[House Report 119-421]
[From the U.S. Government Publishing Office]
119th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 119-421
======================================================================
PROTECTING PRUDENT INVESTMENT OF RETIREMENT
SAVINGS ACT
_______
December 30, 2025.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Walberg, from the Committee on Education and Workforce, submitted
the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 2988]
[Including cost estimate of the Congressional Budget Office]
The Committee on Education and Workforce, to whom was
referred the bill (H.R. 2988) to amend the Employee Retirement
Income Security Act of 1974 to specify requirements concerning
the consideration of pecuniary and non-pecuniary factors, and
for other purposes, 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; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Protecting Prudent
Investment of Retirement Savings Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
DIVISION A--INCREASE RETIREMENT EARNINGS
Sec. 1001. Short title.
Sec. 1002. Limitation on consideration of non-pecuniary factors by
fiduciaries.
DIVISION B--NO DISCRIMINATION IN MY BENEFITS
Sec. 2001. Short title.
Sec. 2002. Service provider selection.
DIVISION C--RETIREMENT PROXY PROTECTION
Sec. 3001. Short title.
Sec. 3002. Exercise of shareholder rights.
DIVISION D--PROVIDING COMPLETE INFORMATION TO RETIREMENT INVESTORS
Sec. 4001. Short title.
Sec. 4002. Brokerage window disclosures.
DIVISION A--INCREASE RETIREMENT EARNINGS
SEC. 1001. SHORT TITLE.
This division may be cited as the ``Increase Retirement Earnings
Act''.
SEC. 1002. LIMITATION ON CONSIDERATION OF NON-PECUNIARY FACTORS BY
FIDUCIARIES.
(a) In General.--Section 404(a) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1104(a)) is amended by adding at the
end the following:
``(3) Interest Based on Pecuniary Factors.--
``(A) In general.--For purposes of paragraph (1), a fiduciary
shall be considered to act solely in the interest of the
participants and beneficiaries of the plan with respect to an
investment or investment course of action only if the
fiduciary's action with respect to such investment or
investment course of action is based solely on pecuniary
factors (except as provided in subparagraph (B)). The fiduciary
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 to
promote non-pecuniary benefits or goals. The weight given to
any pecuniary factor by a fiduciary shall reflect a prudent
assessment of the impact of such factor on risk and return.
``(B) Use of non-pecuniary factors for investment
alternatives.--Notwithstanding paragraph (A), if a fiduciary is
unable to distinguish between or among investment alternatives
or investment courses of action on the basis of pecuniary
factors alone, the fiduciary may use non-pecuniary factors as
the deciding factor if the fiduciary documents--
``(i) why pecuniary factors were not sufficient to
select a plan investment or investment course of
action;
``(ii) how the selected investment compares to the
alternative investments with regard to the composition
of the portfolio with regard to diversification, the
liquidity and current return of the portfolio relative
to the anticipated cash flow requirements of the plan,
and the projected return of the portfolio relative to
the funding objectives of the plan; and
``(iii) how the selected non-pecuniary factor or
factors are consistent with the interests of the
participants and beneficiaries in their retirement
income or financial benefits under the plan.
``(C) Investment alternatives for participant-directed
individual account plans.--In selecting or retaining investment
options for a pension plan described in subsection (c)(1)(A), a
fiduciary is not prohibited from considering, selecting, or
retaining an investment option on the basis that such
investment option promotes, seeks, or supports one or more non-
pecuniary benefits or goals, if--
``(i) the fiduciary satisfies the requirements of
paragraph (1) and subparagraphs (A) and (B) of this
paragraph in selecting or retaining any such investment
option; and
``(ii) such investment option is not added or
retained as, or included as a component of, a default
investment under subsection (c)(5) (or any other
default investment alternative) if its investment
objectives or goals or its principal investment
strategies include, consider, or indicate the use of
one or more non-pecuniary factors.
``(D) Definitions.--For the purposes of this paragraph:
``(i) The term `pecuniary factor' means a factor that
a fiduciary prudently determines is expected to have a
material effect on the risk or return of an investment
based on appropriate investment horizons consistent
with the plan's investment objectives and the funding
policy established pursuant to section 402(b)(1).
``(ii) The term `investment course of action' means
any series or program of investments or actions related
to a fiduciary's performance of the fiduciary's
investment duties, and includes the selection of an
investment fund as a plan investment, or in the case of
an individual account plan, a designated investment
alternative under the plan.''.
(b) Effective Date.--The amendments made by this section shall apply
to actions taken by a fiduciary on or after the date that is 12 months
after the date of enactment of this Act.
DIVISION B--NO DISCRIMINATION IN MY BENEFITS
SEC. 2001. SHORT TITLE.
This division may be cited as the ``No Discrimination in My Benefits
Act''.
SEC. 2002. 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.''.
DIVISION C--RETIREMENT PROXY PROTECTION
SEC. 3001. SHORT TITLE.
This division may be cited as the ``Retirement Proxy Protection
Act''.
SEC. 3002. EXERCISE OF SHAREHOLDER RIGHTS.
(a) In General.--Section 404 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1104) is amended by adding at the end
the following new subsection:
``(f) Exercise of Shareholder Rights.--
``(1) Authority to exercise shareholder rights.--
``(A) In general.--The fiduciary duty to manage plan
assets that are shares of stock includes the management
of shareholder rights appurtenant to those shares,
including the right to vote proxies. When deciding
whether to exercise a shareholder right and in
exercising such right, including the voting of proxies,
a fiduciary must act prudently and solely in the
interests of participants and beneficiaries and for the
exclusive purpose of providing benefits to participants
and beneficiaries and defraying the reasonable expenses
of administering the plan. The fiduciary duty to manage
shareholder rights appurtenant to shares of stock does
not require the voting of every proxy or the exercise
of every shareholder right.
``(B) Exception.--This subsection shall not apply to
voting, tender, and similar rights with respect to
qualifying employer securities or securities held in an
investment arrangement that is not a designated
investment alternative in the event such rights are
passed through pursuant to the terms of an individual
account plan to participants and beneficiaries with
accounts holding such securities.
``(2) Requirements for exercise of shareholder rights.--A
fiduciary, when deciding whether to exercise a shareholder
right and when exercising a shareholder right--
``(A) shall--
``(i) act solely in accordance with the
economic interest of the plan and its
participants and beneficiaries;
``(ii) consider any costs involved;
``(iii) evaluate material facts that form the
basis for any particular proxy vote or exercise
of shareholder rights; and
``(iv) maintain a record of any proxy vote,
proxy voting activity, or other exercise of a
shareholder right, including any attempt to
influence management; and
``(B) shall not subordinate the interests of
participants and beneficiaries in their retirement
income or financial benefits under the plan to any non-
pecuniary objective, or promote non-pecuniary benefits
or goals unrelated to those financial interests of the
plan's participants and beneficiaries.
``(3) Monitoring.--A fiduciary shall exercise prudence and
diligence in the selection and monitoring of a person, if any,
selected to advise or otherwise assist with the exercise of
shareholder rights, including by providing research and
analysis, recommendations on exercise of proxy voting or other
shareholder rights, administrative services with respect to
voting proxies, and recordkeeping and reporting services.
``(4) Investment managers and proxy advisory firms.--Where
the authority to vote proxies or exercise other shareholder
rights has been delegated to an investment manager pursuant to
section 403(a), or a proxy voting advisory firm or other person
who performs advisory services as to the voting of proxies or
the exercise of other shareholder rights, a responsible plan
fiduciary shall prudently monitor the proxy voting activities
of such investment manager or advisory firm and determine
whether such activities are in compliance with paragraphs (1)
and (2).
``(5) Voting policies.--
``(A) In general.--In deciding whether to vote a
proxy pursuant to this subsection, the plan fiduciary
may adopt a proxy voting policy, including a safe
harbor proxy voting policy described in subparagraph
(B), providing that the authority to vote a proxy shall
be exercised pursuant to specific parameters designed
to serve the economic interest of the plan.
``(B) Safe harbor voting policy.--With respect to a
decision not to vote a proxy, a fiduciary shall satisfy
the fiduciary responsibilities under this subsection if
such fiduciary adopts and follows a safe harbor proxy
voting policy that--
``(i) limits voting resources to particular
types of proposals that the fiduciary has
prudently determined are substantially related
to the business activities of the issuer or are
expected to have a material effect on the value
of the plan investment; or
``(ii) establishes that the fiduciary will
refrain from voting on proposals or particular
types of proposals when the assets of a plan
invested in the issuer relative to the total
assets of such plan are below 5 percent (or, in
the event such assets are under management,
when the assets under management invested in
the issuer are below 5 percent of the total
assets under management).
``(C) Exception.--No proxy voting policy adopted
pursuant to this paragraph shall preclude a fiduciary
from submitting a proxy vote when the fiduciary
determines that the matter being voted on is expected
to have a material economic effect on the investment
performance of a plan's portfolio (or the investment
performance of assets under management in the case of
an investment manager); provided, however, that in all
cases compliance with a safe harbor voting policy shall
be presumed to satisfy fiduciary responsibilities with
respect to decisions not to vote.
``(6) Review.--A fiduciary shall periodically review any
policy adopted under this subsection.''.
(b) Effective Date.--The amendments made by subsection (a) shall
apply to an exercise of shareholder rights occurring on or after
January 1, 2026.
DIVISION D--PROVIDING COMPLETE INFORMATION TO RETIREMENT INVESTORS
SEC. 4001. SHORT TITLE.
This division may be cited as the ``Providing Complete Information to
Retirement Investors Act''.
SEC. 4002. BROKERAGE WINDOW DISCLOSURES.
(a) In General.--Section 404(c) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1104(c)) is amended by adding at the
end the following new paragraph:
``(7) Notice requirements for brokerage windows.--
``(A) In general.--In the case of a pension plan
which provides for individual accounts and which
provides a participant or beneficiary the opportunity
to choose from designated investment alternatives, a
participant or beneficiary shall not be treated as
exercising control over assets in the account of the
participant or beneficiary unless, with respect to any
investment arrangement that is not a designated
investment alternative, each time before such a
participant or beneficiary directs an investment into,
out of, or within such investment arrangement, such
participant is notified of, and acknowledges, each
element of the notice described under paragraph (B).
``(B) Notice.--The notice described under this
paragraph is a four part information that is
substantially similar to the following information:
``1. Your retirement plan offers designated investment alternatives prudently selected and monitored by
fiduciaries for the purpose of enabling you to construct an appropriate retirement savings portfolio. In
selecting and monitoring designated investment alternatives, your plan's fiduciary considers the risk of loss
and the opportunity for gain (or other return) compared with reasonably available investment alternatives.
2. The investments available through this investment arrangement are not designated investment alternatives, and
have not been prudently selected and are not monitored by a plan fiduciary.
3. Depending on the investments you select through this investment arrangement, you may experience diminished
returns, higher fees, and higher risk than if you select from the plan's designated investment alternatives.
4. The following is a hypothetical illustration of the impact of return at 4 percent, 6 percent, and 8 percent
on your account balance projected to age 67.
``(C) Illustration.--The notice described under
paragraph (B) shall also include a graph displaying the
projected retirement balances of such participant or
beneficiary at age 67 if the account of such individual
were to achieve an annual return equal to each of the
following:
``(i) 4 percent.
``(ii) 6 percent.
``(iii) 8 percent.''.
(b) Designated Investment Alternative Defined.--Section 3 of such Act
(29 U.S.C. 1002) is amended by adding at the end the following new
paragraph:
``(46) Designated investment alternative.--
``(A) In general.--The term `designated investment
alternative' means any investment alternative
designated by a responsible fiduciary of an individual
account plan described in subsection 404(c) into which
participants and beneficiaries may direct the
investment of assets held in, or contributed to, their
individual accounts.
``(B) Exception.--The term `designated investment
alternative' does not include brokerage windows, self-
directed brokerage accounts, or similar plan
arrangements that enable participants and beneficiaries
to select investments beyond those designated by a
responsible plan fiduciary.''.
(c) Effective Date.--The amendment made by subsection (a) shall take
effect on January 1, 2027.
Purpose
The purpose of H.R. 2988, the Protecting Prudent Investment
of Retirement Savings Act, is to make clear that the financial
interests of employee benefit plan participants and
beneficiaries in their benefits come first.
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 discussed the Biden-
Harris 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.; Ms. Karen Handorf, Senior Counsel, Berger Montague,
Washington, D.C.; Ms. Amy Matsui, Director of Income Security
and Senior Counsel, National Women's Law Center, Washington,
D.C.; and Mr. 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). The
hearing included a discussion of concerns regarding the DOL's
proposed rule titled ``Prudence and Loyalty in Selecting Plan
Investments and Exercising Shareholder Rights,'' including the
Biden-Harris administration's efforts to undermine an
investment fiduciary's duties of prudence and loyalty toward
Employee Retirement Income Security Act of 1974 (ERISA)
employee benefit plans and the administration's view on
incorporating ESG into the implementation of ERISA plans.
Testifying before the Committee was the Honorable Martin J.
Walsh, Secretary of Labor, Washington, D.C.
118TH CONGRESS
First Session--Hearing
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. The hearing
discussed DOL's December 1, 2022, final rule titled ``Prudence
and Loyalty in Selecting Plan Investments and Exercising
Shareholder Rights,'' including concerns regarding the Biden-
Harris administration's efforts to undermine an investment
fiduciary's duties of prudence and loyalty when selecting and
monitoring investments for ERISA plans and the administration's
support for incorporating ESG into the administration of ERISA
plans. Testifying before the Committee was the Honorable Julie
A. Su, Acting Secretary, DOL, Washington, D.C.
First Session--Legislative Action
On February 7, 2023, Representative Andy Barr (R-KY)
introduced a joint resolution of disapproval (H.J. Res. 30)
under the Congressional Review Act to nullify the Biden-Harris
administration DOL's final rule titled ``Prudence and Loyalty
in Selecting Plan Investments and Exercising Shareholder
Rights.'' The resolution was referred to the Committee on
Education and the Workforce. The resolution rescinds the Biden-
Harris administration's rule and would have the effect of
reinstating the Trump administration's November 13, 2020, rule
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, 2023, the House of Representatives failed to
override the veto by a vote of 219-200.
On September 5, 2023, Representative Erin Houchin (R-IN)
introduced H.R. 5337, the Retirement Proxy Protection Act. The
bill was referred to the Committee on Education and the
Workforce. On September 14, 2023, the Committee considered H.R.
5337 in legislative session and reported it favorably, as
amended, to the House of Representatives by a recorded vote of
23-19. The Committee considered the following amendments to
H.R. 5337:
1. Representative Virginia Foxx (R-NC) offered an
Amendment in the Nature of a Substitute (ANS) that made
minor technical changes. The amendment was adopted by
voice vote.
2. Representative Mark DeSaulnier (R-CA) offered a
substitute amendment codifying the Biden-Harris
administration's ESG and proxy voting rule. The
amendment was defeated by a recorded vote of 19-23.
On September 5, 2023, Representative Bob Good (R-VA)
introduced H.R. 5338, 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
considered an ANS offered by Representative Good that made
minor technical changes. The amendment was adopted by voice
vote.
On September 5, 2023, Representative Rick W. Allen (R-GA)
introduced H.R. 5339, the Roll Back ESG to Increase Retirement
Earnings Act (RETIRE Act). The bill was referred to the
Committee on Education and the Workforce. On September 14,
2023, the Committee considered H.R. 5339 in legislative session
and reported it favorably, as amended, to the House of
Representatives by a recorded vote of 23-19. The Committee
considered the following amendments to H.R. 5339:
1. Representative Allen offered an ANS that made
minor technical changes. The amendment was adopted by
voice vote.
2. Representative Robert C. ``Bobby'' Scott (D-VA)
offered a substitute amendment to codify the Biden-
Harris administration's ESG investing rule. The
amendment was defeated by a vote of 19-23.
On September 5, 2023, Representative Jim Banks (R-IN)
introduced H.R. 5340, the Providing Complete Information to
Retirement Investors Act. The bill was referred to the
Committee on Education and the Workforce. On September 14,
2023, the Committee considered H.R. 5340 in legislative session
and reported it favorably, as amended, to the House of
Representatives by a recorded vote of 23-19. The Committee
considered an ANS offered by Representative Banks that made
minor technical changes. The amendment was adopted by voice
vote.
On September 18, 2024, the House of Representatives passed
H.R. 5339, which now also included the texts of H.R. 5337, H.R.
5338, and H.R. 5340, by a vote of 217-206.
119TH CONGRESS
First Session--Hearing
On April 30, 2025, the Committee on Education and
Workforce, Subcommittee on Health, Employment, Labor, and
Pensions, held a hearing titled ``Investing for the Future:
Honoring ERISA's Promise to Participants.'' The hearing
discussed the Biden-Harris administration's attempts to put its
environmental and social agendas above the financial interests
of retirees by prioritizing ESG factors when investing
retirement plan assets. Testifying before the Subcommittee were
Mr. Ike Brannon, President, Capitol Policy Analytics,
Washington, D.C.; Mr. Charles Crain, Managing Vice President
for Policy, National Association of Manufacturers, Washington,
D.C.; Mr. Brandon Rees, Deputy Director, Corporations and
Capital Markets, American Federation of Labor and Congress of
Industrial Organizations, Washington, D.C.; and Mr. Max M.
Schanzenbach, Northwestern University Pritzker School of Law,
Chicago, Illinois.
First Session--Legislative Action
On April 24, 2025, Representative Allen introduced H.R.
2988, the Protecting Prudent Investment of Retirement Savings
Act. The bill was referred to the Committee on Education and
the Workforce. On June 25, 2025, the Committee considered H.R.
2988 in legislative session and reported it favorably, as
amended, to the House of Representatives by a recorded vote of
21-15. The Committee considered an ANS offered by Chairman
Allen that made minor technical changes. The amendment was
adopted by voice vote.
Committee Views
INTRODUCTION
H.R. 2988, the Protecting Prudent Investment of Retirement
Savings Act, clarifies what ERISA and the U.S. Supreme Court
already require: that fiduciaries manage plan assets, including
the shareholder management rights appurtenant to those assets,
for the exclusive purpose of a participant's or beneficiary's
financial interest in his or her benefits under the plan. This
legislation is needed because the Biden-Harris administration
ignored ERISA's foundational principles in order to allow
activists to invest and use shareholder management rights, such
as proxy votes appurtenant to ERISA plan assets, to advance ESG
goals at the expense of the financial interests of ERISA
employee benefit plans. H.R. 2988 also 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 obligation of prudence and loyalty. H.R. 2988
further amends ERISA to codify a prohibition against
discrimination on the basis of race, color, religion, sex, or
national origin when selecting a service provider.
