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108th Congress                                             Rept. 108-43
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1
======================================================================
 
                      PENSION SECURITY ACT OF 2003

                                _______
                                

                 March 18, 2003.--Ordered to be printed

                                _______
                                

    Mr. Boehner, from the Committee on Education and the Workforce, 
                        submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1000]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Education and the Workforce, to whom was 
referred the bill (H.R. 1000) to amend title I of the Employee 
Retirement Income Security Act of 1974 and the Internal Revenue 
Code of 1986 to provide additional protections to participants 
and beneficiaries in individual account plans from excessive 
investment in employer securities and to promote the provision 
of retirement investment advice to workers managing their 
retirement income assets, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Pension Security Act 
of 2003''.
  (b) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title and table of contents.

               TITLE I--IMPROVEMENTS IN PENSION SECURITY

Sec. 101. Periodic pension benefits statements.
Sec. 102. Inapplicability of relief from fiduciary liability during 
blackout periods.
Sec. 103. Informational and educational support for pension plan 
fiduciaries.
Sec. 104. Diversification requirements for defined contribution plans 
that hold employer securities.
Sec. 105. Prohibited transaction exemption for the provision of 
investment advice.
Sec. 106. Study regarding impact on retirement savings of participants 
and beneficiaries by requiring consultants to advise plan fiduciaries 
of individual account plans.
Sec. 107. Treatment of qualified retirement planning services.
Sec. 108. Effective dates and related rules.

            TITLE II--OTHER PROVISIONS RELATING TO PENSIONS

Sec. 201. Amendments to Retirement Protection Act of 1994.
Sec. 202. Reporting simplification.
Sec. 203. Improvement of employee plans compliance resolution system.
Sec. 204. Flexibility in nondiscrimination, coverage, and line of 
business rules.
Sec. 205. Extension to all governmental plans of moratorium on 
application of certain nondiscrimination rules applicable to State and 
local plans.
Sec. 206. Notice and consent period regarding distributions.
Sec. 207. Annual report dissemination.
Sec. 208. Technical corrections to Saver Act.
Sec. 209. Missing participants and beneficiaries.
Sec. 210. Reduced PBGC premium for new plans of small employers.
Sec. 211. Reduction of additional PBGC premium for new and small plans.
Sec. 212. Authorization for PBGC to pay interest on premium overpayment 
refunds.
Sec. 213. Substantial owner benefits in terminated plans.
Sec. 214. Benefit suspension notice.
Sec. 215. Studies.
Sec. 216. Interest rate range for additional funding requirements.

                     TITLE III--GENERAL PROVISIONS

Sec. 301. Provisions relating to plan amendments.

               TITLE I--IMPROVEMENTS IN PENSION SECURITY

SEC. 101. PERIODIC PENSION BENEFITS STATEMENTS.

  (a) Amendments to the Employee Retirement Income Security Act of 
1974.--
          (1) Requirements.--
                  (A) In general.--Section 105(a) of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 
                1025(a)) is amended to read as follows:
  ``(a)(1)(A) The administrator of an individual account plan shall 
furnish a pension benefit statement--
          ``(i) to each plan participant at least annually,
          ``(ii) to each plan beneficiary upon written request, and
          ``(iii) in the case of an applicable individual account plan, 
        to each individual who is a plan participant or beneficiary and 
        who has a right to direct investments, at least quarterly.
  ``(B) The administrator of a defined benefit plan shall furnish a 
pension benefit statement--
          ``(i) at least once every 3 years to each participant with a 
        nonforfeitable accrued benefit who is employed by the employer 
        maintaining the plan at the time the statement is furnished to 
        participants, and
          ``(ii) to a plan participant or plan beneficiary of the plan 
        upon written request.
Information furnished under clause (i) to a participant may be based on 
reasonable estimates determined under regulations prescribed by the 
Secretary, in consultation with the Pension Benefit Guaranty 
Corporation.
  ``(2) A pension benefit statement under paragraph (1)--
          ``(A) shall indicate, on the basis of the latest available 
        information--
                  ``(i) the total benefits accrued, and
                  ``(ii) the nonforfeitable pension benefits, if any, 
                which have accrued, or the earliest date on which 
                benefits will become nonforfeitable,
          ``(B) shall be written in a manner calculated to be 
        understood by the average plan participant, and
          ``(C) may be provided in written form or in electronic or 
        other appropriate form to the extent that such form is 
        reasonably accessible to the recipient.
  ``(3)(A) In the case of a defined benefit plan, the requirements of 
paragraph (1)(B)(i) shall be treated as met with respect to a 
participant if the administrator, at least once each year, provides the 
participant with notice, at the participant's last known address, of 
the availability of the pension benefit statement and the ways in which 
the participant may obtain such statement. Such notice shall be 
provided in written, electronic, or other appropriate form, and may be 
included with other communications to the participant if done in a 
manner reasonably designed to attract the attention of the participant.
  ``(B) The Secretary may provide that years in which no employee or 
former employee benefits (within the meaning of section 410(b) of the 
Internal Revenue Code of 1986) under the plan need not be taken into 
account in determining the 3-year period under paragraph (1)(B)(i).''.
                  (B) Conforming amendments.--
                          (i) Section 105 of the Employee Retirement 
                        Income Security Act of 1974 (29 U.S.C. 1025) is 
                        amended by striking subsection (d).
                          (ii) Section 105(b) of such Act (29 U.S.C. 
                        1025(b)) is amended to read as follows:
  ``(b) In no case shall a participant or beneficiary of a plan be 
entitled to more than one statement described in clause (i) or (ii) of 
subsection (a)(1)(A) or clause (i) or (ii) of subsection (a)(1)(B), 
whichever is applicable, in any 12-month period. If such report is 
required under subsection (a) to be furnished at least quarterly, the 
requirements of the preceding sentence shall be applied with respect to 
each quarter in lieu of the 12-month period.''.
          (2) Information required from applicable individual account 
        plans.--Section 105 of such Act (as amended by paragraph (1)) 
        is amended further by adding at the end the following new 
        subsection:
  ``(d)(1) The statements required to be provided at least quarterly 
under subsection (a)(1)(A)(iii) in the case of applicable individual 
account plans shall include (together with the information required in 
subsection (a)) the following:
          ``(A) the value of each investment to which assets in the 
        individual account have been allocated, determined as of the 
        most recent valuation date under the plan, including the value 
        of any assets held in the form of employer securities, without 
        regard to whether such securities were contributed by the plan 
        sponsor or acquired at the direction of the plan or of the 
        participant or beneficiary,
          ``(B) an explanation, written in a manner calculated to be 
        understood by the average plan participant, of any limitations 
        or restrictions on the right of the participant or beneficiary 
        to direct an investment, and
          ``(C) an explanation, written in a manner calculated to be 
        understood by the average plan participant, of the importance, 
        for the long-term retirement security of participants and 
        beneficiaries, of a well-balanced and diversified investment 
        portfolio, including a discussion of the risk of holding more 
        than 25 percent of a portfolio in the security of any one 
        entity, such as employer securities.
  ``(2) The Secretary shall issue guidance and model notices which meet 
the requirements of this subsection.''.
          (3) Definition of applicable individual account plan.--
        Section 3 of such Act (29 U.S.C. 1002) is amended by adding at 
        the end the following new paragraph:
  ``(42)(A) The term `applicable individual account plan' means any 
individual account plan, except that such term does not include an 
employee stock ownership plan (within the meaning of section 4975(e)(7) 
of the Internal Revenue Code of 1986) unless there are any 
contributions to such plan (or earnings thereunder) held within such 
plan that are subject to subsection (k)(3) or (m)(2) of section 401 of 
the Internal Revenue Code of 1986. Such term shall not include a one-
participant retirement plan.
  ``(B) The term `one-participant retirement plan' means a pension plan 
with respect to which the following requirements are met:
          ``(i) on the first day of the plan year--
                  ``(I) the plan covered only one individual (or the 
                individual and the individual's spouse) and the 
                individual owned 100 percent of the plan sponsor 
                (whether or not incorporated), or
                  ``(II) the plan covered only one or more partners (or 
                partners and their spouses) in the plan sponsor;
          ``(ii) the plan meets the minimum coverage requirements of 
        section 410(b) of the Internal Revenue Code of 1986 (as in 
        effect on the date of the enactment of this paragraph) without 
        being combined with any other plan of the business that covers 
        the employees of the business;
          ``(iii) the plan does not provide benefits to anyone except 
        the individual (and the individual's spouse) or the partners 
        (and their spouses);
          ``(iv) the plan does not cover a business that is a member of 
        an affiliated service group, a controlled group of 
        corporations, or a group of businesses under common control; 
        and
          ``(v) the plan does not cover a business that leases 
        employees.''.
          (4) Civil penalties for failure to provide quarterly benefit 
        statements.--Section 502 of such Act (29 U.S.C. 1132) is 
        amended--
                  (A) in subsection (a)(6), by striking ``(6), or (7)'' 
                and inserting ``(6), (7), or (8)'';
                  (B) by redesignating paragraph (8) of subsection (c) 
                as paragraph (9); and
                  (C) by inserting after paragraph (7) of subsection 
                (c) the following new paragraph:
  ``(8) The Secretary may assess a civil penalty against any plan 
administrator of up to $1,000 a day for each day on which the plan 
administrator has failed to comply with the requirements of clause 
(iii) of section 105(a)(1)(A) and has not corrected such failure by 
providing the required pension benefit statements to the affected 
participants and beneficiaries.''.
          (5) Model statements.--The Secretary of Labor shall, not 
        later than 180 days after the date of the enactment of this 
        Act, issue initial guidance and a model benefit statement, 
        written in a manner calculated to be understood by the average 
        plan participant, that may be used by plan administrators in 
        complying with the requirements of section 105 of the Employee 
        Retirement Income Security Act of 1974. Not later than 75 days 
        after the date of the enactment of this Act, the Secretary 
        shall promulgate interim final rules necessary to carry out the 
        amendments made by this subsection.
  (b) Amendments to the Internal Revenue Code of 1986.--
          (1) Provision of investment education notices to participants 
        in certain plans.--Section 414 of the Internal Revenue Code of 
        1986 (relating to definitions and special rules) is amended by 
        adding at the end the following:
  ``(w) Provision of Investment Education Notices to Participants in 
Certain Plans.--
          ``(1) In general.--The plan administrator of an applicable 
        pension plan shall provide to each applicable individual an 
        investment education notice described in paragraph (2) at the 
        time of the enrollment of the applicable individual in the plan 
        and not less often than annually thereafter.
          ``(2) Investment education notice.--An investment education 
        notice is described in this paragraph if such notice contains--
                  ``(A) an explanation, for the long-term retirement 
                security of participants and beneficiaries, of 
                generally accepted investment principles, including 
                principles of risk management and diversification, and
                  ``(B) a discussion of the risk of holding substantial 
                portions of a portfolio in the security of any one 
                entity, such as employer securities.
          ``(3) Understandability.--Each notice required by paragraph 
        (1) shall be written in a manner calculated to be understood by 
        the average plan participant and shall provide sufficient 
        information (as determined in accordance with guidance provided 
        by the Secretary) to allow recipients to understand such 
        notice.
          ``(4) Form and manner of notices.--The notices required by 
        this subsection shall be in writing, except that such notices 
        may be in electronic or other form (or electronically posted on 
        the plan's website) to the extent that such form is reasonably 
        accessible to the applicable individual.
          ``(5) Definitions.--For purposes of this subsection--
                  ``(A) Applicable individual.--The term `applicable 
                individual' means--
                          ``(i) any participant in the applicable 
                        pension plan,
                          ``(ii) any beneficiary who is an alternate 
                        payee (within the meaning of section 414(p)(8)) 
                        under a qualified domestic relations order 
                        (within the meaning of section 414(p)(1)(A)), 
                        and
                          ``(iii) any beneficiary of a deceased 
                        participant or alternate payee.
                  ``(B) Applicable pension plan.--The term `applicable 
                pension plan' means--
                          ``(i) a plan described in clause (i), (ii), 
                        or (iv) of section 219(g)(5)(A), and
                          ``(ii) an eligible deferred compensation plan 
                        (as defined in section 457(b)) of an eligible 
                        employer described in section 457(e)(1)(A),
                which permits any participant to direct the investment 
                of some or all of his account in the plan or under 
                which the accrued benefit of any participant depends in 
                whole or in part on hypothetical investments directed 
                by the participant. Such term shall not include a one-
                participant retirement plan or a plan to which section 
                105 of the Employee Retirement Income Security Act of 
                1974 applies.
                  ``(C) One-participant retirement plan defined.--The 
                term `one-participant retirement plan' means a 
                retirement plan with respect to which the following 
                requirements are met:
                          ``(i) on the first day of the plan year--
                                  ``(I) the plan covered only one 
                                individual (or the individual and the 
                                individual's spouse) and the individual 
                                owned 100 percent of the plan sponsor 
                                (whether or not incorporated), or
                                  ``(II) the plan covered only one or 
                                more partners (or partners and their 
                                spouses) in the plan sponsor;
                          ``(ii) the plan meets the minimum coverage 
                        requirements of 410(b) without being combined 
                        with any other plan of the business that covers 
                        the employees of the business;
                          ``(iii) the plan does not provide benefits to 
                        anyone except the individual (and the 
                        individual's spouse) or the partners (and their 
                        spouses);
                          ``(iv) the plan does not cover a business 
                        that is a member of an affiliated service 
                        group, a controlled group of corporations, or a 
                        group of businesses under common control; and
                          ``(v) the plan does not cover a business that 
                        leases employees.
          ``(6) Cross reference.--

