[House Report 118-226]
[From the U.S. Government Publishing Office]
118th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 118-226
======================================================================
NO DISCRIMINATION IN MY BENEFITS ACT
_______
September 26, 2023.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Ms. Foxx, from the Committee on Education and the Workforce, submitted
the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 5338]
[Including cost estimate of the Congressional Budget Office]
The Committee on Education and the Workforce, to whom was
referred the bill (H.R. 5338) to amend the Employee Retirement
Income Security Act of 1974 to establish that fiduciaries must
act with prudence and loyalty when selecting service providers
for pension plans, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``No Discrimination in My Benefits
Act''.
SEC. 2. SERVICE PROVIDER SELECTION.
Section 404(a)(1) of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1104(a)(1)) is amended--
(1) in subparagraph (C), by striking ``and'';
(2) in subparagraph (D), by striking the period at the end
and inserting ``; and''; and
(3) by adding at the end the following new subparagraph:
``(E) by selecting, monitoring, and retaining any fiduciary,
counsel, employee, or service provider of the plan--
``(i) in accordance with subparagraphs (A) and (B);
and
``(ii) without regard to race, color, religion, sex,
or national origin.''.
Purpose
Employee benefit plans have one purpose: to provide
employee benefits. Employee benefit plan assets have one
purpose: to fund those benefits. The Employee Retirement Income
Security Act of 1974 (ERISA) was designed to ensure that the
financial interests of participants and beneficiaries in their
benefits do not take a back seat to advancing political and
social interests. H.R. 5338 reiterates a fundamental principle
already existing under ERISA: selecting a service provider for
an ERISA plan is a fiduciary act subject to ERISA's fiduciary
obligations of prudence and loyalty. H.R. 5338 also provides
that such selections must not be discriminatory and therefore
must be made without regard to race, color, religion, sex, or
national origin.
Committee Action
117TH CONGRESS
Second Session--Hearings
On February 26, 2022, the Committee on Education and Labor,
Subcommittee on Health, Employment, Labor, and Pensions, held a
hearing titled ``Improving Retirement Security and Access to
Mental Health Benefits.'' The hearing included discussion of
the Biden administration's attempt to put its radical
environmental and social agendas above the financial interests
of retirees by prioritizing environmental, social, and
governance (ESG) factors when investing retirement plan assets.
Testifying before the Subcommittee were Dr. Andrew Biggs,
Resident Scholar, American Enterprise Institute, Washington,
D.C.; Karen Handorf, Senior Counsel, Berger Montague,
Washington, D.C.; Amy Matsui, Director of Income Security and
Senior Counsel, National Women's Law Center, Washington, D.C.;
and Aron Szapiro, Head of Retirement Studies and Public Policy,
Morningstar Investment Management, Washington, D.C.
On June 14, 2022, the Committee on Education and Labor held
a hearing titled ``Examining the Policies and Priorities of the
U.S. Department of Labor'' to review the Fiscal Year 2023
budget priorities of the U.S. Department of Labor (DOL).
Testifying before the Committee was the Honorable Martin J.
Walsh, Secretary, DOL, Washington D.C. At this hearing,
concerns were raised regarding DOL's proposed rule titled
``Prudence and Loyalty in Selecting Plan Investments and
Exercising Shareholder Rights,'' including the Biden
administration's efforts to undermine an investment fiduciary's
duties of prudence and loyalty for ERISA plans, as well as the
administration's view on incorporating ESG into the
implementation of ERISA plans.
Second Session--Legislative Action
On March 18, 2022, Rep. Andy Barr (R-KY) introduced the
Ensuring Sound Guidance Act (H.R. 7151) with Rep. Rick Allen
(R-GA) as an original co-sponsor. The bill was referred to the
Committee on Education and Labor and the Committee on Financial
Services.
118TH CONGRESS
First Session--Hearings
On June 7, 2023, the Committee on Education and the
Workforce held a hearing on ``Examining the Policies and
Priorities of the U.S. Department of Labor'' to review the
Fiscal Year 2023 budget priorities of DOL. Testifying before
the Committee was the Honorable Julie Su, Acting Secretary,
DOL, Washington, D.C. At this hearing, DOL's December 1, 2022,
rule titled ``Prudence and Loyalty in Selecting Plan
Investments and Exercising Shareholder Rights'' was discussed,
including concerns regarding the Biden administration's efforts
to undermine an investment fiduciary's duties of prudence and
loyalty for ERISA plans and the administration's support for
incorporating ESG into the implementation of ERISA plans.
First Session--Legislative Action
On February 7, 2023, Rep. Barr introduced a joint
resolution of disapproval (H.J. Res. 30) under the
Congressional Review Act (CRA) to nullify the Biden
administration's DOL rule titled ``Prudence and Loyalty in
Selecting Plan Investments and Exercising Shareholder Rights.''
The resolution rescinds the rule and would have the effect of
reinstating the Trump administration's November 13, 2020, rule
on ESG investing for ERISA plans titled ``Financial Factors in
Selecting Plan Investments.'' On February 28, 2023, the House
of Representatives passed H.J. Res. 30 by a vote of 219-210,
with Senate passage on March 1 by a vote of 50-46. On March 20,
the President vetoed the measure. On March 23, the House failed
to override the veto by a vote of 219-200.