Additionally, H.R. 2988 requires participant-directed ERISA
individual account plans to give critically important
information to participants before investing through a
brokerage window. In short, H.R. 2988 protects the retirement
savings of the U.S. workforce.
THE DUTY OF PRUDENCE AND LOYALTY UNDER EXISTING LAW
Under ERISA, an investment fiduciary must act solely in the
interest of participants and beneficiates and for the exclusive
purpose of providing benefits to participants and their
beneficiaries and defraying reasonable expenses of
administering the plan (the ``exclusive purpose rule'').\1\
Courts have held that ERISA's exclusive purpose rule requires
fiduciaries to act with ``complete and undivided loyalty to the
beneficiaries''\2\ and make decisions ``with an eye single to
the interests of participants and beneficiaries.''\3\
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\1\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.''
\2\Donavan v. Mazzola, 716 F.2d 1226, 1238 (9th Cir. 1983)
(citation omitted).
\3\Donavan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982).
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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.''\4\ Thus, fiduciaries are held
to an expert prudence standard. Courts have held that the duty
of prudence requires an ERISA fiduciary to monitor the
appropriateness of investments continually.\5\
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\4\ERISA Sec. 404(a)(1)(B), 29 U.S.C. Sec. 1104(a)(1)(B).
\5\Tibble v. Edison Int'l, 135 S. Ct. 1823, 1828-29 (2015)
(confirming ERISA fiduciary duty to monitor and remove imprudent trust
investments).
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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.\6\ 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.\7\ The Court
stated:
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\6\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).
\7\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 out 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.\8\
---------------------------------------------------------------------------
\8\Id. at 421.
The Supreme Court's holding applies to all non-pecuniary
benefits. Thus, under ERISA, there is no room for advancing
collateral goals such as ESG, even in a tiebreaker situation in
which there are two economically equal investments.
At a Subcommittee on Health, Employment, Labor, and
Pensions (HELP) hearing on April 30, 2025, Professor Max
Schanzenbach, an economist and legal expert in fiduciary law,
stated:
ERISA's fiduciary guardrails have been tested by the
advent of so-called ESG investing . . . Providing
collateral social benefits to third parties is not
consistent with the duty of loyalty under ERISA, and
avoiding financially sound investments is not
consistent with the duty of prudence. For these
reasons, socially responsible investing was widely
regarded as forbidden under ERISA.\9\
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\9\Investing for the Future: Honoring ERISA's Promise to Investors:
Hearing on H.R. 2988 Before the Subcomm. on Health, Emp't, Lab. &
Pensions of the H. Comm. on Educ. & Workforce, 119th Cong. (2025)
(statement of Max Schanzenbach, Seigle Family Prof. of Law,
Northwestern Univ., at 2), https://edworkforce.house.gov/uploadedfiles/
schanzenbach_testimony.pdf.
However, for the last 30 years, there have been attempts to
erode ERISA's principles of prudence and loyalty in order to
promote benefits other than the financial interest of
participants and beneficiaries (i.e., ``collateral benefits'').
Professor Schanzenbach testified he believes that H.R. 2988
``improves ERISA regulations . . . while adopting modest
reforms that strengthen ERISA's fiduciary guardrails.''\10\
---------------------------------------------------------------------------
\10\Id. at 4.
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DIVISION A OF H.R. 2988: INCREASE RETIREMENT EARNINGS
History of the Tiebreaker Rule When Investing ERISA Plan Assets
In 1994, DOL first articulated a ``tiebreaker rule'' in
broadly applicable guidance allowing an ERISA fiduciary to
consider ESG benefits (``collateral benefits'') when choosing
between two economically equal investments.\11\ From the
beginning, the tiebreaker rule was inherently inconsistent with
ERISA's exclusive purpose rule.\12\ Over the next two decades,
DOL addressed the tiebreaker rule through sub-regulatory
guidance, with Democrat administrations promoting the
tiebreaker rule to use ERISA plan assets for collateral
benefits and Republican administrations attempting to limit
collateral benefit investing by reinforcing ERISA's exclusive
purpose rule.\13\
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\11\59 Fed. Reg. 32,606 (June 23, 1994) (codified at 29 C.F.R.
Sec. 2509.94-1) (Interpretive Bulletin (IB) 94-1)). The term used in IB
94-1 is ``economically targeted investments.'' Prior to issuing IB 94
1, DOL issued letters concerning a fiduciary's ability to consider the
non-pecuniary effects of an investment and granted a variety of
prohibited transaction exemptions to both individual plans and pooled
investment vehicles involving investments that produce non-pecuniary
benefits. See Financial Factors in Selecting Plan Investments, 85 Fed.
Reg. 72,856, 72,856 n.6 (Nov. 13, 2020).
\12\See Max M. Schanzenbach & Robert H. Sitkoff, Reconciling
Fiduciary Duty and Social Conscience: The Law and Economics of ESG
Investing by a Trustee, 72 Stanford L. Rev. 381, 390, 408 (2020)
(stating that DOL's tiebreaker rule is ``dubious as a matter or
textbook financial economics and . . . contrary to the controlling
statute and U.S. Supreme Court precedent); see also Edward Zelinsky,
ETI, Phone the Department of Labor: Economically Targeted Investments,
IB 94-1 and the Reincarnation of Industrial Policy, 16 Berkeley J. Emp.
Lab. L. 333 (1995) (criticizing DOL's first sub-regulatory guidance on
investing for collateral benefits using the tiebreaker rule as
``unsound as a matter of logic and policy and . . . incompatible with
the statutory standards governing the investment decisions of pension
fiduciaries.'').
\13\Edward Zelinsky, Interpretive Bulletin 08-01 and Economically
Targeted Investing: A Missed Opportunity, 82 S. Cal. L. Rev. Postscript
11, 12 (2009) (criticizing subsequent Republican subregulatory guidance
as only an attempt to limit collateral investing rather than
repudiating it as incoherent and incompatible with ERISA's duty of
loyalty).
---------------------------------------------------------------------------
Two distinguished professors wrote in the Stanford Law
Review in 2020 on ERISA's fiduciary duty and ESG investing that
``with respect to law, the tiebreaker is irreconcilable with
the strict `sole interest' or `exclusive benefit' rule [of
ERISA].''\14\ The article is skeptical that true economic ties
exist in the investment world, but if they do, then the
appropriate solution is to invest in both instruments for
purposes of diversification.
---------------------------------------------------------------------------
\14\Max Schanzenbach & Robert Sitkoff, Reconciling Fiduciary Duty
and Social Conscience: The Law and Economics of ESG Investing by a
Trustee, 72 Stan. L. Rev. 408 (2020).
---------------------------------------------------------------------------
Trump Administration ESG Rule
In November 2020, DOL issued a final rule on ESG investing
based on skepticism that a true tie can exist between two
investments. Under this rule, a fiduciary can consider
collateral benefits only if choosing between or among
``investment alternatives that the plan fiduciary is unable to
distinguish on the basis of pecuniary factors alone.''\15\ The
Trump administration rule requires a plan fiduciary to document
(and, in essence, prove) that two investments are
indistinguishable based on pecuniary factors before invoking
the tiebreaker rule. If a fiduciary invokes the tiebreaker
rule, then the fiduciary is required to document how any
tiebreaking factor is consistent with the interests of the
participants and beneficiaries in their financial benefits
under the plan. This provision is intended to prevent abuse of
the tiebreaker. The rule also prohibits fiduciaries from
choosing default investments that have objectives or principal
strategies that are non-pecuniary.
---------------------------------------------------------------------------
\15\Financial Factors in Selecting Plan Investments, 85 Fed. Reg.
72,846, 72,884 (Nov. 13, 2020).
---------------------------------------------------------------------------
Biden-Harris Administration ESG Rule
In December 2022, DOL issued a final rule rescinding the
Trump administration rule\16\ and allowing a fiduciary to
consider collateral benefits when choosing among or between
investment alternatives that ``equally serve the financial
interests of the plan over the appropriate time horizon.''\17\
As such, the fiduciary may select an investment based on
collateral benefits other than investment returns. This
tiebreaker rule is vague enough to create a giant loophole,
increasing ESG investing and completely eroding ERISA's
exclusive purpose rule.
---------------------------------------------------------------------------
\16\Prudence and Loyalty in Selecting Plan Investments and
Exercising Shareholder Rights, 87 Fed. Reg. 73,822 (Dec. 1, 2022).
\17\29 C.F.R. Sec. 2550.404a-1(c)(2).
---------------------------------------------------------------------------
Impact on the Retirement Savings of America's Workers
DOL's subterfuge on this issue is not harmless. Promoting
the use of ERISA plan assets for collateral benefits undermines
a central cornerstone of ERISA. Further, such actions may lead
to increased risk and lower returns for retirement savings. The
cumulative harm over the lifetime of retirement savings could
have a substantial adverse impact on a participant's lifestyle
and welfare during his or her retirement years.
On April 30, 2025, Mr. Ike Brannon, Ph.D., Senior Fellow at
the Jack Kemp Foundation, testified before the HELP
Subcommittee that ``the evidence clearly shows ESG funds tend
to lag the broader market, and the long-term ramifications of
accepting even a small reduction in returns to one's retirement
savings are significant.''\18\ He cited two reasons for the
lower returns: (1) negative screening or exclusionary
investment and (2) higher active management fees.\19\ He also
cited a study concluding that a one quarter percentage point
reduction in net earnings over a lifetime of retirement savings
translates to a 10 percent reduction in the balance at
retirement.\20\
---------------------------------------------------------------------------
\18\Investing for the Future, supra note 9 (statement of Ike
Brannon, Ph.D., Senior Fellow, Jack Kemp Found., at 2).
\19\Id. at 2-3.
\20\Id. at 3.
---------------------------------------------------------------------------
In the same hearing, another witness echoed Mr. Brannon's
testimony. Mr. Charles Crain, Managing Vice President for
Policy at the National Association of Manufacturers, testified:
Many ESG-focused funds have a stated goal of
subordinating investor return or increasing investor
risk for the purpose of achieving political or social
objectives. These funds also often assess higher
management fees . . . [P]ursuing a social or political
agenda (often at a higher cost) versus bolstering
retirement security--are in many instances orthogonally
opposed to one another, as evinced by many ESG funds'
disclosures highlighting the potential for reduced
returns, increased risks, and heightened fees in
service of social goals.\21\
---------------------------------------------------------------------------
\21\Id. (statement of Charles Crain, Managing Vice President,
Pol'y, Nat'l Ass'n of Mfrs. at 2-3).
---------------------------------------------------------------------------
Increase Retirement Earnings
Division A of H.R. 2988 protects the retirement savings and
other ERISA-covered benefits of the U.S. workforce and
reinforces what the Supreme Court has already stated: the
exclusive purpose rule of ERISA precludes the consideration of
nonpecuniary benefits.\22\ ERISA's duty of loyalty does not
provide any opportunity for an investment fiduciary to choose
an economically inferior investment because it provides
nonpecuniary benefits. H.R. 2988 also tightens the tiebreaker
rule to require a fiduciary to prove, by way of documentation,
that a tie exists because the plan fiduciary is ``unable to
distinguish on the basis of pecuniary factors alone.''\23\
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\22\Fifth Third Bancorp, 573 U.S. at 421 (the ``benefits'' to be
pursued by ERISA fiduciaries as their ``exclusive purpose'' does not
include ``nonpecuniary benefits'') (emphasis in original).
\23\Financial Factors in Selecting Plan Investments, 85 Fed. Reg.
at 72,884.
---------------------------------------------------------------------------
Conclusion of Views on Division A of H.R. 2988
To protect the financial interests of participants and
beneficiaries in their benefits and to reinforce ERISA's
existing duties of prudence and loyalty, Division A of H.R.
2988 ensures that ERISA's duties of prudence and loyalty will
be honored. The intent of ERISA's exclusive purpose rule, as
enacted by Congress and as interpreted by the U.S. Supreme
Court, remains as clear now as when it was first signed into
law. However, the Biden-Harris administration's regulations and
activist agendas are undermining ERISA's protections. H.R. 2988
is essential for restoring and upholding the intent of ERISA.
The U.S. workforce deserves nothing less.
DIVISION B OF H.R. 2988: NO DISCRIMINATION IN MY BENEFITS
Prudence Rule and Selection of Service Providers
The U.S. Supreme Court's holding on the exclusive purpose
rule (discussed above) applies to all non-pecuniary benefits.
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.''\24\ Thus, fiduciaries are held to both a loyalty
standard (the exclusive purpose rule) and an expert prudence
standard when selecting service providers.
---------------------------------------------------------------------------
\24\ERISA Sec. 404(a)(1)(B); 29 U.S.C. Sec. 1104(a)(1)(B).
---------------------------------------------------------------------------
Attack on ERISA 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?''\25\
---------------------------------------------------------------------------
\25\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 U.S. 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.\26\
This decision has encouraged skepticism and challenges
regarding corporate DEI (diversity, equity, inclusion)
policies. Moreover, the Supreme Court has unanimously rejected
non-pecuniary public policy goals as a basis for relaxing
ERISA's fiduciary standards.\27\ Therefore, the type of
discrimination encouraged by the Menendez letters is
impermissible under ERISA and inconsistent with Students for
Fair Admission v. Harvard.
---------------------------------------------------------------------------
\26\143 S. Ct. 2141 (2023).
\27\Dudenhoeffer, 573 U.S. 409.
---------------------------------------------------------------------------
Conclusion of Views on Division B of H.R. 2988
Division B of H.R. 2988 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 on the basis of race, color,
religion, sex, or national origin in selecting service
providers.
DIVISION C OF H.R. 2988: RETIREMENT PROXY PROTECTION
Exercising Shareholder Rights and Voting Proxies in ERISA Plans
The U.S. Supreme Court's holding on ERISA's exclusive
purpose rule (discussed above) applies to all non-pecuniary
benefits. Thus, under ERISA, there is no room for advancing
collateral goals such as ESG by exercising shareholder rights
(including proxy votes) appurtenant to plan assets at the
expense of the economic interest of the plan and its
participants and beneficiaries. 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.''\28\ Thus,
fiduciaries are held to a loyalty standard (the exclusive
purpose rule) and an expert prudence standard when exercising
management rights appurtenant to ERISA plan assets. However,
for the last 30 years, there have been attempts to erode
ERISA's principles of loyalty and prudence in order to promote
benefits other than the financial interest of participants and
beneficiaries (i.e., ``collateral benefits'') through the
exercise of shareholder rights, including proxy voting
exercised in the aggregate by proxy voting advisory firms.
---------------------------------------------------------------------------
\28\ERISA Sec. 404(a)(1)(B); 29 U.S.C. Sec. 1104(a)(1)(B).
---------------------------------------------------------------------------
DOL's longstanding position is that the fiduciary act of
managing plan assets includes the management of voting rights
(as well as other shareholder rights) that are inherent in a
plan's investments.\29\ ERISA fiduciaries have interpreted
DOL's guidance on proxy voting as a regulatory mandate to vote
all proxies associated with assets held by an ERISA plan.\30\
That is, many institutional investors have historically
interpreted DOL guidance to require fiduciaries to vote every
share on every matter on a proxy.\31\
---------------------------------------------------------------------------
\29\Fiduciary Duties Regarding Proxy Voting and Shareholder Rights,
85 Fed. Reg. 81,658 (Dec. 16, 2020). (discussing letter from Alan D.
Leibowitz, Deputy Assistant Sec' of Lab., to Helmuth Fandl, Chairman of
Retirement Bd., Avon Products, Inc. (Feb. 23, 1988)).
\30\See James K. Glassman & J.W. Verret, Mercatus Ctr. George Mason
Univ., How to Fix Our Broken Proxy Advisory System 5 (2013) (``changes
at [DOL] in the 1980s mandat[ed] that ERISA pension plan fiduciaries--
such as union, corporate, and other officials who control or manage a
plan's assets--vote the plan's shares on the basis of active analysis,
regardless of whether or not the fiduciary was certain that expending
time and effort to analyze how to vote would create value for a
fund.'') (internal citation omitted).
\31\See Interpretive Bulletin 94-2: Interpretive Bulletin relating
to written statements of investment policy, including proxy voting or
guidelines, 59 Fed. Reg. 38,860, 81,659 n.17 (July 29, 1994) (quoting
comment letter); Fiduciary Duties Regarding Proxy Voting and
Shareholder Rights, 85 Fed. Reg. 81,658, 81,666 (Dec. 16, 2020) (Trump
administration proxy voting rule was intended ``to correct a
misunderstanding among some fiduciaries and other stakeholders that
ERISA requires every proxy to be voted.'').
---------------------------------------------------------------------------
As a result, plan fiduciaries turned to proxy advisor firms
to vote proxies for the plan's investment holdings to comply
with a perceived regulatory mandate.\32\ In 1985, seeing an
opportunity to fill a void in the market created by DOL, a
former high-ranking DOL official founded Institutional
Shareholder Services, Inc. (ISS) to provide proxy voting
services while spreading the cost across its many
customers.\33\ By 2013, ISS, together with another proxy
advisory firm, Glass, Lewis & Co., LLC (Glass Lewis), had a
combined market share of 97 percent (61 percent for ISS and 36
percent for Glass Lewis).\34\ By 2020, ISS reported that it
voted over 10 million ballots annually on behalf of clients
representing 4.2 trillion shares in about 44,000 shareholder
meetings.\35\ At the same time, Glass Lewis reported it
provided services to 1,300 clients collectively managing more
than $35 trillion in assets in about 20,000 shareholder
meetings across 100 global markets per year.\36\
---------------------------------------------------------------------------
\32\See U.S. Gov't Accountability Off., GAO-17-47, Corporate
Shareholder Meetings: Proxy Advisory Firms' Role in Voting and
Corporate Governance Practices (2016) (discussing increasing demand for
proxy advisory firm services among institutional investors such as
pension plans).
\33\ISS, 25FOR25: Observations on the Past, Present, and Future of
Corporate Governance, in Celebration of ISS' 25th Anniversary iv
(``[I]n 1985, Robert A.G. Monks founded Institutional Shareholder
Services . . . with one simple goal: to help asset owners, and by
extension, asset managers, to carry out their fiduciary obligations to
vote their shares in a thoughtful and informed fashion.''); see also
Labor Dept. Post Filled by Robert A.G. Monks, N.Y. Times (Dec. 23,
1983).
\34\James K. Glassman & J.W. Verret, supra note 30, at 8.
\35\Exemptions from the Proxy Rules for Proxy Voting Advice, 85
Fed. Reg. 55,082, 55,126 (Sept. 3, 2020).
\36\Id. at 55,127.