                  ``For provisions relating to penalty for failure to 
provide the notice required by this section, see section 6652(m).''.

          (2) Penalty for failure to provide notice.--Section 6652 of 
        such Code (relating to failure to file certain information 
        returns, registration statements, etc.) is amended by 
        redesignating subsection (m) as subsection (n) and by inserting 
        after subsection (l) the following new subsection:
  ``(m) Failure to Provide Investment Education Notices to Participants 
in Certain Plans.--In the case of each failure to provide a written 
explanation as required by section 414(w) with respect to an applicable 
individual (as defined in such section), at the time prescribed 
therefor, unless it is shown that such failure is due to reasonable 
cause and not to willful neglect, there shall be paid, on notice and 
demand of the Secretary and in the same manner as tax, by the person 
failing to provide such notice, an amount equal to $100 for each such 
failure, but the total amount imposed on such person for all such 
failures during any calendar year shall not exceed $50,000.''.

SEC. 102. INAPPLICABILITY OF RELIEF FROM FIDUCIARY LIABILITY DURING 
                    BLACKOUT PERIODS.

  (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:
  ``(4)(A) Paragraph (1)(B) shall not apply in connection with the 
direction or diversification of assets credited to the account of any 
participant or beneficiary during a blackout period if, by reason of 
the imposition of such blackout period, the ability of such participant 
or beneficiary to direct or diversify such assets is suspended, 
limited, or restricted.
  ``(B) If the fiduciary authorizing a blackout period meets the 
requirements of this title in connection with authorizing such blackout 
period, no person who is a fiduciary shall be liable under this title 
for any loss occurring during the blackout period as a result of any 
exercise by the participant or beneficiary of control over assets in 
his or her account prior to the blackout period. Matters to be 
considered in determining whether a fiduciary has met the requirements 
of this title include whether such fiduciary--
          ``(i) has considered the reasonableness of the expected 
        length of the blackout period,
          ``(ii) has provided the notice required under section 
        101(i)(2), and
          ``(iii) has acted in accordance with the requirements of 
        subsection (a) in determining whether to enter into the 
        blackout period.
  ``(C) If a blackout period arises in connection with a change in the 
investment options offered under the plan, a participant or beneficiary 
shall be deemed to have exercised control over the assets in his or her 
account prior to the blackout period, if, after reasonable notice of 
the change in investment options is given to such participant or 
beneficiary before such blackout period, assets in the account of the 
participant or beneficiary are transferred--
          ``(i) to plan investment options in accordance with the 
        affirmative election of the participant or beneficiary, or
          ``(ii) in any case in which there is no such election, in the 
        manner set forth in such notice.
  ``(D) Any imposition of any limitation or restriction that may govern 
the frequency of transfers between investment vehicles shall not be 
treated as the imposition of a blackout period to the extent such 
limitation or restriction is disclosed to participants or beneficiaries 
through the summary plan description or materials describing specific 
investment alternatives under the plan.
  ``(E) For purposes of this paragraph, the term `blackout period' has 
the meaning given such term by section 101(i)(7).''.
  (b) Guidance.--The Secretary of Labor shall, on or before December 
31, 2004, issue interim final regulations providing guidance on how 
plan sponsors or any other affected fiduciaries can satisfy their 
fiduciary responsibilities during any blackout period during which the 
ability of a participant or beneficiary to direct the investment of 
assets in his or her individual account is suspended.