On September 5, 2023, Rep. Bob Good (R-VA) introduced the
No Discrimination in My Benefits Act (H.R. 5338). The bill was
referred to the Committee on Education and the Workforce. On
September 14, 2023, the Committee considered H.R. 5338 in
legislative session and reported it favorably, as amended, to
the House of Representatives by a recorded vote of 23-19. The
Committee adopted an Amendment in the Nature of a Substitute
(ANS) offered by Rep. Good that made minor technical changes.
Committee Views
INTRODUCTION
H.R. 5338, the No Discrimination in My Benefits Act,
reiterates a fundamental principle already existing under
ERISA: selecting a service provider for an ERISA plan is a
fiduciary act subject to ERISA's fiduciary obligations of
prudence and loyalty. H.R. 5338 also amends ERISA to codify a
prohibition against discrimination in selecting service
providers on the basis of race, color, religion, sex, or
national origin.
THE DUTY OF PRUDENCE AND LOYALTY UNDER EXISTING LAW
The selection of a service provider for an ERISA plan is a
fiduciary act.\1\ Under ERISA, a fiduciary must act solely in
the interest of participants and beneficiaries hand for the
exclusive purpose of providing benefits to participants and
their beneficiaries and of defraying reasonable expenses of
administering the plan (the ``exclusive purpose rule'').\2\
Courts have held that ERISA's exclusive purpose rule requires
fiduciaries to act with ``complete and undivided loyalty to the
beneficiaries''\3\ and to make decisions ``with an eye single
to the interests of participants and beneficiaries.''\4\
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\1\DOL, Field Assistance Bulletin No. 2002-02 (``In selecting a
service provider, plan fiduciaries must, consistent with the
requirements of [ERISA] section 404(a), act prudently and solely in the
interest of plan participants and beneficiaries and for the exclusive
purpose of providing benefits and defraying reasonable expenses of
administering the plan.''); see also Liss v. Smith, 991 F. Supp. 278,
300 (S.D.N.Y. 1998).
\2\ERISA Sec. Sec. 403(c), 404(a); 29 U.S.C. Sec. Sec. 1103(c),
1104(a). Hereinafter, this fiduciary duty is referred to as the
``exclusive purpose rule.''
\3\Donavan v. Mazzola, 716 F.2d 1226, 1238 (9th Cir. 1983)
(citation omitted).
\4\Donavan v. Bierwirth, 680 F.2d 263, 271 (2nd Cir. 1982).
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In 2014, the U.S. Supreme Court unanimously rejected non-
pecuniary public policy goals as a basis for relaxing ERISA's
fiduciary standards.\5\ The Court held that ERISA's duty of
prudence does not vary depending on a non-pecuniary goal, even
if that goal is set out in the plan document.\6\ The Court
stated,
---------------------------------------------------------------------------
\5\Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014)
(rejecting a ``presumption of prudence'' for acquisition and holding of
employer stock based on the non-pecuniary benefit of employee stock
ownership).
\6\Id. at 420 (``We cannot accept the claim . . . that the content
of ERISA's duty of prudence varies depending on the specific
nonpecuniary goal set our in an ERISA plan.''
Read in the context of ERISA as a whole, the term
`benefits' must be understood to refer to the sort of
financial benefits (such as retirement income) that
trustees who manage investments typically seek to
secure for the trust's beneficiaries. . . . The term
does not cover nonpecuniary benefits like those
supposed to arise from employee ownership of employer
stock.\7\
---------------------------------------------------------------------------
\7\Id. at 421.
The Court's holding applies to all non-pecuniary benefits.
Thus, under ERISA, there is no room for advancing collateral
goals such as ESG. ERISA also requires a fiduciary to act
``with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the
conduct of an enterprise of like character.''\8\ Thus,
fiduciaries are held to an expert prudence standard when
selecting service providers.
---------------------------------------------------------------------------
\8\ERISA Sec. 404(a)(1)(B), 29 U.S.C. Sec. 1104(a)(1)(B).
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DEMOCRATS' ATTACK ON ERISA'S FIDUCIARY STANDARD
In June 2022, Sens. Robert Menendez (D-NJ), Elizabeth
Warren (D-MA), Alex Padilla (D-CA), Tim Kaine (D-VA), and John
Hickenlooper (D-CO) sent letters (the ``Menendez letters'') to
25 large companies requesting information about the gender and
race of the asset managers of their pension plans. The letters
stated, ``Across the industry, the senior leadership level is
overwhelmingly white and male. . . . This is a serious problem.
. . .'' The letters' questions included ``What commitments has
your corporate pension fund made to increase opportunities for
women and minority owned asset management firms?'' and ``Does
your corporate pension fund have established priorities and
expectations for investment staff to seek diverse asset
managers?''\9\
---------------------------------------------------------------------------
\9\Press Release, Sen. Bob Menendez Newsroom, Menendez Leads Push
for Big Corporations to Improve Diversity Among Corporate Pension Fund
Managers (June 3, 2022).