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In short, ISS and Glass Lewis dominate the proxy advisory
market.\37\ The widespread reliance on proxy advisory firms
gives these firms tremendous influence as they vote and
otherwise wield significant influence on corporate governance
matters. According to a Mercatus Center study, ``These firms
weigh in on issues such as the composition and operation of
corporate boards, disclosure and compensation practices, and
companies'' policies on recycling, renewable energy, and
political contributions.''\38\ The Wall Street Journal's
editorial board wrote that ISS and Glass Lewis are ``the real
driving force behind'' an onslaught of ESG proxy resolutions
from progressive investors.\39\ Both ISS and Glass Lewis are
foreign owned.\40\ Neither proxy advisory firm appears to have
significant investment in the success of the companies over
which the proxy advisory firms wield such power. Instead, the
economic impact of the ESG proxy voting policies of ISS and
Glass Lewis affects ERISA plans and shareholders at large.
---------------------------------------------------------------------------
\37\Editorial, Cracking the Proxy Advisory Duopoly, Wall St. J.
(July 13, 2023) (ISS and Glass Lewis ``boast outsize clout in U.S.
corporate elections and make up an estimated 97% of the proxy advisory
market,'' citing a 2018 article in the Harvard Law School Forum on
Corporate Governance finding that ``the two firms can swing between 10%
and 30% of the shareholder votes'').
\38\James K. Glassman & Hester Peirce, Mercatus Ctr. George Mason
Univ., How Proxy Firms Became So Powerful 1 (2013).
\39\Editorial, Cracking the Proxy Advisory Duopoly, Wall St. J.
(July 13, 2023).
\40\Id.
---------------------------------------------------------------------------
ISS benchmark policy proxy voting guidelines for the United
States demonstrate the activist agenda. For example, the
guidelines state:
For companies that are significant greenhouse gas . .
. emitters . . . generally vote against or withhold
from the incumbent chair of the responsible committee
(or other directors on a case-by case basis) in cases
where ISS determines that the company is not taking the
minimum steps needed to understand, assess, and
mitigate risks related to climate change to the company
and the larger economy.\41\
---------------------------------------------------------------------------
\41\ISS, United States Proxy Voting Guidelines Benchmark Policy
Recommendations Effective for Meetings on or After February 1, 2025,
https://www.issgovernance.com/file/policy/active/americas/US-Voting-
Guidelines.pdf.
ISS proxy voting guidelines include policies for racial or
ethnic diversity as to board composition and an entire section
dedicated to ``Social and Environmental Issues,'' including
gender identity, racial equity, political expenditures, and
lobbying Congress.\42\
---------------------------------------------------------------------------
\42\Id.
---------------------------------------------------------------------------
Similarly, Glass Lewis's 2025 proxy voting guidelines for
the United States also demonstrate its activist agenda.\43\ For
example, the guidelines provide that Glass Lewis will generally
recommend against the chair of the nominating or governance
committee at companies in the Russell 1000 index if the company
has not provided any disclosure of director diversity and
skills in any of Glass Lewis's tracked categories.\44\ The
guidelines provide that Glass Lewis will generally recommend
against the chair of the nominating or governance committee at
companies in the Russell 1000 index if the company has ``fewer
than one director from an under represented community on the
board.'' The guidelines define ``underrepresented'' for this
purpose as ``an individual who self-identifies as Black,
African American, North African, Middle Eastern, Hispanic,
Latino, Asian, Pacific Islander, Native American, Native
Hawaiian, or Alaskan Native, or who self-identifies as a member
of the LGBQT+ community.'' In a search of the guidelines,
``diversity'' appears 36 times, ``underrepresented'' appears 8
times, and ``climate'' appears 15 times.
---------------------------------------------------------------------------
\43\Glass Lewis, 2025 Benchmark Policy Guidelines, https://
resources.
glasslewis.com/hubfs/2025%20Guidelines/
2025%20US%20Benchmark%20Policy%20Guidelines.pdf.
\44\Id.
---------------------------------------------------------------------------
In addition, proxy voting firms may have conflicts of
interest.\45\ Besides proxy advisory services, ISS provides
advisory consulting services and other products and services
through ISS Corporate Solutions, Inc. (a wholly owned
subsidiary).\46\ As early as 2007, the U.S. Government
Accountability Office found potential conflicts of interest
between the consulting services provided by ISS and its proxy
advisory services that could affect vote recommendations.\47\
ISS may also advise companies on how to frame proposals to get
the most votes.\48\ At best, ISS advice influences the
management of a corporation to adopt ISS policy preferences. At
worst, a corporation purchases ISS advice in order to ensure an
ISS affirmative vote on the corporation's proxy initiatives.
---------------------------------------------------------------------------
\45\Exemptions from the Proxy Rules for Proxy Voting Advice, 85
Fed. Reg. 55,082, 55,126 (Sept. 3, 2020).
\46\Id.
\47\U.S. Gov't Accountability Off., Gao-17-47, Corporate
Shareholder Meetings: Proxy Advisory Firms' Role In Voting And
Corporate Governance Practices 9 (2016) (``[V]arious conflicts of
interest can arise that have the potential to influence the research
conducted and voting recommendations made by proxy advisory firms. The
most commonly cited potential for conflict involves ISS, which provides
services to both institutional investor clients and corporate clients.
. . . '').
\48\James K. Glassman & Hester Pierce, supra note 38, at 2 (proxy
advisory firms may advise companies, including how to help their
ratings and get votes, and such conflicts of interest can affect
recommendations).
---------------------------------------------------------------------------
On April 30, 2025, Mr. Crain testified before the HELP
Subcommittee that ISS and Glass Lewis control over 97 percent
of the U.S. proxy advice market.\49\ He further stated:
\49\Statement of Charles Crain, supra note 21, at 4.
---------------------------------------------------------------------------
ISS, for instance, can affect support for a dissident
slate of board nominees by 73% and support for an
uncontested director by 18%. In recent years . . .
proxy firms have increasingly adopted prescriptive
policies and provided recommendations on a wide range
of environmental and social topics, which may or may
not be relevant to an individual company's growth and
value it creates for shareholders. Studies have shown
that proxy firms are overwhelmingly supportive of
activists' ESG proposals; for example, ISS recommended
in favor of nearly 80% of environmental and social
proposals during the 2023 proxy season. A 2022 NAM
survey found that nearly 78% of publicly traded
manufacturers were concerned that this increased
pressure on ESG topics from proxy firms and other third
parties will ``increase costs for public companies,
divert management and board time and resources, and
endanger long-term value creation.\50\
---------------------------------------------------------------------------
\50\Id.
---------------------------------------------------------------------------
Trump Administration Proxy Rule
In December 2020, the Trump administration issued a final
rule on proxy voting.\51\ Key elements included the following
provisions:
---------------------------------------------------------------------------
\51\Fiduciary Duties Regarding Proxy Voting and Shareholder Rights,
85 Fed. Reg. 81,658 (Dec. 16, 2020).
---------------------------------------------------------------------------
ERISA does not require the voting of every
proxy or the exercise of every shareholder right.
Shareholder activities may not promote
nonpecuniary benefits or goals unrelated to the
financial interests of the plan's participants and
beneficiaries in the retirement income or financial
benefits under the plan.
Fiduciaries must maintain records on proxy
voting activities or other exercises of shareholder
rights.
Fiduciaries who delegate authority to
exercise shareholder rights must prudently monitor such
activities for compliance with ERISA.
Fiduciaries may adopt proxy voting policies
designed to serve the plan's economic interests. A
proxy voting policy that meets the following safe
harbors shall be deemed to meet the plan's economic
interests:
Limiting proxy voting to
particular types of proposals that the
fiduciary has prudently determined are
substantially related to the issuer's business
activities or are expected to have a material
effect on the value of the plan's investment in
relation to the plan's portfolio as a whole.
Refraining from voting on
proposals when the plan's holding in a single
issuer relative to the plan's total investment
assets is below a quantitative threshold that
the fiduciary prudently determines is
sufficiently small that the matter being voted
on is not expected to have a material economic
effect on the investment performance of the
plan's portfolio (or investment performance of
assets under management in the case of an
investment manager).
Biden-Harris Administration Proxy Rule
In December 2022, DOL issued a final ESG rule that
superseded the Trump administration rule on proxy voting, in
effect rescinding the Trump rule.\52\ As a result, the current
rule does not include any of the Trump rule requirements listed
above. In the December 2022 rule, DOL claimed the Trump
administration's proxy voting regulations put a thumb on the
scale against ESG factors.\53\ DOL also claimed the Trump
administration rule ``may be deterring fiduciaries from taking
steps that other marketplace investors would take in improving
investment portfolio resistance against the potential financial
risks associated with climate change and other ESG
factors.''\54\
---------------------------------------------------------------------------
\52\Prudence and Loyalty in Selecting Plan Investments and
Exercising Shareholder Rights, 87 Fed. Reg. 73,822 (Dec. 1, 2022).
\53\Id. at 73,854.
\54\Id. at 73,826.
---------------------------------------------------------------------------
Impact on the Retirement Savings of America's Workers
DOL's subterfuge on proxy voting is not harmless. Imposing
proxy voting mandates that push ERISA plans to use foreign-
owned proxy advisory firms with activist agendas opens ERISA
plan assets to exploitation by those who have no ownership
interest in the assets. Ultimately, DOL's agenda promotes the
use of ERISA plan assets to advance collateral benefits such as
ESG and thus undermines a central cornerstone of ERISA.
Further, such actions may lead to increased risk and lower
returns for retirement savings. The cumulative harm, over a
lifetime of retirement saving, could have a substantial adverse
impact on a participant's lifestyle and welfare during his or
her retirement years.
Division C of H.R. 2988 protects the retirement savings and
other ERISA-covered benefits of the U.S. workforce and
reinforces what the U.S. Supreme Court has already stated: the
exclusive purpose rule of ERISA precludes the consideration of
nonpecuniary benefits.\55\ ERISA's duty of loyalty does not
provide any opportunity for a proxy advisory firm or any other
party to use ERISA plan assets to promote nonpecuniary benefits
such as ESG considerations. Division C repeals DOL's perceived
regulatory mandate to vote all proxies, which has fueled the
use of activist proxy advisory firms that seek to promote ESG
goals even at the expense of the economic welfare of ERISA plan
participants and beneficiaries.
---------------------------------------------------------------------------
\55\Fifth Third Bancorp, 573 U.S. 409, 421 (2014) (the ``benefits''
to be pursued by ERISA fiduciaries as their ``exclusive purpose'' do
not include ``nonpecuniary benefits'').
---------------------------------------------------------------------------
Conclusion of Views on Division C
To protect the financial interests of participants and
beneficiaries in their benefits, and to reinforce ERISA's
existing duties of prudence and loyalty, Division C of H.R.
2988 ensures that ERISA's duties of prudence and loyalty will
be honored by taking proxy voting out of the hands of foreign-
owned proxy advisory firms. The intent of ERISA's exclusive
purpose rule, as enacted by Congress and affirmed by the U.S.
Supreme Court, remains as clear now as when it was first signed
into law. However, the Biden-Harris administration's
regulations and activist agendas are undermining ERISA's
protections. The Biden-Harris administration seeks to divert
the shareholder rights appurtenant to ERISA plan assets to
foreign-owned proxy advisory firms that use these ERISA plan
assets to advance an activist agenda such as ESG
considerations. H.R. 2988 is essential for restoring and
upholding the intent of ERISA. The U.S. workforce deserves
nothing less.
DIVISION D OF H.R. 2988: PROVIDING COMPLETE INFORMATION TO RETIREMENT
INVESTORS
The U.S. Supreme Court's holding on the exclusive purpose
rule (discussed above) applies to all non-pecuniary benefits.
Thus, under ERISA, there is no room for advancing collateral
goals such as ESG, even in a tiebreaker situation in which
there are two economically equal investments. 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.''\56\ Thus, fiduciaries are held to both a loyalty
standard (the exclusive purpose rule) and an expert prudence
standard when constructing an investment menu for participant-
directed investments in a defined contribution plan.
---------------------------------------------------------------------------
\56\ERISA Sec. 404(a)(1)(B); 29 U.S.C. Sec. 1104(a)(1)(B).
---------------------------------------------------------------------------
Brokerage Windows in Participant-Directed Individual Account Plans
Under ERISA, individual account plans (also known as
defined contribution plans) may allow participants to direct
their investments among designated investment alternatives that
are prudently selected and monitored by the plan's investment
fiduciaries. Some defined contribution plans also offer
brokerage windows or self-directed brokerage accounts, allowing
participants to select investments beyond those designated
investment alternatives. Brokerage windows are a common means
for ERISA-defined contribution plans to satisfy participant
demand for ESG-type investments that might not be prudent as a
designated investment alternative.
When a participant invests through brokerage windows, the
participant bypasses an ERISA plan's investment expertise. The
participant's investment selection is not subject to any
guardrails on ESG investments, such as the duty of prudence and
loyalty under ERISA. As a result, participants may experience
lower risk-adjusted returns and higher fees. An aggregate
difference of 2 percent in diminished investment returns and
higher fees over a 40-year savings period can result in a
retirement balance that is 40 percent lower.\57\
---------------------------------------------------------------------------
\57\See National Treasury (South Africa), Charges in South African
Retirement Funds 9 (July 11, 2013) (results of modeling calculations of
the impact of a 2 percent annual reduction (in the form of a charge)
yielding a final average retirement balance that is 40% lower at
retirement age).
---------------------------------------------------------------------------
Brokerage Windows Distinguished from Designated Investment Alternatives
DOL guidance distinguishes between brokerage windows and a
``designated investment alternative.'' DOL generally defines a
``designated investment alternative'' as ``any investment
alternative designated by the covered plan into which
participants and beneficiaries may direct the investment of
assets held in, or contributed to, their individual accounts.''
A designated investment alternative ``does not include
brokerage windows, self-directed brokerage accounts, or similar
arrangements that enable participants and beneficiaries to
select investments beyond those designated by the plan.''\58\
---------------------------------------------------------------------------
\58\Fiduciary Requirements for Disclosure in Participant-Directed
Individual Account Plans, 75 Fed. Reg. 65,910 (Oct. 20, 2010) (adding
29 C.F.R. Sec. 2550.404a-5 ``Fiduciary requirements for disclosure in
participant-directed individual account plans'').
---------------------------------------------------------------------------
An ERISA fiduciary is clearly subject to the duties of
prudence and loyalty when selecting and monitoring designated
investment alternatives into which participants and
beneficiaries may direct the investment of assets held in or
contributed to their accounts.\59\ On the other hand, guidance
on the fiduciary duty with respect to the selection and
monitoring of brokerage windows is limited. One view is that a
fiduciary is subject to the duties of prudence and loyalty when
selecting and monitoring a brokerage window as an investment
vehicle with respect to the service provider and the fees
charged to participants but is not responsible for a
participant's investment directions that are made through a
brokerage window. However, it is not clear that implementing
the brokerage window itself as an investment vehicle available
to participants under an ERISA plan is subject to the duty of
prudence and loyalty.\60\
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\59\29 C.F.R. Sec. 2550.404c-1(d)(2)(iv); 29 C.F.R. Sec. 2550.404a-
5(f).
\60\Id. 29 C.F.R. Sec. 2550.404a5(h)(4) (providing that a brokerage
window is not itself a designated investment alternative because it is
not an investment specifically identified as available under the plan
by the plan fiduciary). But see ERISA Advisory Council, Report to the
Honorable Martin Walsh, United States Secretary of Labor: Understanding
Brokerage Windows in Self Directed Retirement Plans (Dec. 2021)
(referred to herein as the ``2021 EAC Report'') (reporting that plan
sponsor representatives may decline to offer self-directed brokerage
windows as being unsuitable for that particular employer's population
(p.12); reporting ERISA fiduciary testimony that the decision to add a
brokerage window is a fiduciary decision (p.15); reporting the
testimony that the decision to implement a brokerage window is a
fiduciary decision even if it is hardwired in the plan document (pp.
26, 28); reporting testimony that even if a brokerage account is
hardwired in the plan document, Dudenhoeffer suggests that the duty of
prudence trumps (p. 28)).
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Case law on brokerage windows in individual account plans
is also sparse.\61\ In Moitoso v. FMR LLC, 451 F. Supp.3d 189
(D. Mass. 2020), the court stated, ``[I]n sum, there is a
significant lack of clarity regarding the duties a fiduciary
owes with respect to funds within a brokerage window.''
Existing case law suggests that an investment vehicle labeled
by a plan as a brokerage window may nonetheless be subject to
the same duties of prudence and loyalty to the extent that a
plan fiduciary has significantly limited the selection of funds
available through the window, causing such selections, in
essence, to become designated investment alternatives.\62\
---------------------------------------------------------------------------
\61\Few court decisions have analyzed the extent of an ERISA
fiduciary's duties with respect to a brokerage window. See Moitoso v.
FMR LLC, 451 F. Supp. 3d 189, 208 (D. Mass. 2020) (reviewing limited
authority and stating ``there is a significant lack of clarity
regarding the duties a fiduciary owes with respect to funds within a
brokerage window); see also Larson v. Allina Health, 350 F. Supp. 3d
780, 799 (D. Colo. 2020) (refusing to dismiss claims against a
fiduciary for failing to monitor funds offered through a mutual fund
window limiting selections to 300 mutual fund options). Other court
decisions have stated without analysis that investments offered within
brokerage windows were not monitored. See, e.g., Ramos v. Banner
Health, 467 F. Supp. 3d 1067, 1083 (D. Colo. 2020) (finding ``[Plan
fiduciaries] did not monitor investments available through
BrokerageLink nor were they required to do so.'').
\62\Moitoso, 451 F. Supp. 3d at 208-210 (holding that a brokerage
window limiting investments to Fidelity's proprietary mutual fund menu
was not itself a ``brokerage window'' and therefore Fidelity could face
liability for failing to monitor funds offered through that window);
Larson, 350 F. Supp. 3d at 799 (refusing to dismiss claims against a
fiduciary for failing to monitor funds offered through a mutual fund
window limiting selections to 300 mutual fund options).
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H.R. 2988 does not seek to disturb or change the duties of
prudence and loyalty associated with brokerage windows (or
designated investment alternatives) but only to remind
participants and beneficiaries, when investing through true
brokerage windows, that their individual selections are not
being selected or monitored by a fiduciary bound by ERISA's
duties of prudence and loyalty. In that regard, however, ERISA
implicitly affirms the prevailing view that under a true
brokerage window, a participant's investment selections are
neither substantially winnowed nor monitored by a fiduciary.
2021 EAC Report
In 2021, the Advisory Council on Employee Welfare and
Pension Benefit Plans (EAC) published the first comprehensive
study on brokerage windows in ERISA plans (2021 EAC
Report).\63\ The study was informed by testimony from industry
experts and provides insight into the prevalence of brokerage
windows and why plan sponsors are choosing to offer brokerage
windows, including providing opportunities for ESG investing.