SEC. 103. INFORMATIONAL AND EDUCATIONAL SUPPORT FOR PENSION PLAN 
                    FIDUCIARIES.

  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:
  ``(e) The Secretary shall establish a program under which information 
and educational resources shall be made available on an ongoing basis 
to persons serving as fiduciaries under employee pension benefit plans 
so as to assist such persons in diligently and effectively carrying out 
their fiduciary duties in accordance with this part. Such program shall 
provide information concerning the practices that define prudent 
investment procedures for plan fiduciaries. Information provided under 
the program shall address the relevant investment considerations for 
defined benefit and defined contribution plans, including investment in 
employer securities by such plans. In developing such program, the 
Secretary shall solicit information from the public, including 
investment education professionals.''.

SEC. 104. DIVERSIFICATION REQUIREMENTS FOR DEFINED CONTRIBUTION PLANS 
                    THAT HOLD EMPLOYER SECURITIES.

  (a) Amendment to the Employee Retirement Income Security Act of 
1974.--Section 204 of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1054) is amended--
          (1) by redesignating subsection (j) as subsection (k); and
          (2) by inserting after subsection (i) the following new 
        subsection:
  ``(j) Diversification Requirements for Individual Account Plans that 
Hold Employer Securities.--
          ``(1) In general.--An applicable individual account plan 
        shall meet the requirements of paragraphs (2) and (3).
          ``(2) Employee contributions and elective deferrals invested 
        in employer securities.--In the case of the portion of the 
        account attributable to employee contributions and elective 
        deferrals which is invested in employer securities, a plan 
        meets the requirements of this paragraph if each applicable 
        individual may elect to direct the plan to divest any such 
        securities in the individual's account and to reinvest an 
        equivalent amount in other investment options which meet the 
        requirements of paragraph (4).
          ``(3) Employer contributions invested in employer 
        securities.--
                  ``(A) In general.--In the case of the portion of the 
                account attributable to employer contributions (other 
                than elective deferrals to which paragraph (2) applies) 
                which is invested in employer securities, a plan meets 
                the requirements of this paragraph if, under the plan--
                          ``(i) each applicable individual with a 
                        benefit based on 3 years of service may elect 
                        to direct the plan to divest any such 
                        securities in the individual's account and to 
                        reinvest an equivalent amount in other 
                        investment options which meet the requirements 
                        of paragraph (4), or
                          ``(ii) with respect to any employer security 
                        allocated to an applicable individual's account 
                        during any plan year, such applicable 
                        individual may elect to direct the plan to 
                        divest such employer security after a date 
                        which is not later than 3 years after the end 
                        of such plan year and to reinvest an equivalent 
                        amount in other investment options which meet 
                        the requirements of paragraph (4).
                  ``(B) Applicable individual with benefit based on 3 
                years of service.--For purposes of subparagraph (A), an 
                applicable individual has a benefit based on 3 years of 
                service if such individual would be an applicable 
                individual if only participants in the plan who have 
                completed at least 3 years of service (as determined 
                under section 203(b)) were referred to in paragraph 
                (5)(B)(i).
          ``(4) Investment options.--The requirements of this paragraph 
        are met if--
                  ``(A) the plan offers not less than 3 investment 
                options, other than employer securities, to which an 
                applicable individual may direct the proceeds from the 
                divestment of employer securities pursuant to this 
                subsection, each of which is diversified and has 
                materially different risk and return characteristics, 
                and
                  ``(B) the plan permits the applicable individual to 
                choose from any of the investment options made 
                available under the plan to which such proceeds may be 
                so directed, subject to such restrictions as may be 
                provided by the plan limiting such choice to periodic, 
                reasonable opportunities occurring no less frequently 
                than on a quarterly basis.
          ``(5) Definitions and rules.--For purposes of this 
        subsection--
                  ``(A) Applicable individual account plan.--The term 
                `applicable individual account plan' means any 
                individual account plan, except that such term does not 
                include an employee stock ownership plan (within the 
                meaning of section 4975(e)(7) of the Internal Revenue 
                Code of 1986) unless there are any contributions to 
                such plan (or earnings thereon) held within such plan 
                that are subject to subsection (k)(3) or (m)(2) of 
                section 401 of the Internal Revenue Code of 1986.
                  ``(B) Applicable individual.--The term `applicable 
                individual' means--
                          ``(i) any participant in the plan, and
                          ``(ii) any beneficiary of a participant 
                        referred to in clause (i) who has an account 
                        under the plan with respect to which the 
                        beneficiary is entitled to exercise the rights 
                        of the participant.
                  ``(C) Elective deferral.--The term `elective 
                deferral' means an employer contribution described in 
                section 402(g)(3)(A) of the Internal Revenue Code of 
                1986 (as in effect on the date of the enactment of this 
                subsection).
                  ``(D) Employer security.--The term `employer 
                security' shall have the meaning given such term by 
                section 407(d)(1) of this Act (as in effect on the date 
                of the enactment of this subsection).
                  ``(E) Employee stock ownership plan.--The term 
                `employee stock ownership plan' shall have the same 
                meaning given to such term by section 4975(e)(7) of the 
                Internal Revenue Code of 1986 (as in effect on the date 
                of the enactment of this subsection).
                  ``(F) Elections.--Elections under this subsection may 
                be made not less frequently than quarterly.
          ``(6) Exception where there is no readily tradable stock.--
        This subsection shall not apply if there is no class of stock 
        issued by the employer (or by a corporation which is an 
        affiliate of the employer (as defined in section 407(d)(7))) 
        that is readily tradable on an established securities market 
        (or in such other circumstances as may be determined jointly by 
        the Secretary of Labor and the Secretary of the Treasury in 
        regulations).
          ``(7) Transition rule.--
                  ``(A) In general.--In the case of any individual 
                account plan which, on the first day of the first plan 
                year to which this subsection applies, holds employer 
                securities of any class that were acquired before such 
                date and on which there is a restriction on 
                diversification otherwise precluded by this subsection, 
                this subsection shall apply to such securities of such 
                class held in any plan year only with respect to the 
                number of such securities equal to the applicable 
                percentage of the total number of such securities of 
                such class held on such date.
                  ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage shall be as 
                follows:

``Plan years for which provisions   Applicable percentage:
        are effective:
    1st plan year
                                        20 percent.
    2nd plan year
                                        40 percent.
    3rd plan year
                                        60 percent.
    4th plan year
                                        80 percent.
    5th plan year or thereafter
                                        100 percent.

