[House Report 108-248]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    108-248

======================================================================



 
   AMENDING THE SECURITIES LAWS TO PERMIT CHURCH PENSION PLANS TO BE 
                     INVESTED IN COLLECTIVE TRUSTS

                                _______
                                

 September 3, 2003.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1533]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 1533) to amend the securities laws to permit church 
pension plans to be invested in collective trusts, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Hearings.........................................................     2
Committee Consideration..........................................     2
Committee Votes..................................................     3
Committee Oversight Findings.....................................     3
Performance Goals and Objectives.................................     3
New Budget Authority, Entitlement Authority, and Tax Expenditures     3
Committee Cost Estimate..........................................     3
Congressional Budget Office Cost Estimate........................     3
Federal Mandates Statement.......................................     4
Advisory Committee Statement.....................................     4
Constitutional Authority Statement...............................     4
Applicability to Legislative Branch..............................     4
Section-by-Section Analysis......................................     4
Changes in Existing Law Made by the Bill, as Reported............     5

                          Purpose and Summary

    H.R. 1533 amends the Federal securities laws to grant 
church plans, as described in section 3(c)(14) of the 
Investment Company Act of 1940, the ability to invest their 
assets in collective trust funds, as described in section 
3(c)(11) of the Investment Company Act. The legislation thus 
provides parallel treatment under the securities laws of the 
assets of church plans to the treatment afforded the assets of 
governmental plans, as described in section 3(a)(2)(C) of the 
Securities Act of 1933. It permits Church Plan assets to be 
invested in a collective trust fund that also holds assets of 
certain trusts which meet the requirements for qualification 
under section 401 of the Internal Revenue Code and governmental 
plans.

                  Background and Need for Legislation

    Many pension plans diversify their holdings by investing a 
portion of their portfolios in rental real estate and other 
private investment offerings. Frequently, pension plans make 
these investments by joining other pension plans in a 
collective trust fund that is created and managed by a 
financial institution solely as an investment vehicle for 
pension programs. Current law prohibits Church Plans from 
participating in these arrangements.
    Section 3(c)(11) of the Investment Company Act of 1940 
excludes, among other things, any collective trust fund that 
consists of the assets of pension plans that meet the 
qualifications of section 401 of the Internal Revenue Code or 
governmental plans, or both, from the definition of investment 
company under the Investment Company Act. This reflects the 
change made in 1980 by Congress to broaden the Investment 
Company Act's exclusion of collective trust funds to permit 
investment in those funds by governmental plans. Section 
3(a)(2) of the Securities Act of 1933 and section 3(a)(12)(c) 
of the Securities Exchange Act of 1934 provide exemptions from 
various registration and disclosure rules for collective trust 
funds. However, church plans are not covered by these 
provisions.
    Church plans today make investments similar to those 
permitted for Collective Trust Funds. However, the inability of 
church plans to participate with trusts and governmental plans 
in collective trust funds unnecessarily increases the costs for 
these investments and makes it more difficult for church plans 
to diversify their investments.

                                Hearings

    No hearings were held on this legislation in the 108th 
Congress.

                        Committee Consideration

    The Subcommittee on Capital Markets, Insurance, and 
Government Sponsored Enterprises met in open session on July 
10, 2003, and approved H.R. 1533 for full Committee 
consideration, without amendment, by a voice vote.
    The Committee on Financial Services met in open session on 
July 23, 2003, and ordered H.R. 1533 reported to the House with 
a favorable recommendation by a voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken in conjunction with the consideration 
of this legislation. A motion by Mr. Oxley to report the bill 
to the House with a favorable recommendation was agreed to by a 
voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee made findings that are 
reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The administrators of church plans will use the authority 
granted by this legislation to diversify their holdings and 
increase the returns for their investors.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of budget authority, entitlement authority, or 
tax expenditures or revenues contained in the cost estimate 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, August 27, 2003.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1533, a bill to 
amend the securities laws to permit church pension plans to be 
invested in collective trusts.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Melissa 
Zimmerman.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 1533--A bill to amend the securities laws to permit church pension 
        plans to be invested in collective trusts

    H.R. 1533 would allow churches to pool their pension funds 
for the purposes of investment. Current law prohibits churches 
from pooling pension funds for this purpose. CBO estimates that 
implementing H.R. 1533 would have no effect on the federal 
budget.
    H.R. 1533 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    The CBO staff contact for this estimate is Melissa E. 
Zimmerman. This estimate was approved by Peter H. Fontaine, 
Deputy Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
defense and general welfare of the United States), and clause 3 
(relating to the power to regulate foreign and interstate 
commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Conforming amendments for church plan partcipation in 
        collective funds

