court 
of law, and recover what they lost.
    The legislation also recognizes that workers deserve 
complete and accurate information in making their investment 
decisions. Among other things, workers must be informed of 
executive stock sales so that workers can make informed 
decisions about their own investments. The bill also makes 
clear that ERISA fiduciary rules prohibit an employer from 
providing false or misleading information.

Worker representation

    Worker representation on pension boards is a common 
practice. Today, 65 percent of pension assets in the United 
States are managed with some form of worker representation on 
plan boards, and thousands of worker representatives sit on the 
boards of trustees that govern retirement plans in the public 
and private sectors.
    Under S. 1992, workers will serve on the boards of pension 
plans and help decide what the investment options are in 401(k) 
plans. Worker representation leads to better results for 
pension funds and increases employee contributions to their 
401(k) plans.

             II. Background and History of the Legislation

    When the Studebaker automobile company shut down in the 
early 1960s, more than 4,000 workers lost their jobs and their 
pensions. The Studebaker collapse illustrated a fundamental 
flaw in the American pension system and led to the enactment of 
the Employee Retirement Income Security Act of 1974 (ERISA), 
the primary federal law to protect pensions. ERISA established 
minimum vesting, participation, and funding standards; required 
plan termination insurance for defined benefit pension plans; 
prohibited certain transactions; and established standards for 
fiduciary conduct. These protections were designed to ensure 
that workers would not lose the retirement benefits that they 
had worked for throughout their lifetimes.
    The percentage of the private sector workforce that is 
covered by an employer-sponsored retirement plan has remained 
about 50 percent since the early 1970s. While the number of 
covered workers has remained relatively unchanged, there has 
been a substantial shift in the type of retirement coverage--
from defined benefit pension plans to defined contribution 
plans, including 401(k) plans.
    At the same time that the number of defined benefit plans 
has declined, the number of 401(k) plans has grown dramatically 
in just over two decades. Today, there are an estimated 350,000 
401(k) plans covering 47 million workers and holding more than 
$2 trillion in assets.
    Although there has been this profound shift in the type of 
pension coverage, pension law has not changed to keep up with 
this change. The collapse of Enron and the loss of more than $1 
billion of workers' retirement savings emphasizes the need for 
reform. After the collapse of Enron--at the time, the largest 
bankruptcy in U.S. history--some argued that it was an isolated 
instance of corporate greed. But in recent months, we have seen 
a jury convict the Arthur Andersen accounting firm of 
obstructing justice. We have seen Tyco Industries accused of 
falsifying merger information and its CEO indicted. And we have 
seen WorldCom admit that it misstated its financial condition 
by nearly $4 billion and declare bankruptcy--now the largest 
bankruptcy in U.S. history.
    It is clear that these corporate scandals are not unique to 
one company or one industry. Like Studebaker, Enron and 
WorldCom are not isolated instances of corporate greed, but 
rather examples of the need for broader reform of ``do-it-
yourself'' 401(k) plans, which have become the bedrock of 
America's modern pension system.

Enron Corporation

    Enron, a Houston based company, was formed in 1985. 
Initially, Enron's business focused on buying electricity from 
generators and selling it to public utilities. However, with 
the deregulation of electrical power markets, Enron expanded 
into an energy broker, trading electricity and other 
commodities, and by the early 1990s Enron had become a major 
energy trading company. Enron entered into contracts with both 
the buyer and the seller and made money on the undisclosed 
difference between the selling price and the buying price of 
various commodities.
    In addition to its commodities business, Enron has another 
division that involves building power plants around the world, 
operating them, selling off pieces of them, investing in debt 
and equity securities of energy and communications-related 
businesses, and similar transactions. As its services became 
more complex and its stock soared, Enron created various 
partnerships. It appears that Enron used these partnerships to 
routinely shift debts off its books, resulting in gross over-
valuing of Enron stock.
    By mid-2001, Enron's complex partnerships were beginning to 
unravel. On October 16, 2001, Enron announced a $618 million 
loss for the third quarter and the value of its stock plunged. 
On October 31, 2001, Enron announced an SEC investigation of 
the company. Just a few days later on November 8, 2001, Enron 
announced that it had overstated earnings over the past four 
years by $586 million and that it was responsible for up to $3 
billion in obligations to various partnerships. With this 
announcement, the bottom fell out of the value of Enron's 
stock. On December 2, 2001, Enron filed Chapter 11 bankruptcy 
in federal court in New York--the largest Chapter 11 bankruptcy 
in U.S. history.

Enron's 401(k) plan

    During this time, Enron pressured its employees to invest 
in the company, both generally and through their 401(k) plans, 
and matched their 401(k) savings plan contributions with 
company stock. The 401(k) plan was the employees' primary 
retirement plan, as Enron had previously converted its once 
sound defined benefit plan, first to a floor-offset plan tied 
to employer stock, and then to a cash balance plan.
    Enron matched 50 percent of employees' contributions with 
Enron stock. Employees were required to hold matching 
contributions in the form of company stock until age 50. Only 
then could employees diversify their shares and invest in one 
or more of the other investment options.
    As of January 1, 2001, Enron's 21,000 workers had invested 
about 60 percent of the $2.1 billion in their 401(k) plan 
accounts in company stock, even though workers had 18 other 
investment options to choose from. Investment experts agree 
that the best protection against market loss is a diversified 
portfolio of investments. However, because of intense company 
pressure to buy company stock, many Enron workers heavily 
invested in Enron stock. The result was that when the company's 
shares fell more than 95 percent during 2001, Enron workers 
lost more than $1 billion of their retirement savings.
    The inside tale of how Enron pressured employees to 
overinvest in Enron stock is enlightening, since so many 
companies use similar tactics with their employees today. 
Through pension plan materials, company e-mails, and employee 
meetings, Enron pressured employees to invest as much of their 
pension contributions as possible in company stock.
    At a December 1999, all-employee meeting, Cindy Olson, vice 
president for human resources and a pension plan fiduciary, was 
asked by an employee if 100 percent of employee contributions 
should be invested in employer stock. Ms. Olson's answer was 
``absolutely.''
    Furthermore, in company e-mails dated August 14 and August 
21, 2001, just four months before the company's collapse, Enron 
CEO Ken Lay wrote to employees, ``* * * I want to assure you 
that I have never felt better about the prospects for the 
company. * * * One of my top priorities will be to restore a 
significant amount of the stock value we have lost as soon as 
possible. Our performance has never been stronger * * *'' and 
``* * * one of my highest priorities is to restore investor 
confidence in Enron. This should result in a significantly 
higher stock price. * * * I ask your continued help and support 
as we work together to achieve this goal.''
    As the value of Enron stock began a free fall, Enron 
executives tried to coerce Enron workers to buy more company 
stock in an effort to prop up the stock price. Although Enron 
executives were aware of the misleading financial statements 
and the company's vast liabilities that were hidden in off-the-
books, offshore partnerships, Enron CEO Ken Lay and other 
executives continued to pressure workers to invest their 
retirement savings in Enron stock.
    From October 26 to November 13, 2001, Enron instituted a 
``lockdown'' which barred any 401(k) plan transactions by 
employees--effectively requiring employees to hold on to Enron 
stock while it was losing value. Enron stock fell from $15.40 
at the start of the lockdown to $9.98 at the end. Enron 
contends that it was simply changing plan administrators and 
the restrictions had nothing to do with the fact that Enron 
stock was falling. However, Enron materials and company e-mails 
about the lockdown were unclear as to exactly when the lockdown 
would begin and end. Employees asked Enron pension plan 
administrators to delay the lockdown, but the company declined 
to do so.
    Unlike the Enron workers, Enron executives have fared much 
better. Knowing the truth about Enron's true financial 
condition, company executives and board members sold more than 
$1 billion of Enron stock in 2001.
    The Enron debacle has focused attention on the need for a 
review of 401(k) plans and meaningful reform to strengthen 
workers' rights and protections. The Enron scandal also 
highlights the dangers of forcing workers to tie their jobs and 
their retirement savings to the same company. Even as Enron was 
collapsing into the biggest bankruptcy in U.S. history, 
thousands of worker men and women lost their jobs, their life 
savings, and their pensions.

401(k) plans

    Over the last 15 years, there has been a massive shift from 
traditional defined benefit pension plans to 401(k) and other 
``do-it-yourself'' defined contribution plans. For more than 
half of all employees who have retirement plans, 401(k) plans 
have become their primary retirement plan. Yet, there has been 
little discussion about the impact of do-it-yourself pensions 
on the retirement security of workers.
    In a traditional defined benefit pension plan: (1) 
retirement benefits do not depend on how much a worker is 
willing or able to contribute; (2) the employer bears the 
investment risk; (3) plan assets are professionally managed and 
must be diversified--no more than 10 percent of plan assets may 
be invested in any one investment--to minimize the risk of 
large losses; (4) benefits must be offered as an annuity for 
life with surviving spouse protection; and (5) benefits are 
insured by the Pension Benefit Guaranty Corporation.
    In contrast, in a 401(k) plan: (1) retirement benefits 
depend on the willingness and ability of workers to contribute; 
(2) benefits also depend on workers' investing skill or luck; 
(3) assets are not required to be diversified; (4) workers face 
the real possibility that they may outlive their retirement 
assets; and (5) benefits are not insured against loss.
    The dramatic shift from defined benefit pension plans to 
401(k) plans is not due to government regulation of defined 
benefit plans. Rather, employers choose to sponsor 401(k) plans 
in order to save pension costs. The 401(k) plan, in effect, 
allows companies to provide retirement benefits at about half 
the cost of traditional pension plans because workers bear the 
brunt of the costs. By replacing defined benefit plans with 
401(k) plans, employers are able to shift both the investment 
risk--the risk of losses in the market--and the longevity 
risk--the risk that workers will outlive their assets--from the 
employer to the worker.
    Although 401(k) plans have grown enormously, these plans 
have failed to provide the financial resources workers will 
need for a comfortable retirement. A recent study by economist 
Edward N. Wolff, published by the Economic Policy Institute, 
shows that the pension wealth of nearly two-thirds of American 
households did not increase between 1983 and 1998. While the 
very top income group saw their pension wealth increase by 176 
percent, the retirement wealth of the households in the middle 
actually fell by 13 percent.
    Congress provides two huge tax subsidies of more than $100 
billion a year for qualified pension plans. Both worker and 
employer contributions to these plans are tax deferred as well 
as any investment gains. The deductions and income deferrals 
for pension plans are the largest tax expenditure in the 
federal budget. Congress grants this tax subsidy to promote 
retirement savings and to ensure that workers will have 
retirement resources beyond Social Security. This government 
tax subsidy is designed to encourage retirement savings--not to 
encourage gambling on risky investments. Workers are free to 
use their own after-tax dollars for any risky investment they 
choose.
    Companies prefer contributing stock rather than cash to 
401(k) plans because there are significant economic and 
financial advantages to providing matching contributions in 
company stock and because it keeps the stock in friendly hands. 
More importantly, companies reap substantial tax benefits from 
stock contributions.
    In addition to a tax deduction for the value of the shares, 
companies are also permitted to deduct the dividends on those 
shares, even though dividends otherwise are not deductible. For 
examples, the Wall Street Journal estimates that Proctor & 
Gamble receives $127 million in tax deductions for company 
stock held in its 401(k) plan. Similarly, they estimate that 
Abbott Laboratories receives $28 million in tax deductions.
    Most employers make matching contributions to their company 
401(k) plans in cash. But many of the largest U.S. employers--
companies like Enron, Coca-Cola, Lucent Technologies, Procter & 
Gamble, Polaroid, Gillette, Cisco Systems, and Walt Disney--
force their workers to invest in company stock because they 
contribute company stock instead of cash to their 401(k) plans, 
and then restrict their workers from selling the stock until 
they are near retirement age, making them ``captive 
investors.''
    Abuses of company-sponsored retirement plans are nothing 
new, and the debate over whether additional regulation of 
401(k) and other defined contribution plans is needed is a long 
standing one. Enron is simply the latest and largest warning 
that pension laws that favor employers over workers need to be 
reformed.
    There have been other well-publicized cases of companies 
whose employees also held a high percentage of employer stock 
in their retirement plans. When the stocks lost much of their 
value, employees' 401(k) accounts were significantly reduced.
    Like the workers at Enron, workers at Global Crossing, 
Polaroid, Lucent Technologies, and Ikon Office Solutions have 
sued their employers over their 401(k) plans. The workers 
allege that the companies knew their stock was inappropriate 
for workers' retirement accounts yet continued to encourage 
workers to load up on the shares.
    Like the executives at Enron, executives at Global Crossing 
also dumped hundreds of millions of dollars of company stock as 
their company was spiraling into financial disaster. Executives 
at Global Crossing, too, acted on insider knowledge for their 
personal benefit--and to the detriment of rank-and-file 
workers--when they sold company stock valued at $1.3 billion 
and cashed out executive pension plans. While thousands of 
Enron and Global Crossing employees were laid off, company 
executives were protected by a variety of corporate perks and 
company-funded executive pension arrangements.
    Like Enron workers, Polaroid workers' retirement accounts 
were heavily invested in company stock. Polaroid required 
workers to invest 8 percent of their pay in company stock 
through the company's employee stock ownership plan (ESOP), and 
barred workers from selling until they retired. As Polaroid 
went bankrupt, the workers lost virtually their entire 
retirement savings. Like Enron, Polaroid also had a 401(k) plan 
with a variety of investment options, but many Polaroid workers 
did not participate in the 401(k) plan because they were 
already required to contribute 8 percent of their pay into the 
ESOP.
    Another recent example is Lucent Technologies where workers 
had invested about 30 percent of their 401(k) savings in 
company stock. Like Enron, Lucent made matching contributions 
in company stock and restricted the sale of this stock until 
workers reached the age of 55. Lucent's stock value has 
plummeted 90 percent over the past two years, wiping out more 
than $1 billion of workers' retirement savings. Employees are 
now suing Lucent alleging breach of fiduciary duty. Lucent 
workers say that company executives pressured them to invest in 
company stock as a way of showing their loyalty.
    Similarly, at Ikon Office Solutions, workers are suing the 
company alleging that the company breached its fiduciary duty 
by pushing its volatile stock. Like Enron, when the stock price 
dropped dramatically in the mid-1990s, management told workers 
that it was ``on sale'' and encouraged them to buy even more.
    There are many companies with similar situations. Over the 
past two years, AT&T stock fell from a high of $44 to $14 a 
share. Over the same two-year period, General Electric's stock 
lost nearly half of its value, falling from $58 a share to $32. 
Pfizer, Anheuser-Busch, General Electric, Texas Instruments, 
Dell Computer, and McDonald's are all firms where more than 70 
percent of 401(k) assets are held in company stock. And the 
price of these companies' shares has fallen from between 21 
percent to 56 percent within the past year. Clearly, it is a 
risky strategy to count on the rising stock price of a single 
company to fund long-term retirement savings.
    Among the changes that are needed are new rules to govern 
401(k) plans and the investment of retirement savings in 
company stock. Theodore Benna, president of the 401(k) 
Association and the person credited with developing the 401(k) 
plan more than two decades ago, has commented:

          We should continue to permit employers to contribute 
        as much company stock as they want to these plans, 
        because matching contributions in company stock are 
        much better than no company contribution * * * We 
        should, however, prohibit employees from investing 
        their own contributions to 401(k)s and ESOPs in company 
        stock.\1\
---------------------------------------------------------------------------
    \1\ Company Stock Changes Needed to Protect Employees, Ted Benna, 
401kHelpCenter.Com, Mpower, 2002.
---------------------------------------------------------------------------

Diversification

    Over-concentration of employer stock in 401(k) plans is 
common today. Thousands of Enron workers lost their jobs and at 
the same time lost $1 billion of their retirement savings. The 
high concentration of 401(k) investments in Enron stock that 
created this disaster is a dramatic example of why 401(k) plan 
investments must be diversified. About 60 percent of the 401(k) 
assets were invested in Enron stock. The heavy investment in 
employer stock was permitted under ERISA, and until Congress 
changes ERISA, these kinds of losses will hurt other workers.
    The loss of $1 billion of retirement savings by Enron 
workers has focused attention on the need for asset 
diversification in 401(k) plans, especially with respect to 
employer securities. The Congressional Research Service report, 
The Enron Bankruptcy and Employer Stock in Retirement Plans, 
found that many 401(k) plans hold substantial percentages of 
plan assets in employer stock. (See Table 1.)

Table 1.--Company Stock as a Percentage of 401(k) Plan Assets: DC Plan 
Investing Survey

                                                                 Percent
Procter & Gamble..................................................  94.7
Sherwin-Williams..................................................  91.6
Abbott Laboratories...............................................  90.2
Pfizer............................................................  85.5
BB&T..............................................................  81.7
Anheuser-Busch....................................................  81.6
Coca-Cola.........................................................  81.5
General Electric..................................................  77.4
Texas Instruments.................................................  75.7
William Wrigley, Jr...............................................  75.6
Williams..........................................................  75.0
McDonald's........................................................  74.3
Home Depot........................................................  72.0
McKesson HBOC.....................................................  72.0
Marsh & McLennan..................................................  72.0
Duke Energy.......................................................  71.3
Textron...........................................................  70.0
Kroger............................................................  65.3
Target............................................................  64.0
Household International...........................................  63.7

Source: DC Plan Investing, December 12, 2001.

    The fact that Enron's stock represented a majority of total 
plan assets is not unusual. According to a study by the Profit 
Sharing/401(k) Council of America, employer stock accounted for 
39.2 percent of 401(k) assets in 2000. The percentage is even 
higher in large companies. In firms with more than 5,000 401(k) 
participants, more than 43 percent of assets were in company 
stock.\2\ Similarly, more than half of the Fortune 50 companies 
had 25 percent or more of their 401(k) assets invested in 
company stock. This lack of diversification could prove 
devastating for tens of thousands of workers who rely on their 
401(k) plans for a secure retirement.
---------------------------------------------------------------------------
    \2\ Enron Debacle Will Force Clean Up of Company Stock Use in DC 
Plans, DC Plan Investing, Dec. 11, 2001.
---------------------------------------------------------------------------
    Over-concentration of employer stock in 401(k) plans leads 
to higher risk with lower returns. A new Congressional Research 
Service report, ``Employer Stock in Retirement Plans: 
Investment Risk and Retirement Security,'' \3\ finds that when 
workers allocate a large percentage of their retirement savings 
to a single security--such as employer stock--those workers 
assume more risk and consistently earn lower returns. Of the 
278 large, publicly traded corporations in the CRS study, only 
66 ``beat the market'' over the 3-year period 1997 to 1999. The 
remaining 212 companies--76 percent--underperformed the market. 
That means that workers at over three-quarters of these 
companies would have earned higher returns with much lower risk 
by investing in the S&P 500 index fund rather than employer 
stock.
---------------------------------------------------------------------------
    \3\ Employer Stock in Retirement Plans: Investment Risk and 
Retirement Security, Congressional Research Service, June 2002.
---------------------------------------------------------------------------
    Today, approximately 11 million workers hold employer stock 
that exceeds 20 percent of their 401(k) accounts, and 5 million 
workers hold employer stock that exceeds 60 percent of their 
accounts. As a result, these accounts are dangerously over-
concentrated in employer stock.
    Diversification is a principle of sound investment 
practice. There is universal agreement among financial 
economists--including Nobel prize winners--that diversification 
is the foundation of sound financial planning and investment 
practice. Yet, current ERISA exemptions continue to permit 
workers to concentrate 401(k) investments in employer stock.
    The duty to diversify investments is a standard principle 
of sound fiduciary investing practice. This duty comes from the 
common law of trusts, and is included in the Restatement 
(Second) of Trusts (1959). Law and practice also promote 
diversification as a foundational principle of sound financial 
management.
    Congress recognized the importance of these investment 
fundamentals. As a result, ERISA limits the amount of employer 
stock that can be held in a defined benefit pension plan to 10 
percent of plan assets. But ERISA imposes no general 
diversification rules on 401(k) plans. Instead, ERISA provides 
an exception to its diversification requirements for certain 
types of defined contribution plans, including 401(k) plans--
which were originally intended to be supplemental savings plans 
not pension plans.
    Although lately some companies have become concerned about 
the lack of diversification in their workers' 401(k) accounts, 
a recent Employee Benefits Research Institute survey reports 
that only 14 percent of plans with company stock as an 
investment option limit the amount or percentage of company 
stock that workers may hold in their 401(k) accounts.\4\
---------------------------------------------------------------------------
    \4\ Company Stock in 401(k) Plans: Results of a Survey of ISCEBS 
Members, EBRI Special Report, Employee Benefit Research Institute, Jan. 
31, 2002.
---------------------------------------------------------------------------
    Diversification limits are imposed by law or practice in 
other investment situations. Like private defined benefit 
plans, public employee retirement funds also have 
diversification limits--generally with less than 2.5 percent of 
the fund invested in any one company. Similar to the ERISA 
limits, the Investment Company Act of 1940 imposes 
diversification limits on mutual funds. Under this law, fund 
managers have a fiduciary duty to maintain a diverse portfolio 
to spread risk and balance fluctuations in the market. The 
Investment Company Act limits the amount of a single investment 
that can be held in a mutual fund to 5 percent of plan assets. 
Investment managers at all the major investment firms also 
diversify their investments, even though they are not required 
by law to do so. Most have self-imposed limits of 10 percent.
    The Uniform Prudent Investor Act, adopted by 35 states, 
also imposes the duty to diversify investments on all trust 
fiduciaries. This diversification requirement extends to 
fiduciaries of charitable and pension trusts, as well as to 
other fiduciaries such as executors, conservators, and 
guardians of property.
    The ``either/or'' provision in the Committee bill ensures 
diversification for 401(k) plans. The most effective way to 
ensure diversification of 401(k) assets is to impose a 
percentage limit on the value of the investment an employee can 
have in any one stock. The committee recognized, however, that 
percentage limits have been opposed by both the business 
community and workers.
    As an alternative, S. 1992 takes a more moderate and 
administratively simpler approach to diversification. S. 1992 
will continue to permit companies to make matching 401(k) 
contributions in company stock, but it will encourage 
diversification by permitting employers to either: (1) make 
employer 401(k) contributions in company stock, or (2) offer 
company stock as an investment option in 401(k) plans, but not 
both. This restriction applies (regardless of whether the 
employer stock is publicly traded or closely held) to all 
defined contribution plans except: (1) traditional ESOPs that 
do not hold employee elective contributions or employer 
matching contributions; and (2) defined contribution plans of 
an employer that also sponsors a qualified defined benefit 
plan.
    As noted, the bill provides a diversification safe harbor 
for employers with strong defined benefit retirement plans. A 
defined benefit plan is qualified for the exemption if it 
covers at least 90 percent of the employees covered by the 
defined contribution plan and if it provides an accrued benefit 
that is the actuarial equivalent of at least 1.5 percent of the 
participant's final pay times years of service (up to at least 
20 years). An actuarially equivalent flat-dollar or cash 
balance plan would be a qualified defined benefit plan.