                  ``(C) Elective deferrals treated as separate plan not 
                individual account plan.--For purposes of subparagraph 
                (A), the applicable percentage shall be 100 percent 
                with respect to--
                          ``(i) employee contributions to a plan under 
                        which any portion attributable to elective 
                        deferrals is treated as a separate plan under 
                        section 407(b)(2) as of the date of the 
                        enactment of this paragraph, and
                          ``(ii) such elective deferrals.
                  ``(D) Coordination with prior elections.--In any case 
                in which a divestiture of investment in employer 
                securities of any class held by an employee stock 
                ownership plan prior to the effective date of this 
                subsection was undertaken pursuant to other applicable 
                Federal law prior to such date, the applicable 
                percentage (as determined without regard to this 
                subparagraph) in connection with such securities shall 
                be reduced to the extent necessary to account for the 
                amount to which such election applied.
          ``(8) Regulations.--The Secretary of the Treasury shall 
        prescribe regulations under this subsection in consultation 
        with the Secretary of Labor.''.
  (b) Amendments to the Internal Revenue Code of 1986.--
          (1) In general.--Section 401(a) of the Internal Revenue Code 
        of 1986 (relating to requirements for qualification) is amended 
        by inserting after paragraph (34) the following new paragraph:
          ``(35) Diversification requirements for defined contribution 
        plans that hold employer securities.--
                  ``(A) In general.--An applicable defined contribution 
                plan shall meet the requirements of subparagraphs (B) 
                and (C).
                  ``(B) Employee contributions and elective deferrals 
                invested in employer securities.--In the case of the 
                portion of the account attributable to employee 
                contributions and elective deferrals which is invested 
                in employer securities, a plan meets the requirements 
                of this subparagraph if each applicable individual in 
                such plan may elect to direct the plan to divest any 
                such securities in the individual's account and to 
                reinvest an equivalent amount in other investment 
                options which meet the requirements of subparagraph 
                (D).
                  ``(C) Employer contributions invested in employer 
                securities.--
                          ``(i) In general.--In the case of the portion 
                        of the account attributable to employer 
                        contributions (other than elective deferrals to 
                        which subparagraph (B) applies) which is 
                        invested in employer securities, a plan meets 
                        the requirements of this subparagraph if, under 
                        the plan--
                                  ``(I) each applicable individual with 
                                a benefit based on 3 years of service 
                                may elect to direct the plan to divest 
                                any such securities in the individual's 
                                account and to reinvest an equivalent 
                                amount in other investment options 
                                which meet the requirements of 
                                subparagraph (D), or
                                  ``(II) with respect to any employer 
                                security allocated to an applicable 
                                individual's account during any plan 
                                year, such applicable individual may 
                                elect to direct the plan to divest such 
                                employer security after a date which is 
                                not later than 3 years after the end of 
                                such plan year and to reinvest an 
                                equivalent amount in other investment 
                                options which meet the requirements of 
                                subparagraph (D).
                          ``(ii) Applicable individual with benefit 
                        based on 3 years of service.--For purposes of 
                        clause (i), an applicable individual has a 
                        benefit based on 3 years of service if such 
                        individual would be an applicable individual if 
                        only participants in the plan who have 
                        completed at least 3 years of service (as 
                        determined under section 411(a)) were referred 
                        to in subparagraph (E)(ii)(I).
                  ``(D) Investment options.--The requirements of this 
                subparagraph are met if--
                          ``(i) the plan offers not less than 3 
                        investment options, other than employer 
                        securities, to which an applicable individual 
                        may direct the proceeds from the divestment of 
                        employer securities pursuant to this paragraph, 
                        each of which is diversified and has materially 
                        different risk and return characteristics, and
                          ``(ii) the plan permits the applicable 
                        individual to choose from any of the investment 
                        options made available under the plan to which 
                        such proceeds may be so directed, subject to 
                        such restrictions as may be provided by the 
                        plan limiting such choice to periodic, 
                        reasonable opportunities occurring no less 
                        frequently than on a quarterly basis.
                  ``(E) Definitions and rules.--For purposes of this 
                paragraph--
                          ``(i) Applicable defined contribution plan.--
                        The term `applicable defined contribution plan' 
                        means any defined contribution plan, except 
                        that such term does not include an employee 
                        stock ownership plan (within the meaning of 
                        section 4975(e)(7)) unless there are any 
                        contributions to such plan (or earnings 
                        thereon) held within such plan that are subject 
                        to subsection (k)(3) or (m)(2).
                          ``(ii) Applicable individual.--The term 
                        `applicable individual' means--
                                  ``(I) any participant in the plan, 
                                and
                                  ``(II) any beneficiary of a 
                                participant referred to in clause (i) 
                                who has an account under the plan with 
                                respect to which the beneficiary is 
                                entitled to exercise the rights of the 
                                participant.
                          ``(iii) Elective deferral.--The term 
                        `elective deferral' means an employer 
                        contribution described in section 402(g)(3)(A) 
                        (as in effect on the date of the enactment of 
                        this paragraph).
                          ``(iv) Employer security.--The term `employer 
                        security' shall have the meaning given such 
                        term by section 407(d)(1) of the Employee 
                        Retirement Income Security Act of 1974 (as in 
                        effect on the date of the enactment of this 
                        paragraph).
                          ``(v) Employee stock ownership plan.--The 
                        term `employee stock ownership plan' shall have 
                        the same meaning given to such term by section 
                        4975(e)(7) of the Internal Revenue Code of 1986 
                        (as in effect on the date of the enactment of 
                        this paragraph).
                          ``(vi) Elections.--Elections under this 
                        paragraph may be made not less frequently than 
                        quarterly.
                  ``(F) Exception where there is no readily tradable 
                stock.--This paragraph shall not apply if there is no 
                class of stock issued by the employer that is readily 
                tradable on an established securities market (or in 
                such other circumstances as may be determined jointly 
                by the Secretary of the Treasury and the Secretary of 
                Labor in regulations).
                  ``(G) Transition rule.--
                          ``(i) In general.--In the case of any defined 
                        contribution plan which, on the effective date 
                        of this subsection, holds employer securities 
                        of any class that were acquired before such 
                        date and on which there is a restriction on 
                        diversification otherwise precluded by this 
                        paragraph, this paragraph shall apply to such 
                        securities of such class held in any plan year 
                        only with respect to the number of such 
                        securities equal to the applicable percentage 
                        of the total number of such securities of such 
                        class held on such date.
                          ``(ii) Applicable percentage.--For purposes 
                        of clause (i), the applicable percentage shall 
                        be as follows:

``Plan years for which provisions   Applicable percentage:
        are effective:
    1st plan year
                                        20 percent.
    2nd plan year
                                        40 percent.
    3rd plan year
                                        60 percent.
    4th plan year
                                        80 percent.
    5th plan year or thereafter
                                        100 percent.

                          ``(iii) Elective deferrals treated as 
                        separate plan not individual account plan.--For 
                        purposes of clause (i), the applicable 
                        percentage shall be 100 percent with respect 
                        to--
                                  ``(I) employee contributions to a 
                                plan under which any portion 
                                attributable to elective deferrals is 
                                treated as a separate plan under 
                                section 407(b)(2) of the Employee 
                                Retirement Income Security Act of 1974 
                                as of the date of the enactment of this 
                                paragraph, and
                                  ``(II) such elective deferrals.
                          ``(iv) Contributions held within an esop.--In 
                        the case of contributions (other than elective 
                        deferrals and employee contributions) held 
                        within an employee stock ownership plan, in the 
                        case of the 1st and 2nd plan years referred to 
                        in the table in clause (ii), the applicable 
                        percentage shall be the greater of the amount 
                        determined under clause (ii) or the percentage 
                        determined under paragraph (28) (determined as 
                        if paragraph (28) applied to a plan described 
                        in this paragraph).
                          ``(v) Coordination with prior elections under 
                        paragraph (28).--In any case in which a 
                        divestiture of investment in employer 
                        securities of any class held by an employee 
                        stock ownership plan prior to the effective 
                        date of this paragraph was undertaken pursuant 
                        to an election under paragraph (28) prior to 
                        such date, the applicable percentage (as 
                        determined without regard to this clause) in 
                        connection with such securities shall be 
                        reduced to the extent necessary to account for 
                        the amount to which such election applied.
                  ``(H) Regulations.--The Secretary shall prescribe 
                regulations under this paragraph in consultation with 
                the Secretary of Labor.''.
          (2) Conforming amendments.--
                  (A) Section 401(a)(28) of such Code is amended by 
                adding at the end the following new subparagraph:
                  ``(D) Application.--This paragraph shall not apply to 
                a plan to which paragraph (35) applies.''.
                  (B) Section 409(h)(7) of such Code is amended by 
                inserting before the period at the end ``or 
                subparagraph (B) or (C) of section 401(a)(35)''.
                  (C) Section 4980(c)(3)(A) of such Code is amended by 
                striking ``if--'' and all that follows and inserting 
                ``if the requirements of subparagraphs (B), (C), and 
                (D) are met.''.
  (c) Effective Date.--
          (1) In general.--Except as provided in paragraph (2) and 
        section 108, the amendments made by this section shall apply to 
        plan years beginning after December 31, 2003, and with respect 
        to employer securities allocated to accounts before, on, or 
        after the date of the enactment of this Act.
          (2) Exception.--The amendments made by this section shall not 
        apply to employer securities held by an employee stock 
        ownership plan which are acquired before January 1, 1987.

SEC. 105. PROHIBITED TRANSACTION EXEMPTION FOR THE PROVISION OF 
                    INVESTMENT ADVICE.