    This section amends section 3(c)(11) of the Investment 
Company Act of 1940, section 3(a)(2) of the Securities Act of 
1933, and section 3(a)(12)(c) of the Securities Exchange Act of 
1934 to permit church plan assets to be invested in collective 
trust funds. These amendments to the Federal securities laws 
permit church plan assets to be included in a collective trust 
fund that also includes assets of trusts or governmental plans.
    The Committee does not intend that this legislation be 
construed as modifying the Internal Revenue Code requirement 
that a church plan be maintained by a church or a convention or 
an association of churches, and does not intend to modify the 
securities law requirement that a collective trust fund must be 
maintained by a bank or financial institution.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (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):

INVESTMENT COMPANY ACT OF 1940

           *       *       *       *       *       *       *



TITLE I--INVESTMENT COMPANIES

           *       *       *       *       *       *       *



                   DEFINITION OF INVESTMENT COMPANY 

  Sec. 3. (a)(1)  * * *

           *       *       *       *       *       *       *

  (c) Notwithstanding subsection (a), none of the following 
persons is an investment company within the meaning of this 
title:
          (1)  * * *

           *       *       *       *       *       *       *

          (11) Any employee's stock bonus, pension, or profit-
        sharing trust which meets the requirements for 
        qualification under section 401 of the Internal Revenue 
        Code of 1986; or any governmental plan described in 
        section 3(a)(2)(C) of the Securities Act of 1933; or 
        any collective trust fund maintained by a bank 
        consisting solely of assets of [such trusts or 
        governmental plans, or both] one or more of such 
        trusts, government plans, or church plans, companies or 
        accounts that are excluded from the definition of an 
        investment company under paragraph (14) of this 
        subsection; or any separate account the assets of which 
        are derived solely from (A) contributions under pension 
        or profit-sharing plans which meet the requirements of 
        section 401 of the Internal Revenue Code of 1986 or the 
        requirements for deduction of the employer's 
        contribution under section 404(a)(2) of such Code, (B) 
        contributions under governmental plans in connection 
        with which interests, participations, or securities are 
        exempted from the registration provisions of section 5 
        of the Securities Act of 1933 by section 3(a)(2)(C) of 
        such Act, and (C) advances made by an insurance company 
        in connection with the operation of such separate 
        account.

           *       *       *       *       *       *       *

                              ----------                              


                         SECURITITES ACT OF 1933


TITLE I

           *       *       *       *       *       *       *



                          EXEMPTED SECURITIES

  Sec. 3. (a) Except as hereinafter expressly provided, the 
provisions of this title shall not apply to any of the 
following classes of securities:
          (1)  * * *
          (2) Any security issued or guaranteed by the United 
        States or any Territory thereof, or by the District of 
        Columbia, or by any State of the United States, or by 
        any political subdivision of a State or Territory, or 
        by any public instrumentality of one or more States or 
        Territories, or by any person controlled or supervised 
        by and acting as an instrumentality of the Government 
        of the United States pursuant to authority granted by 
        the Congress of the United States; or any certificate 
        of deposit for any of the foregoing; or any security 
        issued or guaranteed by any bank; or any security 
        issued by or representing an interest in or a direct 
        obligation of a Federal Reserve bank; or any interest 
        or participation in any common trust fund or similar 
        fund that is excluded from the definition of the term 
        ``investment company'' under section 3(c)(3) of the 
        Investment Company Act of 1940; or any security which 
        is an industrial development bond (as defined in 
        section 103(c)(2) of the Internal Revenue Code of 1954) 
        the interest on which is excludable from gross income 
        under section 103(a)(1) of such Code if, by reason of 
        the application of paragraph (4) or (6) of section 
        103(c) of such Code (determined as if paragraphs 
        (4)(A), (5), and (7) were not included in such section 
        103(c)), paragraph (1) of such section 103(c) does not 
        apply to such security; or any interest or 
        participation in a single trust fund, or in a 
        collective trust fund maintained by a bank, or any 
        security arising out of a contract issued by an 
        insurance company, which interest, participation, or 
        security is issued in connection with (A) a stock 
        bonus, pension, or profit-sharing plan which meets the 
        requirements for qualification under section 401 of the 
        Internal Revenue Code of 1954, (B) an annuity plan 
        which meets the requirements for the deduction of the 
        employer's contributions under section 404(a)(2) of 
        such Code, [or] (C) a governmental plan as defined in 
        section 414(d) of such Code which has been established 
        by an employer for the exclusive benefit of its 
        employees or their beneficiaries for the purpose of 
        distributing to such employees or their beneficiaries 
        the corpus and income of the funds accumulated under 
        such plan, if under such plan it is impossible, prior 
        to the satisfaction of all liabilities with respect to 
        such employees and their beneficiaries, for any part of 
        the corpus or income to be used for, or diverted to, 
        purposes other than the exclusive benefit of such 
        employees or their beneficiaries, or (D) a church plan, 
        company, or account that is excluded from the 
        definition of an investment company under section 
        3(c)(14) of the Investment Company Act of 1940, other 
        than any plan described in clause (A), (B), or (C) of 
        this paragraph (i) the contributions under which are 
        held in a single trust fund or in a separate account 
        maintained by an insurance company for a single 
        employer and under which an amount in excess of the 
        employer's contribution is allocated to the purchase of 
        securities (other than interests or participations in 
        the trust or separate account itself) issued by the 
        employer or any company directly or indirectly 
        controlling, controlled by, or under common control 
        with the employer, (ii) which covers employees some or 
        all of whom are employees within the meaning of section 
        401(c)(1) of such Code, or (iii) which is a plan funded 
        by an annuity contract described in section 403(b) of 
        such Code. The Commission, by rules and regulations or 
        order, shall exempt from the provisions of section 5 of 
        this title any interest or participation issued in 
        connection with a stock bonus, pension, profit-sharing, 
        or annuity plan which covers employees some or all of 
        whom are employees within the meaning of section 
        401(c)(1) of the Internal Revenue Code of 1954, if and 
        to the extent that the Commission determines this to be 
        necessary or appropriate in the public interest and 
        consistent with the protection of investors and the 
        purposes fairly intended by the policy and provisions 
        of this title. For purposes of this paragraph, a 
        security issued or guaranteed by a bank shall not 
        include any interest or participation in any collective 
        trust fund maintained by a bank; and the term ``bank'' 
        means any national bank, or any banking institution 
        organized under the laws of any State, territory, or 
        the District of Columbia, the business of which is 
        substantially confined to banking and is supervised by 
        the State or territorial banking commission or similar 
        official; except that in the case of a common trust 
        fund or similar fund, or a collective trust fund, the 
        term ``bank'' has the same meaning as in the Investment 
        Company Act of 1940;