The study also raised concerns about whether all participants
using brokerage windows understand the difference between
investing through a brokerage window and investing through a
plan's designated investment alternatives.
---------------------------------------------------------------------------
\63\EAC, Report to the Honorable Martin Walsh, United States
Secretary of Labor: Understanding Brokerage Windows In Self Directed
Retirement Plans (Dec. 2021) (hereinafter 2021 EAC Report).
---------------------------------------------------------------------------
According to the Plan Sponsor Council of America, just over
23 percent of all ERISA individual account plans offer a
brokerage window.\64\ However, only 1.5 percent of ERISA assets
are invested through brokerage windows.\65\ Testimony before
the EAC from recordkeepers indicated that 46 percent of plans
that use Alight as a recordkeeper offer a brokerage window, 23
percent of plans that use Fidelity as their recordkeeper offer
a brokerage window, and 20 percent of plans that use Vanguard
as their recordkeeper offer a brokerage window.\66\ Data
presented to EAC demonstrated ``an uptick in Millennials
investing through brokerage windows,''\67\ although
recordkeepers reported low utilization overall (e.g., 3 percent
for Fidelity\68\ and 0.5 percent for Vanguard\69\).
---------------------------------------------------------------------------
\64\Id. at 13 (citing the Plan Sponsor Council of America's 63rd
Annual Survey of Profit Sharing and 401(k) Plans).
\65\2021 EAC Report, supra note 63.
\66\Id. at 16.
\67\Id. at 44.
\68\Id. at 32.
\69\Id. at 35.
---------------------------------------------------------------------------
According to plan sponsor representatives interviewed for
the 2021 EAC Report, brokerage windows allow participants to
customize their portfolios outside of the designated investment
options, including investing for collateral goals associated
with ESG.\70\ Recordkeepers similarly told EAC that plan
sponsors add brokerage windows to their plans in response to
participant requests for broader investment opportunities,
including ESG funds, religion-compliant funds, and other
investment options.\71\ A representative of brokerage service
providers explained that plan sponsors often add brokerage
windows to accommodate participants who want to customize their
investment portfolio beyond the designated investment
alternatives, such as investing in a ``green'' fund.\72\ A
representative from a large trade group with investment
fiduciary members also stated that brokerage windows were
offered in plans managed by their investment fiduciary members
to ``keep participants with specialized investment needs or
preferences in the plan, such as faith-based limitations on
investments and social policy preferences.''\73\
---------------------------------------------------------------------------
\70\Id. at 11 (``All plan sponsor representatives testified that
the self-directed brokerage window afforded plan sponsors the
opportunity to allow participants to customize their portfolios in was
that the standard investment options would not afford. For example, if
participants sought to invest in options that supported specific policy
goals, such as [ESG] or Sharia investing, those participants would have
a greater chance of finding those investment opportunities in the self-
directed brokerage window because such investment options would be
available, even if few participants elected to invest in them.'').
\71\Id. at 16.
\72\Id. at 21.
\73\Id. at 23.
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One issue raised several times in the 2021 EAC Report was a
participant's ability to distinguish between investments that
are designated investment alternatives and brokerage windows.
One professional investment fiduciary recognized ``the
challenges of ensuring participants understand the difference
in the fiduciary's role with respect to the designated
investment alternatives within the core investment menu in
contrast with the limited role over a brokerage window.''
According to the report, the professional investment fiduciary
``thinks it should be clear to participants that there is no
endorsement from the fiduciary of investments within a
brokerage window, and this may be an area where . . . further
guidance [is needed] on what is expected from plan fiduciaries
in relation to brokerage windows.''\74\
---------------------------------------------------------------------------
\74\Id. at 13 (quoting Kathleen Kelly from Compass Financial
Partners).
---------------------------------------------------------------------------
According to the report, Mr. Kevin Mahoney, a retirement
consultant, also raised concerns that it ``is important for
participants to understand the additional risks associated with
[brokerage windows.]''\75\ A preeminent attorney specializing
in ERISA fiduciary duties suggested to EAC that participants be
educated that there is no monitoring and no prudent selection
of the investments available through a brokerage window, and
that there is a risk the participant could make an investment
mistake.\76\ An attorney representing the American Benefits
Council (ABC) acknowledged that ``the retirement community''
understands that designated investment alternatives are
``blessed'' by the employer but that investments through
brokerage windows are not.\77\ Division D of H.R. 2988 seeks to
extend that understanding to the participants and beneficiaries
who choose to invest through a brokerage window.
---------------------------------------------------------------------------
\75\Id. at 14.
\76\Id. at 27 (quoting Fred Reisch).
\77\Id. at 25.
---------------------------------------------------------------------------
The 2021 EAC Report noted broad consensus among the
recordkeepers interviewed that ``investment-specific
disclosures for brokerage accounts would not be feasible, given
the open-ended investment environment'' and existing disclosure
requirements suffice.\78\ An attorney specializing in ERISA and
representing ABC testified that investment-specific disclosures
would be unworkable for most plan sponsors.\79\
---------------------------------------------------------------------------
\78\Id. at 20.
\79\Id. at 24.
---------------------------------------------------------------------------
While the 2021 EAC Report did not recommend mandating
additional disclosures through a brokerage window, H.R. 2988
does not impose investment-specific disclosure requirements,
nor does it duplicate existing disclosure requirements. The
notice required under H.R. 2988 distinguishes between fiduciary
oversight associated with a plan's designated investment
alternatives and a brokerage window option. This type of notice
does not seem to have been considered by EAC in its report.
Impact on the Retirement Savings of America's Workers
A participant's decision to bypass designated investment
alternatives may not be harmless. The decision to self-select
investments through a brokerage window may result in increased
risk and lower return on retirement savings. This is imprudent
when a participant has a choice to invest through
professionally selected and monitored designated investment
alternatives. The cumulative harm over a lifetime of retirement
saving could have a substantial adverse impact on a
participant's lifestyle and welfare during his or her
retirement years.
At the April 30, 2025, HELP Subcommittee hearing, Professor
Schanzenbach testified that the provisions of H.R. 2988 are
protective for defined contribution plan participants who
choose to bypass designated investment alternatives to invest
through brokerage windows. He stated:
I strongly recommend to the Subcommittee the
Protecting Prudent Investment of Retirement Savings
Act's requirement that plan participants using the
brokerage window be warned that they are leaving a plan
menu chosen under fiduciary obligation. Indeed,
brokerage window participants will likely pay the
highest fee share class for a mutual fund purchased
through the brokerage window. In addition, if they
purchase individual securities through the window, they
will likely lose some of the benefits of
diversification they could obtain in the plan.\80\
---------------------------------------------------------------------------
\80\Statement of Max Schanzenbach, supra note 9, at 5.
Division D of H.R. 2988 protects the retirement savings and
other ERISA-covered benefits of the U.S. workforce while
preserving access to brokerage windows offered in self-directed
individual account plans. The bill requires plans to inform
participants of any designated investment alternatives and the
significance of those alternatives for retirement savings. The
bill also quantifies for participants the impact that a
reduction in income on their retirement savings would have over
a lifetime of saving.
Conclusion of Views on Division D of H.R. 2988
To protect the financial interests of participants and
beneficiaries in their benefits, and to reinforce ERISA's
existing duties of prudence and loyalty, Division D of H.R.
2988 ensures that participants who self-direct their retirement
savings through brokerage windows and who have access to
designated investment alternatives under their plans will be
informed of the significant differences of investing through a
self-directed brokerage account as compared to a designated
investment alternative and of the potential long-range impact
of this choice on their retirement savings.
CONCLUSION
H.R. 2988 protects the retirement savings of the U.S.
workforce by clarifying what ERISA and the U.S. Supreme Court
already require: that fiduciaries manage employee benefit plan
assets, including the shareholder management rights appurtenant
to those assets, for the exclusive purpose of a participant's
or beneficiary's financial interest in his or her benefits
under the plan. H.R. 2988 further amends ERISA to codify a
prohibition against discrimination on the basis of race, color,
religion, sex, or national origin when selecting a service
provider. Additionally, H.R. 2988 requires participant-directed
ERISA individual account plans to give critically important
information to participants before investing through a
brokerage window. In short, H.R. 2988 protects the retirement
savings of the U.S. workforce.
H.R. 2988 Summary
H.R. 2988 amends ERISA to make clear that the financial
interests of participants and beneficiaries in their benefits
come first.
H.R. 2988 Section-by-Section Summary
Section 1--Short title; table of contents
Names the bill the Protecting Prudent Investment of
Retirement Savings Act and provides a table of contents listing
each division of the legislation.
DIVISION A--INCREASE RETIREMENT SAVINGS
Section 1001--Short title
Names Division A the Increase Retirement Earnings Act
Section 1002--Employee Retirement Security Income Act of 1974
Amendment.
Section 1002(a) amends ERISA section 404(a) with the
following provisions:
Clarifies that for purposes of ERISA section
404(a)(1), a fiduciary shall be considered to act
solely in the interest of the participants and
beneficiaries of the plan with respect to an investment
or investment course of action only if the fiduciary's
action with respect to such investment or investment
course of action is based only on pecuniary factors
(except as provided in subparagraph (B) which adds a
tiebreaker rule, described below).
Expressly states that a fiduciary 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 to promote non-pecuniary benefits or
goals.
Provides that the weight given to any
pecuniary factor by a fiduciary shall reflect a prudent
assessment of the impact of such factor on risk and
return.
Adds a tiebreaker rule that narrowly defines
a tie and narrowly constrains the factors used to
consider in breaking a tie. To have a tie, the
fiduciary must be unable to distinguish between or
among investment alternatives or alternative courses of
action on the basis of pecuniary factors alone.
Requires fiduciaries to document, and in
essence to prove, why pecuniary factors were not
sufficient to select a plan investment or investment
course of action.
Requires other documentation to ensure that
the investment fiduciary does not make decisions based
on non-pecuniary factors. Specifically, requires the
fiduciary to document how the selected investment
compares to the alternative investments considered with
regard to the composition of the portfolio with respect
to diversification, the liquidity, and current return
of the portfolio relative to the anticipated cash flow
requirements of the plan, and the projected return of
the portfolio relative to the funding objectives of the
plan.
For fiduciaries who ``declare a tie'' in
order to consider non-pecuniary factors, requires
documentation of how the selected non-pecuniary factor
or factors are consistent with the interests of the
participants and beneficiaries in their retirement
income or financial benefits under the plan.
Addresses a fiduciary's selection of
investment alternatives for participant-directed
individual account plans intended to qualify for relief
under existing ERISA section 404(c)(1)(A) by stating a
fiduciary's actions must comply with H.R. 2988 in
selecting or retaining the investment option. Further,
any such investment option may not be added or retained
as or included as a component of a default investment
under existing section 404(c)(5) of ERISA, or any other
type of default investment, if its investment
objectives or goals or its principal investment
strategies include, consider, or indicate the use of
one or more non-pecuniary factors.
Defines ``pecuniary factor'' as ``a factor
that a fiduciary prudently determines is expected to
have a material effect on the risk or return of an
investment based on appropriate investment horizons
consistent with the plan's investment objectives and
the funding policy established pursuant to [existing
ERISA] section 402(b)(1).''
Defines ``investment course of action'' as
``any series or program of investments or actions
related to a fiduciary's performance of the fiduciary's
investment duties, and includes the selection of an
investment fund as a plan investment, or in the case of
an individual account plan, a designated investment
alternative under the plan.''
Section 1002(b) provides that the amendments made by the
bill apply to actions taken by a fiduciary on or after the date
that is 12 months after the date of enactment.
DIVISION B--NO DISCRIMINATION IN MY BENEFITS
Section 2001--Short title
Names Division B the No Discrimination in My Benefits Act
Section 2002--Selection of Service Providers
Section 1002(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.
DIVISION C--RETIREMENT PROXY PROTECTION
Section 3001--Short title
Names Division C the Retirement Proxy Protection Act
Section 3002--Exercise of Shareholder Rights
Section 3002(a) amends ERISA section 404, adding the
following provisions:
States that the fiduciary duty to manage
plan assets that are shares of stock includes the
management of shareholder rights appurtenant to those
shares, including the right to vote proxies.
States that when deciding to exercise a
shareholder right and when exercising such right,
including the proxies, a fiduciary must act prudently
and solely in the interests of participants and
beneficiaries and for the exclusive purpose of
providing benefits to participants and beneficiaries
and defraying reasonable expenses of administering the
plan.
Clarifies that the fiduciary duty to manage
shareholder rights appurtenant to shares of stock does
not require the voting of every proxy or the exercise
of every shareholder right.
Clarifies that H.R. 2988 does not apply to
the voting, tender, or similar rights with respect to
qualifying employer securities or securities held in an
investment arrangement that is not a designated
investment alternative in the event such rights are
passed through pursuant to the terms of an individual
account plan to participants and beneficiaries with
accounts holding such securities.
Sets forth a fiduciary's six duties and
obligations when deciding whether to exercise a
shareholder right and when exercising a shareholder
right:
The fiduciary must act solely in
accordance with the economic interest of the
plan and its participants and beneficiaries.
The fiduciary must consider any
costs involved.
The fiduciary must evaluate
material facts that form the basis for any
particular proxy vote or exercise of
shareholder rights.
The fiduciary must maintain a
record of any proxy vote, any proxy voting
activity, or other exercise of a shareholder
right, including any attempt to influence
management.
The fiduciary shall not
subordinate the interests of participants and
beneficiaries in their retirement income or
other financial benefits under the plan to any
non-pecuniary objective.
The fiduciary shall not promote
non-pecuniary benefits or goals unrelated to
those financial interests of the plan's
participants and beneficiaries in their
benefits under the plan.
States that a fiduciary shall exercise
prudence and diligence in the selection and monitoring
of a person, if any, selected to advise or otherwise
assist with the exercise of shareholder rights,
including by providing research and analysis,
recommendations on the exercise of proxy voting or
other shareholder rights, administrative services with
respect to voting proxies, and recordkeeping and
reporting services.
States that in the event the authority to
vote proxies or exercise shareholder rights is
delegated to an investment manager pursuant to ERISA,
or to a proxy voting firm, or other person who performs
advisory services as to the voting of proxies or the
exercise of shareholder rights, a responsible plan
fiduciary shall monitor the proxy voting activities of
such investment manager or advisory firm and determine
whether such activities are in compliance with the six
obligations and duties set forth in H.R. 2988.
Provides that in order to meet its duties
under ERISA, a responsible plan fiduciary may adopt a
proxy voting policy for deciding whether to vote a
proxy, provided that the authority to vote a proxy is
exercised pursuant to specific parameters designed to
serve the economic interests of the plan.
Sets forth two safe harbor proxy voting
policies under which a fiduciary will automatically
satisfy his or her fiduciary duties with respect to a
decision not to vote a proxy.
The first safe harbor is a
voting policy that limits voting resources to
particular types of proposals that the
fiduciary has prudently determined are
substantially related to the business
activities of the issuer or are expected to
have a material effect on the value of the plan
investment.
The second safe harbor is a
voting policy under which the fiduciary will
refrain from voting on all proposals or on
particular types of proposals when the assets
of a plan invested in the issuer are a small
proportion of plan assets. (H.R. 2988 sets the
proportion at 5 percent of plan assets or, in
the case of assets under management, at 5
percent of the plan's total assets under
management by a particular investment manager
for a plan.)
Provides that a fiduciary shall not be
precluded from voting a proxy when the fiduciary
determines that such action is expected to have a
material economic effect on the investment performance
of the plan's portfolio (or the investment performance
of assets under management in the case of an investment
manager).
Provides that a fiduciary shall review any
policy adopted under H.R. 2988.
Section 3002(b) provides that the amendments made by the
bill apply to an exercise of shareholder rights occurring on or
after January 1, 2026.
DIVISION D--PROVIDING COMPLETE INFORMATION TO RETIREMENT INVESTORS
Section 4001--Short title
Names Division D the Providing Complete Information to
Retirement Investors Act.
Section 4002--Employee Retirement Income Security Act of 1974 Amendment
Section 4002(a) amends ERISA section 404(c) by adding a new
paragraph ``Notice Requirements for Brokerage Windows'' with
the provisions discussed below.
A notice requirement must be met for certain
plans to qualify for relief under ERISA section
404(c)(1) with respect to any investment that is not a
designated investment alternative.
The notice applies to a pension plan that
provides individual accounts and provides a participant
or beneficiary the opportunity to choose from
designated investment alternatives.
The notice applies to any participant or
beneficiary directing an investment into, out of, or
within an investment that is not a designated
investment alternative each time the participant or
beneficiary makes such a direction.
The participant or beneficiary is required,
as part of the notice process, to acknowledge each
element of the notice.
The notice is to be given sequentially in
four separate parts, and the participant must
acknowledge each part. The notice may be tailored to
the plan's situation as long as it is substantially
similar to the wording in the statute.
The four parts of the notice are as follows:
1. Your retirement plan offers designated
investment alternatives prudently selected and
monitored by fiduciaries for the purpose of
enabling you to construct an appropriate
retirement savings portfolio. In selecting and
monitoring designated investment alternatives,
your plan's fiduciary considers the risk of
loss and the opportunity for gain (or other
return) compared with reasonably available
alternative investments.
2. The investments available through this
investment arrangement are not designated
investment alternatives, and have not been
prudently selected, and are not monitored by a
plan fiduciary.
3. Depending on the investments you select
through the investment arrangement, you may
experience diminished returns, higher fees, and
higher risk than if you select from the plan's
designated investment alternatives.
4. The following is a hypothetical
illustration of the impact of return at 4
percent, 6 percent, and 8 percent on your
retirement balance projected to age 67.
The bill requires a graph to be displayed
along with the fourth element of the notice to display
the projected retirement balance (using the latest
available account balance) at age 67 based on an annual
return of 4 percent, 6 percent, and 8 percent.
Section 4002(b) amends ERISA by adding a definition of
``designated investment alternative'' as ``any investment
alternative designated by a responsible fiduciary of an
individual account plan described in section 404(c) into which
participants and beneficiaries may direct the investment of
assets held in, or contributed to, their individual accounts,''
but this does not include brokerage windows, self-directed
brokerage accounts, or similar plan arrangements that enable
participants and beneficiaries to select investments beyond
those designated by a responsible plan fiduciary.
Section 4002(b) also provides that the amendments made by
the bill under subsection (a) (the notice requirements) take
effect on January 1, 2027.