    The committee believes that this ``either/or'' approach 
will reduce the pressure on workers to buy company stock and 
lead to greater diversification of 401(k) plans. Employer 
pressure to buy company stock was at the heart of the Enron 
debacle. Enron executives relentlessly pressured Enron workers 
to buy company stock, resulting in the loss of more than $1 
billion of their retirement savings.
    To further counter employer pressure to buy company stock, 
S. 1992 requires 401(k) plans to provide workers with quarterly 
account statements that inform workers of extent of their 
employer stock holdings, and give workers notice of the 
importance of diversification. Employers must also issue a 
special warning for workers with more than 20 percent of their 
401(k) assets in company stock.
    The ``either/or'' approach to 401(k) diversification gives 
workers greater freedom and security. Most workers with 
employer-provided 401(k) plans are not free to invest as they 
choose. Employer contributions may be automatically invested in 
company stock and workers may be restricted from selling 
company stock for many years. Similarly, worker contributions 
may be invested only in the employer-selected options provided 
by the 401(k) plan. When those investment options include 
company stock, workers are frequently subjected to employer 
pressure to invest their own contributions in company stock. 
Under the ``either/or'' approach, if the employer gives workers 
freedom by making contributions to the 401(k) in cash, then the 
committee's bill offers the workers complete freedom to select 
among the investment options offered by the employer. On the 
other hand, if the employer limits workers' choice by making 
contributions to the 401(k) in company stock, the committee's 
bill steps in to provide protections against pressure to 
overinvest in company stock.
    The right to sell employer matching contributions of 
company stock will not ensure diversification. Many companies 
that make pension contributions in company stock place harsh 
restrictions on the ability of workers to diversify these 
contributions into other plan investments. Workers who become 
``captive investors'' find their retirement savings vulnerable 
to their employers' solvency and profitability.
    A recent Hewitt Associates survey shows that 56 percent of 
the 401(k) plans that match employee contributions with 
employer stock require participants to reach a certain age--
typically 50 or 55--before they can sell. Of the firms that 
match with employer stock, only 14 percent allow their 
employees to sell the stock immediately, while 21 percent do 
not permit diversification before termination of employment.\5\
---------------------------------------------------------------------------
    \5\ Survey Findings: Hot Topics in 401(k) Plans 2002, Hewitt 
Associates LLC.
---------------------------------------------------------------------------
    This ``captive investor'' problem affects millions of 
workers. According to the Employee Benefit Research Institute 
(EBRI), these large plans cover about 2.8 million workers and 
include 11 percent of all 401(k) plan assets.\6\ These 
restrictions limit workers' ability to properly diversify their 
retirement investments to limit risk.
---------------------------------------------------------------------------
    \6\ 401(k) Plan Asset Allocation, Account Balances, and Loan 
Activity 2000, EBRI Issue Brief, Employee Benefit Research Institute, 
Nov. 2001.
---------------------------------------------------------------------------
    S. 1992 requires defined contribution plans (except 
traditional ESOPs) to allow workers to diversify all employer 
contributions of publicly traded company stock after three 
years of service. The bill also requires defined contribution 
plans to notify workers of their diversification rights and to 
inform them of the importance of diversifying assets.
    The right to sell employer matching contributions if 
company stock is not enough to ensure that 401(k) plans do not 
become dangerously overinvested in company stock. All across 
the country companies like Enron, have explicitly cajoled or 
coerced their workers into putting a high proportion of their 
retirement savings in their employers' own stock. Other 
companies have implicitly encouraged investment in company 
stock through the ``endorsement effect.''
    Several studies show that workers are much more likely to 
invest their own contributions in company stock when the 
employer makes matching contributions in stock. Workers 
perceive the match as implicit advice that employer stock is a 
good investment.\7\ Although these shares can be sold, many 
workers do not sell either out of loyalty to their employer or 
ignorance about the need for diversification.
---------------------------------------------------------------------------
    \7\ Excessive Extrapolation and the Allocation of 401(k) Accounts 
to Company Stock, Shlomo Benartzi, The Journal of Finance, Vol. 56, No. 
5, Oct. 2001; 401(k) Plan Asset Allocation, Account Balances and Loan 
Activity in 2000, EBRI Issue Brief, Employee Benefit Research 
Institute, Nov. 2001.
---------------------------------------------------------------------------
    The ``endorsement effect'' was clearly seen in the Enron 
401(k) plan. the problem with the Enron 401(k) plan that made 
it possible for these losses to occur was the high 
concentration of investment in employer stock. About 63 percent 
of the 401(k) assets were invested in Enron stock. Only about 
11 percent of that stock came from the employer match and was 
subject to the age 50 restriction. The remaining 89 percent of 
the employer stock was purchased by the workers with their own 
401(k) contributions.
    A recent CRS study also confirms the widespread use of 
corporate pressure on workers to buy employer stock with their 
own 401(k) contributions.\8\ Across the country many companies 
have explicitly cajoled or coerced their worker into investing 
a high proportion of their retirement savings in their 
employers' stock, and many other companies have implicitly 
encouraged investment in company stock.
---------------------------------------------------------------------------
    \8\ Employer Stock in Retirement Plans: Investment Risk and 
Retirement Security, Congressional Research Service, June 2002.
---------------------------------------------------------------------------
    The Administration has proposed only to allow workers to 
sell employer matching contributions of company stock after 
three years. While the Committee's bill includes the 
President's proposal, the committee believes it will not ensure 
real diversification of 401(k) accounts. Efforts to limit the 
committee's more comprehensive and effective diversification 
proposal were defeated.

Investment advice

    Most workers with 401(k) plans have little experience with 
or understanding of investment principles. Many of these 
workers are new investors and many have no other investments 
aside from their 401(k) plan savings. Even workers who have 
some investment experience often do not have the time to 
analyze their investment options and determine which 
investments are appropriate for themselves.
    Workers deserve to have access to quality investment advice 
and that advice should be provided free from financial 
conflicts of interest. Advisors with conflicts of interest are 
more prone to steer investors toward a particular company's 
products, instead of toward an array of investments that are in 
the best interest of a particular worker.
    Workers need a truly independent, non-conflicted financial 
advisor who would not benefit from implementing the investment 
decisions of the workers. ERISA has long recognized that 
financial conflicts of interest give rise to divided localities 
and therefore pose the risk that actions will not be taken 
solely in the interest of plan participants.
    Under current law, financial institutions and other 
investment firms may provide advice to participants on 
investment products in which they do not have a financial 
interest. A recent 401(k) survey by Hewitt Associates indicates 
that about one out of every five plans now provides web-based 
investment advice to plan participants.\9\ In addition, the 
number of large financial service providers that have developed 
alliances with an independent, non-conflicted investment 
advisor is growing, and most of the large 401(k) providers now 
have an independent, non-conflicted investment advisor 
available.
---------------------------------------------------------------------------
    \9\ Survey Findings: Hot Topics in 401(k) Plans 2002, Hewitt 
Associates LLC.
---------------------------------------------------------------------------
    The majority of employers who do not now offer independent, 
non-conflicted investment advice to 401(k) plan participants do 
not offer the advice because they are worried about employer 
liability. In Interpretive Bulletin 96-1, the Department of 
Labor indicated that an employer's designation of an investment 
advisor for plan participants would not give rise to fiduciary 
liability that is the result of an individual's exercise of 
control over plan assets. However, the employer would be 
responsible for the prudent selection and periodic monitoring 
of the advisor.
    In an effort to encourage employers to provide independent, 
non-conflicted investment advice to workers, S. 1992 codifies 
the Department's interpretive bulletin and clarifies that the 
employer will not be liable for specific investment advice as 
long as the employer used due diligence in selecting and 
monitoring the advice provider. The bill creates a safe harbor 
from fiduciary liability for plan sponsors that provide 
independent, unbiased investment advice to workers.

Executive accountability

    To protect the pensions and retirement savings of all 
workers from the threat of future Enrons, corporate executives 
must not be permitted to cash in and take home millions while 
their worker's retirement savings disappear.
    In the wake of Enron's collapse, there is growing 
recognition that a successful free enterprise economy depends 
on a framework of laws and institutions to make it work. Enron 
executives were some of the leading cheerleaders for 
deregulation, arguing against any kind of government oversight. 
Now it has become clear that this approach leaves no meaningful 
protections for America's workers.
    If the Enron scandal teaches us anything it's that we must 
stop ignoring corporate misbehavior. Employers who mislead 
workers when it comes to their investments will face real 
penalties. The bill empowers workers to hold top executives 
accountable when they knowingly abuse workers' pensions. If 
workers lose their retirement savings due to deliberate 
corporate mismanagement, then they should have the legal right 
to hold those top executives accountable in a court of law, and 
recover what they lost. This right could make the difference 
for a worker between an impoverished retirement and a 
comfortable retirement.
    Insider Liability.--Under current law, only ERISA 
fiduciaries are liable for damages for fiduciary breaches. 
Under the ERISA definition of fiduciary, it is unlikely that 
the Enron executives or the Enron accounting firm could be held 
liable for workers' losses in the 401(k) plan. S. 1992 provides 
new penalties for non-fiduciary executives who mislead workers. 
The bill clarifies that it is a violation of ERISA for 
executives to give workers misleading information or fail to 
provide material information about the company stock.
    The bill amends existing ERISA section 409 by providing 
that an ``insider'' with respect to a 401(k) plan that holds 
publicly traded company stock and who knowingly participates in 
a fiduciary breach or knowingly conceals a breach will be 
liable for the breach as if he or she were a fiduciary. An 
``insider'' is defined as a corporate officer or director or 
the independent public accountant for the plan and the plan 
sponsor. The new provision will allow 401(k) plans and 
participants to recover only lost retirement savings. It is not 
intended to be construed as permitting the recovery by a 
participant or beneficiary of any consequential economic losses 
or punitive damages.
    Fiduciary Claims by 401(k) Participants.--Many Federal 
courts have relied on Varity Corp. v. Howe, 516 U.S. 489 
(1996), to dismiss claims for breach of fiduciary duty under 
ERISA section 502(a)(3) where a plan participant has also 
asserted a claim for benefits under ERISA section 501(a)(1)(B). 
To correct this situation, S. 1992 creates new ERISA section 
409A.
    This new section provides that 401(k) fiduciaries who 
breach their fiduciary duties are personally liable to make 
good to each participant any losses resulting from the breach 
and to restore any profits made by the fiduciaries through the 
use of plan assets. The fiduciaries are also subject to other 
equitable or remedial relief, as a court deems appropriate. The 
new provision will allow 401(k) plans and participants to 
recover only lost retirement savings. It is not intended to be 
construed as permitted the recovery by a participant or 
beneficiary of any consequential economic losses or punitive 
damages. Any rights under new ERISA section 409A are in 
addition to any rights of a participant under existing ERISA 
section 409 or section 502.
    Disclosure of Insider Trading.--At the same time that Enron 
executives were selling more than $1 billion of Enron stock, 
those executives were urging Enron workers to continue to buy 
company stock in their 401(k) accounts. The Enron executives 
reported their insider stock sales to the Securities and 
Exchange Commission, but the Enron workers did not have access 
to the reports and were unaware of their sales. Despite 
Securities and Exchange Commission reporting requirements, most 
workers do not have access to information about executive stock 
sales. Although that information is publicly available, most 
workers do not know that the information exists or how to get 
it.
    Recognizing that workers deserve complete and accurate 
information in making their investment decisions, S. 1992 
amends ERISA to provide that if the Securities and Exchange 
Commission requires any disclosure of the sale of employer 
stock by a corporate officer, director, or an affiliated person 
(generally a 5 percent shareholder), the plan sponsor must, 
within two business days after the disclosure is made, make the 
disclosure available on any corporate internal web site 
maintained by the plan sponsor. This disclosure must be given 
in writing or electronically to employees without access to the 
web site.

Worker representation

    Worker representation on pension boards is a common 
practice. Today, 65 percent of pension assets in the United 
States are managed with some form of worker representation on 
plan boards, and thousands of worker representatives sit on the 
boards of trustees that govern retirement plans in the public 
and private sectors. Worker representatives serve on multi-
employer pension boards, on the boards of credit unions and 
public pension funds, and on health and safety committees.
    State law prescribes a specific role for both active 
workers and retirees on most funds in the $2.8 trillion public 
pension world. In the private sector, more than 3,000 
collectively bargained retirement plans are jointly trusteed by 
worker and employer representatives. Some of the nation's 
largest and most innovative pension plans have worker 
representatives.
    For example, the Teachers Insurance Annuity Association and 
College Retirement Equities Fund, now known as TIAA-CREF, has 
elected faculty representatives and may be one of the most 
successful defined contribution plans in the world. It is the 
largest defined contribution plan, covering 11,000 institutions 
of higher education and research. TIAA-CREF fees are low, 
worker voluntary contributions are high, and investment choices 
have changed in response to the pressure of the faculty 
representatives.
    Worker representation leads to better greater pension 
security for workers. Between 1984 and 1996, joint trusted 
multi-employer plans grew by 26 percent versus just 6 percent 
in corporate defined benefit plans. Workers keep fees low and 
ensure that all the investment options are responsible.
    The Enron debacle makes clear the fact that a pension board 
formed exclusively of management executives does not provide 
adequate safeguards to protect the interests of workers. These 
executives, who had no special training or experience as 
pension fiduciaries, took no action to ensure the continued 
prudence of the investment options offered to workers. This is 
especially startling given the fact that at least some of the 
management trustees failed to take the necessary actions to 
protect the workers' retirement savings. If worker 
representatives had been in place, it is highly unlikely that 
the free fall in worker retirement savings would have gone so 
unquestioned. As University of Notre Dame economist Teresa 
Ghilarducci comments: ``Only pension plans that incorporate the 
effective representation of workers as a group preserve 
retirement security.'' \10\
---------------------------------------------------------------------------
    \10\ Who Controls Labor's Capital and Why It Matters, Teresa 
Ghilarducci, University of Notre Dame, 2002.
---------------------------------------------------------------------------
    Workers also contribute more to pension funds with worker 
representatives, because worker representatives help to educate 
other workers about the benefits of participating in the 
pension plan. According to a study by University of Notre Dame 
economist Teresa Ghilarducci, pension funds with worker 
representatives consistently had higher worker 
contribution.\11\ Thus, worker representation will lead to both 
greater worker involvement and investment in their pension 
funds.
---------------------------------------------------------------------------
    \11\ Small Benefits, Big Pension Funds, and How Governance Reforms 
Can Close the Gap, Teresa Ghilarducci, Working Capital: The Power of 
Labor's Pensions, Cornell University Press, 2002.
---------------------------------------------------------------------------
    Recognizing that electing worker representatives on 
pensions boards is the best way to insure that pension trustees 
are accountable, S. 1992 requires that the assets of defined 
contribution plans with 100 or more participants be held in a 
joint trust with equal representation of the interests of the 
employer and the employees. In the case of a plan maintained by 
a collective bargaining agreement, the employee representatives 
may be designated by an election process organized by the 
union. For all other plans, the employee representatives must 
be elected by the participants pursuant to Department of Labor 
regulations. Elections of worker representatives can be 
accomplished with limited expense and organizational capacity. 
With electronic mail, even companies with far flung offices can 
easily hold elections.
    To further strengthen the pension rights of workers, the 
bill also creates an Office of Participant Advocate within the 
Department of Labor to help workers facing pension abuse. 
Today, there is no official advocate to protect workers' 
pensions and to advocate on behalf of workers with respect to 
their pension plans. The demand for a participant advocate is 
great, as measured by the more than 80,000 pension-related 
calls the Department of Labor receives through its national 
hotline and ten regional offices. Workers deserve an Office of 
Participant Advocate to identify shortfalls in the pension 
system to help resolve participant problems.

                         III. Committee Action

    On February 7, 2002, the Senate Committee on Health, Labor, 
and Pensions held a hearing on Protecting the Pensions of 
Working Americans: Lessons From the Enron Debacle. Witnesses at 
the hearing included Senator Barbara Boxer; Senator Jon 
Corzine; Representative Ken Bentsen; Secretary of Labor, Elaine 
Chao; Steve Lacey, a Portland General Electric worker; Jan 
Fleetham, a former Enron worker; Karl V. Farmer, a former 
Polaroid worker; James Prentice, Chairman of the Administrative 
Committee on the Enron Corp. Savings Plan; Professor Alicia 
Munnell, Peter F. Drucker, Chair in Management Sciences, Boston 
College; and Dallas Salisbury, President and Chief Executive 
Officer, Employee Benefit Research Institute.
    On March 6, 2002, Senators Kennedy, Bingaman, Corzine, 
Boxer, Daschle, Harkin, Mikulski, Reed, Clinton, and Durbin 
introduced S. 1992, the Protecting America's Pensions Act of 
2002.
    On March 20 and 21, 2001, the Senate Committee on Health, 
Labor, and Pensions considered S. 1992 and on March 21 ordered 
it reported by an 11 to 10 vote.

            IV. Explanation of the Bill and Committee Views

    The committee seeks to protect workers against retirement 
disasters by improving diversification of plan assets in 
individual account plans; providing access to independent, non-
conflicted investment advice; improving disclosure and 
accountability under individual account plans; penalizing 
executives for misleading workers; and giving workers a voice 
in their retirement savings plans.

     INSURING DIVERSIFICATION: ENDING CAPTIVE INVESTOR REQUIREMENTS

Section 101. Elimination of employer requirements that assets be 
        invested in employer securities

    Many companies that make pension contributions in company 
stock place harsh restrictions on the ability of workers to 
diversify these contributions into other plan investments, 
making workers captive investors. A survey by the Congressional 
Research Service shows many 401(k) plans dangerously over 
invested in company stock, leaving workers' retirement savings 
vulnerable to their employer's solvency and profitability.
    Section 101 eliminates employer requirements that 
retirement assets must remain invested in employer stock. 
Workers with three years of service have the right to diversity 
any contributions to the plan made on their behalf in the form 
of employer stock. Although this provision applies only to 
employer stock that is publicly traded, the Department of Labor 
is directed to conduct a study on the feasibility of extending 
the diversification requirements to closely-held stock. Section 
101 also gives workers the right to vote any employer stock 
held in their 401(k) accounts.