  (a) Amendments to the Employee Retirement Income Security Act of 
1974.--
          (1) Exemption from prohibited transactions.--Section 408(b) 
        of the Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1108(b)) is amended by adding at the end the following 
        new paragraph:
          ``(14)(A) Any transaction described in subparagraph (B) in 
        connection with the provision of investment advice described in 
        section 3(21)(A)(ii), in any case in which--
                  ``(i) the investment of assets of the plan is subject 
                to the direction of plan participants or beneficiaries,
                  ``(ii) the advice is provided to the plan or a 
                participant or beneficiary of the plan by a fiduciary 
                adviser in connection with any sale, acquisition, or 
                holding of a security or other property for purposes of 
                investment of plan assets, and
                  ``(iii) the requirements of subsection (g) are met in 
                connection with the provision of the advice.
          ``(B) The transactions described in this subparagraph are the 
        following:
                  ``(i) the provision of the advice to the plan, 
                participant, or beneficiary;
                  ``(ii) the sale, acquisition, or holding of a 
                security or other property (including any lending of 
                money or other extension of credit associated with the 
                sale, acquisition, or holding of a security or other 
                property) pursuant to the advice; and
                  ``(iii) the direct or indirect receipt of fees or 
                other compensation by the fiduciary adviser or an 
                affiliate thereof (or any employee, agent, or 
                registered representative of the fiduciary adviser or 
                affiliate) in connection with the provision of the 
                advice or in connection with a sale, acquisition, or 
                holding of a security or other property pursuant to the 
                advice.''.
          (2) Requirements.--Section 408 of such Act is amended further 
        by adding at the end the following new subsection:
  ``(g) Requirements Relating to Provision of Investment Advice by 
Fiduciary Advisers.--
          ``(1) In general.--The requirements of this subsection are 
        met in connection with the provision of investment advice 
        referred to in section 3(21)(A)(ii), provided to an employee 
        benefit plan or a participant or beneficiary of an employee 
        benefit plan by a fiduciary adviser with respect to the plan in 
        connection with any sale, acquisition, or holding of a security 
        or other property for purposes of investment of amounts held by 
        the plan, if--
                  ``(A) in the case of the initial provision of the 
                advice with regard to the security or other property by 
                the fiduciary adviser to the plan, participant, or 
                beneficiary, the fiduciary adviser provides to the 
                recipient of the advice, at a time reasonably 
                contemporaneous with the initial provision of the 
                advice, a written notification (which may consist of 
                notification by means of electronic communication)--
                          ``(i) of all fees or other compensation 
                        relating to the advice that the fiduciary 
                        adviser or any affiliate thereof is to receive 
                        (including compensation provided by any third 
                        party) in connection with the provision of the 
                        advice or in connection with the sale, 
                        acquisition, or holding of the security or 
                        other property,
                          ``(ii) of any material affiliation or 
                        contractual relationship of the fiduciary 
                        adviser or affiliates thereof in the security 
                        or other property,
                          ``(iii) of any limitation placed on the scope 
                        of the investment advice to be provided by the 
                        fiduciary adviser with respect to any such 
                        sale, acquisition, or holding of a security or 
                        other property,
                          ``(iv) of the types of services provided by 
                        the fiduciary adviser in connection with the 
                        provision of investment advice by the fiduciary 
                        adviser,
                          ``(v) that the adviser is acting as a 
                        fiduciary of the plan in connection with the 
                        provision of the advice, and
                          ``(vi) that a recipient of the advice may 
                        separately arrange for the provision of advice 
                        by another adviser, that could have no material 
                        affiliation with and receive no fees or other 
                        compensation in connection with the security or 
                        other property,
                  ``(B) the fiduciary adviser provides appropriate 
                disclosure, in connection with the sale, acquisition, 
                or holding of the security or other property, in 
                accordance with all applicable securities laws,
                  ``(C) the sale, acquisition, or holding occurs solely 
                at the direction of the recipient of the advice,
                  ``(D) the compensation received by the fiduciary 
                adviser and affiliates thereof in connection with the 
                sale, acquisition, or holding of the security or other 
                property is reasonable, and
                  ``(E) the terms of the sale, acquisition, or holding 
                of the security or other property are at least as 
                favorable to the plan as an arm's length transaction 
                would be.
          ``(2) Standards for presentation of information.--
                  ``(A) In general.--The notification required to be 
                provided to participants and beneficiaries under 
                paragraph (1)(A) shall be written in a clear and 
                conspicuous manner and in a manner calculated to be 
                understood by the average plan participant and shall be 
                sufficiently accurate and comprehensive to reasonably 
                apprise such participants and beneficiaries of the 
                information required to be provided in the 
                notification.
                  ``(B) Model form for disclosure of fees and other 
                compensation.--The Secretary shall issue a model form 
                for the disclosure of fees and other compensation 
                required in paragraph (1)(A)(i) which meets the 
                requirements of subparagraph (A).
          ``(3) Exemption conditioned on making required information 
        available annually, on request, and in the event of material 
        change.--The requirements of paragraph (1)(A) shall be deemed 
        not to have been met in connection with the initial or any 
        subsequent provision of advice described in paragraph (1) to 
        the plan, participant, or beneficiary if, at any time during 
        the provision of advisory services to the plan, participant, or 
        beneficiary, the fiduciary adviser fails to maintain the 
        information described in clauses (i) through (iv) of 
        subparagraph (A) in currently accurate form and in the manner 
        described in paragraph (2) or fails--
                  ``(A) to provide, without charge, such currently 
                accurate information to the recipient of the advice no 
                less than annually,
                  ``(B) to make such currently accurate information 
                available, upon request and without charge, to the 
                recipient of the advice, or
                  ``(C) in the event of a material change to the 
                information described in clauses (i) through (iv) of 
                paragraph (1)(A), to provide, without charge, such 
                currently accurate information to the recipient of the 
                advice at a time reasonably contemporaneous to the 
                material change in information.
          ``(4) Maintenance for 6 years of evidence of compliance.--A 
        fiduciary adviser referred to in paragraph (1) who has provided 
        advice referred to in such paragraph shall, for a period of not 
        less than 6 years after the provision of the advice, maintain 
        any records necessary for determining whether the requirements 
        of the preceding provisions of this subsection and of 
        subsection (b)(14) have been met. A transaction prohibited 
        under section 406 shall not be considered to have occurred 
        solely because the records are lost or destroyed prior to the 
        end of the 6-year period due to circumstances beyond the 
        control of the fiduciary adviser.
          ``(5) Exemption for plan sponsor and certain other 
        fiduciaries.--
                  ``(A) In general.--Subject to subparagraph (B), a 
                plan sponsor or other person who is a fiduciary (other 
                than a fiduciary adviser) shall not be treated as 
                failing to meet the requirements of this part solely by 
                reason of the provision of investment advice referred 
                to in section 3(21)(A)(ii) (or solely by reason of 
                contracting for or otherwise arranging for the 
                provision of the advice), if--
                          ``(i) the advice is provided by a fiduciary 
                        adviser pursuant to an arrangement between the 
                        plan sponsor or other fiduciary and the 
                        fiduciary adviser for the provision by the 
                        fiduciary adviser of investment advice referred 
                        to in such section,
                          ``(ii) the terms of the arrangement require 
                        compliance by the fiduciary adviser with the 
                        requirements of this subsection, and
                          ``(iii) the terms of the arrangement include 
                        a written acknowledgment by the fiduciary 
                        adviser that the fiduciary adviser is a 
                        fiduciary of the plan with respect to the 
                        provision of the advice.
                  ``(B) Continued duty of prudent selection of adviser 
                and periodic review.--Nothing in subparagraph (A) shall 
                be construed to exempt a plan sponsor or other person 
                who is a fiduciary from any requirement of this part 
                for the prudent selection and periodic review of a 
                fiduciary adviser with whom the plan sponsor or other 
                person enters into an arrangement for the provision of 
                advice referred to in section 3(21)(A)(ii). The plan 
                sponsor or other person who is a fiduciary has no duty 
                under this part to monitor the specific investment 
                advice given by the fiduciary adviser to any particular 
                recipient of the advice.
                  ``(C) Availability of plan assets for payment for 
                advice.--Nothing in this part shall be construed to 
                preclude the use of plan assets to pay for reasonable 
                expenses in providing investment advice referred to in 
                section 3(21)(A)(ii).
          ``(6) Definitions.--For purposes of this subsection and 
        subsection (b)(14)--
                  ``(A) Fiduciary adviser.--The term `fiduciary 
                adviser' means, with respect to a plan, a person who is 
                a fiduciary of the plan by reason of the provision of 
                investment advice by the person to the plan or to a 
                participant or beneficiary and who is--
                          ``(i) registered as an investment adviser 
                        under the Investment Advisers Act of 1940 (15 
                        U.S.C. 80b-1 et seq.) or under the laws of the 
                        State in which the fiduciary maintains its 
                        principal office and place of business,
                          ``(ii) a bank or similar financial 
                        institution referred to in section 408(b)(4) or 
                        a savings association (as defined in section 
                        3(b)(1) of the Federal Deposit Insurance Act 
                        (12 U.S.C. 1813(b)(1))), but only if the advice 
                        is provided through a trust department of the 
                        bank or similar financial institution or 
                        savings association which is subject to 
                        periodic examination and review by Federal or 
                        State banking authorities,
                          ``(iii) an insurance company qualified to do 
                        business under the laws of a State,
                          ``(iv) a person registered as a broker or 
                        dealer under the Securities Exchange Act of 
                        1934 (15 U.S.C. 78a et seq.),
                          ``(v) an affiliate of a person described in 
                        any of clauses (i) through (iv), or
                          ``(vi) an employee, agent, or registered 
                        representative of a person described in any of 
                        clauses (i) through (v) who satisfies the 
                        requirements of applicable insurance, banking, 
                        and securities laws relating to the provision 
                        of the advice.
                  ``(B) Affiliate.--The term `affiliate' of another 
                entity means an affiliated person of the entity (as 
                defined in section 2(a)(3) of the Investment Company 
                Act of 1940 (15 U.S.C. 80a-2(a)(3))).
                  ``(C) Registered representative.--The term 
                `registered representative' of another entity means a 
                person described in section 3(a)(18) of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78c(a)(18)) 
                (substituting the entity for the broker or dealer 
                referred to in such section) or a person described in 
                section 202(a)(17) of the Investment Advisers Act of 
                1940 (15 U.S.C. 80b-2(a)(17)) (substituting the entity 
                for the investment adviser referred to in such 
                section).''.
  (b) Amendments to the Internal Revenue Code of 1986.--
          (1) Exemption from prohibited transactions.--Subsection (d) 
        of section 4975 of the Internal Revenue Code of 1986 (relating 
        to exemptions from tax on prohibited transactions) is amended--
                  (A) in paragraph (14), by striking ``or'' at the end;
                  (B) in paragraph (15), by striking the period at the 
                end and inserting ``; or''; and
                  (C) by adding at the end the following new paragraph:
          ``(16) any transaction described in subsection (f)(7)(A) in 
        connection with the provision of investment advice described in 
        subsection (e)(3)(B)(i), in any case in which--