Explanation of Amendments
The amendment in the nature of a substitute is 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. 2988 makes clear that the financial interests of
employee benefit plan participants and beneficiaries in their
benefits come first. H.R. 2988 applies solely to the
participants in employee benefit plans covered under the
Employee Retirement Income Security Act of 1974 and therefore
does not apply to 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 traditionally 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. 2988 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of House rule XXI.
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.
Statement of General Performance Goals and Objectives
In accordance with clause (3)(c) of rule XIII of the Rules
of the House of Representatives, the goal of H.R. 2988 is to
protect the interest of workers in their benefits provided
under ERISA plans.
Duplication of Federal Programs
No provision of H.R. 2988 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
In compliance with clause 3(c)(6) of rule XIII the
following hearing held during the 119th Congress was used to
develop or consider H.R. 2988: On April 30, 2025, the
Committee's Health, Employment, Labor, and Pensions
Subcommittee held a hearing on ``Investing for the Future:
Honoring ERISA's Promise to Participants.''
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 adopts as its
own the cost estimate for the bill prepared by the Director of
the Congressional Budget Office.
H.R. 2988 would revise the standards that fiduciaries of
private pension plans must apply to their investment decisions.
Among other requirements, the bill would prohibit fiduciaries
from prioritizing any objective other than maximizing
beneficiaries' returns when they exercise shareholders' proxy
rights. Plans would be required to provide information to
participants who make self-directed investments through what
are termed brokerage windows. The bill also would prohibit the
consideration of factors such as race and sex in the hiring and
retention of pension plan employees.
For this estimate, CBO assumes that the bill will be
enacted by the end of calendar year 2025.
CBO and the staff of the Joint Committee on Taxation (JCT)
estimate that enacting H.R. 2988 would not affect net direct
spending or revenues over the 2025-2035 period. CBO estimates
that implementing the bill would increase spending subject to
appropriation by less than $500,000 over the 2025-2030 period.
Any related spending would be subject to the availability of
appropriated funds.
Fiduciaries' investment standards: H.R. 2988 would
reinstate many provisions in a final rule published in November
2020 by the Employee Benefits Security Administration.\1\ The
bill would curtail pension plans' ability to apply
environmental, social, or governance (commonly referred to as
ESG) considerations to decisionmaking concerning plan
investments. Under the Employee Retirement Income Security Act
of 1974 (ERISA), fiduciaries of private-pension plans must base
investment decisions on the interests of their participants.
The November 2020 rule required fiduciaries to base decisions
solely on pecuniary factors, but that rule included a
``tiebreaker'' standard, under which fiduciaries could consider
other benefits if alternative investment options were not
economically distinguishable.
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\1\Employee Benefits Security Administration, ``Financial Factors
in Selecting Plan Investments,'' final rule, 85 Fed. Reg. 72846
(November 13, 2020), https://tinyurl.com/ycy4nt84.
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In December 2022, the Department of Labor (DOL) issued a
final rule that allows fiduciaries to consider environmental,
social, and governance factors in their decisionmaking.\2\
Under that rule, fiduciaries cannot subordinate the interests
of participants and beneficiaries to other objectives and
cannot sacrifice returns on investment or take on additional
risk in investment.
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\2\Employee Benefits Security Administration, ``Prudence and
Loyalty in Selecting Plan Investments and Exercising Shareholder
Rights,'' final rule, 87 Fed. Reg. 73822 (December 1, 2022), https://
tinyurl.com/ycxz46z7.
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A group of states and companies sued DOL arguing that the
December 2022 rule is impermissible under ERISA. Although a
lower court upheld that rule, DOL plans to issue a new rule on
the subject that will reverse the December 2022 rule.
Proxy voting: H.R. 2988 would specify plans' obligations
for proxy voting and direct fiduciaries to make investment
decisions solely for the financial benefit of participants. The
bill would reinstate many of the provisions in a final rule
published by the Employee Benefits Security Administration in
December 2020.\3\
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\3\Employee Benefits Security Administration, ``Fiduciary Duties
Regarding Proxy Voting and Shareholder Rights,'' final rule, 85 Fed.
Reg. 81658 (December 16, 2020), https://tinyurl.com/yc72nu5m.
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Provide information to participants: The bill would require
pension plans to warn participants in brokerage windows about
the risks associated with nonstandard investments. CBO and JCT
do not expect that providing such information would
significantly change participants' investment choices, and to
the extent that choices did change under the bill, each agency
expects an equally likely chance that small increases or
decreases in federal outlays or revenues would result.
Employment practices: H.R. 2988 would require pension plans
to hire employees and engage service providers without regard
to race, color, religion, sex, or national origin.
Federal costs: Because fiduciaries are required to maximize
investment performance, CBO and JCT do not expect that enacting
the bill would substantially affect pension plans' investment
outcomes. Projections of returns are inherently uncertain, but
each agency expects that insignificant increases or decreases
in federal outlays or revenues would stem from enacting the
bill.
The December 2022 final rule may induce individual
employers or workers to increase or decrease their pension
contributions. Thus, enacting H.R. 2988 could affect federal
revenues if contributions to tax-preferred plans changed. CBO
and JCT project that total contributions will not change
substantially, however, and thus estimate that there would be
no effect on net direct spending or revenues under the bill.
Premiums received by the Pension Benefit Guaranty Corporation
also could be affected because they are based in part on plan
assets. (Those amounts are recorded in the budget as offsetting
collections--that is, as net reductions in direct spending
outlays.)
Based on the costs of similar activities, CBO estimates
that any administrative costs to implement H.R. 2988 would be
insignificant. Any related spending would be subject to the
availability of appropriated funds.
Mandates: H.R. 2988 would impose private-sector mandates as
defined in the Unfunded Mandates Reform Act (UMRA) by requiring
fiduciaries to act solely in the financial interests of
beneficiaries when they exercise shareholders' proxy rights and
by requiring pension plans that offer brokerage windows to warn
participants of the risks associated with alternative
investments.
CBO estimates that the cost to comply with H.R. 2988 would
not exceed the annual threshold established in UMRA for
private-sector mandates ($206 million in 2025, adjusted
annually for inflation).
H.R. 2988 contains no intergovernmental mandates as defined
in UMRA.
CBO has not reviewed the nondiscrimination provisions of
the bill 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 the legislation falls within that exclusion because it
would prohibit discrimination in hiring or retaining personnel
based on race, color, religion, sex, or national origin.
The CBO staff contacts for this estimate are Noah Meyerson
(for federal costs) and Andrew Laughlin (for mandates). The
estimate was reviewed by H. Samuel Papenfuss, Deputy Director
of Budget Analysis.
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. 2988.
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 for the bill
prepared by the Director of the Congressional Budget Office.
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 A--General Provisions
* * * * * * *
DEFINITIONS
Sec. 3. For purposes of this title:
(1) The terms ``employee welfare benefit plan'' and ``welfare
plan'' mean any plan, fund, or program which was heretofore or
is hereafter established or maintained by an employer or by an
employee organization, or by both, to the extent that such
plan, fund, or program was established or is maintained for the
purpose of providing for its participants or their
beneficiaries, through the purchase of insurance or otherwise,
(A) medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, death
or unemployment, or vacation benefits, apprenticeship or other
training programs, or day care centers, scholarship funds, or
prepaid legal services, or (B) any benefit described in section
302(c) of the Labor Management Relations Act, 1947 (other than
pensions on retirement or death, and insurance to provide such
pensions).
(2)(A) Except as provided in subparagraph (B), the terms
``employee pension benefit plan'' and ``pension plan'' mean any
plan, fund, or program which was heretofore or is hereafter
established or maintained by an employer or by an employee
organization, or by both, to the extent that by its express
terms or as a result of surrounding circumstances such plan,
fund, or program--
(i) provides retirement income to employees, or
(ii) results in a deferral of income by employees for
periods extending to the termination of covered
employment or beyond,
regardless of the method of calculating the contributions made
to the plan, the method of calculating the benefits under the
plan or the method of distributing benefits from the plan. A
distribution from a plan, fund, or program shall not be treated
as made in a form other than retirement income or as a
distribution prior to termination of covered employment solely
because such distribution is made to an employee who has
attained age 62 and who is not separated from employment at the
time of such distribution.
(B) The Secretary may by regulation prescribe rules
consistent with the standards and purposes of this Act
providing one or more exempt categories under which--
(i) severance pay arrangements, and
(ii) supplemental retirement income payments, under
which the pension benefits of retirees or their
beneficiaries are supplemented to take into account
some portion or all of the increases in the cost of
living (as determined by the Secretary of Labor) since
retirement,
shall, for purposes of this title, be treated as welfare plans
rather than pension plans. In the case of any arrangement or
payment a principal effect of which is the evasion of the
standards or purposes of this Act applicable to pension plans,
such arrangement or payment shall be treated as a pension plan.
An applicable voluntary early retirement incentive plan (as
defined in section 457(e)(11)(D)(ii) of the Internal Revenue
Code of 1986) making payments or supplements described in
section 457(e)(11)(D)(i) of such Code, and an applicable
employment retention plan (as defined in section 457(f)(4)(C)
of such Code) making payments of benefits described in section
457(f)(4)(A) of such Code, shall, for purposes of this title,
be treated as a welfare plan (and not a pension plan) with
respect to such payments and supplements.
(C) A pooled employer plan shall be treated as--
(i) a single employee pension benefit plan or
single pension plan; and
(ii) a plan to which section 210(a) applies.
(3) The term ``employee benefit plan'' or ``plan'' means an
employee welfare benefit plan or an employee pension benefit
plan or a plan which is both an employee welfare benefit plan
and an employee pension benefit plan.
(4) The term ``employee organization'' means any labor union
or any organization of any kind, or any agency or employee
representation committee, association, group, or plan, in which
employees participate and which exists for the purpose, in
whole or in part, of dealing with employers concerning an
employee benefit plan, or other matters incidental to
employment relationships; or any employees' beneficiary
association organized for the purpose in whole or in part, of
establishing such a plan.
(5) The term ``employer'' means any person acting directly as
an employer, or indirectly in the interest of an employer, in
relation to an employee benefit plan; and includes a group or
association of employers acting for an employer in such
capacity.
(6) The term ``employee'' means any individual employed by an
employer.
(7) The term ``participant'' means 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
any such benefit.
(8) The term ``beneficiary'' means a person designated by a
participant, or by the terms of an employee benefit plan, who
is or may become entitled to a benefit thereunder.
(9) The term ``person'' means an individual, partnership,
joint venture, corporation, mutual company, joint-stock
company, trust, estate, unincorporated organization,
association, or employee organization.
(10) The term ``State'' includes any State of the United
States, the District of Columbia, Puerto Rico, the Virgin
Islands, American Samoa, Guam, Wake Island, and the Canal Zone.
The term ``United States'' when used in the geographic sense
means the States and the Outer Continental Shelf lands defined
in the Outer Continental Shelf Lands Act (43 U.S.C. 1331-1343).
(11) The term ``commerce'' means trade, traffic, commerce,
transportation, or communication between any State and any
place outside thereof.
(12) The term ``industry or activity affecting commerce''
means any activity, business, or industry in commerce or in
which a labor dispute would hinder or obstruct commerce or the
free flow of commerce, and includes any activity or industry
``affecting commerce'' within the meaning of the Labor
Management Relations Act, 1947, or the Railway Labor Act.
(13) The term ``Secretary'' means the Secretary of Labor.
(14) The term ``party in interest'' means, as to an employee
benefit plan--
(A) any fiduciary (including, but not limited to, any
administrator, officer, trustee, or custodian),
counsel, or employee of such employee benefit plan;
(B) a person providing services to such plan;
(C) an employer any of whose employees are covered by
such plan;
(D) an employee organization any of whose members are
covered by such plan;
(E) an owner, direct or indirect, of 50 percent or
more of--
(i) the combined voting power of all classes
of stock entitled to vote or the total value of
shares of all classes of stock of a
corporation,
(ii) the capital interest or the profits
interest of a partnership, or
(iii) the beneficial interest of a trust or
unincorporated enterprise,
which is an employer or an employee organization
described in subparagraph (C) or (D);
(F) a relative (as defined in paragraph (15)) of any
individual described in subparagraph (A), (B), (C), or
(E);
(G) a corporation, partnership, or trust or estate of
which (or in which) 50 percent or more of--
(i) the combined voting power of all classes
of stock entitled to vote or the total value of
shares of all classes of stock of such
corporation,
(ii) the capital interest or profits interest
of such partnership, or
(iii) the beneficial interest of such trust
or estate,
is owned directly or indirectly, or held by persons
described in subparagraph (A), (B), (C), (D), or (E);
(H) an employee, officer, director (or an individual
having powers or responsibilities similar to those of
officers or directors), or a 10 percent or more
shareholder directly or indirectly, of a person
described in subparagraph (B), (C), (D), (E), or (G),
or of the employee benefit plan; or
(I) a 10 percent or more (directly or indirectly in
capital or profits) partner or joint venturer of a
person described in subparagraph (B), (C), (D), (E), or
(G).
The Secretary, after consultation and coordination with the
Secretary of the Treasury, may by regulation prescribe a
percentage lower than 50 percent for subparagraph (E) and (G)
and lower than 10 percent for subparagraph (H) or (I). The
Secretary may prescribe regulations for determining the
ownership (direct or indirect) of profits and beneficial
interests, and the manner in which indirect stockholdings are
taken into account. Any person who is a party in interest with
respect to a plan to which a trust described in section
501(c)(22) of the Internal Revenue Code of 1986 is permitted to
make payments under section 4223 shall be treated as a party in
interest with respect to such trust.
(15) The term ``relative'' means a spouse, ancestor, lineal
descendant, or spouse of a lineal descendant.
(16)(A) The term ``administrator'' means--
(i) the person specifically so designated by the
terms of the instrument under which the plan is
operated;
(ii) if an administrator is not so designated, the
plan sponsor; or
(iii) in the case of a plan for which an
administrator is not designated and a plan sponsor
cannot be identified, such other person as the
Secretary may by regulation prescribe.
(B) The term ``plan sponsor'' means (i) the employer in the
case of an employee benefit plan established or maintained by a
single employer, (ii) the employee organization in the case of
a plan established or maintained by an employee organization,
(iii) in the case of a plan established or maintained by two or
more employers or jointly by one or more employers and one or
more employee organizations, the association, committee, joint
board of trustees, or other similar group of representatives of
the parties who establish or maintain the plan, or (iv) in the
case of a pooled employer plan, the pooled plan provider.
(17) The term ``separate account'' means an account
established or maintained by an insurance company under which
income, gains, and losses, whether or not realized, from assets
allocated to such account, are, in accordance with the
applicable contract, credited to or charged against such
account without regard to other income, gains, or losses of the
insurance company.
(18) The term ``adequate consideration'' when used in part 4
of subtitle B means (A) in the case of a security for which
there is a generally recognized market, either (i) the price of
the security prevailing on a national securities exchange which
is registered under section 6 of the Securities Exchange Act of
1934, or (ii) if the security is not traded on such a national
securities exchange, a price not less favorable to the plan
than the offering price for the security as established by the
current bid and asked prices quoted by persons independent of
the issuer and of any party in interest; and (B) in the case of
an asset other than a security for which there is a generally
recognized market, the fair market value of the asset as
determined in good faith by the trustee or named fiduciary
pursuant to the terms of the plan and in accordance with
regulations promulgated by the Secretary.
(19) The term ``nonforfeitable'' when used with respect to a
pension benefit or right means a claim obtained by a
participant or his beneficiary to that part of an immediate or
deferred benefit under a pension plan which arises from the
participant's service, which is unconditional, and which is
legally enforceable against the plan. For purposes of this
paragraph, a right to an accrued benefit derived from employer
contributions shall not be treated as forfeitable merely
because the plan contains a provision described in section
203(a)(3).
(20) The term ``security'' has the same meaning as such term
has under section 2(1) of the Securities Act of 1933 (15 U.S.C.
77b(1)).
(21)(A) Except as otherwise provided in subparagraph (B), a
person is a fiduciary with respect to a plan to the extent (i)
he exercises any discretionary authority or discretionary
control respecting management of such plan or exercises any
authority or control respecting management or disposition of
its assets, (ii) he renders investment advice for a fee or
other compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any authority or
responsibility to do so, or (iii) he has any discretionary
authority or discretionary responsibility in the administration
of such plan. Such term includes any person designated under
section 405(c)(1)(B).
(B) If any money or other property of an employee benefit
plan is invested in securities issued by an investment company
registered under the Investment Company Act of 1940, such
investment shall not by itself cause such investment company or
such investment company's investment adviser or principal
underwriter to be deemed to be a fiduciary or a party in
interest as those terms are defined in this title, except
insofar as such investment company or its investment adviser or
principal underwriter acts in connection with an employee
benefit plan covering employees of the investment company, the
investment adviser, or its principal underwriter. Nothing
contained in this subparagraph shall limit the duties imposed
on such investment company, investment adviser, or principal
underwriter by any other law.
(22) The term ``normal retirement benefit'' means the greater
of the early retirement benefit under the plan, or the benefit
under the plan commencing at normal retirement age. The normal
retirement benefit shall be determined without regard to--
(A) medical benefits, and
(B) disability benefits not in excess of the
qualified disability benefit.
For purposes of this paragraph, a qualified disability benefit
is a disability benefit provided by a plan which does not
exceed the benefit which would be provided for the participant
if he separated from the service at normal retirement age. For
purposes of this paragraph, the early retirement benefit under
a plan shall be determined without regard to any benefit under
the plan which the Secretary of the Treasury finds to be a
benefit described in section 204(b)(1)(G).
(23) The term ``accrued benefit'' means--
(A) in the case of a defined benefit plan, the
individual's accrued benefit determined under the plan
and, except as provided in section 204(c)(3), expressed
in the form of an annual benefit commencing at normal
retirement age, or
(B) in the case of a plan which is an individual
account plan, the balance of the individual's account.
The accrued benefit of an employee shall not be less than the
amount determined under section 204(c)(2)(B) with respect to
the employee's accumulated contribution.
(24) The term ``normal retirement age'' means the earlier
of--
(A) the time a plan participant attains normal
retirement age under the plan, or
(B) the later of--
(i) the time a plan participant attains age
65, or
(ii) the 5th anniversary of the time a plan
participant commenced participation in the
plan.
(25) The term ``vested liabilities'' means the present value
of the immediate or deferred benefits available at normal
retirement age for participants and their beneficiaries which
are nonforfeitable.
(26) The term ``current value'' means fair market value where
available and otherwise the fair value as determined in good
faith by a trustee or a named fiduciary (as defined in section
402(a)(2)) pursuant to the terms of the plan and in accordance
with regulations of the Secretary, assuming an orderly
liquidation at the time of such determination.
(27) The term ``present value'', with respect to a liability,
means the value adjusted to reflect anticipated events. Such
adjustments shall conform to such regulations as the Secretary
of the Treasury may prescribe.