             INSURING REAL CHOICE: ENDING EMPLOYER PRESSURE

Section 102. Rules relating to plan investment in employer stock

    Employer pressure to buy company stock was at the heart of 
the Enron debacle. Enron executives relentlessly pressured 
Enron workers to buy company stock, resulting in the loss of 
more than $1 billion of their retirement savings. S. 1992 
offers workers real investment choice, without employer 
pressure or intimidation.
    Employers can no longer have it both ways: they can either 
match in company stock or offer company stock as an investment 
option, but not both. Section 102 permits a defined 
contribution plan to either: (1) permit employees' elective 
contributions to be invested in company stock; or (2) make the 
employer's contribution in company stock, but not both. This 
restriction applies to all defined contribution plans except: 
(1) traditional ESOPs that do not hold employee elective 
contributions or employer matching contributions; and (2) 
defined contribution plans of an employer that also sponsors a 
qualified defined benefit plan.
    A defined benefit plan is qualified if it covers at least 
90 percent of the employees covered by the defined contribution 
plan and if it provides an accrued benefit that is the 
actuarial equivalent of at least 1.5 percent of the 
participant's final pay times years of service (up to at least 
20 years. An actuarially equivalent flat-dollar or cash balance 
plan would be a qualified defined benefit plan.
    This provision applies regardless of whether the employer 
stock is publicly traded or closely held.

       INSURING INDEPENDENT INVESTMENT ADVICE: NO MORE CONFLICTS

Section 103. Fiduciary rules for plan sponsors designating independent 
        investment advisers

    Section 103 encourages employers to provide independent, 
non-conflicted investment advice to workers by codifying the 
Department of Labor's Interpretive Bulletin 96-1 and clarifying 
that employers will not be liable to specific investment advice 
as long as employers used due diligence in selecting and 
monitoring the advice provider.
    Section 103 creates a safe harbor for plan sponsors to 
satisfy their fiduciary obligations with respect to providing 
investment advice to participants. Plan sponsors who meet this 
safe harbor will be: (1) deemed to have satisfied their 
responsibilities to prudently designate and periodically review 
the choice of investment advisor; (2) not be liable for any 
losses resulting from the provision of investment advice; and 
(3) not be liable for any co-fiduciary breach resulting from a 
breach by the investment advisor.
    The safe harbor requires the use of a ``qualified 
investment advisor'' who is a registered investment advisor, 
bank, insurance company, or any other comparable entity as 
determined by the Department of Labor. Any individual employees 
or agents of a qualified investment advisor who provide 
investment advice must also be registered investment advisors, 
registered broker/dealers, registered representatives, or any 
other comparable qualified individual as determined by the 
Department of Labor.
    The qualified investment advisor must annually provide 
written verification to the plan sponsor that the advisor: (1) 
is qualified and is a fiduciary with respect to the plan; (2) 
has reviewed the plan and has determined that its relationship 
with the plan is not a prohibited transaction; (3) will, in 
providing advice, consider any employer securities or employer 
real property allocated to the participant's account; and (4) 
has adequate fiduciary insurance coverage in case of a claim.

             IMPROVING PENSION PLAN DISCLOSURES TO WORKERS

    S. 1992 plan insures that workers will be given the best 
information regarding their pension plans and their 401(k) 
investments. Executives will have to disclose to workers the 
same information that every other shareholders is entitled to 
receive. S. 1992 plan also requires executives to disclose 
their insider sales of company stock to alert workers to the 
decisions of those with the best information about the company.

Section 201. Pension benefit information

    Pension plan participants often are unaware that they can 
request a benefit statement or do not know who to ask to get 
one. Section 201 will insure that workers in both defined 
benefit and defined contribution plans will get regular pension 
benefit statements.
    Defined Contribution Plans.--A benefit statement must be 
provided to defined contribution participants at least 
quarterly if the plan permits participants to direct 
investments. Quarterly statements must include an explanation 
of any restrictions on the right to direct investments. In 
addition, if more than 20 percent of a participant's account is 
invested in employer stock, the quarterly statement must 
include a warning that the account may be over invested in 
employer stock.
    Defined Benefit Plans.--A benefit statement must be 
provided to defined benefit participants at least once every 
three years or upon request. The benefit statement may be based 
on reasonable estimates.
    Electronic Delivery.--Statements for both defined 
contribution and defined benefit plans may be provided by 
electronic means.

Section 202. Provision to participants and beneficiaries of material 
        investment information in accurate form

    Section 202 imposes a specific fiduciary duty on the plan 
sponsor and the plan administrator under ERISA to provide 
participants with all material investment information to the 
extent the information must be provided by the plan sponsor to 
outside investors under applicable securities laws.

Section 203. Electronic disclosure of insider trading

    At the same time that Enron executives were selling more 
than $1 billion of Enron stock, those executives were urging 
Enron workers to continue to buy company stock in their 401(k) 
accounts. The Enron executives reported their insider stock 
sales to the Securities and Exchange Commission, but the Enron 
workers did not have access to the reports and were unaware of 
their sales. Despite Securities and Exchange Commission 
reporting requirements, most workers do not have access to 
information about executives stock sales. Although that 
information is publicly available, most workers do not know 
that the information exists or how to get it.
    Section 203 amends ERISA to provide that if the Securities 
and Exchange Commission requires any disclosure of the sale of 
employer stock by a corporate officer, director, or an 
affiliated person (generally a 5 percent shareholder), the plan 
sponsor must, within 2 business days after the disclosure is 
made, make the disclosure available on any corporate internal 
web site maintained by the plan sponsor. This disclosure must 
be given in wiring or electronically to employees without 
access to the web site.

         EXECUTIVE WRONGDOING: PENALTIES FOR MISLEADING WORKERS

Section 304. Liability for breach of fiduciary duty

    Under S. 1992, executives will be penalized for misleading 
workers. The bill clarifies that it is a violation of ERISA for 
executives to give workers misleading information or fail to 
provide material information about the company stock.
    Section 304 creates new ERISA section 409A providing that 
401(k) fiduciaries who breach their fiduciary duties are 
personally liable to make good to each participant any losses 
resulting from the breach and to restore any profits made by 
the fiduciaries through the use of plan assets. The fiduciaries 
are also subject to other equitable or remedial relief, as a 
court deems appropriate. Any rights under new ERISA section 
409A are in addition to any rights of a participant under 
existing ERISA section 409 or section 502.
    Section 304 also amends existing ERISA section 409 by 
providing that an ``insider'' with respect to a defined 
contribution plan that holds employer securities that are 
publicly traded and who knowingly participates in a fiduciary 
breach or knowingly conceals a breach will be liable for the 
breach as if he or she were a fiduciary. An ``insider'' is 
defined as a corporate officer or director or the independent 
public accountant for the plan sponsor.

             PENSION REPRESENTATION: GIVING WORKERS A VOICE

Section 305. Participation of participants in trusteeship of individual 
        account plans

    Under S. 1992, workers will serve on the boards of pension 
plans and help decide what the investment options are in 401(k) 
plans. Worker representation leads to better results for 
pension funds and increases employee contributions to their 
401(k) plans. Workers deserve real choice, which means a say 
over what the investment options are.
    Defined contribution plans with more than 100 participants 
must be held in trust by a joint board of trustees consisting 
of two or more trustees representing on an equal basis the 
interest of the employer and the employees.
    In the case of a plan maintained pursuant to a collective 
bargaining agreement, the employee representatives may be 
designated by an election process organized by the union. For 
all other plans, the employee representatives must be elected 
by the participants pursuant to Department of Labor 
regulations.
    Employee representatives may not be highly compensated 
employees (as defined under Internal Revenue Code section 
414(q)). The Department of Labor is directed to issue 
regulations (within 90 days after the date of enactment) for 
resolving tie votes among the trustees and otherwise 
implementing this provision.

            RETALIATION: PROTECTING PENSION WHISTLE BLOWERS

Section 310. Provisions relating to whistle blower action involving 
        pension plans

    Section 310 encourages individuals who have knowledge of 
unlawful actions of decisions regarding pension plan management 
or funding to come forward by strengthening the basic legal 
rights and protections currently afforded pension plan whistle 
blowers. While ERISA section 510 provides clear protection 
against the discrimination or discharge or ``any person'' who 
has given information, testified, or is about to testify in a 
formal proceeding, it does not protect those who suffer 
retaliation for informal protests against plan changes--or even 
inquiries regarding plan management or their rights under the 
plan.
    Section 310 broadens protected activities beyond the formal 
giving of information or testifying to cover any person who has 
opposed any unlawful pension plan practice. It also gives any 
person who is protected against retaliation the right to legal 
recourse under ERISA Section 502, a right that is currently 
granted only to plan participants and beneficiaries.

                     V. Section-by-Section Analysis


Section 1. Short title

    Section 1 provides that the Act may be cited as the 
``Protecting America's Pensions Act of 2002.''

         TITLE--IMPROVEMENTS IN DIVERSIFICATION OF PLAN ASSETS

Section 101. Elimination of employer requirements that assets be 
        invested in employer securities

    Section 101 requires defined contribution plans (except 
traditional ESOPs) to allow participants to diversity all 
employer contributions of publicly traded company stock after 3 
years of service. Section 101 requires defined contribution 
plans to notify participants of their diversification rights 
and to inform them of the importance of diversifying assets. 
Defined contribution plans are also required to give 
participants voting rights on company stock. The Department of 
Labor is directed to study and report on options for 
diversification of company stock that is not publicly traded.

Section 102. Rules relating to plan investment in employer stock

    Section 102 permits a defined contribution plan to either: 
(1) permit employees' elective contributions to be invested in 
company stock, or (2) make the employer's contribution in 
company stock, but not both. This restriction applies to all 
defined contribution plans except: (1) traditional Employee 
Stock Ownership Plans (ESOPs) that do not hold employee 
elective contributions or employer matching contributions; and 
(2) defined contribution plans of an employer that also 
sponsors a defined benefit plan covering substantially the same 
participants and providing a benefit accrual equal to 1.5 
percent of final pay over at least 20 years of service.

Section 103. Fiduciary rules for plan sponsors designation independent 
        investment advisers

    Section 103 incorporates the Bingaman-Collins Independent 
Investment Advice Act (S. 1677), which provides workers with 
access to unbiased investment advice. Section 103 requires that 
any advice formally offered to workers come from investment 
advisors who are independent of the employer. Employers who 
prudently select and monitor independent, non-conflicted 
investment advisors will be free of liability.

                  TITLE II--IMPROVEMENTS IN DISCLOSURE

Section 201. Pension benefit information

    Section 201 requires certain defined contribution plans to 
provide quarterly statements to participants, and requires 
defined benefit plans to provide statements to participants at 
least every three years. Section 201 also requires that defined 
contribution plan statements include the amount of employer 
securities, any restrictions on the sale of employer 
securities, and a notice of importance of diversification. The 
statement must also include a special notice directed to 
participants with more than 20 percent of plan assets invested 
in employer securities.

Section 202. Provision to participants and beneficiaries of material 
        investment information in accurate form

    Section 202 requires the plan sponsor to provide 
participants with the same investment information it would be 
required to disclose to investors under applicable securities 
laws.

Section 203. Electronic disclosure of insider trading

    Section 203 requires that any disclosure by insider of 
companies with 401(k) plans that hold employer securities 
required by the SEC regarding insider trades must be provided 
in electronic form to participants on the corporate website. If 
there are participants who do not have access to the corporate 
website, the information must be provided in written, 
electronic, or other appropriate form.

          TITLE III--IMPROVEMENTS IN ACCESS AND ACCOUNTABILITY

Section 301. Additional fiduciary protections relating to lockdown

    Section 301 requires plans to give participants written 
notice 30 days before a lockdown begins, and prohibits 
lockdowns from continuing for an unreasonable period.

Section 302. Limitation on fiduciary exception during lockdown period

    Section 302 amends ERISA Sec. 404(c)(1) so that it does not 
provide relief from fiduciary liability during any period when 
the ability of a participant to direct plan investments is 
suspended by the plan sponsor or other fiduciary.

Section 303. Insurance adequate to protect interest of participants and 
        beneficiaries

    Section 303 requires each fiduciary of a defined 
contribution plan with 100 or more participants to be insured 
for failures to meet the requirements of ERISA.

Section 304. Liability for breach of fiduciary duty

    Section 304 amends ERISA section 409 to extend liability 
for breach of fiduciary duty to any insider of a 401(k) plan 
that holds publicly traded company stock and who knowingly 
participates in or conceals a breach. Section 304 defines an 
insider as an officer or director of the plan sponsor, the 
independent accountant for the plan, and the independent 
accountant for the plan sponsor. Section 304 also adds new 
ERISA section 409A to allow 401(k) plan participants, as well 
as the plan itself, to sue ERISA fiduciaries for fiduciary 
breach.

Section 305. Participation of participants in trusteeship of individual 
        account plans

    Section 305 requires that the assets of defined 
contribution plans with 100 or more participants be held in a 
joint trust with equal representation of the interests of the 
plan sponsor participants.

Section 306. Preservation of pension rights or claims

    Section 306 provides that the right to civil action for 
pension claims under ERISA may not be waived, deferred, or lost 
pursuant to any agreement the participant and the plan sponsor, 
but the bill allows arbitration agreements if the agreements 
are entered into knowingly and voluntarily after a dispute 
arises.

Section 306. Office of Pension Participant Advocacy

    Section 307 establishes an Office of Pension Participant 
Advocacy within the Department of Labor to help resolve 
participant problems.

Section 308. Study regarding insurance system for individual account 
        plans

    Section 308 directs the Pension Benefit Guaranty 
Corporation to study the feasibility of a system of insurance 
for defined contribution plans.

Section 309. Study regarding fees charged by individual account plans

    Section 309 directs the Secretary of Labor to conduct a 
study of the fees levied by 401(k) plans on participants.

Section 310. Provisions relating to whistle blower actions involving 
        pension plans

    Section 310 amends ERISA section 502(a) to expand whistle 
blower protections under ERISA section 510. Section 310 
broadens protected activities beyond the formal giving of 
information or testifying to cover any person who has opposed 
any unlawful pension plan practice. It also gives any person 
who is protected against retaliation the right to legal 
recourse under ERISA Section 502, a right that is currently 
granted only to plan participants and beneficiaries.

Section 311. Plans required to provide adequate information to 
        individuals offered choice of lump sum distraction

    Section 311 amends ERISA 205 to improve disclosure to 
participants on the relative value of lump sum and other 
optional benefit payments versus annuity payments. The 
comparison must disclose whether participants who are eligible 
for subsidized early retirement benefits will lose the subsidy 
if they choose to take their benefits as a lump sum rather than 
as an annuity.

                      TITLE IV--GENERAL PROVISIONS

Section 401. General effective date

    Section 401 provides that S. 1992 applies generally to plan 
years beginning on or after January 1, 2003. The effective date 
for collectively bargained plans is the later of January 1, 
2004, or the date that the collective bargaining agreement 
terminated.

Section 402. Plan amendments

    Section 402 requires plans to be amended to comply with the 
provisions of S. 1992 before the first plan year beginning on 
or after January 1, 2005.

                           VI. Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 7, 2002.
Hon. Edward M. Kennedy,
Chairman, Committee on Health, Education, Labor, and Pensions,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed estimate for S. 1992, the protecting 
America's Pensions Act of 2002.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Christina 
Hawley Sadoti (For federal costs), Leo Lex (for the state and 
local impact), and Bruce Vavrichek (for the private-sector 
impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 1992--Protecting America's Pensions Act of 2002

    Summary: S. 1992 would make numerous changes to the 
Employee Retirement Income Security Act of 1974 (ERISA) that 
would affect the operations of private pension plans. These 
include new diversification requirements, new reporting 
requirements, limitations on certain investments, and other 
changes.
    CBO estimates that implementing the bill would cost $121 
million over the 2003-2007 period, assuming appropriation of 
the necessary amounts. CBO also estimates that the bill would 
have a negligible effect on revenues. Since this bill would 
affect revenues, pay-as-you-go procedures would apply.
    State, local, and tribal governments are exempt from the 
requirements of ERISA that S. 1992 would amend, and other 
provisions of the bill would impose no requirements on those 
governments. Consequently, the bill contains no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA) and would impose no costs on state, local, or 
tribal governments.
    The bill contains several private-sector mandates on 
sponsors, administrators, and fiduciaries of private pension 
plans. CBO estimates that the direct cost of those new 
requirements would exceed the annual threshold specified in 
UMRA ($115 million in 2002, adjusted annually for inflation), 
but we do not have sufficient information to provide a precise 
estimate of the aggregate cost.
    Estimated Cost to the Federal Government: The estimated 
budgetary impact of S. 1992 is shown in the following table. 
The costs of this legislation fall within budget function 600 
(income security).

----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2003     2004     2005     2006     2007
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Office of Pension Participant Advocacy:
    Estimated authorization level..................................       25       26       26       27       28
    Estimated outlays..............................................       15       25       26       27       27
Studies by the Department of Labor:
    Estimated authorization level..................................        1        0        0        0        0
    Estimated outlays..............................................        *        *        *        0        0
Total changes:
    Estimated authorization level..................................       26       26       26       27       28
    Estimated outlays..............................................       15       26       26       27       27
----------------------------------------------------------------------------------------------------------------
Note.--* = Less than $500,000.

Basis of estimate

    For this estimate, CBO assumes that the bill will be 
enacted in fiscal year 2002 and that the necessary amounts will 
be appropriated for each year.
            Spending subject to appropriation
    Office of Pension Participant Advocacy.--The bill would 
establish an office of pension participant advocacy within the 
Department of Labor (DOL). This new office would evaluate 
efforts aimed at protecting pension plan participants, promote 
the expansion of pension coverage, and, if appropriate, pursue 
claims on behalf of participants and beneficiaries. Based on a 
review of other federal programs that provide legal assistance, 
consumer advocacy, and technical information to the public, CBO 
estimates that providing this support would require 
appropriations of $132 million over the 2003-2007 period, 
including annual adjustments for anticipated inflation.
    Studies by the Department of Labor.--S. 1992 would direct 
DOL to undertake two studies: one regarding the feasibility of 
individual account plans and the other relating to fees charged 
by individual account plans. Based on the costs of studies with 
comparable requirements, CBO estimates these studies would cost 
$1 million over the 2003-2005 period.

Revenues

    Title II would require administrators of individual account 
plans and pension to provide certain information to plan 
participants at various intervals. The title would authorize 
DOL to assess civil penalties of up to $1,000 a day for failure 
to comply with these requirements. Based on information from 
the Department of Labor, CBO expects that additional civil 
penalties resulting from title II would be less than $500,000 
annually.
    Pay-as-you go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. CBO 
estimates that the bill would have a negligible effect on 
governmental receipts.
    Estimated impact on state, local, and tribal governments: 
State, local, and tribal governments are exempt from the 
requirements of ERISA that S. 1992 would amend, and other 
provisions of the bill would impose no requirements on those 
governments. Consequently, the bill contains no 
intergovernmental mandates as defined in UMRA and would impose 
no costs on state, local, or tribal governments.