---------------------------------------------------------------------------
In June 2023, the Supreme Court ruled in Students for Fair
Admission v. Harvard that basing college admissions decisions
on race violates the 14th Amendment to the United States
Constitution and Title VI of the Civil Rights Act.\10\ This
decision has encouraged skepticism and challenges regarding
corporate DEI (diversity, equity, inclusion) policies.
Moreover, the U.S. Supreme Court has unanimously rejected non-
pecuniary public policy goals as a basis for relaxing ERISA's
fiduciary standards.\11\ Therefore, the type of discrimination
encouraged by the Menendez letters is impermissible under ERISA
and inconsistent with Students for Fair Admission v. Harvard.
---------------------------------------------------------------------------
\10\143 S. Ct. 2141 (2023).
\11\Dudenhoeffer, 573 U.S. 409.
---------------------------------------------------------------------------
H.R. 5338, NO DISCRIMINATION IN MY BENEFITS ACT
H.R. 5338 protects the retirement savings and other ERISA-
covered benefits of the U.S. workforce. The bill reiterates a
fundamental principle already existing under ERISA: selecting a
service provider for an ERISA plan is a fiduciary act subject
to ERISA's fiduciary obligations of prudence and loyalty. The
bill also amends ERISA to codify a prohibition against
discrimination in selecting service providers on the basis of
race, color, religion, sex, or national origin.
CONCLUSION
To protect the financial interests of participants and
beneficiaries in their benefits and to reinforce ERISA's
existing duties of prudence and loyalty, H.R. 5338 ensures that
fiduciaries are informed that service provider selection is a
fiduciary act subject to ERISA's fiduciary obligations of
prudence and loyalty. H.R. 5338 also amends ERISA to codify a
prohibition against discrimination in selecting service
providers on the basis of race, color, religion, sex, or
national origin.
Summary
H.R. 5338 SECTION-BY-SECTION SUMMARY
Section 1. Short title
Names the bill as the ``No Discrimination in My
Benefits Act''
Section 2. Selection of service providers
Section 2(a) amends ERISA Section 404(a) by stating that
when selecting, monitoring, and retaining any fiduciary,
counsel, employee, or service provider of an ERISA plan,
ERISA's fiduciary duties of prudence and loyalty apply. In
addition, such actions must be taken without regard to race,
color, religion, sex, or national origin.
Explanation of Amendments
The amendments, including the amendment in the nature of a
substitute, are explained in the body of this report.
Application of Law to the Legislative Branch
Section 102(b)3 of Public Law 104-1 requires a description
of the application of this bill to the legislative branch. H.R.
5338 takes important steps to protect the interests of the
workforce in their benefits provided under ERISA plans with
respect to selecting, monitoring, and retaining fiduciaries,
counsels, employees, or service providers of a plan. H.R. 5338
is applicable only to investments subject to ERISA and
therefore does not affect the legislative branch.
Unfunded Mandate Statement
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act of 1974, Pub. L. No. 93-344 (as amended
by Section 101(a)(2) of the Unfunded Mandates Reform Act of
1995, Pub. L. No. 104-4), the Committee adopts as its own the
cost estimate prepared by the Director of the Congressional
Budget Office (CBO) pursuant to section 402 of the
Congressional Budget and Impoundment Control Act of 1974.
Earmark Statement
H.R. 5338 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI of the Rules of the House of
Representatives.
Roll Call Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee Report to include for
each record vote on a motion to report the measure or matter
and on any amendments offered to the measure or matter the
total number of votes for and against and the names of the
Members voting for and against.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of General Performance Goals and Objectives
In accordance with clause (3)(c) of House rule XIII, the
goal of H.R. 5338 is to protect the interests of the workforce
in their benefits provided under ERISA plans with respect to
proxy voting. The goal of H.R. 5338 is to protect the interests
of the workforce in their benefits provided under ERISA plans
with respect to selecting, monitoring, and retaining
fiduciaries, counsels, employees, or service providers of a
plan.
Duplication of Federal Programs
No provision of H.R. 5338 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the committee's oversight findings and recommendations are
reflected in the body of this report.
Required Committee Hearing and Related Hearings
In compliance with clause 3(c)(6) of rule XIII of the Rules
of the House of Representatives, the following hearing held
during the 118th Congress was used to develop or consider H.R.
5338: ``Examining the Policies and Priorities of the U.S.
Department of Labor''.
New Budget Authority and CBO Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause 3(c)(3) of rule XIII of the Rules of
the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee has received
the following estimate for H.R. 5338 from the Director of the
Congressional Budget Office:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Bill summaries: On September 14, 2023, the Committee on
Education and the Workforce ordered to be reported four bills
related to the investments of retirement plans. This document
provides estimates for each piece of legislation.
Generally, the bills would:
Change the standards that the fiduciaries of
private pension plans must use when making investment
decisions, including decisions on whether and how to
vote proxies and decisions about selecting plan
employees.
Require plans to provide information to
participants investing in brokerage windows, which
allow participants to select from a broad variety of
investments.