(28) The term ``normal service cost'' or ``normal cost''
means the annual cost of future pension benefits and
administrative expenses assigned, under an actuarial cost
method, to years subsequent to a particular valuation date of a
pension plan. The Secretary of the Treasury may prescribe
regulations to carry out this paragraph.
(29) The term ``accrued liability'' means the excess of the
present value, as of a particular valuation date of a pension
plan, of the projected future benefit costs and administrative
expenses for all plan participants and beneficiaries over the
present value of future contributions for the normal cost of
all applicable plan participants and beneficiaries. The
Secretary of the Treasury may prescribe regulations to carry
out this paragraph.
(30) The term ``unfunded accrued liability'' means the excess
of the accrued liability, under an actuarial cost method which
so provides, over the present value of the assets of a pension
plan. The Secretary of the Treasury may prescribe regulations
to carry out this paragraph.
(31) The term ``advance funding actuarial cost method'' or
``actuarial cost method'' means a recognized actuarial
technique utilized for establishing the amount and incidence of
the annual actuarial cost of pension plan benefits and
expenses. Acceptable actuarial cost methods shall include the
accrued benefit cost method (unit credit method), the entry age
normal cost method, the individual level premium cost method,
the aggregate cost method, the attained age normal cost method,
and the frozen initial liability cost method. The terminal
funding cost method and the current funding (pay-as-you-go)
cost method are not acceptable actuarial cost methods. The
Secretary of the Treasury shall issue regulations to further
define acceptable actuarial cost methods.
(32) The term ``governmental plan'' means a plan established
or maintained for its employees by the Government of the United
States, by the government of any State or political subdivision
thereof, or by any agency or instrumentality of any of the
foregoing. The term ``governmental plan'' also includes any
plan to which the Railroad Retirement Act of 1935 or 1937
applies, and which is financed by contributions required under
that Act and any plan of an international organization which is
exempt from taxation under the provisions of the International
Organizations Immunities Act (59 Stat. 669). The term
``governmental plan'' includes a plan which is established and
maintained by an Indian tribal government (as defined in
section 7701(a)(40) of the Internal Revenue Code of 1986), a
subdivision of an Indian tribal government (determined in
accordance with section 7871(d) of such Code), or an agency or
instrumentality of either, and all of the participants of which
are employees of such entity substantially all of whose
services as such an employee are in the performance of
essential governmental functions but not in the performance of
commercial activities (whether or not an essential government
function)
(33)(A) The term ``church plan'' means a plan established and
maintained (to the extent required in clause (ii) of
subparagraph (B)) for its employees (or their beneficiaries) by
a church or by a convention or association of churches which is
exempt from tax under section 501 of the Internal Revenue Code
of 1986.
(B) The term ``church plan'' does not include a plan--
(i) which is established and maintained primarily for
the benefit of employees (or their beneficiaries) of
such church or convention or association of churches
who are employed in connection with one or more
unrelated trades or businesses (within the meaning of
section 513 of the Internal Revenue Code of 1986), or
(ii) if less than substantially all of the
individuals included in the plan are individuals
described in subparagraph (A) or in clause (ii) of
subparagraph (C) (or their beneficiaries).
(C) For purposes of this paragraph--
(i) A plan established and maintained for its
employees (or their beneficiaries) by a church or by a
convention or association of churches includes a plan
maintained by an organization, whether a civil law
corporation or otherwise, the principal purpose or
function of which is the administration or funding of a
plan or program for the provision of retirement
benefits or welfare benefits, or both, for the
employees of a church or a convention or association of
churches, if such organization is controlled by or
associated with a church or a convention or association
of churches.
(ii) The term employee of a church or a convention or
association of churches includes--
(I) a duly ordained, commissioned, or
licensed minister of a church in the exercise
of his ministry, regardless of the source of
his compensation;
(II) an employee of an organization, whether
a civil law corporation or otherwise, which is
exempt from tax under section 501 of the
Internal Revenue Code of 1986 and which is
controlled by or associated with a church or a
convention or association of churches; and
(III) an individual described in clause (v).
(iii) A church or a convention or association of
churches which is exempt from tax under section 501 of
the Internal Revenue Code of 1986 shall be deemed the
employer of any individual included as an employee
under clause (ii).
(iv) An organization, whether a civil law corporation
or otherwise, is associated with a church or a
convention or association of churches if it shares
common religious bonds and convictions with that church
or convention or association of churches.
(v) If an employee who is included in a church plan
separates from the service of a church or a convention
or association of churches or an organization, whether
a civil law corporation or otherwise, which is exempt
from tax under section 501 of the Internal Revenue Code
of 1986 and which is controlled by or associated with a
church or a convention or association of churches, the
church plan shall not fail to meet the requirements of
this paragraph merely because the plan--
(I) retains the employee's accrued benefit or
account for the payment of benefits to the
employee or his beneficiaries pursuant to the
terms of the plan; or
(II) receives contributions on the employee's
behalf after the employee's separation from
such service, but only for a period of 5 years
after such separation, unless the employee is
disabled (within the meaning of the disability
provisions of the church plan or, if there are
no such provisions in the church plan, within
the meaning of section 72(m)(7) of the Internal
Revenue Code of 1986) at the time of such
separation from service.
(D)(i) If a plan established and maintained for its employees
(or their beneficiaries) by a church or by a convention or
association of churches which is exempt from tax under section
501 of the Internal Revenue Code of 1986 fails to meet one or
more of the requirements of this paragraph and corrects its
failure to meet such requirements within the correction period,
the plan shall be deemed to meet the requirements of this
paragraph for the year in which the correction was made and for
all prior years.
(ii) If a correction is not made within the correction
period, the plan shall be deemed not to meet the requirements
of this paragraph beginning with the date on which the earliest
failure to meet one or more of such requirements occurred.
(iii) For purposes of this subparagraph, the term
``correction period'' means--
(I) the period ending 270 days after the date of
mailing by the Secretary of the Treasury of a notice of
default with respect to the plan's failure to meet one
or more of the requirements of this paragraph; or
(II) any period set by a court of competent
jurisdiction after a final determination that the plan
fails to meet such requirements, or, if the court does
not specify such period, any reasonable period
determined by the Secretary of the Treasury on the
basis of all the facts and circumstances, but in any
event not less than 270 days after the determination
has become final; or
(III) any additional period which the Secretary of
the Treasury determines is reasonable or necessary for
the correction of the default,
whichever has the latest ending date.
(34) The term ``individual account plan'' or ``defined
contribution plan'' means a pension plan which provides for an
individual account for each participant and for benefits based
solely upon the amount contributed to the participant's
account, and any income, expenses, gains and losses, and any
forfeitures of accounts of other participants which may be
allocated to such participant's account.
(35) The term ``defined benefit plan'' means a pension plan
other than an individual account plan; except that a pension
plan which is not an individual account plan and which provides
a benefit derived from employer contributions which is based
partly on the balance of the separate account of a
participant--
(A) for the purposes of section 202, shall be treated
as an individual account plan, and
(B) for the purposes of paragraph (23) of this
section and section 204, shall be treated as an
individual account plan to the extent benefits are
based upon the separate account of a participant and as
a defined benefit plan with respect to the remaining
portion of benefits under the plan.
(36) The term ``excess benefit plan'' means a plan maintained
by an employer solely for the purpose of providing benefits for
certain employees in excess of the limitations on contributions
and benefits imposed by section 415 of the Internal Revenue
Code of 1986 on plans to which that section applies, without
regard to whether the plan is funded. To the extent that a
separable part of a plan (as determined by the Secretary of
Labor) maintained by an employer is maintained for such
purpose, that part shall be treated as a separate plan which is
an excess benefit plan.
(37)(A) The term ``multiemployer plan'' means a plan--
(i) to which more than one employer is required to
contribute,
(ii) which is maintained pursuant to one or more
collective bargaining agreements between one or more
employee organizations and more than one employer, and
(iii) which satisfies such other requirements as the
Secretary may prescribe by regulation.
(B) For purposes of this paragraph, all trades or businesses
(whether or not incorporated) which are under common control
within the meaning of section 4001(b)(1) are considered a
single employer.
(C) Notwithstanding subparagraph (A), a plan is a
multiemployer plan on and after its termination date if the
plan was a multiemployer plan under this paragraph for the plan
year preceding its termination date.
(D) For purposes of this title, notwithstanding the preceding
provisions of this paragraph, for any plan year which began
before the date of the enactment of the Multiemployer Pension
Plan Amendments Act of 1980, the term ``multiemployer plan''
means a plan described in section 3(37) of this Act as in
effect immediately before such date.
(E) Within one year after the date of the enactment of the
Multiemployer Pension Plan Amendments Act of 1980, a
multiemployer plan may irrevocably elect, pursuant to
procedures established by the corporation and subject to the
provisions of sections 4403(b) and (c), that the plan shall not
be treated as a multiemployer plan for all purposes under this
Act or the Internal Revenue Code of 1954 if for each of the
last 3 plan years ending prior to the effective date of the
Multiemployer Pension Plan Amendments Act of 1980--
(i) the plan was not a multiemployer plan because the
plan was not a plan described in section 3(37)(A)(iii)
of this Act and section 414(f)(1)(C) of the Internal
Revenue Code of 1954 (as such provisions were in effect
on the day before the date of the enactment of the
Multiemployer Pension Plan Amendments Act of 1980 );
and
(ii) the plan had been identified as a plan that was
not a multiemployer plan in substantially all its
filings with the corporation, the Secretary of Labor
and the Secretary of the Treasury.
(F)(i) For purposes of this title a qualified football
coaches plan--
(I) shall be treated as a multiemployer plan to the
extent not inconsistent with the purposes of this
subparagraph; and
(II) notwithstanding section 401(k)(4)(B) of the
Internal Revenue Code of 1986, may include a qualified
cash and deferred arrangement.
(ii) For purposes of this subparagraph, the term ``qualified
football coaches plan'' means any defined contribution plan
which is established and maintained by an organization--
(I) which is described in section 501(c) of such
Code;
(II) the membership of which consists entirely of
individuals who primarily coach football as full-time
employees of 4-year colleges or universities described
in section 170(b)(1)(A)(ii) of such Code; and
(III) which was in existence on September 18, 1986.
(G)(i) Within 1 year after the enactment of the
Pension Protection Act of 2006--
(I) an election under subparagraph (E) may be
revoked, pursuant to procedures prescribed by
the Pension Benefit Guaranty Corporation, if,
for each of the 3 plan years prior to the date
of the enactment of that Act, the plan would
have been a multiemployer plan but for the
election under subparagraph (E), and
(II) a plan that meets the criteria in
clauses (i) and (ii) of subparagraph (A) of
this paragraph or that is described in clause
(vi) may, pursuant to procedures prescribed by
the Pension Benefit Guaranty Corporation, elect
to be a multiemployer plan, if--
(aa) for each of the 3 plan years
immediately preceding the first plan
year for which the election under this
paragraph is effective with respect to
the plan, the plan has met those
criteria or is so described,
(bb) substantially all of the plan's
employer contributions for each of
those plan years were made or required
to be made by organizations that were
exempt from tax under section 501 of
the Internal Revenue Code of 1986, and
(cc) the plan was established prior
to September 2, 1974.
(ii) An election under this subparagraph shall be
effective for all purposes under this Act and under the
Internal Revenue Code of 1986, starting with any plan
year beginning on or after January 1, 1999, and ending
before January 1, 2008, as designated by the plan in
the election made under clause (i)(II).
(iii) Once made, an election under this subparagraph
shall be irrevocable, except that a plan described in
clause (i)(II) shall cease to be a multiemployer plan
as of the plan year beginning immediately after the
first plan year for which the majority of its employer
contributions were made or required to be made by
organizations that were not exempt from tax under
section 501 of the Internal Revenue Code of 1986.
(iv) The fact that a plan makes an election under
clause (i)(II) does not imply that the plan was not a
multiemployer plan prior to the date of the election or
would not be a multiemployer plan without regard to the
election.
(v)(I) No later than 30 days before an election is
made under this subparagraph, the plan administrator
shall provide notice of the pending election to each
plan participant and beneficiary, each labor
organization representing such participants or
beneficiaries, and each employer that has an obligation
to contribute to the plan, describing the principal
differences between the guarantee programs under title
IV and the benefit restrictions under this title for
single employer and multiemployer plans, along with
such other information as the plan administrator
chooses to include.
(II) Within 180 days after the date of enactment of
the Pension Protection Act of 2006, the Secretary shall
prescribe a model notice under this clause.
(III) A plan administrator's failure to provide the
notice required under this subparagraph shall be
treated for purposes of section 502(c)(2) as a failure
or refusal by the plan administrator to file the annual
report required to be filed with the Secretary under
section 101(b)(1).
(vi) A plan is described in this clause if it is a
plan sponsored by an organization which is described in
section 501(c)(5) of the Internal Revenue Code of 1986
and exempt from tax under section 501(a) of such Code
and which was established in Chicago, Illinois, on
August 12, 1881.
(vii) For purposes of this Act and the Internal Revenue Code
of 1986, a plan making an election under this subparagraph
shall be treated as maintained pursuant to a collective
bargaining agreement if a collective bargaining agreement,
expressly or otherwise, provides for or permits employer
contributions to the plan by one or more employers that are
signatory to such agreement, or participation in the plan by
one or more employees of an employer that is signatory to such
agreement, regardless of whether the plan was created,
established, or maintained for such employees by virtue of
another document that is not a collective bargaining agreement.
(38) The term ``investment manager'' means any fiduciary
(other than a trustee or named fiduciary, as defined in section
402(a)(2))--
(A) who has the power to manage, acquire, or dispose
of any asset of a plan;
(B) who (i) is registered as an investment adviser
under the Investment Advisers Act of 1940; (ii) is not
registered as an investment adviser under such Act by
reason of paragraph (1) of section 203A(a) of such Act,
is registered as an investment adviser under the laws
of the State (referred to in such paragraph (1)) in
which it maintains its principal office and place of
business, and, at the time the fiduciary last filed the
registration form most recently filed by the fiduciary
with such State in order to maintain the fiduciary's
registration under the laws of such State, also filed a
copy of such form with the Secretary; (iii) is a bank,
as defined in that Act; or (iv) is an insurance company
qualified to perform services described in subparagraph
(A) under the laws of more than one State; and
(C) has acknowledged in writing that he is a
fiduciary with respect to the plan.
(39) The terms ``plan year'' and ``fiscal year of the plan''
mean, with respect to a plan, the calendar, policy, or fiscal
year on which the records of the plan are kept.
(40)(A) The term ``multiple employer welfare arrangement''
means an employee welfare benefit plan, or any other
arrangement (other than an employee welfare benefit plan),
which is established or maintained for the purpose of offering
or providing any benefit described in paragraph (1) to the
employees of two or more employers (including one or more self-
employed individuals), or to their beneficiaries, except that
such term does not include any such plan or other arrangement
which is established or maintained--
(i) under or pursuant to one or more agreements which
the Secretary finds to be collective bargaining
agreements,
(ii) by a rural electric cooperative, or
(iii) by a rural telephone cooperative association.
(B) For purposes of this paragraph--
(i) two or more trades or businesses, whether or not
incorporated, shall be deemed a single employer if such
trades or businesses are within the same control group,
(ii) the term ``control group'' means a group of
trades or businesses under common control,
(iii) the determination of whether a trade or
business is under ``common control'' with another trade
or business shall be determined under regulations of
the Secretary applying principles similar to the
principles applied in determining whether employees of
two or more trades or businesses are treated as
employed by a single employer under section 4001(b),
except that, for purposes of this paragraph, common
control shall not be based on an interest of less than
25 percent,
(iv) the term ``rural electric cooperative'' means--
(I) any organization which is exempt from tax
under section 501(a) of the Internal Revenue
Code of 1986 and which is engaged primarily in
providing electric service on a mutual or
cooperative basis, and
(II) any organization described in paragraph
(4) or (6) of section 501(c) of the Internal
Revenue Code of 1986 which is exempt from tax
under section 501(a) of such Code and at least
80 percent of the members of which are
organizations described in subclause (I), and
(v) the term ``rural telephone cooperative
association'' means an organization described in
paragraph (4) or (6) of section 501(c) of the Internal
Revenue Code of 1986 which is exempt from tax under
section 501(a) of such Code and at least 80 percent of
the members of which are organizations engaged
primarily in providing telephone service to rural areas
of the United States on a mutual, cooperative, or other
basis.
(41) Single-employer plan.--The term ``single-employer plan''
means an employee benefit plan other than a multiemployer plan.
(42) the term ``plan assets'' means plan assets as defined by
such regulations as the Secretary may prescribe, except that
under such regulations the assets of any entity shall not be
treated as plan assets if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25
percent of the total value of each class of equity interest in
the entity is held by benefit plan investors. For purposes of
determinations pursuant to this paragraph, the value of any
equity interest held by a person (other than such a benefit
plan investor) who has discretionary authority or control with
respect to the assets of the entity or any person who provides
investment advice for a fee (direct or indirect) with respect
to such assets, or any affiliate of such a person, shall be
disregarded for purposes of calculating the 25 percent
threshold. An entity shall be considered to hold plan assets
only to the extent of the percentage of the equity interest
held by benefit plan investors. For purposes of this paragraph,
the term ``benefit plan investor'' means an employee benefit
plan subject to part 4, any plan to which section 4975 of the
Internal Revenue Code of 1986 applies, and any entity whose
underlying assets include plan assets by reason of a plan's
investment in such entity.
(43) Pooled employer plan.--
(A) In general.--The term ``pooled employer
plan'' means a plan--
(i) which is an individual account
plan established or maintained for the
purpose of providing benefits to the
employees of 2 or more employers;
(ii) which is a plan described in
section 401(a) of the Internal Revenue
Code of 1986 which includes a trust
exempt from tax under section 501(a) of
such Code, a plan that consists of
annuity contracts described in section
403(b) of such Code, or a plan that
consists of individual retirement
accounts described in section 408 of
such Code (including by reason of
subsection (c) thereof); and
(iii) the terms of which meet the
requirements of subparagraph (B).
Such term shall not include a plan maintained
by employers which have a common interest other
than having adopted the plan, but such term
shall include any plan (other than a plan
excepted from the application of this title by
section 4(b)(2)) maintained for the benefit of
the employees of more than 1 employer that
consists of annuity contracts described in
section 403(b) of such Code and that meets the
requirements of subparagraph (B) of section
413(e)(1) of such Code.