Estimated impact on the private sector

    With only limited exceptions, private employers who provide 
pension plans for their workers must follow rules specified in 
ERISA. Therefore, CBO considers changes in ERISA that expand 
those rules to be private-sector mandates under UMRA. S. 1992 
would make several such changes to ERISA that would affect 
sponsors, administrators, and fiduciaries of pension plans. CBO 
estimates that the direct cost to affected entities of the new 
requirements in the bill would exceed the annual threshold 
specified in UMRA ($115 million in 2002, adjusted annually for 
inflation), but does not have sufficient information to provide 
a precise estimate of the aggregate cost. This section 
describes several of the mandates in the bill; CBO estimates 
that the direct cost of other mandates, if any, would be small.
            Investment in employers' securities
    Section 101 of S. 1992 would impose a number of 
restrictions on individual-account (defined contribution) 
pension plans regarding assets held in the plans in the form of 
securities issued by the plan's sponsor. The bill would require 
affected plans to allow participants to immediately sell those 
securities that have been acquired through the participants' 
own contributions, and to allow participants to sell curtain 
securities acquired through the sponsor's contributions after 
three years of service with the firm. The bill also would 
require plans to offer at least three investment options in 
addition to securities issued by the sponsor, and to notify 
participants of their diversification rights and the importance 
of diversifying assets.
    The main direct cost of these provisions would be the one-
time cost of notifying participants of their new rights. CBO 
estimates that this cost would total about $5 million in 2003, 
the result of sending out approximately 10 million such notices 
to affected participants. While the requirement that plans 
allow participants to diversify their pension investments would 
be a mandate on affected plans, it would have only a minimal 
direct cost. An indirect cost could be imposed on company 
stockholders, however, if participants sold a sufficient number 
of shares of company stock so as to reduce its market price. 
Requiring plans to offer a range of investment options would 
probably add little to the plans' costs because many plans now 
abide by a safe harbor provision in ERISA that has similar 
requirements.
            Benefit statements
    Section 201 would require administrators of individual-
account plans to provide quarterly statements to participants. 
Those statements would have to contain several items, including 
the amount of accrued benefits, the amount of nonforfeitable 
benefits, the value of any assets held in the form of 
securities of the plan's sponsor, and an explanation of any 
limitations or restrictions on the right of the participant to 
direct an investment. In addition, if the percentage of assets 
held in the form of securities of the plan's sponsor exceeded 
20 percent, the statement would have to include a warning that 
the account may be over-invested in those securities. 
Currently, plans must provide more limited statements to 
participants upon request.
    CBO estimates that the direct cost of this new requirement 
on private plans would be about $100 million annually. 
According to industry sources, the majority of plans sponsored 
by large employers already provide pension statements on a 
quarterly basis, and it is becoming increasingly common for 
plans sponsored by smaller employers to do so as well. Thus, 
CBO estimates that about 30 million of the estimated 70 million 
participants in individual account plans in 2003 would newly 
receive statements four times per year under the bill. The 
average cost of providing each statement would be small because 
plans are now required to provide benefit statements on 
request. Thus, the bill would result in added costs largely for 
producing and delivering the new statements. Written statements 
would have to be provided to most participants, but the bill 
would allow statements to be provided electronically to 
participants with access to the Internet.
    Section 201 also would require administrators of defined-
benefit pension plans to provide participants with benefit 
statements at least once every three years. In addition, they 
would have to notify participants who are eligible to receive a 
distribution of their right to receive information describing 
how the amount of that distribution was calculated (and to 
provide that information on request). CBO estimates that the 
average annual cost of providing benefit statements would be 
about $10 million. Providing information on how distributions 
were calculated would add another $10 million in costs 
annually.
            Provision of material investment information
    Currently, companies are required to disclose to the 
Securities and Exchange Commission (SEC) information on the 
sale or purchase of company stock by officers, directors, and 
certain other persons affiliated with the company. Section 203 
would require the sponsors of individual-account plans that 
allow participants' contributions to be invested in company 
stock to also make such disclosures to participants in the 
plan. The information would have to be provided electronically 
within two business days to participants with access to the 
Internet, and in writing or another form to participants 
without such access.
    According to the SEC, between 200,000 and 300,000 notices 
of changes in stock holdings are filed annually by officers, 
directors, and other persons affiliated with the publicly 
traded companies it oversees--an average of about 15 to 20 
notices per company each year. While some of the pension 
participants who would have to be notified of such transactions 
under the bill could be contacted electronically, based on 
information from the Census Bureau, CBO estimates that the 
majority of them would not be reachable through the Internet 
and would have to be contacted in writing. Even at a low 
average cost per transaction, contacting the estimated 25 
million pension participants that would have to receive each of 
the 15 to 20 notices annually could cost in excess of $150 
million annually.
            Notice of restriction periods
    Currently, participants in individual-account plans 
occasionally experience time periods, called ``lockdown'' or 
``blackout'' periods, when they are unable to direct the 
investment of assets in their accounts. Such periods may occur 
for administrative reasons--for example, when a plan changes 
recordkeepers. Section 301 of S. 1992 generally would require 
plan administrators to provide affected participants with 30 
days notice before an anticipated suspension, restriction, or 
similar limitation on the ability of participants to direct 
investments in their accounts. Notice could be in written, 
electronic, or other appropriate form.
    CBO estimates that the direct cost to private plans of 
providing advance notice of lockdown periods would be about $5 
million annually. According to a survey conducted by the 
American Society for Pension Actuaries, lockdown periods 
typically occur for a plan about once every three to four 
years. Data from the Bureau of Labor Statistics indicate that 
most participants in individual-account plans are in plans that 
allow at least some direction of assets and, thus, are affected 
by those periods. (CBO estimated the direct costs of a similar 
provision in H.R. 3762 to be about $15 million. The $5 million 
estimate presented here--which would apply to both S. 1992 and 
H.R. 3762--is based on new information indicating that 
providing 30-day advance notice of lockdown periods is the 
current practice of many pension plans. For those plans, this 
provision would not add to their costs.)
            Liability of fiduciaries
    Currently, plan fiduciaries generally are not liable for 
investment decisions made by participants, nor are they liable 
for the inability of participants to alter their investments 
during lockdown periods. Section 302 would suspend fiduciaries' 
relief from liability during lockdown periods, with the 
Secretary of Labor designated to issue guidance on how such 
relief could be preserved. Depending on the action of the 
Secretary, this provision could impose a direct cost on the 
affected entities by increasing their financial exposure during 
lockdowns. However, CBO does not have sufficient information to 
estimate the added cost.
            Insurance for fiduciaries
    Section 303 would require each fiduciary of an individual 
account plan with 100 or more participants to be insured to 
provide reasonable coverage for failure to meet the 
requirements of ERISA. The Secretary of Labor would be 
designated to prescribe regulations to carry out this 
provision.
    CBO estimates that the net cost of this provision to 
affected entities would be about $15 million annually. 
According to industry sources, fiduciaries in plans with 500 or 
more participants already generally have similar insurance 
coverage, limiting the effect of this provision primarily to 
fiduciaries in the approximately 40,000 plans with between 100 
and 500 participants. While the annual cost of this insurance 
would be a direct cost for those affected entities, they would 
also receive direct savings from the insurance protection 
afforded by the policies, thus offsetting much of the direct 
cost.
    Previous CBO estimate: On April 4, 2002, CBO transmitted a 
cost estimate for H.R. 3762, the Pension Security Act of 2002, 
as ordered reported by the House Committee on Education and the 
Workforce on March 20, 2002. Unlike S. 1992, H.R. 3762 would 
make several changes to ERISA affecting premium collections of 
the Pension Benefit Guarantee Corporation, resulting in an 
increase in direct spending of $185 million over the 2003-2012 
period. H.R. 3762 also would require DOL to provide information 
and educational resources to pension plan fiduciaries. That 
bill did not include the authorization of a program like the 
Office of Pension Participation Advocacy contained in S. 1992.
    CBO estimated that H.R. 3762 also would have imposed a 
mandate on sponsors of private pensions, but as in this 
estimate for S. 1992, CBO could not make precise estimates of 
the costs. As in the estimate for H.R. 3762, CBO has determined 
that the provisions of S. 1992 contain no intergovernmental 
mandates and would impose no other costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal costs: Christina Hawley 
Sadoti; impact on state, local, and tribal governments: Leo 
Lex; impact on the private sector: Bruce Vavrichek.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                    VII. Regulatory Impact Statement

    Title I of the bill imposes two new diversification 
mandates on private employers that provide defined contribution 
plans that hold company stock designed to end the captive 
investor issue and to counter the problem of employer pressure 
to buy company stock. The committee believes that it is 
appropriate to demand that 401(k) plans follow principles of 
sound investment practice in exchange for the approximately $60 
billion in revenue foregone annually by the Federal Government 
to support these tax deferred retirement savings plans.
    Title II of the bill imposes three new disclosure 
requirements on private employers that maintain pension plans. 
The requirement to provide pension benefit statements to plan 
participants applies to both defined benefit and certain 
defined contribution plans. The other two disclosure 
requirements apply only to private employers that provide 
defined contribution plans that hold company stock. These 
employers will be required to provide plan participants with 
material investment information and disclosure of insider 
trading with respect to company stock. The committee believes 
that it is appropriate that plan sponsors give plan 
participants this information so that participants can make 
informed investment decisions.
    Title III of the bill imposes several new mandates on 
private employers that sponsor employee retirement plans, 
including additional fiduciary protections during plan 
lockdowns, plan fiduciary insurance, and joint participant/plan 
sponsor trusteeship. Through voluntary measurers, many private-
sector retirement plans have already adopted fiduciary 
protections during plan lockdowns and already obtain insurance 
for plan fiduciaries. Similarly, worker representation on 
pension boards is also a common practice. Today, 65 percent of 
plan assets are managed with some form of worker representation 
on pension plan boards.
    Title III also directs the Department of Labor to establish 
an Office on Pension Participant Advocacy to assist 
participants in resolving pension problems. The cost of this 
office will be discretionary, subject to appropriation.
    The committee believes that the policy improvements that 
will result from Title III of this bill--improvements in 
pension plan access and accountability, worker representation 
on pension boards, and a government office to resolve 
participant problems--far outweigh the regulatory impact of 
these provisions.

           VIII. Application of Law to the Legislative Branch

    Section 102(b)(3) of Public Law 104-1, the Congressional 
Accountability Act, requires a description of the application 
of the bill to the legislative branch. S. 1992 applies to 
private employer-provided defined benefit and defined 
contribution pension plans. As such, the committee finds that 
the legislation has no application to the legislative branch.

                           IX. MINORITY VIEWS

                              ----------                              


                                OVERVIEW

    The collapse of Enron and other companies have directed 
needed attention to the adequacy of the current retirement 
savings system. All of us watched the tragic events at Enron, 
Global Crossings, and other companies unfold in which thousands 
of workers and retirees lost their retirement savings. We agree 
with the majority that reforms are needed; we disagree with 
their approach.
    Over a dozen bills have been introduced in this Congress 
offering multiple solutions and complex schemes designed mostly 
in good faith to protect individuals, sanction wrong doers, and 
reform the retirement saving system, hopefully for the better. 
Regrettably, the Health, Education, Labor, and Pensions 
Committee conducted only one hearing on this issue which falls 
primarily within its jurisdiction, and proceeded to markup a 
bill without the benefit of expert advice and public input. The 
result is a package of reforms that suffers from flawed 
principles and unnecessary provisions that ensure only partisan 
support.
    In contrast, the House Committee on Education and the 
Workforce conducted four days of hearings before reporting out 
a bill. The House approved the Pension Security Act by a vote 
of 255-163, including 46 Democrats, that reflected many of the 
proposals offered by President Bush and by Democrats as well. 
Had we on this Committee been able to acquire more information, 
we may have been able to come up with a bi-partisan bill that 
reflects a more balanced approach.
    We approach the issue of pension reform with three critical 
goals in mind.
    First, in enacting pension reform legislation in the 
aftermath of Enron, we should be expanding availability of 
coverage and preserving worker choice. One of the fundamental 
principles of investment is allowing investors to make their 
own decisions. We do not want to set up a system that stifles 
employee participation in reaching their retirement goals. We 
certainly do not want to do something that will ruin one of the 
most successful, market-based programs ever to evolve. 
Employees becoming owners and gaining wealth from their labors 
are the opportunities we should promote.
    Second, we should also be protecting people from abuse, but 
without chilling their opportunity to participate in retirement 
savings plan. For every Enron, there is a Microsoft, Wal-Mart 
or Procter & Gamble where clerks and rank-and-file workers 
retire with a million dollars or more in their retirement 
account. Every worker that we ``protect'' out of a retirement 
savings opportunity is a worker who may never experience the 
great potential of capitalism.
    And third, in the aftermath of Enron, we should be attuned 
to the impact of our actions on small businesses and their 
workers.
The unnecessary rush to judgment
    This bill was introduced and has been brought before the 
committee for markup without the benefit of public hearings. 
Solving the problems exposed during the Enron collapse and 
restoring confidence in the voluntary retirement savings system 
should take a clear and sober understanding of the law and of 
the impact of proposed changes on the financial and behavioral 
conduct of participants. We are committee members would have 
preferred an opportunity to address the following questions:
     Plan participants at Motorola and SuperValu Stores 
successfully lobbied to eliminate company-set limits on how 
much company stock could be purchased in employee 401(k) plans. 
The workers there objected to the arbitrary limits as 
paternalistic and unfair. Has anyone asked them or other 
workers what they think about Congress mandating, directly or 
indirectly, what they clearly and knowingly opposed?
     Would workers on the shop floor object just as 
vociferously to indirect caps mandated by Congress that force 
their employer to choose between making matching contributions 
in company stock OR permitting employees to elect company stock 
as one of their investment options. Are we as a committee truly 
opposed to employees believing in the companies for which they 
work and in the value of what they do for a living?
     If we destroy the incentives for companies to 
match employee contributions with company stock, will we see a 
reversal in the positive, pro-employee trend, exemplified by 
Raytheon of Lexington, Massachusetts? There, employees received 
a 33 percent increase in what the employer was able to 
contribute because of a switch from matches in cash to matches 
in stock. What will the good employers do?
     If we give employees greater, swifter rights to 
diversify out of their company stock, will that affect the 
financial markets? Certainly, we do not want to destabilize 
solid companies because a solution is easy to enact and explain 
in a thirty-second sound-bite. Are there transition or other 
rules that would help prevent unintended and irrational rushes 
to sell company stock based on effective dates, or mere rumors 
of trouble? The committee with the expertise to ask and answer 
these questions has not been given the opportunity to do so.
    We do not know the answers to these questions because they 
have not been raised publicly. But we do know there will be 
consequences, because there always are.
    It is well documented that the increasing regulation of 
defined benefit plans during the 1980s had devastating effects 
on the willingness of employers to maintain those plans. In 
1983, there were more than 175,000 traditional defined benefit 
pension plans in the United States. This number has declined 
ever since and now stands at fewer than 50,000. This decline is 
largely attributable to the costs and complexities that have 
resulted from over-regulation by Congress in wave after wave of 
legislation designed to ``protect'' workers. The issues 
concerning defined contribution plans would be far different 
today, had the federal government treated traditional pension 
plans differently.
    We run the very real risk of addressing one problem by 
creating other, more dangerous problems: that millions of 
employees will be unable to share in their employers' success 
and that employers will curtail their commitment to their plans 
and reduce employees' savings.

Assumptions underlying PAPA

    To understand fully the policies incorporated in the 
Protecting America's Pensions Act, it is important to review 
some of the assumptions that went into it.
            Assumption No. 1: Concerns about administrative costs and 
                    practicality are ``red herrings''
    A key assumption that went into the drafting of this bill 
is the belief that administrative costs and practicality are 
irrelevant to this debate. The charge has been made that 
concerns over increased administrative costs and the 
practicality of new burdens are ``red herrings.'' Were these 
same arguments ``red herrings'' when Defined Benefit plan 
sponsors said that the burdens enacted by Congress would reduce 
the number of such pension plans?
    There are many issues that have not been adequately 
considered and the consequences are not fully known. For 
example, the quarterly statement requirement mandate will 
increase costs and will certainly discourage some smaller 
companies from offering this retirement savings benefit. 
Although the Congressional Budget Office estimates that the 
``average cost of providing each statement would be small,'' 
the overall price tag of $100 million annually is a 
considerable added burden on a segment of employers--small 
businesses--that are only now considering extending this 
benefit to workers. Small business owners are likely to look at 
the new IRA contribution limits and urge employees to set up 
their own individual accounts that are not connected to their 
place of work. In IRAs, however, the employees lose out on an 
employer match.
    The hardships that government regulations impose on small 
businesses are a legitimate concern in this debate. If the 
consequence of increased administrative costs and burdens are 
to discourage the creation of new retirement savings plans, 
then the impact of this legislation will run counter to the 
greater policy goals of Federal pension policy. That will not 
only be unfortunate for small businesses, but also unfair to 
their employees who are working hard to build the business.
            Assumption No. 2: Tax subsidy mentality
    The next assumption that cripples this bill is the tax 
subsidy mentality. The argument is made that Congress has every 
right to override employee wishes because of the tax subsidy 
that Congress has granted to 401(k) plans. Those who make this 
argument forget the substantial tax penalty for early 
withdrawal that individuals suffer. Current tax policy is 
balanced and reasonable: workers have an incentive (deferred 
tax) to participate and a disincentive (tax penalty) to 
withdraw.
    The subsidy mentality, and its harmful manifestation in 
this bill, starts from the position that the government owns 
all of our money. Whatever the government decides not to 
confiscate is a ``subsidy.'' In the 401(k) debate, the thinking 
is that money in individual accounts is not really the 
employee's but the government's so the majority party has a 
right to say how it is invested. The approach is unfortunate 
and counterproductive because it only generates big government 
solutions to what is essentially a market-based system. The tax 
subsidy mentality is a means to the ends of paternalistic 
government solutions. We reject that approach.

                      SECTIONS OF GREATEST CONCERN

    We will not attempt to critique every section of the bill. 
Numerous noncontroversial provisions have been incorporated in 
most of the post-Enron reform bills. The sections identified 
below are those which raise the greatest concerns and pose the 
greatest threat to the continued viability of the voluntary 
retirement system.

Section 101. Elimination of employer requirements that assets be 
        invested in employer securities

    We agree with the importance of giving workers greater 
freedom to diversify publicly-traded employer securities in 
their individual account plans. Such freedom is a cornerstone 
of improving both the flexibility and security of workers' 
retirement assets 401(k) plans. It is also important to 
recognize the practical implications of this diversification 
right. A transition rule with respect to the diversification of 
securities held in individual account plans as of the effective 
date of this newly created right would do so. Such a transition 
rule would provide a schedule for the removal of trading 
restrictions on stock held as of the effective date on an 
increasing percentage basis. Providing for this transition 
would be less disruptive to the stock of the individual 
company, as well as the market as a whole. We note that Senator 
Dodd filed, but did not offer, an amendment that provided for a 
5-year transition rule.

Section 102. Rules relating to plan investments in employer stock

    Nowhere is the bill's assault on employee freedom to make 
investment decisions more pronounced than in the rules imposed 
on plan investment in company stock. Section 102 prohibits 
employers from offering company stock as an investment option 
for employees if the employer also makes 401(k) matching 
contributions in employer stock. Employers must choose between 
matching contributions with stock or allowing employees to have 
company stock as a 401(k) investment option. Therefore, 
employees would be denied the choice to invest any of their own 
401(k) savings in company stock if the company elected to match 
in stock. This either/or restriction amounts to a ``back-door-
cap'' on investments in company stock.
    Our approach to the issue of plan investment in company 
stock would be to protect pensions by giving employees the 
right to diversify and the information and advice necessary to 
make sound choices. In essence, we tell them they should be 
diversified, and we stop there out of principle. S. 1992 takes 
the approach that individual employees cannot or should not be 
trusted to make decisions in their own best interest. S. 1992 
forces employees to diversify, whether they want to or not.
    The restriction on employer stock in 401(k) plans that 
Section 102 imposes threatens to take 401(k) plans down the 
same road as defined benefit plans. The result of this 
legislation designed to protect workers from ``over-
investment'' in company stock, will only serve to limit 
employee investment choice and opportunity.
    Employer-sponsored 401(k) plans have served as an engine of 
economic growth by providing one of our most significant 
sources of investment capital. The ``back-door cap'' on company 
stock in 401(k) plans would not only harm workers. By making 
401(k) plans less attractive to employees and the employers 
that sponsor them, the ``back-door cap'' also threatens to harm 
our capital markets and the economy.
            Employee choice
    Section 102 of the ``Protecting America's Pension Act'' 
ignores the reality that the retirement plan needs of employees 
are diverse. The bill undermines employees' choice and 
flexibility regarding their 401(k) investment decisions. In the 
name of protecting workers interests, the bill would, instead, 
deprive workers of the basic tools required to build retirement 
assets.
    More than 42 million Americans currently participate in 
401(k) retirement savings plans. These 42 million participants 
do not have the same needs or interests in a retirement pan. 
The retirement strategy for an employee just entering the 
workforce might be very different than the strategy for a 
worker nearing retirement. The cornerstone of the 401(k) system 
has been the employee's freedom and flexibility to make 
retirement investment decisions best-suited to his or her 
needs.
    In a recent survey conducted by the Employee Benefit 
Research Institute, 48% of respondent employers reported a 
company stock investment option in their 401(k) plan. If the 
mandate imposed by Section 102 is enacted, nearly half of the 
companies in the survey would no longer be able to provide 
company stock as an investment option if they also provided a 
company stock match.
    The following is only a partial listing of the numerous 
flaws with the backdoor caps approach:
    1. Even if the individual employee knew what he or she was 
doing, the backdoor caps provision would preempt informed 
personal choice. For example, a savvy investor and employee at 
an investment firm would be prohibited from electing company 
stock as a 401(k) investment option if the company matched his 
contribution with company stock.
    2. The backdoor caps provision takes too narrow a view of a 
person's retirement planning portfolio. For instance, the 
restriction on employee choice would apply to a worker who has 
a fully vested defined benefit plan from his previous employer. 
Even though his retirement planning portfolio would be 
diversified, the provision denies the employee his own educated 
choice of investments.
    3. The defined benefit carve out in Section 102 
acknowledges that some employees have other retirement savings 
options in addition to a 401(k) plan. Where an employer 
provides a generous profit sharing plan, in addition to a 
401(k) plan with an employer match in company stock, the 
employee would still be denied the opportunity to elect company 
stock as an option. This is true even though the profit sharing 
plan averages retirement account balances of 15 times annual 
earnings, as is the case at Procter & Gamble.
    4. The provision makes no allowance for the employee who 
goes out of her way to obtain qualified investment advice from 
an independent expert. This bill says that congress knows more 
about that worker's personal retirement planning needs than an 
expert who has studied her portfolio.
    Perhaps the clearest indication of anti-employer sentiment 
in the bill is the proscription on accessing company stock 
through open brokerage accounts. The back-door cap extends not 
only to a company stock purchase option, but also to the 
individual stock picks made by the worker through his personal 
account. By its own terms, the bill anticipates a level of 
investment sophistication by workers--the ability to figure out 
how to circumvent the paternalistic dictates of the back-door 
cap. Rather than showing respect for the ingenuity of the 
investor, however, the provisions ensures strict enforcement of 
the principle that Congress, rather than the ingenious 
investor, knows best.
    We recognize that it is hard to legislate a one-size-fits-
all solution to the diverse retirement savings options 
available to individuals, but that is the point. S. 1992 says 
that employees never know what is best for them. The majority 
on the Committee does not let workers choose company stock as 
an option, they don't let them circumvent our paternalistic 
will by using open brokerage accounts, and they don't let them 
reach agreements with their employers except in limited 
circumstances.
            Employee ownership
    Not only does this ``back-door cap'' on company stock 
restrict employee choice in making retirement investment 
decisions, it also deprives employees of an ownership stake in 
their company. Acquisition of company stock through 401(k) 
retirement plans has extended corporate ownership into rank-
and-file workers. Employees are thereby able to participate in 
and benefit from the growth of their companies that they helped 
to generate.
    The government-imposed restriction on ownership of company 
stock in Section 102 will be very unpopular with--and contrary 
to the best interests of--many employees who benefit from 
having an ownership interest in their companies. For example, 
Loretta Hartgrave started working at Wal-Mart 22 years ago as a 
checkout clerk in Rogers, Arkansas. She's been buying Wal-Mart 
stock in her retirement account ever since. Now, at the age of 
44, she has over $1 million of Wal-Mart stock in her retirement 
account. Committee Republicans do not think we should be 
telling Loretta Hartgrave that she cannot buy more Wal-Mart 
stock. Nor should we be telling other workers around the 
country that they can't share in the growth of their companies.
            Impact on small businesses
    Another major problem with the bill's restriction on plan 
investment in company stock is that it treats all companies the 
same. No distinction is made between publicly held and 
privately held companies--or between large or small companies. 
Just as the needs of all employees are not the same with 
respect to retirement plans, neither are the needs of all 
companies.
    We must be especially sensitive to the impact of new 401(k) 
legislation on small businesses and their workers. Legislation 
that increases the cost and burden of 401(k) plans will have a 
chilling effect on the sponsorship of such plans by small 
businesses. According to the 2001 Small Employer Retirement 
Survey, 46 percent of companies with 100 or fewer workers cited 
the fact that required contributions are too expensive as a 
major reason for not sponsoring a retirement plan. Twenty-two 
percent cited too many government regulations as a major reason 
for not offering retirement plans.
    Many small and start-up businesses may only be able to 
afford to provide 401(k) matching contributions in the form of 
company stock, not cash. Yet, Section 102 of S. 1992 would 
force those companies to choose between matching contributions 
with stock or giving employees a company stock investment 
option. If the company chose to match in company stock, the 
employees would lose the opportunity to participate in the 
ownership and growth of the company. If the employer chose to 
give employees a company stock investment option, the employees 
would probably lose a company contribution to their 401(k). 
Either way, the employees lose.
    We believe that by giving employees information, advice, 
and diversification rights, individual workers are in the best 
position to make investment choices. S. 1992 takes this choice 
away from employees. For these reasons, we cannot support the 
provision.