           *       *       *       *       *       *       *

                              ----------                              


                    SECURITIES EXCHANGE ACT OF 1934


TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *



                  DEFINITIONS AND APPLICATION OF TITLE

  Sec. 3. (a) When used in this title, unless the context 
otherwise requires--
          (1)  * * *

           *       *       *       *       *       *       *

          (12)(A)  * * *

           *       *       *       *       *       *       *

          (C) For purposes of subparagraph (A)(iv) of this 
        paragraph, the term ``qualified plan'' means (i) a 
        stock bonus, pension, or profit-sharing plan which 
        meets the requirements for qualification under section 
        401 of the Internal Revenue Code of 1954, (ii) an 
        annuity plan which meets the requirements for the 
        deduction of the employer's contribution under section 
        404(a)(2) of such Code, [or] (iii) a governmental plan 
        as defined in section 414(d) of such Code which has 
        been established by an employer for the exclusive 
        benefit of its employees or their beneficiaries for the 
        purpose of distributing to such employees or their 
        beneficiaries the corpus and income of the funds 
        accumulated under such plan, if under such plan it is 
        impossible, prior to the satisfaction of all 
        liabilities with respect to such employees and their 
        beneficiaries, for any part of the corpus or income to 
        be used for, or diverted to, purposes other than the 
        exclusive benefit of such employees or their 
        beneficiaries, or (iv) a church plan, company, or 
        account that is excluded from the definition of an 
        investment company under section 3(c)(14) of the 
        Investment Company Act of 1940, other than any plan 
        described in clause (i), (ii), or (iii) of this 
        subparagraph which (I) covers employees some or all of 
        whom are employees within the meaning of section 401(c) 
        of such Code, or (II) is a plan funded by an annuity 
        contract described in section 403(b) of such Code.

           *       *       *       *       *       *       *


                REGISTRATION REQUIREMENTS FOR SECURITIES

  Sec. 12. (a)  * * *

           *       *       *       *       *       *       *

  (g)(1)  * * *
  (2) The provisions of this subsection shall not apply in 
respect of--
          (A)  * * *

           *       *       *       *       *       *       *

          (H) any interest or participation in any collective 
        trust funds maintained by a bank or in a separate 
        account maintained by an insurance company which 
        interest or participation is issued in connection with 
        (i) a stock-bonus, pension, or profit-sharing plan 
        which meets the requirements for qualification under 
        section 401 of the Internal Revenue Code of 1954, [or] 
        (ii) an annuity plan which meets the requirements for 
        deduction of the employer's contribution under section 
        404(a)(2) of such Code, or (iii) a church plan, 
        company, or account that is excluded from the 
        definition of an investment company under section 
        3(c)(14) of the Investment Company Act of 1940.

           *       *       *       *       *       *       *


                                
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