(B) Requirements for plan terms.--The
requirements of this subparagraph are met with
respect to any plan if the terms of the plan--
(i) designate a pooled plan provider
and provide that the pooled plan
provider is a named fiduciary of the
plan;
(ii) designate a named fiduciary
(other than an employer in the plan) to
be responsible for collecting
contributions to the plan and require
such fiduciary to implement written
contribution collection procedures that
are reasonable, diligent, and
systematic;
(iii) provide that each employer in
the plan retains fiduciary
responsibility for--
(I) the selection and
monitoring in accordance with
section 404(a) of the person
designated as the pooled plan
provider and any other person
who, in addition to the pooled
plan provider, is designated as
a named fiduciary of the plan;
and
(II) to the extent not
otherwise delegated to another
fiduciary by the pooled plan
provider and subject to the
provisions of section 404(c),
the investment and management
of the portion of the plan's
assets attributable to the
employees of the employer (or
beneficiaries of such
employees);
(iv) provide that employers in the
plan, and participants and
beneficiaries, are not subject to
unreasonable restrictions, fees, or
penalties with regard to ceasing
participation, receipt of
distributions, or otherwise
transferring assets of the plan in
accordance with section 208 or
paragraph (44)(C)(i)(II);
(v) require--
(I) the pooled plan provider
to provide to employers in the
plan any disclosures or other
information which the Secretary
may require, including any
disclosures or other
information to facilitate the
selection or any monitoring of
the pooled plan provider by
employers in the plan; and
(II) each employer in the
plan to take such actions as
the Secretary or the pooled
plan provider determines are
necessary to administer the
plan or for the plan to meet
any requirement applicable
under this Act or the Internal
Revenue Code of 1986 to a plan
described in section 401(a) of
such Code, a plan that consists
of annuity contracts described
in section 403(b) of such Code,
or to a plan that consists of
individual retirement accounts
described in section 408 of
such Code (including by reason
of subsection (c) thereof),
whichever is applicable,
including providing any
disclosures or other
information which the Secretary
may require or which the pooled
plan provider otherwise
determines are necessary to
administer the plan or to allow
the plan to meet such
requirements; and
(vi) provide that any disclosure or
other information required to be
provided under clause (v) may be
provided in electronic form and will be
designed to ensure only reasonable
costs are imposed on pooled plan
providers and employers in the plan.
(C) Exceptions.--The term ``pooled employer
plan'' does not include--
(i) a multiemployer plan; or
(ii) a plan established before the
date of the enactment of the Setting
Every Community Up for Retirement
Enhancement Act of 2019 unless the plan
administrator elects that the plan will
be treated as a pooled employer plan
and the plan meets the requirements of
this title applicable to a pooled
employer plan established on or after
such date.
(D) Treatment of employers as plan
sponsors.--Except with respect to the
administrative duties of the pooled plan
provider described in paragraph (44)(A)(i),
each employer in a pooled employer plan shall
be treated as the plan sponsor with respect to
the portion of the plan attributable to
employees of such employer (or beneficiaries of
such employees).
(44) Pooled plan provider.--
(A) In general.--The term ``pooled plan
provider'' means a person who--
(i) is designated by the terms of a
pooled employer plan as a named
fiduciary, as the plan administrator,
and as the person responsible for the
performance of all administrative
duties (including conducting proper
testing with respect to the plan and
the employees of each employer in the
plan) which are reasonably necessary to
ensure that--
(I) the plan meets any
requirement applicable under
this Act or the Internal
Revenue Code of 1986 to a plan
described in section 401(a) of
such Code, a plan that consists
of annuity contracts described
in section 403(b) of such Code,
or to a plan that consists of
individual retirement accounts
described in section 408 of
such Code (including by reason
of subsection (c) thereof),
whichever is applicable; and
(II) each employer in the
plan takes such actions as the
Secretary or pooled plan
provider determines are
necessary for the plan to meet
the requirements described in
subclause (I), including
providing the disclosures and
information described in
paragraph (43)(B)(v)(II);
(ii) registers as a pooled plan
provider with the Secretary, and
provides to the Secretary such other
information as the Secretary may
require, before beginning operations as
a pooled plan provider;
(iii) acknowledges in writing that
such person is a named fiduciary, and
the plan administrator, with respect to
the pooled employer plan; and
(iv) is responsible for ensuring that
all persons who handle assets of, or
who are fiduciaries of, the pooled
employer plan are bonded in accordance
with section 412.
(B) Audits, examinations and
investigations.--The Secretary may perform
audits, examinations, and investigations of
pooled plan providers as may be necessary to
enforce and carry out the purposes of this
paragraph and paragraph (43).
(C) Guidance.--The Secretary shall issue such
guidance as the Secretary determines
appropriate to carry out this paragraph and
paragraph (43), including guidance--
(i) to identify the administrative
duties and other actions required to be
performed by a pooled plan provider
under either such paragraph; and
(ii) which requires in appropriate
cases that if an employer in the plan
fails to take the actions required
under subparagraph (A)(i)(II)--
(I) the assets of the plan
attributable to employees of
such employer (or beneficiaries
of such employees) are
transferred to a plan
maintained only by such
employer (or its successor), to
an eligible retirement plan as
defined in section 402(c)(8)(B)
of the Internal Revenue Code of
1986 for each individual whose
account is transferred, or to
any other arrangement that the
Secretary determines is
appropriate in such guidance;
and
(II) such employer (and not
the plan with respect to which
the failure occurred or any
other employer in such plan)
shall, except to the extent
provided in such guidance, be
liable for any liabilities with
respect to such plan
attributable to employees of
such employer (or beneficiaries
of such employees).
The Secretary shall take into account
under clause (ii) whether the failure
of an employer or pooled plan provider
to provide any disclosures or other
information, or to take any other
action, necessary to administer a plan
or to allow a plan to meet requirements
described in subparagraph (A)(i)(II)
has continued over a period of time
that demonstrates a lack of commitment
to compliance. The Secretary may waive
the requirements of subclause (ii)(I)
in appropriate circumstances if the
Secretary determines it is in the best
interests of the employees of the
employer referred to in such clause
(and the beneficiaries of such
employees) to retain the assets in the
plan with respect to which the
employer's failure occurred.
(D) Good faith compliance with law before
guidance.--An employer or pooled plan provider
shall not be treated as failing to meet a
requirement of guidance issued by the Secretary
under subparagraph (C) if, before the issuance
of such guidance, the employer or pooled plan
provider complies in good faith with a
reasonable interpretation of the provisions of
this paragraph, or paragraph (43), to which
such guidance relates.
(E) Aggregation rules.--For purposes of this
paragraph, in determining whether a person
meets the requirements of this paragraph to be
a pooled plan provider with respect to any
plan, all persons who perform services for the
plan and who are treated as a single employer
under subsection (b), (c), (m), or (o) of
section 414 of the Internal Revenue Code of
1986 shall be treated as one person.
(45) Pension-linked emergency savings account.--The
term ``pension-linked emergency savings account'' means
a short-term savings account established and maintained
as part of an individual account plan, in accordance
with section 801, on behalf of an eligible participant
(as such term is defined in section 801(b)) that--
(A) is a designated Roth account (within the
meaning of section 402A of the Internal Revenue
Code of 1986) and accepts only participant
contributions, as described in section
801(d)(1)(A), which are designated Roth
contributions subject to the rules of section
402A(e) of such Code; and
(B) meets the requirements of part 8 of
subtitle B.
(46) Designated investment alternative.--
(A) In general.--The term ``designated
investment alternative'' means any investment
alternative designated by a responsible
fiduciary of an individual account plan
described in subsection 404(c) into which
participants and beneficiaries may direct the
investment of assets held in, or contributed
to, their individual accounts.
(B) Exception.--The term ``designated
investment alternative'' does not include
brokerage windows, self-directed brokerage
accounts, or similar plan arrangements that
enable participants and beneficiaries to select
investments beyond those designated by a
responsible plan fiduciary.
* * * * * * *
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)).
(3) Interest based on pecuniary factors.--
(A) In general.--For purposes of paragraph (1), a
fiduciary shall be considered to act solely in the
interest of the participants and beneficiaries of the
plan with respect to an investment or investment course
of action only if the fiduciary's action with respect
to such investment or investment course of action is
based solely on pecuniary factors (except as provided
in subparagraph (B)). The fiduciary 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
to promote non-pecuniary benefits or goals. The weight
given to any pecuniary factor by a fiduciary shall
reflect a prudent assessment of the impact of such
factor on risk and return.
(B) Use of non-pecuniary factors for investment
alternatives.--Notwithstanding paragraph (A), if a
fiduciary is unable to distinguish between or among
investment alternatives or investment courses of action
on the basis of pecuniary factors alone, the fiduciary
may use non-pecuniary factors as the deciding factor if
the fiduciary documents--
(i) why pecuniary factors were not sufficient
to select a plan investment or investment
course of action;
(ii) how the selected investment compares to
the alternative investments with regard to the
composition of the portfolio with regard to
diversification, the liquidity and current
return of the portfolio relative to the
anticipated cash flow requirements of the plan,
and the projected return of the portfolio
relative to the funding objectives of the plan;
and
(iii) how the selected non-pecuniary factor
or factors are consistent with the interests of
the participants and beneficiaries in their
retirement income or financial benefits under
the plan.
(C) Investment alternatives for participant-directed
individual account plans.--In selecting or retaining
investment options for a pension plan described in
subsection (c)(1)(A), a fiduciary is not prohibited
from considering, selecting, or retaining an investment
option on the basis that such investment option
promotes, seeks, or supports one or more non-pecuniary
benefits or goals, if--
(i) the fiduciary satisfies the requirements
of paragraph (1) and subparagraphs (A) and (B)
of this paragraph in selecting or retaining any
such investment option; and
(ii) such investment option is not added or
retained as, or included as a component of, a
default investment under subsection (c)(5) (or
any other default investment alternative) if
its investment objectives or goals or its
principal investment strategies include,
consider, or indicate the use of one or more
non-pecuniary factors.
(D) Definitions.--For the purposes of this paragraph:
(i) The term ``pecuniary factor'' means a
factor that a fiduciary prudently determines is
expected to have a material effect on the risk
or return of an investment based on appropriate
investment horizons consistent with the plan's
investment objectives and the funding policy
established pursuant to section 402(b)(1).
(ii) The term ``investment course of action''
means any series or program of investments or
actions related to a fiduciary's performance of
the fiduciary's investment duties, and includes
the selection of an investment fund as a plan
investment, or in the case of an individual
account plan, a designated investment
alternative under the plan.
(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).
(7) Notice requirements for brokerage windows.--
(A) In general.--In the case of a pension
plan which provides for individual accounts and
which provides a participant or beneficiary the
opportunity to choose from designated
investment alternatives, a participant or
beneficiary shall not be treated as exercising
control over assets in the account of the
participant or beneficiary unless, with respect
to any investment arrangement that is not a
designated investment alternative, each time
before such a participant or beneficiary
directs an investment into, out of, or within
such investment arrangement, such participant
is notified of, and acknowledges, each element
of the notice described under paragraph (B).
(B) Notice.--The notice described under this
paragraph is a four part information that is
substantially similar to the following
information:
1. Your retirement plan offers designated investment alternatives prudently selected and monitored by
fiduciaries for the purpose of enabling you to construct an appropriate retirement savings portfolio. In
selecting and monitoring designated investment alternatives, your plan's fiduciary considers the risk of loss
and the opportunity for gain (or other return) compared with reasonably available investment alternatives.
2. The investments available through this investment arrangement are not designated investment alternatives, and
have not been prudently selected and are not monitored by a plan fiduciary.
3. Depending on the investments you select through this investment arrangement, you may experience diminished
returns, higher fees, and higher risk than if you select from the plan's designated investment alternatives.
4. The following is a hypothetical illustration of the impact of return at 4 percent, 6 percent, and 8 percent
on your account balance projected to age 67.
(C) Illustration.--The notice described under
paragraph (B) shall also include a graph
displaying the projected retirement balances of
such participant or beneficiary at age 67 if
the account of such individual were to achieve
an annual return equal to each of the
following:
(i) 4 percent.
(ii) 6 percent.
(iii) 8 percent.
(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.
(f) Exercise of Shareholder Rights.--
(1) Authority to exercise shareholder rights.--
(A) In general.--The fiduciary duty to manage
plan assets that are shares of stock includes
the management of shareholder rights
appurtenant to those shares, including the
right to vote proxies. When deciding whether to
exercise a shareholder right and in exercising
such right, including the voting of proxies, a
fiduciary must act prudently and solely in the
interests of participants and beneficiaries and
for the exclusive purpose of providing benefits
to participants and beneficiaries and defraying
the reasonable expenses of administering the
plan. The fiduciary duty to manage shareholder
rights appurtenant to shares of stock does not
require the voting of every proxy or the
exercise of every shareholder right.
(B) Exception.--This subsection shall not
apply to voting, tender, and similar rights
with respect to qualifying employer securities
or securities held in an investment arrangement
that is not a designated investment alternative
in the event such rights are passed through
pursuant to the terms of an individual account
plan to participants and beneficiaries with
accounts holding such securities.
(2) Requirements for exercise of shareholder
rights.--A fiduciary, when deciding whether to exercise
a shareholder right and when exercising a shareholder
right--
(A) shall--
(i) act solely in accordance with the
economic interest of the plan and its
participants and beneficiaries;
(ii) consider any costs involved;
(iii) evaluate material facts that
form the basis for any particular proxy
vote or exercise of shareholder rights;
and
(iv) maintain a record of any proxy
vote, proxy voting activity, or other
exercise of a shareholder right,
including any attempt to influence
management; and
(B) shall not subordinate the interests of
participants and beneficiaries in their
retirement income or financial benefits under
the plan to any non-pecuniary objective, or
promote non-pecuniary benefits or goals
unrelated to those financial interests of the
plan's participants and beneficiaries.
(3) Monitoring.--A fiduciary shall exercise prudence
and diligence in the selection and monitoring of a
person, if any, selected to advise or otherwise assist
with the exercise of shareholder rights, including by
providing research and analysis, recommendations on
exercise of proxy voting or other shareholder rights,
administrative services with respect to voting proxies,
and recordkeeping and reporting services.
(4) Investment managers and proxy advisory firms.--
Where the authority to vote proxies or exercise other
shareholder rights has been delegated to an investment
manager pursuant to section 403(a), or a proxy voting
advisory firm or other person who performs advisory
services as to the voting of proxies or the exercise of
other shareholder rights, a responsible plan fiduciary
shall prudently monitor the proxy voting activities of
such investment manager or advisory firm and determine
whether such activities are in compliance with
paragraphs (1) and (2).
(5) Voting policies.--
(A) In general.--In deciding whether to vote
a proxy pursuant to this subsection, the plan
fiduciary may adopt a proxy voting policy,
including a safe harbor proxy voting policy
described in subparagraph (B), providing that
the authority to vote a proxy shall be
exercised pursuant to specific parameters
designed to serve the economic interest of the
plan.
(B) Safe harbor voting policy.--With respect
to a decision not to vote a proxy, a fiduciary
shall satisfy the fiduciary responsibilities
under this subsection if such fiduciary adopts
and follows a safe harbor proxy voting policy
that--
(i) limits voting resources to
particular types of proposals that the
fiduciary has prudently determined are
substantially related to the business
activities of the issuer or are
expected to have a material effect on
the value of the plan investment; or
(ii) establishes that the fiduciary
will refrain from voting on proposals
or particular types of proposals when
the assets of a plan invested in the
issuer relative to the total assets of
such plan are below 5 percent (or, in
the event such assets are under
management, when the assets under
management invested in the issuer are
below 5 percent of the total assets
under management).
(C) Exception.--No proxy voting policy
adopted pursuant to this paragraph shall
preclude a fiduciary from submitting a proxy
vote when the fiduciary determines that the
matter being voted on is expected to have a
material economic effect on the investment
performance of a plan's portfolio (or the
investment performance of assets under
management in the case of an investment
manager); provided, however, that in all cases
compliance with a safe harbor voting policy
shall be presumed to satisfy fiduciary
responsibilities with respect to decisions not
to vote.
(6) Review.--A fiduciary shall periodically review
any policy adopted under this subsection.
* * * * * * *
MINORITY VIEWS
INTRODUCTION
H.R. 2988, the Protecting Prudent Investment of Retirement
Savings Act, amends the Employee Retirement Income Security Act
of 1974 (ERISA)\1\ to codify two regulations from the first
Trump Administration regarding environmental, social,
governance (ESG) factors in the selection of retirement
investments\2\ and proxy voting.\3\ Additionally, H.R. 2988
prohibits retirement plan fiduciaries from selecting,
monitoring, and retaining any fiduciary, counsel, employee, or
service provider of the plan based on race, color, religion,
sex, or national origin. H.R. 2988 also requires that
retirement plan participants receive notice when they make
certain investments. In sum, H.R. 2988 reflects a mistaken view
about ESG factors in retirement investing and undermines
retirement plan fiduciaries' ability to make prudent decisions
in retirement plan participants' bests interests. H.R. 2988 is
opposed by dozens of organizations,\4\ including the AFL CIO,
American Association of People with Disabilities, American
Federation of Teachers, Americans for Financial Reform, CERES,
Communications Workers of America, Interfaith Center on
Corporate Responsibility, International Union of Bricklayers
and Allied Craftworkers, Oxfam America, Public Citizen, Sierra
Club, United Food and Commercial Workers International Union,
and the U.S. Sustainable Investment Forum.
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\1\29 U.S.C. Sec. 1104.
\2\Financial Factors in Selecting Plan Investments, 85 Fed. Reg.
72846 (Nov. 13, 2020) [hereinafter 2020 Final ESG Rule], https://
www.govinfo.gov/content/pkg/FR-2020-11-13/pdf/2020-24515.pdf.
\3\Fiduciary Duties Regarding Proxy Voting and Shareholder Rights,
85 Federal Register 81658 (Dec. 16, 2020) [hereinafter 2020 Final Proxy
Voting Rule], https://www.govinfo.gov/content/pkg/FR-2020-12-16/pdf/
2020-27465.pdf.
\4\See Letter from Americans for Financial Reform, et al to Chair
Tim Walberg and Ranking Member Bobby Scott, H. Comm. on Educ. &
Workforce, Full Committee Markup (June 25, 2025) [hereinafter Americans
for Financial Reform letter], https://ourfinancialsecurity.org/2025/06/
letters-to-congress-letter-in-opposition-to-h-r-2988-protecting-
prudent-investment-of-retirement-
savings-act/; Letter from CERES to Comm. on Educ. & Workforce Chair
Walberg and Comm. Members, H. Comm. on Educ. & Workforce, Full
Committee Markup (June 25, 2025), https://house.app.box.com/s/
eikni8ns1vv5t71krbb8abzoc3ydlvzk/file/1904803386220; Statement from
U.S. Sustainable Investment Forum, (June 23, 2025), (on file with
Committee staff).