                  ``(A) the investment of assets of the plan is subject 
                to the direction of plan participants or beneficiaries,
                  ``(B) the advice is provided to the plan or a 
                participant or beneficiary of the plan by a fiduciary 
                adviser in connection with any sale, acquisition, or 
                holding of a security or other property for purposes of 
                investment of plan assets, and
                  ``(C) the requirements of subsection (f)(7)(B) are 
                met in connection with the provision of the advice.''.
          (2) Allowed transactions and requirements.--Subsection (f) of 
        such section 4975 (relating to other definitions and special 
        rules) is amended by adding at the end the following new 
        paragraph:
          ``(7) Provisions relating to investment advice provided by 
        fiduciary advisers.--
                  ``(A) Transactions allowable in connection with 
                investment advice provided by fiduciary advisers.--The 
                transactions referred to in subsection (d)(16), in 
                connection with the provision of investment advice by a 
                fiduciary adviser, are the following:
                          ``(i) the provision of the advice to the 
                        plan, participant, or beneficiary;
                          ``(ii) the sale, acquisition, or holding of a 
                        security or other property (including any 
                        lending of money or other extension of credit 
                        associated with the sale, acquisition, or 
                        holding of a security or other property) 
                        pursuant to the advice; and
                          ``(iii) the direct or indirect receipt of 
                        fees or other compensation by the fiduciary 
                        adviser or an affiliate thereof (or any 
                        employee, agent, or registered representative 
                        of the fiduciary adviser or affiliate) in 
                        connection with the provision of the advice or 
                        in connection with a sale, acquisition, or 
                        holding of a security or other property 
                        pursuant to the advice.
                  ``(B) Requirements relating to provision of 
                investment advice by fiduciary advisers.--The 
                requirements of this subparagraph (referred to in 
                subsection (d)(16)(C)) are met in connection with the 
                provision of investment advice referred to in 
                subsection (e)(3)(B), provided to a plan or a 
                participant or beneficiary of a plan by a fiduciary 
                adviser with respect to the plan in connection with any 
                sale, acquisition, or holding of a security or other 
                property for purposes of investment of amounts held by 
                the plan, if--
                          ``(i) in the case of the initial provision of 
                        the advice with regard to the security or other 
                        property by the fiduciary adviser to the plan, 
                        participant, or beneficiary, the fiduciary 
                        adviser provides to the recipient of the 
                        advice, at a time reasonably contemporaneous 
                        with the initial provision of the advice, a 
                        written notification (which may consist of 
                        notification by means of electronic 
                        communication)--
                                  ``(I) of all fees or other 
                                compensation relating to the advice 
                                that the fiduciary adviser or any 
                                affiliate thereof is to receive 
                                (including compensation provided by any 
                                third party) in connection with the 
                                provision of the advice or in 
                                connection with the sale, acquisition, 
                                or holding of the security or other 
                                property,
                                  ``(II) of any material affiliation or 
                                contractual relationship of the 
                                fiduciary adviser or affiliates thereof 
                                in the security or other property,
                                  ``(III) of any limitation placed on 
                                the scope of the investment advice to 
                                be provided by the fiduciary adviser 
                                with respect to any such sale, 
                                acquisition, or holding of a security 
                                or other property,
                                  ``(IV) of the types of services 
                                provided by the fiduciary adviser in 
                                connection with the provision of 
                                investment advice by the fiduciary 
                                adviser,
                                  ``(V) that the adviser is acting as a 
                                fiduciary of the plan in connection 
                                with the provision of the advice, and
                                  ``(VI) that a recipient of the advice 
                                may separately arrange for the 
                                provision of advice by another adviser, 
                                that could have no material affiliation 
                                with and receive no fees or other 
                                compensation in connection with the 
                                security or other property,
                          ``(ii) the fiduciary adviser provides 
                        appropriate disclosure, in connection with the 
                        sale, acquisition, or holding of the security 
                        or other property, in accordance with all 
                        applicable securities laws,
                          ``(iii) the sale, acquisition, or holding 
                        occurs solely at the direction of the recipient 
                        of the advice,
                          ``(iv) the compensation received by the 
                        fiduciary adviser and affiliates thereof in 
                        connection with the sale, acquisition, or 
                        holding of the security or other property is 
                        reasonable, and
                          ``(v) the terms of the sale, acquisition, or 
                        holding of the security or other property are 
                        at least as favorable to the plan as an arm's 
                        length transaction would be.
                  ``(C) Standards for presentation of information.--The 
                notification required to be provided to participants 
                and beneficiaries under subparagraph (B)(i) shall be 
                written in a clear and conspicuous manner and in a 
                manner calculated to be understood by the average plan 
                participant and shall be sufficiently accurate and 
                comprehensive to reasonably apprise such participants 
                and beneficiaries of the information required to be 
                provided in the notification.
                  ``(D) Exemption conditioned on making required 
                information available annually, on request, and in the 
                event of material change.--The requirements of 
                subparagraph (B)(i) shall be deemed not to have been 
                met in connection with the initial or any subsequent 
                provision of advice described in subparagraph (B) to 
                the plan, participant, or beneficiary if, at any time 
                during the provision of advisory services to the plan, 
                participant, or beneficiary, the fiduciary adviser 
                fails to maintain the information described in 
                subclauses (I) through (IV) of subparagraph (B)(i) in 
                currently accurate form and in the manner required by 
                subparagraph (C), or fails--
                          ``(i) to provide, without charge, such 
                        currently accurate information to the recipient 
                        of the advice no less than annually,
                          ``(ii) to make such currently accurate 
                        information available, upon request and without 
                        charge, to the recipient of the advice, or
                          ``(iii) in the event of a material change to 
                        the information described in subclauses (I) 
                        through (IV) of subparagraph (B)(i), to 
                        provide, without charge, such currently 
                        accurate information to the recipient of the 
                        advice at a time reasonably contemporaneous to 
                        the material change in information.
                  ``(E) Maintenance for 6 years of evidence of 
                compliance.--A fiduciary adviser referred to in 
                subparagraph (B) who has provided advice referred to in 
                such subparagraph shall, for a period of not less than 
                6 years after the provision of the advice, maintain any 
                records necessary for determining whether the 
                requirements of the preceding provisions of this 
                paragraph and of subsection (d)(16) have been met. A 
                transaction prohibited under subsection (c)(1) shall 
                not be considered to have occurred solely because the 
                records are lost or destroyed prior to the end of the 
                6-year period due to circumstances beyond the control 
                of the fiduciary adviser.
                  ``(F) Exemption for plan sponsor and certain other 
                fiduciaries.--A plan sponsor or other person who is a 
                fiduciary (other than a fiduciary adviser) shall not be 
                treated as failing to meet the requirements of this 
                section solely by reason of the provision of investment 
                advice referred to in subsection (e)(3)(B) (or solely 
                by reason of contracting for or otherwise arranging for 
                the provision of the advice), if--
                          ``(i) the advice is provided by a fiduciary 
                        adviser pursuant to an arrangement between the 
                        plan sponsor or other fiduciary and the 
                        fiduciary adviser for the provision by the 
                        fiduciary adviser of investment advice referred 
                        to in such section,
                          ``(ii) the terms of the arrangement require 
                        compliance by the fiduciary adviser with the 
                        requirements of this paragraph,
                          ``(iii) the terms of the arrangement include 
                        a written acknowledgment by the fiduciary 
                        adviser that the fiduciary adviser is a 
                        fiduciary of the plan with respect to the 
                        provision of the advice, and
                          ``(iv) the requirements of part 4 of subtitle 
                        B of title I of the Employee Retirement Income 
                        Security Act of 1974 are met in connection with 
                        the provision of such advice.
                  ``(G) Definitions.--For purposes of this paragraph 
                and subsection (d)(16)--
                          ``(i) Fiduciary adviser.--The term `fiduciary 
                        adviser' means, with respect to a plan, a 
                        person who is a fiduciary of the plan by reason 
                        of the provision of investment advice by the 
                        person to the plan or to a participant or 
                        beneficiary and who is--
                                  ``(I) registered as an investment 
                                adviser under the Investment Advisers 
                                Act of 1940 (15 U.S.C. 80b-1 et seq.) 
                                or under the laws of the State in which 
                                the fiduciary maintains its principal 
                                office and place of business,
                                  ``(II) a bank or similar financial 
                                institution referred to in subsection 
                                (d)(4) or a savings association (as 
                                defined in section 3(b)(1) of the 
                                Federal Deposit Insurance Act (12 
                                U.S.C. 1813(b)(1))), but only if the 
                                advice is provided through a trust 
                                department of the bank or similar 
                                financial institution or savings 
                                association which is subject to 
                                periodic examination and review by 
                                Federal or State banking authorities,
                                  ``(III) an insurance company 
                                qualified to do business under the laws 
                                of a State,
                                  ``(IV) a person registered as a 
                                broker or dealer under the Securities 
                                Exchange Act of 1934 (15 U.S.C. 78a et 
                                seq.),
                                  ``(V) an affiliate of a person 
                                described in any of subclauses (I) 
                                through (IV), or
                                  ``(VI) an employee, agent, or 
                                registered representative of a person 
                                described in any of subclauses (I) 
                                through (V) who satisfies the 
                                requirements of applicable insurance, 
                                banking, and securities laws relating 
                                to the provision of the advice.
                          ``(ii) Affiliate.--The term `affiliate' of 
                        another entity means an affiliated person of 
                        the entity (as defined in section 2(a)(3) of 
                        the Investment Company Act of 1940 (15 U.S.C. 
                        80a-2(a)(3))).
                          ``(iii) Registered representative.--The term 
                        `registered representative' of another entity 
                        means a person described in section 3(a)(18) of 
                        the Securities Exchange Act of 1934 (15 U.S.C. 
                        78c(a)(18)) (substituting the entity for the 
                        broker or dealer referred to in such section) 
                        or a person described in section 202(a)(17) of 
                        the Investment Advisers Act of 1940 (15 U.S.C. 
                        80b-2(a)(17)) (substituting the entity for the 
                        investment adviser referred to in such 
                        section).''.