Background: Under the Employee Retirement Income Security
Act of 1974 (ERISA), fiduciaries of private pension plans must
act in the interest of plan participants, including when making
investment decisions. The rule ``Financial Factors in Selecting
Plan Investments,'' issued on November 13, 2020, required
fiduciaries to make investment decisions based solely on
``pecuniary factors.'' That rule included a ``tiebreaker''
standard, under which fiduciaries could consider other benefits
when ``alternative investment options are economically
indistinguishable.'' A related rule, ``Fiduciary Duties
Regarding Proxy Voting and Shareholder Rights,'' issued on
December 16, 2020, guided whether and how fiduciaries were to
exercise proxy votes. That rule stated that fiduciaries must
make such decisions ``for the exclusive purpose of providing
benefits to participants.''
On December 1, 2022, the Department of Labor (DOL) issued a
new rule, ``Prudence and Loyalty in Selecting Plan Investments
and Exercising Shareholder Rights,'' which clarified how plan
fiduciaries may consider climate change and other
environmental, social, or governance (commonly referred to as
ESG) factors when making investment decisions. Under the new
regulation, fiduciaries may consider ``the economic effects of
climate change and other environmental, social, or governance
factors,'' but investment decisions ``may not subordinate the
interests of the participants and beneficiaries in their
retirement income or financial benefits under the plan to other
objectives, and may not sacrifice investment return or take on
additional investment risk.''
For additional background, see CBO's estimate of H.J. Res.
30, which disapproved the 2022 rule. The resolution was
approved by the Congress but vetoed by the President, so that
rule remains in effect.
Estimated Federal cost: The costs of the legislation fall
within budget function 600 (income security).
Basis of estimate: CBO and the staff of the Joint Committee
on Taxation (JCT) estimate that none of the bills would affect
expected revenues or net direct spending. CBO estimates that
implementing each of the bills would affect spending subject to
appropriation. This cost estimate does not include any effects
of interaction among the bills. If all four bills were combined
and enacted as a single piece of legislation, CBO expects that
the net difference in estimated costs would be insignificant.
H.R. 5337, the Retirement Proxy Protection Act, would
specify plans' obligations relating to proxy voting. It would
reinstate many of the provisions included in the December 2020
rule ``Fiduciary Duties Regarding Proxy Voting and Shareholder
Rights.''
H.R. 5338, the No Discrimination in My Benefits Act, would
require that any selection of plan employees or service
providers be made ``without regard to race, color, religion,
sex, or national origin.''
H.R. 5339, the RETIRE Act, would reinstate many of the
provisions in the November 2020 rule ``Financial Factors in
Selecting Plan Investments.''
H.R. 5340, the Providing Complete Information to Retirement
Investors Act, would require the provision of additional
information to plan participants before they select nonstandard
investments. In self-directed pension plans, such as 401(k)s,
participants generally select from a menu of designated
investment alternatives offered by the plan. Some plans also
offer ``brokerage windows,'' which allow participants access to
a broad variety of investments.
Direct spending and revenues: Enacting H.R. 5337, H.R.
5338, or H.R. 5339 could affect federal revenues if the amount
that individuals or employers contribute to tax-preferred plans
changed. Additionally, premiums (which are recorded as
offsetting receipts and reduce direct spending) received by the
Pension Benefit Guaranty Corporation could be affected because
those premiums are based in part on the amount of plan assets.
However, because fiduciaries must maximize investment
performance, CBO and JCT do not expect H.R. 5337, H.R. 5338, or
H.R. 5339 to substantially affect investment outcomes.
Projections of investment returns are inherently uncertain, but
we expect an equally likely chance of small increases or small
decreases in federal revenues and outlays stemming from this
resolution. The new rule may induce individual employers and
workers to raise or lower their pension contributions, but CBO
and JCT project that total contributions will not change and
thus there would be no effect on expected revenues and net
direct spending.
Under H.R. 5340, plans would be required to warn
participants in brokerage windows about the extra potential
risk associated with those investments. CBO and JCT do not
expect H.R. 5340 to significantly change participants'
investment choices, and to the extent that they do change, we
expect an equally likely chance of small increases or small
decreases in federal revenues and outlays.
Spending subject to appropriation: CBO estimates that each
of the bills would increase spending subject to appropriation
by insignificant amounts, less than $500,000 over the 2023-2028
period. The administrative burden on DOL to issue the
regulations associated with the legislation would be minimal.
Based on experience with similar changes, CBO estimates that
administrative costs would be insignificant. Any such spending
would be subject to the availability of appropriated funds.
Pay-As-You-Go considerations: None.
Increase in long-term net direct spending and deficits:
None.
Mandates: H.R. 5337 would impose a private-sector mandate
as defined in the Unfunded Mandates Reform Act (UMRA) by
prohibiting ERISA plan fiduciaries from prioritizing a non-
pecuniary objective when exercising shareholder rights. CBO
estimates that the cost of the mandate would not exceed the
private-sector threshold established in UMRA ($198 million in
2023, adjusted annually for inflation). The bill would not
impose any intergovernmental mandates.
CBO has not reviewed H.R. 5338 for intergovernmental or
private-sector mandates. Section 4 of UMRA excludes from the
application of that act any legislative provisions that would
establish or enforce statutory rights prohibiting
discrimination. CBO has determined that this legislation falls
within that exclusion because it would prohibit discrimination
in hiring or retaining personnel based on race, color,
religion, sex, or national origin.