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COMMITTEE REPUBLICANS ARE WRONG ABOUT ESG FACTORS
Committee Republicans characterized H.R. 2988 as a bill
that ``seeks to ensure financial institutions are focused on
maximizing returns in retirement plans rather than on woke ESG
factors.''\5\ This is a false construct. ESG factors enable
investors, including retirement plans, to be informed about
potential risks and opportunities when evaluating an investment
portfolio. Additionally, ESG investing can be viewed as a risk
mitigation strategy enabling retirement plans to consider
investments that account for companies' negative externalities,
such as high liability risks, fossil fuel dependent business
practices, and poor treatment of workers. These are among the
factors that would cause stocks to suffer over decades, which
is precisely the time horizon of retirement investing.
---------------------------------------------------------------------------
\5\Press Release, H. Comm. on Educ. & the Workforce,
@EdWorkforceCmte Passes Bills on Education Freedom, Accreditation, and
Workers' Benefits (June 25, 2025), https://edworkforce.house.gov/news/
documentsingle.aspx?DocumentID=412598.
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Maximizing returns is tied to careful consideration of ESG
factors, and retirement plan fiduciaries and major corporations
understand this. BlackRock, which is the world's largest asset
manager, has stated that its ``investment conviction is that
incorporating sustainability-related factors--which are often
characterized and grouped into ESG categories--into investment
decisions can provide better risk-adjusted returns to investors
over the long-term.''\6\
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\6\Comment No. EBSA-2021-0013-0734 at 1, https://www.dol.gov/sites/
dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/public-
comments/1210-AC03/00729.pdf.
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In July 2023, the New York University (NYU) Stern Center
for Sustainable Business and Rockefeller Asset Management,
collaborated to examine the relationship between ESG and
financial performance in more than 1,000 research papers from
2015-2020. They found that ``empirical studies and meta-
analyses consistently demonstrate a positive relationship
between ESG integration and financial performance.''\7\ They
also concluded that ``some ESG strategies seem to generate
market rate or excess returns when compared to conventional
investment strategies, especially for long-term investors, and
provide downside protection during economic or social crisis.
Notably, very few studies found definitive negative
correlations between ESG and financial performance.''\8\
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\7\Tensie Whelan et al., ESG And Financial Performance: Uncovering
the Relationship by Aggregating Evidence from 1,000 Plus Studies
Published between 2015-2020 at 2, New York University Stern School of
Business (Feb. 2021), https://www.stern.nyu.edu/sites/default/files/
assets/documents/NYU-RAM_ESG-Paper_2021%20Rev_0.pdf.
\8\Id.
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Committee Democrats are not arguing that ESG investments
always perform better or have lower fees than traditional non-
ESG investments, but we understand ESG's relevance to and
impact on workers' retirement security. As such, Committee
Democrats believe that retirement plan fiduciaries should be
permitted to consider ESG factors when making investment
decisions for plan participants.
H.R. 2988 CODIFIES A FLAWED ESG RULE FROM THE FIRST TRUMP
ADMINISTRATION
In 2020, the first Trump Administration finalized an ESG
rule\9\ requiring plan fiduciaries to make investment decisions
solely based on ``pecuniary'' factors, defined as ``a factor
that a fiduciary prudently determines is expected to have a
material effect on the risk and/or return of an investment
based on appropriate investment horizons consistent with the
plan's investment objectives and the funding policy established
pursuant to section 402(b)(1) of ERISA.''\10\ The Trump-era ESG
rule permitted consideration of ``non-pecuniary'' factors when
a fiduciary is unable to distinguish reasonably available
alternatives on the basis of pecuniary factors alone.\11\
However, in such instances, the Trump-era ESG rule imposed a
first-of-its-kind paperwork requirement on plan fiduciaries to
``document the basis'' for concluding that a distinguishing
factor could not be found and why the selected investment was
chosen based on the purposes of the plan.\12\ The Trump-era ESG
rule also prohibited non-pecuniary investments, such as ESG-
themed funds, from being a qualified default investment
alternative (QDIA) such as a target date fund (TDF).\13\ H.R.
2988 codifies the Trump-era ESG rule.
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\9\2020 Final ESG Rule, supra note 2.
\10\Id at 72884.
\11\Id. at 72851.
\12\Id. at 72874.
\13\Id. at 72863.
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There was significant opposition to the Trump-era ESG rule.
According to an analysis of the more than 8,700 public comments
conducted by the U.S. Sustainable Investment Forum and other
organizations, 96% of the comments or petition signatures from
individuals expressed opposition.\14\ One of the key findings
of the analysis was that ``[o]pposition was especially high
among investment-related groups, with asset managers, financial
advisors, financial service providers, asset owners, pension
plans, and investment organizations either unanimous or all but
unanimous opposing the proposal.''\15\ Specifically, BlackRock,
Fidelity, State Street Global Advisors, T. Rowe Price, and
Vanguard submitted opposing comments to the Department of Labor
(DOL).\16\
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\14\Press Release, Ceres, Investor Organizations and Financial
Industry Firms' Analysis of Public Comments on Department of Labor's
ESG Proposal Shows Landslide of Opposition (Aug. 20, 2020), https://
www.ceres.org/news-center/press-releases/investor-organizations-and-
financial-industry-firms-analysis-public.
\15\Id.
\16\Rachel Koning Beals, Trump Labor Department's Rule Discouraging
ESG Investing in Retirement Plans is Finalized Over Swell of
Objections, MarketWatch (Oct. 31, 2020), https://www.marketwatch.com/
story/trumps-labor-rule-discouraging-esg-investing-in-retirement-plans-
is-finalized-over-swell-of-objections-11604089492.
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At an April 2025 hearing of the Committee on Education and
Workforce's Subcommittee on Health, Employment, Labor, and
Pensions, one witness noted that the distinction between
``pecuniary'' and ``non-pecuniary'' is ``unworkable because all
investments inherently include pecuniary and non-pecuniary
features . . . There is no universally accepted definition of
what is a pecuniary vs. a non-pecuniary consideration. This
vague language is nowhere to be found in the text of
ERISA.''\17\ Echoing this point during the Committee's markup
of H.R. 2988, Ranking Member Scott said:
---------------------------------------------------------------------------
\17\Investing for the Future: Honoring ERISA's Promise to
Participants: Hearing before the H. Comm on Educ and Workforce, 119th
Cong. (2025)(statement of Brandon Rees, Deputy Director of Corporations
and Capital Markets, AFL-CIO), https://www.congress.gov/119/meeting/
house/118155/witnesses/HHRG-119-ED02-Wstate-ReesB-20250430.pdf.
[L]et's say there's a real estate fund that appears
to have short-term `pecuniary' value for participants;
but the properties are near the shoreline and subject
to rising sea levels over the long term that would be
considered `non-pecuniary' in nature. The Trump-era E-
S-G rule puts needless constraints on plan fiduciaries'
ability to weigh the full scope of this kind of
investment--and that's not in the best interests of
retirement savers.\18\
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\18\Markup of Bills on Education Freedom, Accreditation, and
Workers' Benefits: Markup before the H. Comm. on Educ. & the Workforce,
119th Cong. (2025)(statement of Ranking Member Robert C. ``Bobby''
Scott on H.R. 2988), https://www.youtube.com/live/4ym5hhWETnQ.
In 2022, the Biden Administration finalized a rule that
reversed the Trump-era ESG rule and retained the long-standing
duty of a fiduciary to focus on relevant risk-return factors in
selecting investments.\19\ Specifically, the Biden-era final
ESG rule permits fiduciaries to consider ESG factors, but only
when consistent with the requirement that all investments must
serve investors' economic interests. It does not require
consideration of ESG factors, and moreover it is explicit that
ESG considerations alone cannot justify sacrificing investment
returns or taking on additional risks when inconsistent with
those economic interests. Committee Democrats strongly support
the Biden-era ESG rule, which has been upheld twice in federal
district court by a judge who was appointed by President
Trump.\20\ Regrettably, the Trump Administration recently
signaled it would pursue changing and/or rescinding the
existing Biden-era rule through regulation.
---------------------------------------------------------------------------
\19\Prudence and Loyalty in Selecting Plan Investments and
Exercising Shareholder Rights, 87 Federal Register 73822-73886 (Dec. 1,
2022), https://www.govinfo.gov/content/pkg/FR-2022-12-01/pdf/2022-
25783.pdf.
\20\Memorandum Opinion and Order, State of Utah et al. v. Vince
Micone (Feb. 14, 2025), Case No. 2:23-cv-00016-Z at 12.
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H.R. 2988 CODIFIES A MISGUIDED PROXY VOTING RULE FROM THE FIRST TRUMP
ADMINISTRATION
Retirement savings plans covered by ERISA likely have
stocks as part of their investment portfolios.\21\ Stock
ownership provides an investor with certain shareholder rights,
including the right to vote on matters such as electing the
board of directors, executive compensation, and shareholder
proposals on ESG-related issues. Such voting often occurs by
proxy. The voting of proxies is not an arbitrary exercise, but
rather an important mechanism for shareholders to monitor and
hold management accountable and enhance long-term value of plan
assets. For example, in the years since the scandal at
Worldcom, a telecommunications corporation whose executives
engaged in massive accounting fraud, it has become a common
understanding that prudent corporate governance practices can
mitigate risks. Proxy voting plays a pivotal role in enhancing
investment returns by improving corporate accountability and
potentially reducing the risk of wrongdoing.
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\21\See U.S. Congressional Research Service, Department of Labor
Guidance and Regulations on the Exercise of Shareholder Rights by
Private-Sector Pension Plans (IF12362, Mar. 27, 2023), https://
sgp.fas.org/crs/misc/IF12362.pdf.
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Over the years, DOL periodically issued guidance on proxy
voting issues yet consistently affirmed that ERISA's fiduciary
duties of loyalty and prudence apply to proxy voting by pension
and employee benefit plans.\22\ This is because the exercise of
shareholder rights is key to ensuring management's
accountability to the shareholders that own the company.
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\22\See Letter from U.S. Department of Labor to Mr. Helmuth Fandl,
Chairman of the Retirement Board of Avon Products, Inc. (Feb. 23,
1988), 198 WL 897696 (``In general, the fiduciary act of managing plan
assets which are shares of corporate stock would include the voting of
proxies appurtenant to those shares of stock.''). The Department of
Labor subsequently restated this view in 1994 (Interpretive Bulletin
94-2), 2008 (Interpretive Bulletin 2008-02), 2016 (Interpretative
Bulletin 2016-01), and 2018 (Field Assistance Bulletin 2018-01).
---------------------------------------------------------------------------
In 2020, the first Trump Administration proposed a rule on
proxy voting that was based on a flawed premise that:
[S]ome fiduciaries . . . may be acting in ways that
unwittingly allow plan assets to be used to support or
pursue proxy proposals for environmental, social, or
public policy agendas that have no connection to
increasing the value of investments used for the
payment of benefits or plan administrative expenses,
and in fact may have unnecessarily increased plan
expenses.\23\
---------------------------------------------------------------------------
\23\Fiduciary Duties Regarding Proxy Voting and Shareholder Rights,
85 Federal Register 55219 (Sept. 4, 2020), https://www.govinfo.gov/
content/pkg/FR-2020-09 04/pdf/2020-19472.pdf.
During the public comment period, numerous stakeholders,
including those in the financial services industry, questioned
or strongly objected to the Trump Administration's premise. For
instance, Teachers Insurance and Annuity Association of America
(TIAA), which, according to its comment letter on the Trump-era
proposed rule, serves more than five million retirement plan
participants, said ``ESG factors are often in direct alignment
with a company's pecuniary considerations--and thus it is often
the case that voting proxies on ESG-related issues is in the
economic interests of investors.''\24\ Many other stakeholders
agreed. According to the Interfaith Center on Corporate
Responsibility, which is a broad coalition of institutional
investors collectively representing over $500 billion in
invested capital, ``[n]o evidence appears . . . supporting the
notion that fiduciaries are confused about their obligations
with respect to proxy voting.''\25\
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\24\Comment No. EBSA-2020-0008-0284, at 8, https://www.dol.gov/
sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/
public-comments/1210-AB91/00266.pdf.
\25\Comment No. EBSA-2020-0008-0301, at 2, https://
www.regulations.gov/comment/EBSA-2020-0008-0301.
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Nevertheless, in December 2020, the Trump Administration
finalized its proxy voting rule that reflected its strong
skepticism about proxy voting and ESG. It imposed first-of-its-
kind restrictions on plan fiduciaries when it came to
exercising their shareholder rights. The Trump-era proxy voting
rule specified that fiduciaries do not have an obligation to
vote on all proxies and included two safe harbors that
permitted fiduciaries to limit or refrain from proxy voting in
certain situations.\26\ The rule also imposed new onerous
recordkeeping requirements and monitoring obligations regarding
the exercise of shareholder rights. Many retirement
stakeholders believed the Trump-era proxy voting rule would
effectively disenfranchise ERISA fiduciaries from utilizing
proxy voting and thus hurt retirement plan participants. H.R.
2988 codifies this Trump-era proxy voting rule.
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\26\Id at 81663.
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H.R. 2988 ENDS WORTHWHILE EFFORTS TO INCREASE DIVERSITY IN THE ASSET
MANAGEMENT INDUSTRY
Women and people of color are significantly
underrepresented in the asset management industry.
Specifically, according to the Government Accountability Office
(GAO), about 1.4 percent of the $82 trillion in financial
assets under management are managed by women or minority-owned
firms.\27\ 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.
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\27\U.S. Gen Accountability Office, GAO-25-106766, Investment
Management: Federal Entities' Efforts to Increase Opportunities for
Minority- and Women-Owned Asset Managers (Apr. 2025) [hereinafter April
2025 GAO Report], https://www.gao.gov/assets/gao-25-106766.pdf.
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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.\28\ GAO reviewed data from 1992 to
2009 and found no significant performance difference between
female- and male-managed funds.\29\ GAO also reviewed data from
1991 to 2019 and found no significant difference in the
performance between white and minority managers.\30\
Morningstar, which is a financial services firm, looked at
women-run funds and found that they are just as good as men at
managing funds, and further that there is ``some indication
that the industry might be better off with more women at the
helm of funds.''\31\
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\28\John Lerner, et 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.
\29\April 2025 GAO Report, supra note 27 at 21.
\30\April 2025 GAO Report, supra note 27 at 21-22.
\31\Madison Sargis and 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 (last visited June 30, 2025).
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H.R. 2988 prohibits plan fiduciaries from selecting,
monitoring, and retaining any fiduciary, counsel, employee, or
service provider of the plan based on race, color, religion,
sex, or national origin. By doing so, it undermines efforts to
increase diversity in the asset management industry. Dozens of
organizations voiced opposition to H.R. 2988, noting that
``[t]here are sound reasons consistent with fiduciary duty to
consider racial, gender, and other types of diversity in
selecting asset managers and other service providers and such
considerations should not be made illegal.''\32\
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\32\Americans for Financial Reform letter, supra note 4 at 4.
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H.R. 2988 INCLUDES A UNNECCESARY NOTICE THAT REPRESENTS A SOLUTION IN
SEARCH OF A PROBLEM
A brokerage window is a feature of defined contribution
(DC) plans that allows retirement plan participants to invest
in a broader array of investments than the designated
investment alternative options selected by the plan
fiduciaries. Such investments can include mutual funds,
exchange-traded funds (ETF), and, in some cases, individual
stocks and bonds. Of the mutual funds that may be offered, some
may be ESG-themed funds, which is the clear target of H.R.
2988.
In 2021, the Advisory Council on Employee Welfare and
Pension Benefit Plans, which is usually referred to as the
ERISA Advisory Council, examined brokerage windows and noted
that fewer than one-third of plans offer a brokerage window,
and roughly two percent of plan participants with access to one
chose to use it.\33\ The average brokerage window account
balance exceeds $334,000, which is far greater than what many
Americans have saved in their DC plans.\34\ The ERISA Advisory
Council ``considered and debated at length'' whether additional
disclosures were warranted for participants who invest through
a brokerage window.\35\ Most ERISA Advisory Council members
``concluded that, on balance, the limited marginal benefits
that might be obtained by requiring disclosures would be
outweighed by associated costs.''\36\
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\33\Advisory Council on Employee Welfare & Pension Benefit Plan,
Report to the Hon. Secretary Walsh, United States Sec. of Labor,
Understanding Brokerage Windows in Self-Directed Retirement Plans (Dec.
2021), https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/
erisa-advisory-council/2021-understanding-brokerage-windows-in-self-
directed-retirement-plans.pdf.
\34\Id. at 23.
\35\Id. at 46.
\36\Id. at 47.
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H.R. 2988 requires that a notice be sent to participants or
beneficiaries each time they invest in to, out of, or within an
investment that is not a designated investment by the plan. The
notice consists of four parts that must be substantially
similar to the following:
1. Your retirement plan offers designated investment
alternatives prudently selected and monitored by
fiduciaries for the purpose of enabling you to
construct an appropriate retirement savings portfolio.
In selecting and monitoring designated investment
alternatives, your plan's fiduciary considers the risk
of loss and the opportunity for gain (or other return)
compared with reasonably available investment
alternatives.
2. The investments available through this investment
arrangement are not designated investment alternatives
and have not been prudently selected and are not
monitored by a plan fiduciary.
3. Depending on the investments you select through
this investment arrangement, you may experience
diminished returns, higher fees, and higher risk than
if you select from the plan's designated investment
alternatives.
4. The following is a hypothetical illustration of
the impact of return at 4 percent, 6 percent, and 8
percent on your retirement balance projected to age 67.
The bill also requires the notice to include a graph
displaying projected retirement balances if the individual's
account were to achieve an annual return of 4 percent, 6
percent, or 8 percent.
Committee Democrats strongly support ensuring workers
receive appropriate notices and disclosures regarding their
retirement savings, particularly with respect to fees on
investments. However, H.R. 2988's notice represents a
significant departure from the law's primary 401(k) fee
disclosure that is objective, information-based, and required
to be presented in a manner for the average participant to
understand.\37\ If H.R. 2988 becomes law, participants
interested in an ESG-themed fund, or bond, or a religiously-
themed fund offered in their plan's brokerage window may opt
not to invest in it.
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\37\See 29 C.F.R. Sec. 2550.404a-5.
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CONCLUSION
For the reasons stated above, Committee Democrats
unanimously opposed H.R. 2988 when the Committee on Education
and Workforce considered it on June 25, 2025. We urge the House
of Representatives to do the same.
Robert C. ``Bobby'' Scott,
Ranking Member.
Suzanne Bonamici,
Mark DeSaulnier,
Summer Lee,
Adelita Grijalva,
Members of Congress.
[all]