SEC. 106. STUDY REGARDING IMPACT ON RETIREMENT SAVINGS OF PARTICIPANTS 
                    AND BENEFICIARIES BY REQUIRING CONSULTANTS TO 
                    ADVISE PLAN FIDUCIARIES OF INDIVIDUAL ACCOUNT 
                    PLANS.

  (a) Study.--As soon as practicable after the date of the enactment of 
this Act, the Secretary of Labor shall undertake a study of the costs 
and benefits to participants and beneficiaries of requiring independent 
consultants to advise plan fiduciaries in connection with individual 
account plans. In conducting such study, the Secretary shall consider--
          (1) the benefits to plan participants and beneficiaries of 
        engaging independent advisers to provide investment and other 
        advice regarding the assets of the plan to persons who have 
        fiduciary duties with respect to the management or disposition 
        of such assets,
          (2) the extent to which independent advisers are currently 
        retained by plan fiduciaries,
          (3) the availability of assistance to fiduciaries from 
        appropriate Federal agencies,
          (4) the availability of qualified independent consultants to 
        serve the needs of individual account plan fiduciaries in the 
        United States,
          (5) the impact of the additional fiduciary duty of an 
        independent advisor on the strict fiduciary obligations of plan 
        fiduciaries,
          (6) the impact of new requirements (consulting fees, 
        reporting requirements, and new plan duties to prudently 
        identify and contract with qualified independent consultants) 
        on the availability of individual account plans, and
          (7) the impact of a new requirement on the plan 
        administration costs per participant for small and mid-size 
        employers and the pension plans they sponsor.
  (b) Report.--Not later than 1 year after the date of the enactment of 
this Act, the Secretary of Labor shall report the results of the study 
undertaken pursuant to this section, together with any recommendations 
for legislative changes, to the Committee on Education and the 
Workforce of the House of Representatives and the Committee on Health, 
Education, Labor, and Pensions of the Senate.

SEC. 107. TREATMENT OF QUALIFIED RETIREMENT PLANNING SERVICES.

  (a) In General.--Subsection (m) of section 132 of the Internal 
Revenue Code of 1986 (defining qualified retirement services) is 
amended by adding at the end the following new paragraph:
          ``(4) No constructive receipt.--No amount shall be included 
        in the gross income of any employee solely because the employee 
        may choose between any qualified retirement planning services 
        provided by a qualified investment advisor and compensation 
        which would otherwise be includible in the gross income of such 
        employee. The preceding sentence shall apply to highly 
        compensated employees only if the choice described in such 
        sentence is available on substantially the same terms to each 
        member of the group of employees normally provided education 
        and information regarding the employer's qualified employer 
        plan.''.
  (b) Conforming Amendments.--
          (1) Section 403(b)(3)(B) of such Code is amended by inserting 
        ``132(m)(4),'' after ``132(f)(4),''.
          (2) Section 414(s)(2) of such Code is amended by inserting 
        ``132(m)(4),'' after ``132(f)(4),''.
          (3) Section 415(c)(3)(D)(ii) of such Code is amended by 
        inserting ``132(m)(4),'' after ``132(f)(4),''.
  (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 108. EFFECTIVE DATES AND RELATED RULES.

  (a) In General.--Except as otherwise provided in the preceding 
provisions of this title or in subsections (c) and (d), the amendments 
made by this Act shall apply with respect to plan years beginning on or 
after the general effective date.
  (b) General Effective Date.--For purposes of this section, the term 
``general effective date'' means the date which is 1 year after the 
date of the enactment of this Act.
  (c) Special Rule for Collectively Bargained Plans.--In the case of a 
plan maintained pursuant to 1 or more collective bargaining agreements 
between employee representatives and 1 or more employers ratified on or 
before the date of the enactment of this Act, subsection (a) shall be 
applied to benefits pursuant to, and individuals covered by, any such 
agreement by substituting for ``the general effective date'' the date 
of the commencement of the first plan year beginning on or after the 
earlier of--
          (1) the later of--
                  (A) the date which is 1 year after the general 
                effective date, or
                  (B) the date on which the last of such collective 
                bargaining agreements terminates (determined without 
                regard to any extension thereof after the date of the 
                enactment of this Act), or
          (2) the date which is 2 years after the general effective 
        date.
  (d) Amendments Relating to Investment Advice.--The amendments made by 
section 105 shall apply with respect to advice referred to in section 
3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974 or 
section 4975(c)(3)(B) of the Internal Revenue Code of 1986 provided on 
or after January 1, 2005.