H.R. 5339 would not impose any private-sector or
intergovernmental mandates as defined in UMRA.
H.R. 5340 would impose a private-sector mandate as defined
in UMRA by requiring pension plans that offer brokerage windows
to warn participants of potential risk associated with
alternative investments. Because of the small burden associated
with providing an additional warning, CBO estimates that the
cost of the mandate would not exceed the private-sector
threshold established in UMRA ($198 million in 2023, adjusted
annually for inflation). The bill would not impose any
intergovernmental mandates.
Estimate prepared by: Federal costs: Noah Meyerson; Federal
revenues: Staff of the Joint Committee on Taxation; Mandates:
Staff of the Joint Committee on Taxation and Andrew Laughlin.
Estimate reviewed by: Justin Humphrey, Chief, Finance,
Housing, and Education Cost Estimates Unit; Kathleen
FitzGerald, Chief, Public and Private Mandates Unit; H. Samuel
Papenfuss, Deputy Director of Budget Analysis.
Estimate approved by: Phillip L. Swagel, Director,
Congressional Budget Office.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 5338.
However, clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when, as with the present report,
the committee adopts as its own the cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget Act.
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 italics, and existing law in which no
change is proposed is shown in roman):
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
* * * * * * *
TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS
* * * * * * *
Subtitle B--Regulatory Provisions
* * * * * * *
Part 4--Fiduciary Responsibility
* * * * * * *
FIDUCIARY DUTIES
Sec. 404. (a)(1) Subject to sections 403(c) and (d), 4042,
and 4044, a fiduciary shall discharge his duties with respect
to a plan solely in the interest of the participants and
beneficiaries and--
(A) for the exclusive purpose of:
(i) providing benefits to participants and
their beneficiaries; and
(ii) defraying reasonable expenses of
administering the plan;
(B) with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a
like character and with like aims;
(C) by diversifying the investments of the plan so as
to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so; [and]
(D) in accordance with the documents and instruments
governing the plan insofar as such documents and
instruments are consistent with the provisions of this
title and title IV[.]; and
(E) by selecting, monitoring, and retaining any
fiduciary, counsel, employee, or service provider of
the plan--
(i) in accordance with subparagraphs (A) and
(B); and
(ii) without regard to race, color, religion,
sex, or national origin.
(2) In the case of an eligible individual account plan (as
defined in section 407(d)(3)), the diversification requirement
of paragraph (1)(C) and the prudence requirement (only to the
extent that it requires diversification) of paragraph (1)(B) is
not violated by acquisition or holding of qualifying employer
real property or qualifying employer securities (as defined in
section 407(d)(4) and (5)).
(b) Except as authorized by the Secretary by regulation, no
fiduciary may maintain the indicia of ownership of any assets
of a plan outside the jurisdiction of the district courts of
the United States.
(c)(1)(A) 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 the assets in his account
(as determined under regulations of the Secretary)--
(i) such participant or beneficiary shall not be
deemed to be a fiduciary by reason of such exercise,
and
(ii) no person who is otherwise a fiduciary 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
clause shall not apply in connection with such
participant or beneficiary for any blackout period
during which the ability of such participant or
beneficiary to direct the investment of the assets in
his or her account is suspended by a plan sponsor or
fiduciary.
(B) If a person referred to in subparagraph (A)(ii) meets the
requirements of this title in connection with authorizing and
implementing the blackout period, any person who is otherwise a
fiduciary shall not be liable under this title for any loss
occurring during such period.
(C) For purposes of this paragraph, the term ``blackout
period'' has the meaning given such term by section 101(i)(7).
(2) In the case of a simple retirement account
established pursuant to a qualified salary reduction
arrangement under section 408(p) of the Internal
Revenue Code of 1986, a participant or beneficiary
shall, for purposes of paragraph (1), be treated as
exercising control over the assets in the account upon
the earliest of--
(A) an affirmative election among investment
options with respect to the initial investment
of any contribution,
(B) a rollover to any other simple retirement
account or individual retirement plan, or
(C) one year after the simple retirement
account is established.
No reports, other than those required under section
101(g), shall be required with respect to a simple
retirement account established pursuant to such a
qualified salary reduction arrangement.
(3) In the case of a pension plan which makes a
transfer to an individual retirement account or annuity
of a designated trustee or issuer under section
401(a)(31)(B) of the Internal Revenue Code of 1986, the
participant or beneficiary shall, for purposes of
paragraph (1), be treated as exercising control over
the assets in the account or annuity upon--
(A) the earlier of--
(i) a rollover of all or a portion of
the amount to another individual
retirement account or annuity; or
(ii) one year after the transfer is
made; or
(B) a transfer that is made in a manner
consistent with guidance provided by the
Secretary.
(4)(A) In any case in which a qualified change in
investment options occurs in connection with an
individual account plan, a participant or beneficiary
shall not be treated for purposes of paragraph (1) as
not exercising control over the assets in his account
in connection with such change if the requirements of
subparagraph (C) are met in connection with such
change.