Section 103. Fiduciary rules for plan sponsors designating independent 
        investment advisers

    Committee Republicans are united in the belief that access 
to quality investment advice is one of the most important 
reforms that Congress must enact in response to the collapse of 
Enron. If ordinary workers at Enron had access to advice about 
the need to diversify their retirement savings, there is no 
doubt that hundreds of families across the country would be 
spared the hardships and losses resulting from this corporate 
tragedy.
    Senators Hutchinson and Collins have each offered bills to 
expand access to investment advice and contribute ably to the 
debate on this important issue through their additional views 
accompanying this report.

Section 202. Provision to participants and beneficiaries of material 
        investment information in accurate form

    In its effort to get at Ken Lay and Arthur Anderson, the 
drafters of this bill have taken all of the investor disclosure 
requirements of the Securities and Exchange Commission and 
subjected them to the much broader ERISA enforcement scheme.
    Disclosures required by ERISA are not limited to employer 
securities. On the contrary, ERISA protections are only 
available if the fiduciaries provide participants with adequate 
investment information. Regulations require extensive 
disclosure of investment information concerning the plan, 
investment funds, investment managers, investment procedures, 
investment fees and unit valuation procedures. The regulations 
require additional distribution of summary plan documents, 
prospectuses, asset lists, financial statements, reports and 
various other categories of communications, including 
notifications regarding the operation of Section 404(c). See 29 
CFR Part 2520.
    It is not clear under this bill how extensive this 
disclosure obligation is intended to be since, with only a few 
exceptions (e.g., the initial prospectus, annual report and 
proxy), most securities law disclosures are accomplished by 
public filing with the SEC, not direct distribution to 
shareholders.
    If this is intended to require the same distribution to 
participants that is required to other shareholders, this may 
merely be a codification of the DOL regulations. If, however, 
it is intended as a requirement that anything filed for public 
release with the SEC must be distributed to plan participants, 
then it is an unwarranted and burdensome expansion of the 
current ERISA Sec. 404(c) requirements.
    There is concern, also, that a purpose of this provision is 
to circumvent the security litigation abuse protections enacted 
by Congress in 1995. Congress responded to abusive securities 
litigation by enacting the Public Securities Litigation Reform 
Act of 1995, Public Law 104-67. That law imposes reasonable and 
needed safeguards. It would be regrettable if the Enron crisis 
were to be exploited to ease the burden on wrongdoers.

Section 203. Electronic disclosure of insider trading

    Section 203 requires that any company sponsoring an 
individual account plan and permitting elective deferrals of 
its securities must inform participants and beneficiaries 
within two days after an insider makes a purchase or sale of 
company securities. In essence, anytime an insider transaction 
reporting notice is filed with the Securities and Exchange 
Commission pursuant to SEC Rule 16(a), the insider's company 
must notify plan participants and beneficiaries.
    Under the section, notice must be provided either through 
the plan intranet website or through letter, fax or e-mail. 
Regardless of the policy and practical implications of the 
proposal, the new notice obligation will be expensive. The 
Congressional Budget Office estimates that the majority of the 
people entitled to notice under the section would not be 
reachable through electronic means and would have to be 
contacted in writing. This cost is estimated to exceed $150 
million annually.
    This new burden, added to the additional costs, liabilities 
and disincentives of S. 1992, is not appropriate in the current 
voluntary retirement system and should be deleted.

Section 303. Insurance adequate to protect interest of participants and 
        beneficiaries

    The issue of insurance is one that clearly would have 
benefited from hearings and public debate. The Congressional 
Budget Office estimates that the cost of the insurance mandate 
under Sec. 303 would amount to only $15 million annually. 
Discussions with plan sponsors and insurers, however, indicate 
greater problems.
    By one estimate, a plan with 100 participants and $5 
million in assets would bear an annual premium of over $8,000, 
or more than $80.00 per participant. This premium, which would 
likely be passed on to the participants, would be particularly 
burdensome in lower-wage industries where a weekly contribution 
of only $10.00 is common. We are also concerned that adequate 
insurance does not currently exist in the marketplace, raising 
questions about the feasibility of the provision.

Section 304. Liability for breach of fiduciary duty

    Section 304 of the bill expands the ERISA liability 
provisions against fiduciaries and against insiders and outside 
accountants who participate or know of a fiduciary breach. 
Recovery under the newly created causes of action would be 
credited to the individual accounts of affected participants 
and beneficiaries.
    Congress specifically designed ERISA remedies to ensure 
that retirement plans were made whole for losses suffered by 
reason of a fiduciary's failure to act prudently and 
exclusively in the interest of plan participants. Current law 
contains a comprehensive penalty and enforcement scheme that 
ensures that employees can recover losses to their 401(k) plan 
that result from imprudent action or misconduct. The numerous 
nationwide class action lawsuits arising out of the collapse of 
Enron indicate that a system is in place to bring wrongdoers to 
justice and provide remedies to their victims.
    Section 304 expands the right of participants and 
beneficiaries to sue on their own behalf, and not just on 
behalf of the plan, as under current law. By permitting 
remedial and equitable relief to individuals for their losses, 
the bill broadly expands the types of remedies that may be 
recovered under ERISA lawsuits. Compensatory damages, such as 
mental anguish and pain and suffering, could be available under 
the provisions of the bill.
    ERISA subjects fiduciaries to the highest obligations known 
to the law. The Supreme Court has made clear that the duty of 
loyalty forbids making intentional misrepresentations about the 
plan to plan participants and beneficiaries.
    ERISA Section 409(a) provides that fiduciaries who breach 
their duties ``shall be personally liable to make good to such 
plan any losses to the plan resulting from each such breach * * 
*'' (Emphasis added). Fiduciaries are also liable for any 
profits they make from their breaches. Criminal penalties may 
also be assessed against any person who willfully violates any 
provision of ERISA relating to reporting and disclosing.
    The bill's expansion of liability to ``insiders'' also 
duplicates existing enforcement and remedial programs under 
other laws. In particular, there are Securities and Exchange 
Commission rules on what senior managers of publicly traded 
corporations can tell any potential investors in their stock, 
including plan participants. The Commission often seeks civil 
money penalties and the disgorgement of illegal profits. The 
courts may also bar or suspend individuals from acting as 
corporate officers or directors.
    Expanding ERISA liability and remedies will strongly 
discourage employers from adopting retirement plans for their 
employees. Even the risk of expanded remedies will cause some 
employers to shut down their employee retirement savings 
programs. This will harm the employees that this bill is 
supposedly designed to help.
    Finally, the allocation of remedies under this section 
accomplishes a long-sought remedial expansion that the courts 
have refused to recognize and that is inappropriate in this 
context. Section 304 would overturn the seminal Supreme Court 
case, Massachusetts Mutual Life Insurance v. Russell, 473 U.S. 
134 (1985), with respect to 401(k) plans. MassMutual held that 
ERISA provides relief only for a plan and not for an individual 
participant or beneficiary. Although a participant may seek 
appropriate equitable relief under Section 502(a)(3) under 
current law, such equitable relief does not normally include 
monetary damages.
    It has been suggested that the remedies in the bill have 
been narrowly tailored to apply only to officers, directors, 
and independent accountants of plan sponsors of 401(k) plans 
offering employer stock. Section 304 of the bill, however, is 
not so limited. For instance, financial institutions who are 
investment fiduciaries, or otherwise are fiduciaries under 
401(k) plans could be sued under this proposal. In our view, 
this is unnecessary since the plan which was awarded damages 
under ERISA Section 409 today would normally be required to 
reallocate any recovery to affected plan participants.
    We believe that this proposal will encourage unnecessary 
lawsuits where adequate remedies already exist under ERISA. 
Many employers will simply not bear the potentially unlimited 
financial risk created by this provision. The result will be to 
drive many employers from the system, once again harming 
employees who will be denied a workplace retirement plan. In 
the end, there will be fewer workers covered by retirement 
benefits.

Section 305. Participation of participants in trusteeship of individual 
        account plans

    The Joint Trusteeship proposal in Section 305 is of special 
concern. The provision requires equal representation of 
participants on boards of trustees for plans with more than 100 
participants. The bill would require elections and mandates the 
Secretary of Labor to supply independent trustees to break ties 
on issues.
    Recognize that the retirement system is voluntary, Congress 
should heed the advice of the companies that choose to 
establish retirement savings plans. In testimony before the 
Employer-Employee Relations Subcommittee of the House Education 
and the Workforce Committee, John Vine, counsel to the ERISA 
Industry Committee (ERIC), stated the concerns most clearly:

          ERIC also strongly opposes proposals that have been 
        made for the joint trusteeship of individual account 
        plans. Joint trusteeship will be divisive, disruptive, 
        and counter-productive. It will politicize fiduciary 
        responsibility. It will create employee relations 
        strife. It will allow unions to speak for nonunion 
        workers. It will require employers to spend resources 
        on conducting elections rather than on discharging 
        fiduciary responsibilities. It will disrupt, rather 
        than strengthen, plan management. And because it will 
        discourage employers from setting up plans, it will 
        reduce retirement savings.

    It is a fundamental principle of trust law that a company 
establishing a trust has an interest in assuring the purposes 
of the trust are fulfilled. The law has viewed with intense 
skepticism the claims of beneficiaries that they have a right, 
despite contrary trust provisions, to manage the trust or pick 
their own trustees.
    Under ERISA a person or entity making such a fiduciary 
selection is accountable for that selection. Plan sponsors have 
a strong preference for a system in which they are free to 
select persons with the training and skill necessary to 
discharge complex plan administration functions and are 
prepared to bear the responsibility for their selections. If 
Board members or other executives are to be held accountable in 
this fashion, they should have the authority to select the 
persons they think best able to perform plan administration 
functions. Politicizing this selection process will, of 
necessity, dilute the disciplined approach to the selection of 
fiduciaries and investment professionals based solely upon 
appropriate investment factors.
    Moreover, but perhaps most importantly, this joint 
trusteeship provision has nothing to do with the suffering 
caused by the collapse of Enron. Unlike defined benefit plans, 
and the management structure being imposed by this section, the 
hallmark of individual account plans is individual choice. A 
typical 401(k) plan has 14 investment options; the Enron plan 
had 20. It is estimated that 89 percent of the company stock in 
the plan was purchased at the direction of employees, not the 
trustees. The loss of hundreds of millions of dollars of 
employee retirement assets had little to do with the decisions 
of the retirement plan board of trustees.
    The joint-trusteeship issue is exceedingly controversial 
and inappropriate in any meaningful reform package. A similar 
provision (the ``Visclosky'' amendment) was defeated by a 
Democratic House of Representatives in September 1989 by a vote 
of 250 to 173. Taft-Hartley style joint trusteeship is uniquely 
suited to the building trades, the construction industry and 
other industries where there is no single plan sponsor in a 
position to assume such selection and supervision liability. It 
is ill suited to the single-employer plan environment.
    Further, there exists no evidence that this provision is 
needed, nor would it promote better administration of such 
plans. Indeed, the provision would cause mass confusion as 
employers and the Department of Labor try to organize thousands 
of workplace elections for millions of employees to pick 
trustees who may or may not have the necessary expertise. 
Employers may be required to police the campaign and election 
process to ensure there is no coercion, threats or promises of 
benefits by the candidates or their supporters. Presumably, if 
the employer used an improper policy or procedure, or failed to 
police the conduct of workers, the plan would be deemed out of 
compliance with ERISA and lose its tax-exempt status.
    In most workplaces, there are likely to be several 
different groups of employees, each with their own community of 
interest. Numerous questions will arise with regard to which 
group of employees would vote for which plank of trustees. 
Further, it is unclear whether former employees who are still 
participants in the plan will have a vote or could be elected 
as trustees. Fairness and disqualification criteria are also 
important considerations that have not been addressed in this 
legislation.
    Enron employees needed greater protection from fraud and 
abuse, better information about the status of the company and 
its stock, and better access to information about 
diversification and investment advice. The establishment of a 
politicized board of trustees will not further any of these 
objective, and will likely discourage many companies from 
offering a plan at all. For these and many other reasons, the 
joint trusteeship provision should be excluded from any serious 
reform package.

Section 306. Preservation of pension rights or claims

    This provision excludes arbitration, which is an essential 
tool that employers and unions use to resolve a range of 
issues, including benefit disputes. There is no evidence of 
abuse of current arbitration procedures or requirements. In 
fact, there is nothing unique about benefit disputes that would 
render them incompatible with arbitration. The concept of 
mandatory arbitration arose in the securities industry. The 
very claims of agency, fiduciary responsibility and denial of 
benefits are the basis of many securities industry disputes. 
Section 306 would ban this important practice that allows for 
disputes to be resolved quickly and with less expense than 
litigation.
    The prohibition of pre-dispute arbitration agreements under 
ERISA is anti-worker and anti-employer. It will result in fewer 
people having access to investment earnings and a share of the 
American dream.
    Under current law, the courts will enforce agreements 
between individual workers and their employers to arbitrate 
claims arising under statutes so long as the terms provide 
adequate due process, and the agreement is entered knowingly 
and its exclusivity is clear. The agreement must be clear that 
all disputes, involving claims under federal employment 
statutes, will be taken to binding arbitration and not to 
court. Arbitration agreements generally provide that all claims 
arising out of one's employment will be heard by an arbitrator 
or panel of arbitrators rather than by a judge or jury.
    The fairness of the process is guaranteed by the Federal 
Arbitration Act (9 U.S.C. Sec. Sec. 1-16) which outlines rights 
of the parties. Although the remedies are the same, the parties 
favor arbitration because the process is faster and cheaper 
than federal litigation.
    Section 306 would carve out an ERISA exception in all pre-
dispute arbitration agreements between individual workers and 
their employers. This Section represents another long-term 
policy objective that has no place in an Enron-related bill.

Section 307. Office of Pension Participant Advocacy

    Section 307 creates a career ombudsman in the Department of 
Labor with power to sue on behalf of participants and 
beneficiaries, to investigate federal enforcement and other 
policies, and to report to Congress on problems that may be 
corrected by the Secretary.
    First and foremost, the proposed functions of the Office of 
Pension Participant Advocacy are duplicative of the ongoing 
functions of Pension and Welfare Benefits Administration of the 
Department of Labor. Today there are more than 100 highly 
trained and dedicated advisors working out of PWBA's national 
office and 15 field offices located throughout the country. In 
1996 PWBA had only 12 Benefits Advisors all located in the 
national office. The creation of this office represents a 
serious commitment on the part of the Department of protecting 
the rights of and helping workers obtain the benefits to which 
they are entitled.
    The Benefits Advisors handled 170,000 inquiries in 2001 and 
recovered over $64 million in benefits for participants and 
beneficiaries through informal individual dispute resolution. 
Over $250 million have been obtained through this informal 
process over the last five years. These dollars are separate 
from any amounts recovered through the formal investigative 
process.
    Complaint referrals from PWBA's benefits advisors have 
become the best source of investigative case leads. If a 
complaint from an individual appear to indicate a fiduciary 
violation by the plan or a matter that impacts several 
participants and not just one individual, then that inquiry is 
referred to an investigator. According to statistics from the 
PWBA, last year 1263 investigations were opened as a result of 
referrals from the Benefits Advisors; 1238 were closed with 
over $111 million in monetary results.
    The proposed authority for the new Advocate includes the 
ability to pursue claims on behalf of participants and 
beneficiaries, including, upon request of any participant or 
beneficiary, bringing a civil action on behalf of the 
participant or beneficiary which the participant or beneficiary 
is entitled to bring under Section 502(a)(1)(B). The potential 
demand on resources would be enormous and the program would be 
extremely difficult to manage. It would overwhelm the other 
responsibilities of the program, including the need to provide 
broad-based enforcement.
    Furthermore, the Advocate's right to sue would be in 
addition to, and perhaps in conflict with, any action filed by 
(a) the Secretary, (b) the Justice Department for criminal 
violations, (c) the Internal Revenue Service, and (d) plan 
participants and beneficiaries. It is very likely that plan 
sponsors could find themselves defending against competing 
agendas or conflicting theories of liability from within the 
Department of Labor or among the different departments. Such a 
situation is ill-conceived and impractical, and should be 
omitted from any bill seriously considered on the Senate floor.

Section 308. Study regarding insurance system for individual account 
        plans

    Under Section 308, the Pension Benefits Guaranty 
Corporation is instructed to study the feasibility of insuring 
individual account plans, and to propose options for developing 
such a system.
    It is doubtful that any insurance system for defined 
contribution plans is feasible. The concept of a defined 
contribution plan is that it provides whatever benefits can be 
purchased by a participant's accounts as those accounts grow 
due to contributions and earnings. Any insurance program would 
require dependence on a legal list of cautious or nearly 
riskless investments that could not keep pace with inflation. 
This approach runs counter to the wisdom of modern portfolio 
theory and the general wisdom that equities should play a 
significant role in a long-term portfolio.

Section 310. Provisions relating to whistleblower actions involving 
        pension plans

    Section 310 of the amended bill expands an individual's 
right to sue under Section 510 of ERISA to protect ``other 
persons'' who ``oppose'' any unlawful action under ERISA. 
Plaintiffs would be entitled to sue for uncapped compensatory 
and consequential damages. For at least three major reasons, we 
cannot support the provision.
    First, there is considerable confusion and disagreement as 
to who would qualify as ``other persons'' under the provision. 
No definition is provided in Section 310. It has been suggested 
that the term is intended to extend protections to persons who 
do not otherwise qualify as ``participants.'' That term is 
defined in Section 2(7) of ERISA very broadly as ``any employee 
or former employee of an employer, or any member or former 
member of an employee organization, who is or may become 
eligible to receive a benefit of any type from an employee 
benefit plan which covers employees of such employer or members 
of such organization, or whose beneficiaries may be eligible to 
receive such benefit.'' A participant, by contrast, is an 
employee who, in the past, present or future, is eligible to 
receive benefits under the plan.
    The one example given to justify the provision was Enron 
plan administrator Cindy Olson, who may or may not have had 
injury or redress under other provisions of ERISA. During the 
debate over the Section, other examples of newly hired 
employees and outside accountants were rejected. The only 
persons who are left are those who are permanently ineligible 
to participate, and perhaps independent contractors who consult 
on plan or even unrelated issues. Concern over this issue is 
not merely academic; it directly relates to the size of the new 
pool of persons who will be entitled to file suit under the 
Section.
    Second, we are concerned that the person's degree of 
opposition is exceedingly vague and unenforceable. A person 
will make a case under Section 510 of ERISA if he can 
demonstrate that he ``opposed any practice * * * that is made 
unlawful by this title * * *.'' As currently written, Section 
510 of ERISA delineates a narrow and clear set of facts under 
which the protections apply. Persons may sue under the 
whistleblower provisions of ERISA for giving information or 
testimony in an inquiry or proceeding. Under Section 310 of the 
Protecting America's Pensions Act, however, plan sponsors, 
employers, the Secretary of Labor and lawyers are left to 
speculate over what constitutes opposition to improper conduct. 
It is possible tht such a provision would be ignored by judges 
as void for vagueness. It is equally likely, however, that 
courts will be forced to entertain testimony on ``opposition'' 
as manifested in passive conduct, body language, or hearsay. 
Greater specificity is required in the statute that affects the 
conduct of millions of individuals and trillions of dollars.
    Finally, the issue of expanded remedies is exceedingly 
problematical. In ERISA whistleblower suits under current law, 
courts may grant full equitable relief including reinstatement 
and full back pay. This is the approach taken by many of the 
federal remedial statues, including the National Labor 
Relations Act. Under these laws, conciliation and getting 
people back to work is the primary goal. Section 310 adopts the 
confrontational approach to labor relations that ensures 
acrimony and protracted litigation.
    The operative language in the provision is the inclusion of 
a right to sue for ``appropriate equitable and legal relief * * 
*.'' The amendment entitles plaintiffs to demand uncapped 
compensatory and consequential damages. This would be on top of 
full back pay, reinstatement and other instructions by the 
court to restore all benefits.
    The expanded remedies under the Section are not applicable 
to participants and beneficiaries who sue under Section 510; 
only ``other persons'' are entitled to this special new right. 
Fundamental fairness demand that the remedial scheme be 
rational and not discriminate against or in favor of any one 
group of persons. As stated previously, the collapse of Enron 
should not be used as an opportunity to achieve long-sought 
changes to the ERISA remedial scheme.

Section 311. Plans required to provide adequate information to 
        individuals offered choice of lump sum distribution

    Section 311 requires special information disclosures by 
defined benefit pension plans that give participants an option 
to elect lump sum distributions in lieu of an annuity upon 
retirement. The disclosure must compare the relative value of 
each form of benefit payment and disclose the calculations and 
assumptions on which the plan relied.
    As an initial matter, it must be recognized that the 
Treasury Department has stated in the official IRS/Treasury 
Business Plan that it will be issuing ``guidance on disclosure 
to participants regarding their distributions from pension 
plans.'' This statement is very similar to what the drafters on 
this section are seeking. The final rules may not be completed 
before the end of this fiscal year, but the issue remains a 
high priority. Regulations in this area have been delayed 
because of the need under last year's pension law to issue 
regulations covering disclosures in cash balance plans.
    The issues in Section 311 involve interest rates and 
mortality assumptions that are highly variable, difficult to 
understand, and subject to broad interpretation. Indeed, an 
amendment similar to Section 311 was rejected in the Finance 
Committee 2 years ago during the cash balance plan debate 
because the proposal is impractical.
    Section 311 would be administratively burdensome, expose 
employers to liability and would not give most participants a 
true understanding of the value of their retirement options. 
Employers would not want to choose assumptions on which to 
calculate various retirement options--they would want the 
government to choose the assumptions to remove them from 
exposure to liability. There are no ``right'' assumptions for 
the sponsor to use.
    Section 311 requires the plan to inform participants what 
interest rate and mortality assumptions were used in 
determining relative values and how the plan's assumptions 
compare to those interest rates and mortality tables outlined 
in Sec. 205(g) of ERISA. That section of ERISA includes the 30-
year Treasury interest rates and Treasury Department mortality 
tables specified for use by insurance companies in calculating 
reserves. By necessity, those assumptions are very 
conservative.
    The assumptions used by the plan sponsor will dictate which 
form of benefit is the most valuable. Employers will be forced 
to make assumptions at their own risk. This requirement to 
choose assumptions and make calculations is akin to mandating 
investment advice. Plan sponsors don't want investment advice 
mandated because they are worried about exposure to liability. 
Furthermore, what ever assumptions they choose, they can be 
sued under S. 1992.
    In addition to the liability exposure, it would be a huge 
administrative burden for a plan sponsor calculate all of the 
permutations on various forms of benefit. The plan sponsor 
would not necessarily know what variables might affect an 
individual's case. Some of the variables that will alter the 
value of a benefit option are:
    Life expectancy. The state of a person's health is a major 
factor that sponsors do not know about participants. An 
individual's choice between an annuity or a lump sum 
distribution is highly personal:
     If you have cancer, have 6 months to live, and are 
unmarried, you would take the lump sum!
     If you think you'll live to be 100, take the 
annuity.
     Is your spouse well or ill?
    Interest rates.--The Internal Revenue Code mandates the use 
of the 30-year Treasury rates for calculating lump sum 
distributions under Sec. 417(e). There is no statutory rule for 
what interest rate to sue a sponsor must calculate from one 
form of annuity to another (e.g. from an annuity payable 
beginning at age 55 versus one beginning at age 65). To make 
matters worse, the Treasury Department has abruptly 
discontinued the 30-year Treasury bond. While they said they 
would continue to calculate the rate for a couple of years, 
that calculation is viewed as being ``soft'' or ``unreliable'' 
because no more bonds are being issued.
    Further compounding the problem, the 30-year Treasury rate 
is currently at a 40-year low. There is an inverse relationship 
between interest rates and calculations of lump-sum 
distributions, making that form of benefit very attractive, 
currently. However, most plan sponsors think they could easily 
earn 8 or 9 percent instead of the lower 30-year Treasury rate. 
The assumption chosen will influence the value of a lump-sum 
distribution or an annuity calculation. If interest rates shoot 
up (and the calculation of the 30-year bond rate rises as 
well), lump sum distributions will look less attractive.
    Martial status.--Not all pre-retirees are married. Some are 
single but getting married. Some may be married but with a 
seriously ill spouse. Sponsors cannot take those variables into 
consideration when comparing optional forms of benefits.
    Payout of the benefit.--Legislation on this category is 
exceedingly problematical and very many questions arise that 
have not been considered: How long a period of time will the 
benefit be paid out? Will it be a single-life annuity, 10-year 
pay-out, 20-year pay-out, a lump sum distribution. What other 
forms of distribution are required to be calculated? (E.g., 3-
year or 5-year pay-outs? Is a child named as a beneficiary of 
any benefit or portion of a benefit?)
    Each of these would have to be calculated separately, 
taking into consideration the individual's variables. 
Calculations will need to be correct--not just estimates; 
otherwise, the sponsor would be sued. If a company has acquired 
other companies and plans have been merged with others, all 
forms of benefit distribution must be preserved under all the 
plans (because a plan sponsor is forbidden from eliminating a 
form of distribution under a plan.)

                               CONCLUSION

    The spectacular collapse of the Enron Corporation has 
ruined careers, dashed retirement expectations, and shaken the 
confidence in our financial markets and in several professions. 
All of us are deeply concerned about the lost retirement 
savings and security of the thousands of Enron employees who 
relied on a system that failed them. Each of us respects the 
duty to learn the lessons of Enron and to prevent another 
crisis of this magnitude.
    Committee Republicans want a bill we can support. It must 
be one that protects employee choice and opportunity. It must 
also expand employee access to retirement savings. The 
legislation we can support is one that recognizes the 
importance of small businesses and that doesn't impose needless 
costs and risks. And it is one that is based on the lessons 
learned, not a wish list of failed ideas.

                                   Judd Gregg.
                                   Pat Roberts.
                                   Mike DeWine.
                                   Tim Hutchinson.
                                   Michael B. Enzi.
                                   John Warner.
                                   Kit Bond.
                                   Bill Frist.

        MINORITY VIEWS OF SENATOR HUTCHINSON AND SENATOR ROBERTS

    I agree with the majority that making investment advice 
available to participants in 401(k) plans is important. 
However, I must take issue with the manner in which the 
majority purports to deliver such advice. Their proposal lacks 
substance and will have minimal, if any, affect on the 
expansion of investment advice to 401(k) plan participants. 
Should the majority's proposal be enacted, millions of 401(k) 
participants will continue to lack access to professional 
investment advice, an unfortunate outcome that can only work to 
the detriment of hardworking Americans.
    I would urge that the majority modify the bill as noted 
below to provide more meaningful access to investment advice 
for 401(k) plan participants, and stand ready and willing to 
work with the Majority towards that end.
    Since ERISA was adopted 25 years ago there has been a 
fundamental shift from traditional pension plans to defined 
contribution plans such as 401(k) plans, under which 
participants exercise investment control over their retirement 
savings. Today there are approximately 42 million American 
workers that participate in participant-directed retirement 
plans. Today, the average account balance exceeds $50,000. This 
amount increases substantially for individuals approaching 
retirement, reaching nearly $190,000. These accounts represent 
not only a larger share of retirement capital than tradition 
pension plans, but for millions of Americans--their most 
important financial asset. In light of the wide array of 
investment choices facing plan participants, the need for 
professional guidance in making proper and appropriate 
investment choices is clear.
    It is common today for participants to be able to direct 
their own plan investment among any number of investment 
vehicles within their company's 401(k) plan. For some, 
virtually unlimited choice of investment options is available. 
For most plan participants, the increase in the number of 
investment vehicles through which they are to invest their 
retirement savings, coupled with their lack of investment 
sophistication, has caused fear, anxiety, and a call for 
professional assistance and guidance in making appropriate 
investment choices.
    Participants want direction in managing their retirement 
savings. However, the availability of investment advice is 
limited in today's 401(k) marketplace. Recent surveys have 
shown that only between 16-20 percent of 401(k) participants 
have an investment survey advisory service available to them 
through their retirement plan. This means that over 80% of plan 
participants have no investment advisory services available. It 
is our current pension law, ERISA, which works as a deterrent 
towards the expansion of professional investment advice. ERISA 
provides, appropriately, that persons who give ``investment 
advice'' are fiduciaries. As such, they must act prudently and 
solely in the interests of participants. However, ERISA goes 
further and includes a set of ``prohibited transaction'' rules 
modeled on IRS regulations for charitable foundations. These 
rules have been interpreted by the DOL to preclude fiduciaries 
from giving any advice if they have any financial interest in a 
transaction, even when their advice is otherwise in the 
interest of the plan participant. Applying these rules, all 
major financial institutions are effectively prohibited from 
providing advice if they or any affiliate sponsor (1) the 
401(k) plan, or (2) any mutual fund, collective investment, or 
other investment in which the participant may invest. These 
prohibited transaction rules preclude participants from 
receiving investment advise from the financial institutions 
that manage the plan's investment options--even though these 
firms are in many instances already providing educational 
services to the very same participants.
    Because the logical choice in professional advisory 
services for 401(k) plans is essentially shutoff by of ERISA's 
prohibited transaction rules, the marketplace for advice 
providers is limited to ``third-party'' providers, many of whom 
are Internet-based. While the advice marketplace has been open 
to these ``third-party'' advice providers for several years, it 
is clear that their method of delivery of advice--primarily 
through on-line products, has not sufficiently filled the 
``advice gap'' that exists in the 401(k) marketplace today. The 
result of these limitations is that over 80 percent of 401(k) 
plan participants do not have effective access to professional 
investment advice.
    To reverse this abysmal statistic, Congress must act to 
ensure that the advice marketplace includes those professional 
advice providers best suited to reaching the greatest number of 
plan participants. The Majority's legislative proposal falls 
far short on this point.
    Despite the inherent shortcomings in the current 
marketplace of advice providers for 401(k) plan participants; 
the Majority has included in the legislation the provisions of 
S. 1677, the Independent Advice Act. Although the provisions of 
S. 1677 have not been the subject of hearings, and have little 
support within the broad business community, they are 
nonetheless included within the legislation as reported from 
this Committee. I have serious reservations regarding S. 1677. 
I also include herein an advice proposal that I have introduced 
that I believe is the true answer to the advice gap that exists 
in the 401(k) marketplace.
    There are significant other reasons for opposing the 
Majority's approach to investment advice. Restricting 
competition in the marketplace for investment advice, and 
excluding the financial service industry from meaningful 
participation in the competition for advisory services, works 
to the ultimate detriment of plan participants. The majority's 
proposal will essentially limit the employer provided 
investment industry to computer based Internet providers. 
Investment advice through the internet is neither feasible nor 
desirable for many plan participants, particularly those in 
rural areas and those employed by small businesses. Not only 
will less advice be available in the marketplace, but also the 
quality of the advice available will be diminished.
    Beyond the obvious stifling of competition, the Majority's 
approach offers little to the business community--particularly 
small business owners. For small employers, the legislation 
will require them to seek and contract with an advice provider 
that is separate from the plan service provider with whom they 
have a relationship. This additional cost--both in time and 
money, will act as a severe detriment to the effective 
availability of advice in the small business community.
    The Majority's approach is also deficient in its approach 
to providing information to plan participants about the advice 
they would receive under the proposal. The Majority's approach 
does not require disclosure to participants of any of the fees, 
compensation, or affiliations with respect to the advice 
services, provided by the ``independent'' advice provider. 
Under the bill, participants will lack even the basic 
information they need to make informed decisions regarding the 
quality of an advice provider, the quality of its product and 
services, the fees or compensation it receives for the advice 
it provides, or its relationship with the plan's service 
provider, the employer, or other potentially conflicting 
sources. Moreover, the Majority's approach does little require 
advice providers to document the advice that is given to 
participants. In essence, the Majority's approach, as a whole, 
leaves plan participants in the dark regarding the services 
they are receiving.
    The provisions of S. 1677 included in this bill will 
preserve the status quo, leaving millions of American workers 
without access to high-quality professional investment advice 
for managing their life savings. Most participants will 
continue to be left without the necessary tools to make 
appropriate and informed investment decisions regarding their 
most important financial assets. In that regard, we all lose.
S. 1978, the appropriate legislative solution
    Legislation I have introduced, S. 1978, The Retirement 
Security Advice Act of 2002, seeks to address the advice gap 
through enhancing competition in the advice marketplace, while 
ensuring that participants receive appropriate protections with 
regard to the advice they receive. My legislation will 
modernize ERISA by adding another statutory exemption to the 
prohibited transaction rules to allow employers to provide 
their workers with access to high quality, professional 
investment advice. It is a proposal which has passed the House 
of Representatives with bipartisan support on two occasions 
after being vetted through committee hearings, mark-ups and 
floor debates.
    S. 1978 will open up the marketplace significantly by 
increasing the number of firms that would be qualified to 
provide professional investment advice to plan participants. 
Yet, this expanded market of advice providers would be limited 
to those institutions that meet the legislation's qualification 
requirements--protecting plan participants from unscrupulous 
actors.
    Most importantly, my legislation ensures that plan 
participants enjoy significant protections so that they are 
encouraged to seek professional investment advice, knowing that 
they have meaningful legal resource should the advice they 
receive fail to meet ERISA's stringent rules.
    My legislation's strong consumer protection provisions 
require that only specified, qualified financial institutions 
(as well as their employees, agents and representatives, and 
affiliated companies) will be authorized to provide investment 
advice to plan participants. These providers include: 
investment advisers registered under federal or state 
securities laws; banks regulated under federal or state law; 
insurance companies qualified to do business under state law; 
and broker dealers registered under federal law. Each of these 
types of institutions is subject to substantial regulation 
under federal and/or state laws. Because of the regulatory 
regime under which these entities must operate, limiting 
fiduciary advisors to these entities ensures that less 
qualified individuals will not be able to simply ``hang out a 
shingle'' and proffer advice to unsuspecting plan participants.
    In addition, any advice providers will be subject to 
ERISA's rigorous fiduciary standards. To meet ERISA's fiduciary 
obligations, the advice providers must provide prudent, 
objective advice to plan participants. In providing advice to 
plan participants, ERISA requires that these advice providers 
act:
          1. Solely in the interest of the plan's participants 
        and beneficiaries;
          2. For the exclusive purpose of providing benefits to 
        participants and beneficiaries;
          3. With the care, skill, prudence and diligence under 
        the circumstances of a prudent person acting in a like 
        capacity and familiar with the matters involved; and
          4. In accordance with plan documents as well as 
        ERISA.
    My bill will also ensure that participants have legal 
recourse if they feel there has been a fiduciary breach. S. 
1978 provides a number of avenues for legal recourse against a 
fiduciary adviser for breach of its fiduciary duties. In 
essence, the legal avenues available to participants in the 
event of a fiduciary breach for the advice they receive are 
designed to allow employees to be made whole for any 
wrongdoing, with any losses restored to the participant's 
account.
    Under the fiduciary provisions of ERISA and as applicable 
to fiduciary advisors under S. 1978, a plan participant or 
beneficiary, another plan fiduciary, or the plan itself, could 
sue a fiduciary adviser for breach of fiduciary duty in 
providing advice to a plan participant. If found to have 
breached its duty, the fiduciary advisor could be held 
``personally liable'' (1) to restore losses to the plan 
resulting from each such breach, (2) restore to the plan any 
profits of the fiduciary advisor that were made through use of 
plan assets, and (3) for other equitable or remedial relief as 
the court deems appropriate--including removal of such 
fiduciary advisor.
    The Department of Labor could itself sue the fiduciary 
adviser under claims similar to those of participants and plans 
discussed above. In addition to the above recoveries, the 
Department could also assess an additional civil penalty of 20 
percent of the applicable recovery amount for a breach of 
fiduciary duty.
    A participant, beneficiary, or plan fiduciary could also 
sue the fiduciary advisor under ERISA: (1) for injunctive 
relief (e.g., to stop the fiduciary advisor from providing 
advice that either breaches its fiduciary duty or violates the 
terms of the pension plan), or (2) to obtain other appropriate 
equitable relief in response to such a violation including 
enforcing ERISA or the terms of the plan.
    In addition to the protections under ERISA, plan 
participants would have protections available to them under 
other federal laws. Protections would be available under 
federal securities and banking laws as well as state insurance 
laws. With the availability of remedies under these laws as 
well as ERISA--plan participants would have substantial and 
powerful means for enforcing their rights in the event the 
advice they are given regarding their 401(k) accounts is 
unsuitable, fraudulent, or violative of the fiduciary duty the 
adviser owes them.
Information that plan participants must receive to assist them in 
        deciding on advice that is given
    The legislation requires timely, clear, and conspicuous 
disclosures of the following to participants at the inception 
of the advisory relationship, any time there is a material 
change in the relationship, at least annually thereafter, and 
always upon request:
          1. All fees or other compensation relating to the 
        advice that the fiduciary adviser or any of its 
        affiliates receive in connection with the provision of 
        the advice or in connection with the resulting 
        transactions;
          2. Any material affiliation or contractual 
        relationship of the fiduciary adviser or any of its 
        affiliates with respect to the security or other 
        property in which plan assets are invested;
          3. Any limitation placed on the scope of the 
        investment advice to be provided;
          4. The types of services offered by the fiduciary 
        adviser in connection with the provision of investment 
        advice and all material information about the adviser, 
        its operations, and its key personnel; and
          5. All disclosures required to be made under all 
        applicable securities laws.
    To ensure that such disclosures are understandable by plan 
participants, S. 1978 requires the above disclosures to be 
written in plain English and in a manner calculated to be 
understood by the average plan participant.
    My approach is comprehensive, allowing the highest quality 
advice to reach the largest number of participants with a level 
of protection for plan participants that ensures that their 
retirement savings are secure. The 80 percent of workers in the 
United States without access to investment advice services 
should be able to make informed decisions about their financial 
investments. The Retirement Security Advice Act is the best 
solution to help them maximize their retirement savings.

                                   Tim Hutchinson.
                                   Pat Roberts.