(B) For purposes of subparagraph (A), the term
``qualified change in investment options'' means, in
connection with an individual account plan, a change in
the investment options offered to the participant or
beneficiary under the terms of the plan, under which--
(i) the account of the participant or
beneficiary is reallocated among one or more
remaining or new investment options which are
offered in lieu of one or more investment
options offered immediately prior to the
effective date of the change, and
(ii) the stated characteristics of the
remaining or new investment options provided
under clause (i), including characteristics
relating to risk and rate of return, are, as of
immediately after the change, reasonably
similar to those of the existing investment
options as of immediately before the change.
(C) The requirements of this subparagraph are met in
connection with a qualified change in investment
options if--
(i) at least 30 days and no more than 60 days
prior to the effective date of the change, the
plan administrator furnishes written notice of
the change to the participants and
beneficiaries, including information comparing
the existing and new investment options and an
explanation that, in the absence of affirmative
investment instructions from the participant or
beneficiary to the contrary, the account of the
participant or beneficiary will be invested in
the manner described in subparagraph (B),
(ii) the participant or beneficiary has not
provided to the plan administrator, in advance
of the effective date of the change,
affirmative investment instructions contrary to
the change, and
(iii) the investments under the plan of the
participant or beneficiary as in effect
immediately prior to the effective date of the
change were the product of the exercise by such
participant or beneficiary of control over the
assets of the account within the meaning of
paragraph (1).
(5) Default investment arrangements.--
(A) In general.--For purposes of paragraph
(1), a participant or beneficiary in an
individual account plan meeting the notice
requirements of subparagraph (B) shall be
treated as exercising control over the assets
in the account with respect to the amount of
contributions and earnings which, in the
absence of an investment election by the
participant or beneficiary, are invested by the
plan in accordance with regulations prescribed
by the Secretary. The regulations under this
subparagraph shall provide guidance on the
appropriateness of designating default
investments that include a mix of asset classes
consistent with capital preservation or long-
term capital appreciation, or a blend of both.
(B) Notice requirements.--
(i) In general.--The requirements of
this subparagraph are met if each
participant or beneficiary--
(I) receives, within a
reasonable period of time
before each plan year, a notice
explaining the employee's right
under the plan to designate how
contributions and earnings will
be invested and explaining how,
in the absence of any
investment election by the
participant or beneficiary,
such contributions and earnings
will be invested, and
(II) has a reasonable period
of time after receipt of such
notice and before the beginning
of the plan year to make such
designation.
(ii) Form of notice.--The
requirements of clauses (i) and (ii) of
section 401(k)(12)(D) of the Internal
Revenue Code of 1986 shall apply with
respect to the notices described in
this subparagraph.
(6) Default investment arrangements for a pension-
linked emergency savings account.--For purposes of
paragraph (1), a participant in a pension-linked
emergency savings account shall be treated as
exercising control over the assets in the account with
respect to the amount of contributions and earnings
which are invested in accordance with section
801(c)(1)(A)(iii).
(d)(1) If, in connection with the termination of a pension
plan which is a single-employer plan, there is an election to
establish or maintain a qualified replacement plan, or to
increase benefits, as provided under section 4980(d) of the
Internal Revenue Code of 1986, a fiduciary shall discharge the
fiduciary's duties under this title and title IV in accordance
with the following requirements:
(A) In the case of a fiduciary of the terminated
plan, any requirement--
(i) under section 4980(d)(2)(B) of such Code
with respect to the transfer of assets from the
terminated plan to a qualified replacement
plan, and
(ii) under section 4980(d)(2)(B)(ii) or
4980(d)(3) of such Code with respect to any
increase in benefits under the terminated plan.
(B) In the case of a fiduciary of a qualified
replacement plan, any requirement--
(i) under section 4980(d)(2)(A) of such Code
with respect to participation in the qualified
replacement plan of active participants in the
terminated plan,
(ii) under section 4980(d)(2)(B) of such Code
with respect to the receipt of assets from the
terminated plan, and
(iii) under section 4980(d)(2)(C) of such
Code with respect to the allocation of assets
to participants of the qualified replacement
plan.
(2) For purposes of this subsection--
(A) any term used in this subsection which is also
used in section 4980(d) of the Internal Revenue Code of
1986 shall have the same meaning as when used in such
section, and
(B) any reference in this subsection to the Internal
Revenue Code of 1986 shall be a reference to such Code
as in effect immediately after the enactment of the
Omnibus Budget Reconciliation Act of 1990.
(e) Safe Harbor for Annuity Selection.--
(1) In general.--With respect to the selection of an
insurer for a guaranteed retirement income contract,
the requirements of subsection (a)(1)(B) will be deemed
to be satisfied if a fiduciary--
(A) engages in an objective, thorough, and
analytical search for the purpose of
identifying insurers from which to purchase
such contracts;
(B) with respect to each insurer identified
under subparagraph (A)--
(i) considers the financial
capability of such insurer to satisfy
its obligations under the guaranteed
retirement income contract; and
(ii) considers the cost (including
fees and commissions) of the guaranteed
retirement income contract offered by
the insurer in relation to the benefits
and product features of the contract
and administrative services to be
provided under such contract; and
(C) on the basis of such consideration,
concludes that--
(i) at the time of the selection, the
insurer is financially capable of
satisfying its obligations under the
guaranteed retirement income contract;
and
(ii) the relative cost of the
selected guaranteed retirement income
contract as described in subparagraph
(B)(ii) is reasonable.