                     MINORITY VIEWS OF SENATOR BOND

    On March 18, 2002, I added my name as a co-sponsor of the 
Retirement Security Advice Act of 2002 (S. 1978), introduced by 
Senator Tim Hutchinson. I did so, and submitted a statement for 
the record, because the bill holds important implications for 
small businesses in this country and the millions of Americans 
they employ.
    In 1996, Congress created the Savings Incentive Match Plans 
for Employees (SIMPLE) as a pension-plan option for small firms 
in this country. The goal was a simple one: provide a pension 
plan with low administrative costs for employers so they can 
offer pension benefits to encourage employees to save for their 
retirement. I am pleased that these plans have become quite 
popular, and together with the other pension simplifications 
and improvements enacted in the last five years, they have 
contributed to better access to pension benefits by small 
businesses and their employees.
    Greater retirement savings, however, have raised new and 
complex issues for many employees who have seen their pension 
accounts grow substantially. As the Ranking Member of the 
Committee on Small Business and Entrepreneurship, I have heard 
many constituents raise difficult questions in this area: What 
are appropriate investments for my personal circumstances and 
risk tolerance? Should I buy stocks, bonds, annuities, or 
something else? How should I diversify my investments? When 
should I modify my investment mix? And so on.
    The importance of these questions has increased 
substantially in light of recent high-profile business failures 
and more generally because of the economic downturn. Gone are 
the days of the momentum market where any dollar invested 
seemed to grow with little effort or risk.
    The return to more cautious investing has left employees 
who participate in employer-sponsored pension plans in a real 
dilemma--hire an outside investment advisor or go it alone in 
most cases. Why? Current pension rules effectively preclude 
most employers from offering investment advice to their 
employees. In fact, recent estimates are that only about 16 
percent of participants have access to investment advice 
through their pension plan. In today's complex investment 
environment that is simply too little help for employees who 
are trying to manage their retirement security.
    Senator Hutchinson's bill addresses this situation in a 
responsible way. For most businesses, and particularly small 
firms, the logical place to look for an investment advisor 
would be the company that manages the plan's investment options 
or an affiliated firm. Under Senator Hutchinson's bill that 
option would now be available, opening the door for countless 
businesses to offer this important benefit at a low cost to 
their employees who participate in the company's pension plan. 
In addition, by allowing more businesses to offer investment-
advice benefits, the bill creates an opportunity for increased 
competition among investment advisors, which can lead to better 
advice products and lower costs overall.
    Senator Hutchinson's bill, however, does not simply change 
the rules to help the business community. It also includes 
critical protections for the plan participants. Investment 
advisors must satisfy strict requirements concerning their 
qualifications, and they must disclose on a regular basis all 
their business relationships, fees, and potential conflicts of 
interest directly to the participants. In addition, and 
arguably most importantly, the investment advisor must assume 
fiduciary liability for the investment advice it renders to the 
employee participants in the plan. In short, if the investment 
advisor does not act solely in the interest of the participant, 
it will be liable for damages resulting from the breach of its 
fiduciary duty. Together, the bill's provisions provide 
substantive safeguards to protect the interests of the plan 
participants who take advantage of the new investment-advice 
benefit.
    Some have contended that a better alternative is to force 
small businesses to engage an independent third party to 
provide investment advice. I disagree. The result would simply 
be the same as under current law. Cost is a real issue for 
small businesses seeking to offer benefits like pension plans 
and related investment advice--hence, the genesis of the SIMPLE 
pension plan. As under the current rules, if the only option is 
a costly outside advisor, the small firm will not offer the 
investment-advice benefit. As a result, we would not move the 
ball even a yard further--employees would still be left to 
their own devices to figure out the complex world of investing 
or they would have to seek out and hire their own advisor, 
which few have the wherewithal to do.
    More to the point, nothing under the Hutchinson bill 
prevents a business from engaging an independent advisor if the 
employer deems that the best alternative. The standard under 
the Hutchinson bill for selecting the investment advisor is 
prudence; the same criteria that the employer must exercise 
under current law when selecting the company that manages the 
pension plan and its investment options. If a prudent person 
would not hire or retain the investment advisor, then under the 
Hutchinson bill, the employer should not do so either or face 
liability for breach of fiduciary duty. Again, additional 
protection for the plan participants.
    In my assessment, investment advice is an increasingly 
important benefit that employees want and need. Moreover, small 
businesses in particular need the flexibility to offer benefits 
that keep them competitive with big companies as they seek to 
hire and retain the very best employees possible. And when we 
talk about small business, we are not dealing with an 
insignificant employer in this country. In fact, according to 
Small Business Administration data, small businesses represent 
99% of all employers and provide about 75% of the net new jobs 
in this country.
    The Retirement Security Advice Act provides a carefully 
balanced and responsible solution to this situation. Most 
importantly, it provides a solution that employers will 
actually use to offer the investment advice sought by their 
employees who struggle to put money aside in the hopes of 
having a nest egg that someday will provide them with a 
comfortable retirement.

                                                          Kit Bond.

                       X. Changes in Existing Law

    In compliance with rule XXVI paragraph 12 of the Standing 
Rules of the Senate, the following provides a print of the 
statute or the part or section thereof to be amended or 
replaced (existing law proposed to be omitted is enclosed in 
black brackets, 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.

     * * * * * * *
Sec. 409A. Liability for breach of fiduciary duty in 401(k) plans.

     * * * * * * *

  TITLE III--JURISDICTION, ADMINISTRATION, ENFORCEMENT; JOINT PENSION, 
   PROFIT-SHARING, AND EMPLOYEE STOCK OWNERSHIP PLAN TASK FORCE, ETC. 
 [JURISDICTION, ADMINISTRATION, ENFORCEMENT; JOINT PENSION TASK FORCE, 
                                  ETC.]

        Subtitle A--Jurisdiction, Administration, and Enforcement

     * * * * * * *

           Subtitle D--Office of Pension Participant Advocacy

3051. Office of Pension Participant Advocacy.

           *       *       *       *       *       *       *


                   Subtitle B--Regulatory Provisions

                    PART 1--REPORTING AND DISCLOSURE


                    DUTY OF DISCLOSURE AND REPORTING

    Sec. 101. (a) * * *

           *       *       *       *       *       *       *

          (2) the information described in sections 104(b)(3) 
        and [105(a) and (c)] 105(a), (b), and (d).

           *       *       *       *       *       *       *

    (h) Simple Retirement Accounts.--

           *       *       *       *       *       *       *

    (i)(1) Except as specifically provided in this Act, and 
notwithstanding any other provision of law, if the Commission 
requires any disclosure of the sale of purchase of any 
securities by an officer or director or other affiliated person 
of any issuer of the securities that--
          (A) sponsors an individual account plan, and
          (B) permits elective deferrals (as defined in section 
        402(g)(3) of the Internal Revenue Code of 1986) to be 
        invested in employer securities and employer real 
        property,
the issuer shall, within 2 business days after disclosure to 
the Commission, make such disclosure available on any 
individual account plan website the issuer maintains which is 
accessible only by plan participants and beneficiaries. If 
there are participants or beneficiaries of an individual 
account plan sponsored by an issuer who do not have access to 
such a website, the information required to be provided under 
this paragraph shall be provided to the participants and 
beneficiaries in written, electronic, or other appropriate form 
to the extent that such form is reasonably accessible to them.
    (2) The Commission may provide that the requirement under 
this subsection of disclosure in electronic form will be in 
lieu of any other form of such disclosure that may be required 
by the Commission or under any other Federal law.
    (3) In this subsection--
          (A) the terms affiliated person, Commission, issuer, 
        and securities have the same meanings as in section 3 
        of the Securities Exchange Act of 1934, and
          (B) the terms employer securities and employer real 
        property have the meanings given such terms by section 
        407(d).
    [(h)] (j) Cross Reference.--

               REPORTING OF PARTICIPANT'S BENEFIT RIGHTS

    Sec. 105. [(a) Each administrator of an employee pension 
benefit plan shall furnish to any plan participant or 
beneficiary who so requests in writing, a statement indicating, 
on the basis of the latest available information--
          [(1) the total benefits accrued, and
          [(2) the nonforfeitable pension benefits, if any, 
        which have accrued, or the earliest date on which 
        benefits will become nonforfeitable] (a)(1)(A) The 
        administrator of an individual account plan shall 
        furnish a pension benefit statement--
          (i) at least once each calendar quarter to a plan 
        participant of an individual account plan which permits 
        a participant or beneficiary to exercise control over 
        the assets in his or her account, and
          (ii) to a plan participant of beneficiary upon 
        written request.
        (B) The administrator of a defined benefit plan shall 
        furnish a pension benefit statement--
          (i) at least once every 3 years to each participant, 
        and
          (ii) to a participant or beneficiary of the plan upon 
        written request.
Information furnished under subparagraph (B) to a participant 
(other than at the request of the participant) may be based on 
reasonable estimates determined under regulations prescribed by 
the Secretary.
    (2)(A) A pension benefit statement under paragraph (1)--
          (i) shall indicate, on the basis of the latest 
        reasonably available information--
                  (I) the total benefits accrued, and
                  (II) the nonforfeitable pension benefits, if 
                any, which have accrued, or the earliest date 
                on which benefits will become nonforfeitable,
          (ii) shall be written in a manner calculated to be 
        understood by the average plan participant, and
          (iii) may be provided in written, electronic, or 
        other appropriate form to the extent that such form is 
        reasonably accessible to the participant or 
        beneficiary.
    (B) In the case of an individual account plan, the pension 
benefit statement under paragraph (1) shall include (together 
with the information required in subparagraph (A))--
          (i) the value of any assets held in the form of 
        employer securities, without regard to whether such 
        securities were contributed by the plan sponsor or 
        acquired at the direction of the plan or of the 
        participant or beneficiary, and an explanation of any 
        limitations or restrictions on the right of the 
        participant or beneficiary to direct an investment,
          (ii) an explanation, written in a manner calculated 
        to be understood by the average plan participant, of 
        the importance, for the long-term retirement security 
        of participants and beneficiaries, of a diversified 
        investment portfolio, including a statement of the risk 
        of holding substantial portions of a portfolio in the 
        securities of any 1 entity, such as employer 
        securities, and
          (iii) in the case of an individual account plan, if 
        the percentage of assets in the individual account that 
        consists of employer securities and employer real 
        property (as defined in paragraphs (1) and (2), 
        respectively, of section 407(d)), as determined as of 
        the most recent valuation date of the plan, exceeds 20 
        percent of the total account, a warning that the 
        account may be overinvested in employer securities and 
        employer real property.
Employer securities and employer real property held by a plan 
by reason of a pooled investment vehicle described in section 
404(e)(2)(B)(ii) shall be excluded for purposes of clause (iii) 
from the calculation of the assets in an account that consist 
of employer securities and employer real property.
    (b)(1) In the case of a participant or beneficiary who is 
entitled to a distribution of a benefit under a defined benefit 
plan, the administrator of such plan shall--
          (A) notify each participant or beneficiary of the 
        availability of, and the right to request, the 
        information described in paragraph (2), and
          (B) provide to the participant or beneficiary the 
        information described in paragraph (2) upon the request 
        of the participant or beneficiary.
    (2) The information described in this paragraph includes--
          (A) a worksheet explaining how the amount of the 
        distribution was calculated and stating the assumptions 
        used for such calculation,
          (B) upon request of the participant or beneficiary, 
        any plan documents relating to the calculation (if 
        available), and
          (C) such other information as the Secretary may 
        prescribe.
    [(b) In no case shall a participant or beneficiary be 
entitled under this section to receive more than one report 
described in subsection (a) during any one 12-month period.]
    (c) In no case shall a participant or beneficiary or 
beneficiary of a plan be entitled to more than 1 statement 
described in subsection (a)(1) (A)(ii) or (B)(ii) or subsection 
(b), whichever is applicable, in any 12-month period.
    [(c)] (d) Each administrator required to register under 
section 6057 of the Internal Revenue Code of 1986 shall, before 
the expiration of the time prescribed for such registration, 
furnish to each participant described in subsection (a)(2)(C) 
of such section, an individual statement setting forth the 
information with respect to such participant required to be 
contained in the registration statement required by section 
6057(a)(2) of such Code. Such statement shall also include a 
notice to the participant of nay benefits which are forfeitable 
if the participant dies before a certain date.
    [(d)] (e) Subsection (a) of this section shall apply to a 
plan to which more than one unaffiliated employer is required 
to contribute only to the extent provided in regulations 
prescribed by the Secretary in coordination with the Secretary 
of the Treasury.
    (f) The Secretary of Labor shall develop model language 
which may be used by plan administrators in complying with the 
requirements of subsection (a). Such language shall be in a 
form calculated to be understood by the average plan 
participant.

                    REPORTS MADE PUBLIC INFORMATION

    Sec. 106. (a) * * *
    (b) Information described in [sections 105(a) and 105(c)] 
subsections (a), (b), and (d) of section 105 with respect to a 
participant may be disclosed only to the extent that 
information respecting that participant's benefits under title 
II of the Social Security Act [(42 U.S.C. 401 et seq.)] may be 
disclosed under such Act.

 REQUIREMENT OF JOINT AND SURVIVOR ANNUITY AND PRERETIREMENT SURVIVOR 
                                ANNUITY

    Sec. 205. (a) * * *

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    (l)(1) if a pension plan with more than 100 participants 
provides a participant, spouse, or surviving spouse with the 
option to elect to have any nonforfeitable benefit paid in the 
form of a lump sum distribution, or provides for other optional 
forms of benefits, the plan administrator shall provide, within 
a reasonable period of time before the individual is required 
to make the election, a statement comparing the relative values 
of each form of benefit payment.
    (2) The statement under paragraph (1) shall include such 
information as the Secretary of the Treasury determines 
appropriate to enable a participant, spouse, or surviving 
spouse to make an informed decision as to what form of benefit 
to elect. Such information shall be provided in a form 
calculated to be understood by the average plan participant and 
shall include--
          (A) the interest rate and mortality assumptions used 
        in determining the relative values, an explanation of 
        how such assumptions compare to the assumptions used 
        under subsection (g) or to any other assumptions 
        specified by the Secretary, and one or more 
        illustrations using dollar amounts to show the relative 
        values of the benefits on a comparable basis, and
          (B) any factors (including early retirement 
        subsidies) which are taken into account in determining 
        the value of one form of payment but not taken into 
        account in determining the other form of payment.
    [(l)] (m) In prescribing regulations under this section, 
the Secretary of the Treasury shall consult with the Secretary 
of Labor.

                         ESTABLISHMENT OF TRUST

    Sec. 403. (a)(1) Except as provided in subsection (b), all 
assets of an employee benefit plan shall be held in trust by 
one or more trustees. Such trustee or trustees shall be either 
named in the trust instrument or in the plan instrument 
described in section 402(a) or appointed by a person who is a 
named fiduciary, and upon acceptance of being named or 
appointed, the trustee or trustees shall have exclusive 
authority and discretion to manage and control the assets of 
the plan, except to the extent that--
        [(1)] (A) the plan expressly provides that the trustee 
        or trustees are subject to the direction of a named 
        fiduciary who is not a trustee, in which case the 
        trustees shall be subject to proper directions of such 
        fiduciary which are made in accordance with the terms 
        of the plan and which are not contrary to this Act, or
        [(2)] (B) authority to manage, acquire, or dispose of 
        assets of the plan is delegated to one or more 
        investment managers pursuant to section 402(c)(3).
    (2)(A) The assets of a single-employer plan which is an 
individual account plan which covers more than 100 participants 
shall be held in trust by a joint board of trustees, which 
shall consist of two or more trustees representing on an equal 
basis the interests of the employer or employers maintaining 
the plan and the interests of the participants and their 
beneficiaries.
    (B)(i) Except as provided in clause (ii), in any case in 
which the plan is maintained pursuant to one or more collective 
bargaining agreements between one or more employee 
organizations and one or more employers, the trustees 
representing the interests of the participants and their 
beneficiaries shall be designated by such employee 
organizations.
    (ii) Clause (i) shall not apply with respect to a plan 
described in such clause if the employee organization (or all 
employee organizations, if more than one) referred to in such 
clause file with the Secretary, in such form and manner as 
shall be prescribed in regulations of the Secretary, a written 
waiver of their rights under clause (i).
    (iii) In any case in which clause (i) does not apply with 
respect to a single-employer plan because the plan is not 
described in clause (i) or because of a waiver filed pursuant 
to clause (ii), the trustee or trustees representing the 
interests of the participants and their beneficiaries shall be 
elected by the participants in accordance with regulations of 
the Secretary. An individual shall not be treated as ineligible 
for selection as trustee solely because such individual is an 
employee of the plan sponsor, except that the employee so 
selected may not be a highly compensated employee (as defined 
in section 414(q) of the Internal Revenue Code of 1986).
    (iv) The Secretary shall provide by regulation for the 
appointment of a neutral, in accordance with the procedures 
under section 203(f) of the Labor Management Relations Act, 
1947 (29 U.S.C. 173(f)), to cast votes as necessary to resolve 
tie votes by the trustee.
    Sec. 404 (a)(1) * * *

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    (c)(1) In the case of a pension plan which provides for 
individual accounts and permits a participant or beneficiary to 
exercise control over assets in his account, if a participant 
or beneficiary exercises control over assets in his account (as 
determined under regulations of the Secretary)--
          (A) such participant or beneficiary shall not be 
        deemed to be a fiduciary by reason of such exercise, 
        and
          (B) no person who is otherwise a fiduciary (other 
        than a qualified investment adviser) shall be liable 
        under this part for any loss, or by reason of any 
        breach, which results from such participant's or 
        beneficiary's exercise of control, except that this 
        subparagraph shall not apply with respect to any 
        participant or beneficiary for any period during which 
        the ability of the participant or beneficiary to direct 
        the investment of assets in his or her individual 
        account is suspended by a plan sponsor or fiduciary and 
        shall not be construed to exempt any fiduciary from 
        liability for any violation of subsection (e) or (f).