(2) Financial capability of the insurer.--A fiduciary
will be deemed to satisfy the requirements of
paragraphs (1)(B)(i) and (1)(C)(i) if--
(A) the fiduciary obtains written
representations from the insurer that--
(i) the insurer is licensed to offer
guaranteed retirement income contracts;
(ii) the insurer, at the time of
selection and for each of the
immediately preceding 7 plan years--
(I) operates under a
certificate of authority from
the insurance commissioner of
its domiciliary State which has
not been revoked or suspended;
(II) has filed audited
financial statements in
accordance with the laws of its
domiciliary State under
applicable statutory accounting
principles;
(III) maintains (and has
maintained) reserves which
satisfies all the statutory
requirements of all States
where the insurer does
business; and
(IV) is not operating under
an order of supervision,
rehabilitation, or liquidation;
(iii) the insurer undergoes, at least
every 5 years, a financial examination
(within the meaning of the law of its
domiciliary State) by the insurance
commissioner of the domiciliary State
(or representative, designee, or other
party approved by such commissioner);
and
(iv) the insurer will notify the
fiduciary of any change in
circumstances occurring after the
provision of the representations in
clauses (i), (ii), and (iii) which
would preclude the insurer from making
such representations at the time of
issuance of the guaranteed retirement
income contract; and
(B) after receiving such representations and
as of the time of selection, the fiduciary has
not received any notice described in
subparagraph (A)(iv) and is in possession of no
other information which would cause the
fiduciary to question the representations
provided.
(3) No requirement to select lowest cost.--Nothing in
this subsection shall be construed to require a
fiduciary to select the lowest cost contract. A
fiduciary may consider the value of a contract,
including features and benefits of the contract and
attributes of the insurer (including, without
limitation, the insurer's financial strength) in
conjunction with the cost of the contract.
(4) Time of selection.--
(A) In general.--For purposes of this
subsection, the time of selection is--
(i) the time that the insurer and the
contract are selected for distribution
of benefits to a specific participant
or beneficiary; or
(ii) if the fiduciary periodically
reviews the continuing appropriateness
of the conclusion described in
paragraph (1)(C) with respect to a
selected insurer, taking into account
the considerations described in such
paragraph, the time that the insurer
and the contract are selected to
provide benefits at future dates to
participants or beneficiaries under the
plan.
Nothing in the preceding sentence shall be
construed to require the fiduciary to review
the appropriateness of a selection after the
purchase of a contract for a participant or
beneficiary.
(B) Periodic review.--A fiduciary will be
deemed to have conducted the periodic review
described in subparagraph (A)(ii) if the
fiduciary obtains the written representations
described in clauses (i), (ii), and (iii) of
paragraph (2)(A) from the insurer on an annual
basis, unless the fiduciary receives any notice
described in paragraph (2)(A)(iv) or otherwise
becomes aware of facts that would cause the
fiduciary to question such representations.
(5) Limited liability.--A fiduciary which satisfies
the requirements of this subsection shall not be liable
following the distribution of any benefit, or the
investment by or on behalf of a participant or
beneficiary pursuant to the selected guaranteed
retirement income contract, for any losses that may
result to the participant or beneficiary due to an
insurer's inability to satisfy its financial
obligations under the terms of such contract.
(6) Definitions.--For purposes of this subsection--
(A) Insurer.--The term ``insurer'' means an
insurance company, insurance service, or
insurance organization, including affiliates of
such companies.
(B) Guaranteed retirement income contract.--
The term ``guaranteed retirement income
contract'' means an annuity contract for a
fixed term or a contract (or provision or
feature thereof) which provides guaranteed
benefits annually (or more frequently) for at
least the remainder of the life of the
participant or the joint lives of the
participant and the participant's designated
beneficiary as part of an individual account
plan.
* * * * * * *
MINORITY VIEWS
INTRODUCTION
H.R. 5338, the No Discrimination in My Benefits Act, amends
the Employee Retirement Income Security Act of 1974 (ERISA)\1\
to prohibit plan fiduciaries from selecting, monitoring, and
retaining any fiduciary, counsel, employee, or service provider
for the plan based on race, color, religion, sex, or national
origin. The bill undermines efforts to increase diversity in
the asset management industry that Committee Democrats, among
others, strongly support. H.R. 5338 is opposed by organizations
such as the AFL-CIO, Americans for Financial Reform, and US
SIF: The Forum for Sustainable and Responsible Investment (US
SIF).
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\1\29 U.S.C. Sec. 1104.
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H.R. 5338 PERPETUATES THE UNACCEPTABLE STATUS QUO IN THE ASSEST
MANAGEMENT INDUSTRY
Women and people of color are significantly
underrepresented in the asset management industry.
Specifically, according to the Government Accountability Office
(GAO), 1 percent of the $70 trillion in global financial assets
under management are managed by women or minority-owned
firms.\2\ There have been efforts to increase diversity among
asset managers in the private sector and the federal
government, including the Pension Benefit Guaranty
Corporation's (PBGC) Smaller Asset Management Program. H.R.