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    (4) The plan sponsor and plan administrator of a pension 
plan described in paragraph (1) shall, in addition to any other 
fiduciary duty or responsibility under this part, have a 
fiduciary duty to ensure that each participant and beneficiary 
under the plan, in connection with the investment of assets in 
his or her account in employer securities, is provided with all 
material investment information regarding investment of such 
assets in employer securities to the extent that such 
information is generally required to be provided by the plan 
sponsor to investors in connection with such an investment 
under applicable securities laws. The provision by the plan 
sponsor or plan administrator of any materially misleading 
investment information shall be treated as a violation of this 
paragraph.
Any limitation or restriction that may govern the frequency of 
transfers between investment vehicles shall not be treated as a 
suspension referred to in subparagraph (B) to the extent such 
limitation or restriction is disclosed to participants or 
beneficiaries through the summary plan description or materials 
describing specific investment alternative under the plan.
    (d)(1) * * *
    (e)(1)(A) An individual account plan to which this 
paragraph applies shall--
          (i) offer at least 3 investment options (not 
        inconsistent with regulations prescribed by the 
        Secretary) in addition to any option to invest in 
        employer securities or employer real property,
          (ii) provide that a participant or beneficiary has 
        the immediate right to reinvest any employee 
        contributions and elective deferrals invested in 
        employer securities or employer real property (and 
        earnings thereon) in any other investment option 
        provided by the plan,
          (iii) provide that a participant or beneficiary has 
        the right after no more than 3 years of service to 
        reinvest any employer contributions (other than 
        elective deferrals) of employer securities or employer 
        real property (and earnings thereon) in any other 
        investment option provided by the plan, and
          (iv) meet the requirements of section 409(e)(2) of 
        the Internal Revenue Code of 1986 with respect to 
        employer securities held by the plan which are readily 
        tradable on an established securities market.
    (B)(i) Except as provided in clause (ii), this paragraph 
shall apply to any individual account plan which holds employer 
securities which are readily tradable on an established 
securities market.
    (ii) This paragraph shall not apply to an employee stock 
ownership plan if the plan has no contributions (or earnings 
thereon) which are subject to section 401(k)(3) or (m) of such 
Code.
    (C)(i) Except as provided in clause (ii), within 30 days 
after the date of any election by a participant or beneficiary 
under this paragraph to reinvest (or as otherwise provided in 
regulations), the plan administrator shall take such actions as 
are necessary to effectuate such reinvestment.
    (ii) In any case in which the plan provides for elections 
to reinvest periodically during prescribed time periods, the 
30-day period described in clause (i) shall commence at the end 
of each such prescribed period.
    (D) Not later than 30 days before the first date on which a 
participant is eligible to exercise the right to reinvest 
employer securities and employer real property under this 
paragraph, the plan administrator shall provide to such 
participant and his or her beneficiaries a notice--
          (i) setting forth such right under this paragraph, 
        and
          (ii) describing the importance of diversifying the 
        investment of retirement account assets.
The Secretary shall prescribe a model notice for purposes of 
satisfying the requirements of this subparagraph which shall be 
in a form calculated to be understood by the average plan 
participant. The notice required by this subparagraph may be 
provided in written, electronic, or other appropriate form to 
the extent that such form is reasonably accessible to the 
participant or beneficiary.
    (2)(A)(i) Except as provided in this paragraph, an 
individual account plan under which a participant or 
beneficiary is permitted to exercise control over assets in his 
or her account shall provide that if the plan (or any other 
plan maintained by the employer which covers the participant or 
beneficiary) requires employer contributions other than 
elective deferrals to be invested in employer securities or 
employer real property, the plan may not permit elective 
deferrals to be invested in employer securities or employer 
real property.
    (ii) This paragraph shall not apply to an individual 
account plan maintained by an employer for any plan year if the 
employer maintains a qualified defined benefit plan (as defined 
in subparagraph (C)) for the plan year.
    (B)(i) A plan which offers as an investment option the 
purchase of stock through an open brokerage account or similar 
investment vehicle shall not be treated as meeting the 
requirements of subparagraph (A) unless the plan provides that 
such option may not be used to purchase employer securities or 
employer real property which are to be held by the plan.
    (ii) A plan shall not be treated as failing to meet the 
requirements of subparagraph (A) merely because elective 
deferrals are invested in employer securities or employer real 
property by reason of an investment in a pooled investment 
vehicle. For purposes of this clause, a pooled investment 
vehicle is an investment option of the plan which is comprised 
of plan assets and which is not designed to invest primarily in 
employer securities or employer real property.
    (C)(i) For purposes of subparagraph (A)(ii), the term 
``qualified defined benefit plan'' means, with respect to any 
individual account plan, a defined benefit plan--
          (I) which covers at least 90 percent of the employees 
        as are covered by the individual account plan, and
          (II) with respect to which the accrued benefit of 
        each participant, payable at normal retirement age 
        under the plan, is not less than a benefit which is 
        actuarially equivalent to a percentage of the 
        participant's final average pay equal to 1.5 percent 
        multiplied by the number of years of service (not 
        greater than 20) of the participant.
If a plan provides for benefits payable prior to normal 
retirement age, the requirements of subclause (II) shall not be 
treated as met unless such benefits are at least equal to the 
actuarial equivalent of the normal retirement benefit under the 
plan.
    (ii) In applying subclause (II) of clause (i) to a defined 
benefit plan with respect to which a participant's accrued 
benefit is equal to a fixed dollar amount multiplied by the 
number of years of service--
          (I) the participant's pay during the plan year 
        preceding the plan year of the determination shall be 
        used in lieu of final average pay, and
          (II) the plan shall be treated as satisfying the 
        requirement of such subclause if the average accrued 
        benefit under the plan of all the participants who are 
        also covered by the individual account plan meets such 
        requirement.
    (3) For purposes of this subsection--
          (A) the term ``elective deferral'' has the meaning 
        given such term by section 402(g)(3) of the Internal 
        Revenue Code of 1986,
          (B) the term ``employee stock ownership plan'' has 
        the meaning given such term by section 4975(e)(7) of 
        such Code,
          (C) the terms ``employer securities'' and ``employer 
        real property'' have the meanings given such terms by 
        section 407(d), and
          (D) the term ``year of service'' has the meaning 
        given such term by section 203(b)(2).
    (f)(1) In the case of an individual account plan which 
permits a plan participant or beneficiary to exercise control 
over the assets in his or her account, if a plan sponsor or 
other person who is a fiduciary designates and monitors a 
qualified investment adviser pursuant to the requirements of 
paragraph (3), such fiduciary--
          (A) shall be deemed to have satisfied the 
        requirements under this section for the prudent 
        designation and periodic review of an investment 
        adviser with whom the plan sponsor or other person who 
        is a fiduciary enters into an arrangement for the 
        provision of advice referred to in section 
        3(21)(A)(ii),
          (B) shall not be liable under this section for any 
        loss, or by reason of any breach, with respect to the 
        provision of investment advice given by such adviser to 
        any plan participant or beneficiary, and
          (C) shall not be liable for any co-fiduciary 
        liability under subsections (a)(2) and (b) of section 
        405 with respect to the provision of investment advice 
        given by such adviser to any plan participant or 
        beneficiary.
    (2)(A) For purposes of this section, the term `qualified 
investment adviser' means, with respect to a plan, a person--
          (i) who is a fiduciary of the plan by reason of the 
        provision of investment advice by such person to a plan 
        participant or beneficiary;
          (ii) who--
                  (I) is registered as an investment adviser 
                under the Investment Advisers Act of 1940 (15 
                U.S.C. 80b-1 et seq.),
                  (II) is registered as an investment adviser 
                under the laws of the State in which such 
                adviser maintains the principal office and 
                place of business of such adviser, but only if 
                such State has an examination requirement to 
                qualify for such registration,
                  (III) is a bank or similar financial 
                institution referred to in section 408(b)(4),
                  (IV) is an insurance company qualified to do 
                business under the laws of a State, or
                  (V) is any other comparably qualified entity 
                which satisfies such criteria as the Secretary 
                determines appropriate, consistent with the 
                purposes of this subsection, and
          (iii) who meets the requirements of subparagraph (B).
    (B) The requirements of this subparagraph are met if every 
individual employed (or otherwise compensated) by a person 
described in subparagraph (A)(ii) who provides investment 
advice on behalf of such person to any plan participant or 
beneficiary is--
          (i) an individual described in subclause (I) or (II) 
        of subparagraph (A)(ii),
          (ii) registered as a broker or dealer under the 
        Securities Exchange Act of 1934 (15 U.S.C. 78a et 
        seq.),
          (iii) a registered representative as described in 
        section 3(a)(18) of the Securities Exchange Act of 1934 
        (15 U.S.C. 78c(a)(18)) or section 202(a)(17) of the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b-
        2(a)(17)), or
          (iv) any other comparably qualified individual who 
        satisfies such criteria as the Secretary determines 
        appropriate, consistent with the purposes of this 
        subsection.
    (3) The requirements of this paragraph are met if--
          (A) the plan sponsor or other person who is a 
        fiduciary in designating a qualified investment adviser 
        receives at the time of the designation, and annually 
        thereafter, a written verification from the qualified 
        investment adviser that the investment adviser--
                  (i) is and remains a qualified investment 
                adviser,
                  (ii) acknowledges that the investment adviser 
                is a fiduciary with respect to the plan and is 
                solely responsible for its investment advice,
                  (iii) has reviewed the plan documents 
                (including investment options) and has 
                determined that its relationship with the plan 
                and the investment advice provided to any plan 
                participant or beneficiary, including any fees 
                or other compensation it will receive, will not 
                constitute a violation of section 406,
                  (iv) will, in providing investment advice to 
                any participant or beneficiary, consider any 
                employer securities or employer real property 
                allocated to his or her account, and
                  (v) has the necessary insurance coverage (as 
                determined by the Secretary) for any claim by 
                any plan participant or beneficiary,
          (B) the plan sponsor or other person who is a 
        fiduciary in designating a qualified investment adviser 
        reviews the documents described in paragraph (4) 
        provided by such adviser and determines that there is 
        no material reason not to enter into an arrangement for 
        the provision of advice by such qualified investment 
        adviser, and
          (C) the plan sponsor or other person who is a 
        fiduciary in designating a qualified investment adviser 
        determines whether or not to continue the designation 
        of the investment adviser as a qualified investment 
        adviser within 30 days of having information brought to 
        its attention that the investment adviser is no longer 
        qualified or that a substantial number of plan 
        participants or beneficiaries have raised concerns 
        about the services being provided by the investment 
        adviser.
    (4) A qualified investment adviser shall provide the 
following documents to the plan sponsor or other person who is 
a fiduciary in designating the adviser:
          (A) The contract with the plan sponsor or other 
        person who is a fiduciary for the services to be 
        provided by the investment adviser to the plan 
        participants and beneficiaries.
          (B) A disclosure as to any fees or other compensation 
        that will be received by the investment adviser for the 
        provision of such investment advice.
          (C) The Uniform Application for Investment Adviser 
        Registration as filed with the Securities and Exchange 
        Commission or a substantially similar disclosure 
        application as determined by and filed with the 
        Secretary.
    (5) Any qualified investment adviser that acknowledges it 
is a fiduciary pursuant to paragraph (3)(A)(ii) shall be deemed 
a fiduciary under this part with respect to the provision of 
investment advice to a plan participant or beneficiary.
    (g)(1) In the case of any eligible individual account plan 
(as defined in section 407(d)(3))--
          (A) no lockdown may take effect until at least 30 
        days after notice of such lockdown is provided by the 
        plan administrator to such participant or beneficiary, 
        and
          (B) any lockdown may not continue for an unreasonable 
        period.
    (2) The notice required by this subsection may be provided 
in written, electronic, or other appropriate form to the extent 
that such form is reasonably accessible to the participant or 
beneficiary.
    (3) For purposes of this subsection, the term lockdown 
means any suspension, restriction, or similar limitation which 
is imposed on the ability of a participant or beneficiary to 
exercise control over the assets in his or her account as 
otherwise generally provided under the terms of the plan (as 
determined under regulations of the Secretary). Any limitation 
or restriction that may govern the frequency of transfers 
between investment vehicles shall not be treated as a 
suspension referred to in the preceding sentence to the extent 
such limitation or restriction is disclosed to participants or 
beneficiaries through the summary plan description or materials 
describing specific investment alternatives under the plan.

SEC. 409. LIABILITY FOR BREACH OF FIDUCIARY DUTY.

    (a) * * *
    (b)(1)(A) If an insider with respect to the plan sponsor of 
an employer individual account plan that holds employer 
securities that are readily tradable on an established 
securities market--
          (i) knowingly participates in a breach of fiduciary 
        responsibility to which subsection (a) applies, or
          (ii) knowingly undertakes to conceal such a breach,
such insider shall be personally liable under this subsection 
for such breach in the same manner as the fiduciary who commits 
such breach.
    (B) For purposes of subparagraph (A), the term insider 
means, with respect to any plan sponsor of a plan to which 
subparagraph (A) applies--
          (i) any officer or director with respect to the plan 
        sponsor, or
          (ii) any independent qualified public accountant of 
        the plan or of the plan sponsor.
    (3) Any relief provided under this subsection or section 
409A--
          (A) to an individual account plan shall inure to the 
        individual accounts of the affected participants or 
        beneficiaries, and
          (B) to a participant or beneficiary shall be payable 
        to the individual account plan on behalf of such 
        participant or beneficiary unless such plan has been 
        terminated.
    [(b)] (c) No fiduciary shall be liable with respect to a 
breach of fiduciary duty under this subchapter if such breach 
was committed before he became a fiduciary or after he ceased 
to be a fiduciary unless such liability arises under subsection 
(b).

SEC. 409A. LIABILITY FOR BREACH OF FIDUCIARY DUTY IN 401(K) PLANS.

    (a) Any person who is a fiduciary with respect to an 
individual account plan that includes a qualified cash or 
deferred arrangement under section 401(k) of the Internal 
Revenue Code of 1986 who breaches any of the responsibilities, 
obligations, or duties imposed upon fiduciaries by this title 
shall be personally liable to make good to each participant and 
beneficiary of the plan any losses to such participant or 
beneficiary resulting from each such breach, and to restore to 
such participant or beneficiary and profits of such fiduciary 
which have been made through use of assets of the plan by the 
fiduciary, and shall be subject to such other equitable or 
remedial relief as the court may deem appropriate, including 
removal of such fiduciary. A fiduciary may also be removed for 
a violation of section 411 of this Act.
    (b) The right of participants and beneficiaries under 
subsection (a) to sue for breach of fiduciary duty with respect 
to an individual account plan that includes qualified cash or 
deferred arrangement under section 401(k) of such Code shall be 
in addition to all existing rights that participants and 
beneficiaries have under section 409, section 502, and any 
other provision of this title, and shall not be construed to 
give rise to any inference that such rights do not already 
exist under section 409, section 502, or any other provision of 
this title.
    (c) No fiduciary shall be liable with respect to a breach 
of fiduciary duty under this title if such breach was committed 
before he or she became a fiduciary or after he or she ceased 
to be a fiduciary.

                                BONDING

    Sec. 412. (a) * * *

           *       *       *       *       *       *       *

    (f) Notwithstanding the preceding provisions of this 
section, each fiduciary of an individual account plan which 
covers more than 100 participants shall be insured, in 
accordance with regulations prescribed by the Secretary, to 
provide reasonable coverage for failures to meet the 
requirements of this part.

                           CIVIL ENFORCEMENT

    Sec. 502. [1132] (a) A civil action may be brought--
          (1) by a participant or beneficiary--

           *       *       *       *       *       *       *

          (6) by the Secretary to collect any civil penalty 
        under paragraph (2), (4), [(5), or (6)] (5), (6), (7), 
        or (8) of subsection (c) or under subsection (i) or 
        (l);

           *       *       *       *       *       *       *

          (8) by the Secretary, or by an employer or other 
        person referred to in section 101(f)(1), (A) to enjoin 
        any act or practice which violates subsection (f) of 
        section 101, or (B) to obtain appropriate equitable 
        relief (i) to redress such violation or (ii) to enforce 
        such subsection; [or]
          (9) in the event that the purchase of an insurance 
        contract or insurance annuity in connection with 
        termination of an individual's status as a participant 
        covered under a pension plan with respect to all or any 
        portion of the participant's pension benefit under such 
        plan constitutes a violation of part 4 of this title or 
        the terms of the plan, by the Secretary, by an 
        individual who was a participant or beneficiary at the 
        time of the alleged violation, or by a fiduciary, to 
        obtain appropriate relief, including the posting of 
        security if necessary, to assure receipt by the 
        participant or beneficiary of the amounts provided or 
        to be provided by such insurance contract or annuity, 
        plus reasonable prejudgment interest on such 
        amounts[.]; and
          (10) by the Secretary, or other person referred to in 
        section 510--
                  (A) to enjoin any act or practice which 
                violates section 510 in connection with a 
                pension plan, or
                  (B) to obtain appropriate equitable or legal 
                relief to redress such violation or to enforce 
                section 510 in connection with a pension plan.

           *       *       *       *       *       *       *

    (c)(1) * * *

           *       *       *       *       *       *       *

    (7) The Secretary may assess a civil penalty against any 
plan administrator of an individual account plan of up to 
$1,000 a day from the date of such plan administrator's failure 
or refusal to provide participants or beneficiaries with a 
benefit statement on at least a quarterly basis in accordance 
with section 105(a)(1)(A)(i).
    (8) The Secretary may access a civil penalty against any 
person of up to $1,000 a day from the date of the person's 
failure or refusal to comply with the requirements of section 
404(c)(4) until such failure or refusal is corrected.
    [(7)] (9) The Secretary and the Secretary of Health and 
Human Services shall maintain such ongoing consultation as may 
be necessary and appropriate to coordinate enforcement under 
this subsection with enforcement under section 1144(c)(8) of 
the Social Security Act.

           *       *       *       *       *       *       *

    (n)(1) The pension rights under this title (including the 
right to maintain a civil action) may not be waived, deferred, 
or lost pursuant to any agreement not authorized under this 
title with specific reference to this subsection.
    (2) Paragraph (1) shall not apply to an agreement providing 
for arbitration or participation in any other nonjudicial 
procedure to resolve a dispute relating to a pension plan under 
this title if the agreement is entered into knowingly and 
voluntarily by the parties involved after the dispute has 
arisen or is pursuant to the terms of a collective bargaining 
agreement.
    Sec. 510. [1140] It shall be unlawful for any person to 
discharge, fine, suspend, expel, discipline, or discriminate 
against a participant or beneficiary for exercising any right 
to which he is entitled under the provisions of an employee 
benefit plan, this title, section 3001, or the Welfare and 
Pension Plans Disclosure Act [(29 U.S.C. 301 et seq.)] or for 
the purpose of interfering with the attainment of any right to 
which such participant may become entitled under the plan, this 
title, or the Welfare and Pension Plans Disclosure Act. It 
shall be unlawful for any person to discharge, fine, suspend, 
expel, or discriminate against any [person because he] other 
person because such other person has opposed any practice in 
connection with a pension plan that is made unlawful by this 
title or has given information or has testified or is about to 
testify in any inquiry or proceeding relating to this Act or 
the Welfare and Pension Plans Disclosure Act. The provisions of 
section 502 shall be applicable in the enforcement of this 
section.

           *       *       *       *       *       *       *


           Subtitle D--Office of Pension Participant Advocacy

SEC. 3051. OFFICE OF PENSION PARTICIPANT ADVOCACY.

    (a) Establishment.--
          (1) In general.--There is established in the 
        Department of Labor an office to be known as the 
        ``Office of Pension Participant Advocacy''.
          (2) Pension participant advocate.--The Office of 
        Pension Participant advocacy shall be under the 
        supervision and direction of an official to be known as 
        the ``Pension Participant Advocate'' who shall--
                  (A) have demonstrated experience in the area 
                of pension participant assistance, and
                  (B) be selected by the Secretary after 
                consultation with pension participant advocacy 
                organizations.
        The Pension Participant Advocate shall report directly 
        to the Secretary and shall be entitled to compensation 
        at the same rate as the highest rate of basic pay 
        established for the Senior Executive Service under 
        section 5382 of title 5, United States Code.
    (b) Functions of Office.--It shall be the function of the 
Office of Pension Participant Advocacy to--
          (1) evaluate the efforts of the Federal Government, 
        business, and financial, professional, retiree, labor, 
        women's, and other appropriate organizations in 
        assisting and protecting pension plan participants, 
        including--
                  (A) serving as a focal point for, and 
                actively seeking out, the receipt of 
                information with respect to the policies and 
                activities of the Federal Government, business, 
                and such organizations which affect such 
                participants,
                  (B) identifying significant problems for 
                pension plan participants and the capabilities 
                of the Federal Government, business, and such 
                organizations to address such problems, and
                  (C) developing proposals for changes in such 
                policies and activities to correct such 
                problems, and communicating such changes to the 
                appropriate officials,
          (2) promote the expansion of pension plan coverage 
        and the receipt of promised benefits by increasing the 
        awareness of the general public of the value of pension 
        plans and by protecting the rights of pension plan 
        participants, including--
                  (A) enlisting the cooperation of the public 
                and private sectors in disseminating 
                information, and
                  (B) forming private-public partnerships and 
                other efforts to assist pension plan 
                participants in receiving their benefits,
          (3) advocate for the full attainment of the rights of 
        pension plan participants, including by making pension 
        plan sponsors and fiduciaries aware of their 
        responsibilities,
          (4) give priority to the special needs of low- and 
        moderate-income participants,
          (5) develop needed information with respect to 
        pension plans, including information on the types of 
        existing pension plans, levels of employer and employee 
        contributions, vesting status, accumulated benefits, 
        benefits received, and forms of benefits, and
          (6) if the Advocate determines appropriate, pursue 
        claims on behalf of participants and beneficiaries 
        (including, upon request of any participant or 
        beneficiary, bringing any civil action on behalf of the 
        participant or beneficiary which the participant or 
        beneficiary is entitled to bring under section 
        502(a)(1)(B) and provide appropriate assistance in the 
        resolution of disputes between participants and 
        beneficiaries and pension plans, including assistance 
        in obtaining settlement agreements.
    (c) Reports.--
          (1) Annual report.--Not later than December 31 of 
        each calendar year, the Pension Participant Advocate 
        shall report to the Committee on Education and the 
        Workforce of the House of Representatives and the 
        Committee on Health, Education, Labor, and Pensions of 
        the Senate on its activities during the fiscal year 
        ending in the calendar year. Such report shall--
                  (A) identify significant problems the 
                Advocate has identified,
                  (B) include specific legislative and 
                regulatory changes to address the problems, and
                  (C) identify any actions taken to correct 
                problems identified in any previous report.
        The Advocate shall submit a copy of such report to the 
        Secretary and any other appropriate official at the 
        same time it is submitted to the committees of 
        Congress.
          (2) Specific reports.--The Pension Participant 
        Advocate shall report to the Secretary or any other 
        appropriate official any time the Advocate identifies a 
        problem which may be corrected by the Secretary or such 
        official.
          (3) Reports to be submitted directly.--The report 
        required under paragraph (1) shall be provided directly 
        to the committees of Congress without any prior review 
        or comment by the Secretary or any other Federal 
        officer or employee.
    (d) Specific Powers.--
          (1) Receipt of information.--Subject to such 
        confidentiality requirements as may be appropriate, the 
        Secretary and other Federal officials shall, upon 
        request, provide such information (including plan 
        documents) as may be necessary to enable the Pension 
        Participant Advocate to carry out the Advocate's 
        responsibilities under this section.
          (2) Appearances.--The Pension Participant Advocate 
        may--
                  (A) represent the views and interests of 
                pension plan participants before any Federal 
                agency, including, upon request of a 
                participant, in any proceeding involving the 
                participant, and
                  (B) upon request of a participant or 
                beneficiary, represent the participant or 
                beneficiary in any civil action which the 
                participant or beneficiary is entitled to bring 
                under section 502(a)(1)(B).
          (3) Contracting authority.--In carrying out 
        responsibilities under subsection (b)(5), the Pension 
        Participant Advocate may, in addition to any other 
        authority provided by law--
                  (A) contract with any person to acquire 
                statistical information with respect to pension 
                plan participants, and
                  (B) conduct direct surveys of pension plan 
                participants.

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