5338 is viewed as a ``blatant attempt to obstruct efforts to
address long-standing racial and gender under-representation in
management.''\3\
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\2\U.S. Gov't Accountability Off., GAO-17-726, Investment
Management: Key Practices Could Provide More Options for Federal
Entities and Opportunities for Federal Entities and Opportunities for
Minority- and Women-Owned Asset Managers, (2017), https://www.gao.gov/
products/gao-17-726.
\3\See letter from AFL-CIO to Chrwmn. Virginia Foxx & Ranking
Member Bobby Scott, H. Comm. on Educ. & the Workforce, Full Committee
Markup, (Sept. 14, 2023), https://aflcio.org/about/advocacy/
legislative-alerts/letter-opposing-legislation-would-undermine-
retirement-security.
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H.R. 5338 APPEARS TO BE PREMISED ON A FALSE CHOICE
During the Committee markup of H.R. 5338, the bill's author
noted that Senate Democrats sent letters to companies
requesting information about the diversity among asset managers
of their pension plans.\4\ Specifically, the bill's author
claimed such letters requested answers on the companies' plans
to diversify their employees based on race and sex rather than
the skills and expertise that may lead to higher investment
returns; and the bill's author gave the impression that
Americans want only the latter.\5\ This is a false choice.
Retirement savers can have their assets managed by diverse
firms and expect strong investment returns. In fact, according
to the non-profit Knight Foundation which has conducted
research on the diversity of asset managers in the hedge fund,
mutual fund, private equity, and real estate industries, non-
diverse asset manager firms do not outperform diverse firms
across all asset classes.\6\ The financial services firm
Morningstar looked at women-run funds and found that they are
just as good as men at managing funds and there is ``some
indication that the industry might be better off with more
women at the helm of funds.''\7\
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\4\H. Comm. on Educ & the Workforce, Full Committee Markup, (Sept.
14, 2023), https://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=116367.
\5\Id.
\6\John Lerneret al., Knight Diversity of Asset Managers Research
Series: Industry, A Study of Ownership Diversity and Performance in the
Asset Management Industry, Knight Foundation, (2021), https://
knightfoundation.org/wp-content/uploads/2021/12/KDAM_Industry_2021.pdf.
\7\Madison Sargis & Kathryn Wing, Female Fund Manager Performance:
What Does Gender Have to Do With It?, Morningstar, https://
www.morningstar.com/views/blog/fund-managers/female-fund-manager-
performance.
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Had Committee Republicans held a legislative hearing on
H.R. 5338, Committee Members could have heard testimony and
asked witnesses' questions about the impact of diversity in the
asset management industry on investment performance.
Unfortunately, Committee Republicans failed to do hold a
legislative hearing on H.R. 5338 and instead hastily marked up
the bill shortly after it was introduced.
H.R. 5338 IS PART OF COMMITTEE REPUBLICANS' MISGUIDED WAR ON ESG
H.R. 5338 was among the ``legislative package'' announced
by Committee Republicans on September 6, 2023 ``to ensure
financial institutions are focused on maximizing returns in
retirement plans rather than on woke environmental, social, and
corporate governance (ESG) factors.''\8\ This is another false
choice. Maximizing returns is connected to careful
consideration of ESG factors--and retirement plan fiduciaries
and major corporations understand this. One such corporation,
which serves millions of retirement plan participants, noted in
a comment letter to the Department of Labor that ``[t]he brand
equity of many publicly traded companies is strongly connected
to how they handle various ESG matters, and companies can face
significant reputational risk as a result of their decision-
making on such matters.''\9\ If reputational risk occurs, then
a company's stock value could suffer and that is directly
related to retirement savers' 401(k) plans. H.R. 5338 and the
other anti-ESG bills the Committee considered on September 14,
2023 illustrate that Committee Republicans are failing to
understand these same connections. Committee Democrats
understand ESG's relevance to and impact on workers' retirement
security. That is why we join those who strongly support
retirement plan fiduciaries' ability to consider ESG factors
when making investment decisions.
---------------------------------------------------------------------------
\8\Press Release, H. Comm. on Educ. & the Workforce, @EdWorkforce
Republicans Unveil Package to Combat Biden's Harmful ESG Rule, (Sept.
6, 2023), https://edworkforce.house.gov/news/
documentsingle.aspx?DocumentID=409502.
\9\Comment No. EBSA-2020-0008-0284, at 8. https://
www.regulations.gov/comment/EBSA-2020-0008-0284.
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CONCLUSION
As the Committee Ranking Member Bobby Scott (D-VA-3), put
it during the Committee's consideration of this bill, we should
be leaning in to increasing diversity in a sector that
desperately needs it, not layering on more barriers to entry--
which is what H.R. 5338 does. For the reasons stated above,
Committee Democrats opposed H.R. 5338 when the Committee
considered it on September 14, 2023. We urge the House of
Representatives to do the same.
Robert C. ``Bobby'' Scott,
Ranking Member.
Gregorio Kilili Camacho Sablan.
Mark DeSaulnier.
Jahana Hayes.
Haley M. Stevens.
[all]