            TITLE II--OTHER PROVISIONS RELATING TO PENSIONS

SEC. 201. AMENDMENTS TO RETIREMENT PROTECTION ACT OF 1994.

  (a) Transition Rule Made Permanent.--Section 769(c) of the Retirement 
Protection Act of 1994 (26 U.S.C. 412 note) is amended--
          (1) in the heading, by striking ``Transition''; and
          (2) in paragraph (1), by striking ``transition'' and by 
        striking ``for any plan year beginning after 1996 and before 
        2010''.
  (b) Special Rules.--Paragraph (2) of section 769(c) of the Retirement 
Protection Act of 1994 is amended to read as follows:
          ``(2) Special rules.--The rules described in this paragraph 
        are as follows:
                  ``(A) For purposes of section 412(l)(9)(A) of the 
                Internal Revenue Code of 1986 and section 302(d)(9)(A) 
                of the Employee Retirement Income Security Act of 1974, 
                the funded current liability percentage for any plan 
                year shall be treated as not less than 90 percent.
                  ``(B) For purposes of section 412(m) of the Internal 
                Revenue Code of 1986 and section 302(e) of the Employee 
                Retirement Income Security Act of 1974, the funded 
                current liability percentage for any plan year shall be 
                treated as not less than 100 percent.
                  ``(C) For purposes of determining unfunded vested 
                benefits under section 4006(a)(3)(E)(iii) of the 
                Employee Retirement Income Security Act of 1974, the 
                mortality table shall be the mortality table used by 
                the plan.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2002.

SEC. 202. REPORTING SIMPLIFICATION.

  (a) Simplified Annual Filing Requirement for Owners and Their 
Spouses.--
          (1) In general.--The Secretary of the Treasury and the 
        Secretary of Labor shall modify the requirements for filing 
        annual returns with respect to one-participant retirement plans 
        to ensure that such plans with assets of $250,000 or less as of 
        the close of the plan year need not file a return for that 
        year.
          (2) One-participant retirement plan defined.--For purposes of 
        this subsection, the term ``one-participant retirement plan'' 
        means a retirement plan with respect to which the following 
        requirements are met:
                  (A) on the first day of the plan year--
                          (i) the plan covered only one individual (or 
                        the individual and the individual's spouse) and 
                        the individual owned 100 percent of the plan 
                        sponsor (whether or not incorporated), or
                          (ii) the plan covered only one or more 
                        partners (or partners and their spouses) in the 
                        plan sponsor;
                  (B) the plan meets the minimum coverage requirements 
                of section 410(b) of the Internal Revenue Code of 1986 
                without being combined with any other plan of the 
                business that covers the employees of the business;
                  (C) the plan does not provide benefits to anyone 
                except the individual (and the individual's spouse) or 
                the partners (and their spouses);
                  (D) the plan does not cover a business that is a 
                member of an affiliated service group, a controlled 
                group of corporations, or a group of businesses under 
                common control; and
                  (E) the plan does not cover a business that leases 
                employees.
          (3) Other definitions.--Terms used in paragraph (2) which are 
        also used in section 414 of the Internal Revenue Code of 1986 
        shall have the respective meanings given such terms by such 
        section.
          (4) Effective date.--The provisions of this subsection shall 
        apply to plan years beginning on or after January 1, 2003.
  (b) Simplified Annual Filing Requirement for Plans With Fewer Than 25 
Employees.--In the case of plan years beginning after December 31, 
2004, the Secretary of the Treasury and the Secretary of Labor shall 
provide for the filing of a simplified annual return for any retirement 
plan which covers less than 25 employees on the first day of a plan 
year and which meets the requirements described in subparagraphs (B), 
(D), and (E) of subsection (a)(2).

SEC. 203. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

  The Secretary of the Treasury shall continue to update and improve 
the Employee Plans Compliance Resolution System (or any successor 
program) giving special attention to--
          (1) increasing the awareness and knowledge of small employers 
        concerning the availability and use of the program;
          (2) taking into account special concerns and circumstances 
        that small employers face with respect to compliance and 
        correction of compliance failures;
          (3) extending the duration of the self-correction period 
        under the Self-Correction Program for significant compliance 
        failures;
          (4) expanding the availability to correct insignificant 
        compliance failures under the Self-Correction Program during 
        audit; and
          (5) assuring that any tax, penalty, or sanction that is 
        imposed by reason of a compliance failure is not excessive and 
        bears a reasonable relationship to the nature, extent, and 
        severity of the failure.
The Secretary of the Treasury shall have full authority to effectuate 
the foregoing with respect to the Employee Plans Compliance Resolution 
System (or any successor program) and any other employee plans 
correction policies, including the authority to waive income, excise, 
or other taxes to ensure that any tax, penalty, or sanction is not 
excessive and bears a reasonable relationship to the nature, extent, 
and severity of the failure.

SEC. 204. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF 
                    BUSINESS RULES.

  (a) Nondiscrimination.--
          (1) In general.--The Secretary of the Treasury shall, by 
        regulation, provide that a plan shall be deemed to satisfy the 
        requirements of section 401(a)(4) of the Internal Revenue Code 
        of 1986 if such plan satisfies the facts and circumstances test 
        under section 401(a)(4) of such Code, as in effect before 
        January 1, 1994, but only if--
                  (A) the plan satisfies conditions prescribed by the 
                Secretary to appropriately limit the availability of 
                such test; and
                  (B) the plan is submitted to the Secretary for a 
                determination of whether it satisfies such test.
        Subparagraph (B) shall only apply to the extent provided by the 
        Secretary.
          (2) Effective dates.--
                  (A) Regulations.--The regulation required by 
                paragraph (1) shall apply to years beginning after 
                December 31, 2004.
                  (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                paragraph (1)(A) shall not apply before the first year 
                beginning not less than 120 days after the date on 
                which such condition is prescribed.
  (b) Coverage Test.--
          (1) In general.--Section 410(b)(1) of the Internal Revenue 
        Code of 1986 (relating to minimum coverage requirements) is 
        amended by adding at the end the following:
                  ``(D) In the case that the plan fails to meet the 
                requirements of subparagraphs (A), (B) and (C), the 
                plan--
                          ``(i) satisfies subparagraph (B), as in 
                        effect immediately before the enactment of the 
                        Tax Reform Act of 1986,
                          ``(ii) is submitted to the Secretary for a 
                        determination of whether it satisfies the 
                        requirement described in clause (i), and
                          ``(iii) satisfies conditions prescribed by 
                        the Secretary by regulation that appropriately 
                        limit the availability of this subparagraph.
                Clause (ii) shall apply only to the extent provided by 
                the Secretary.''.
          (2) Effective dates.--
                  (A) In general.--The amendment made by paragraph (1) 
                shall apply to years beginning after December 31, 2004.
                  (B) Conditions of availability.--Any condition of 
                availability prescribed by the Secretary under 
                regulations prescribed by the Secretary under section 
                410(b)(1)(D) of the Internal Revenue Code of 1986 shall 
                not apply before the first year beginning not less than 
                120 days after the date on which such condition is 
                prescribed.
  (c) Line of Business Rules.--The Secretary of the Treasury shall, on 
or before December 31, 2004, modify the existing regulations issued 
under section 414(r) of the Internal Revenue Code of 1986 in order to 
expand (to the extent that the Secretary determines appropriate) the 
ability of a pension plan to demonstrate compliance with the line of 
business requirements based upon the facts and circumstances 
surrounding the design and operation of the plan, even though the plan 
is unable to satisfy the mechanical tests currently used to determine 
compliance.

SEC. 205. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON 
                    APPLICATION OF CERTAIN NONDISCRIMINATION RULES 
                    APPLICABLE TO STATE AND LOCAL PLANS.

  (a) In General.--
          (1) Subparagraph (G) of section 401(a)(5) of the Internal 
        Revenue Code of 1986 and subparagraph (H) of section 401(a)(26) 
        of such Code are each amended by striking ``section 414(d))'' 
        and all that follows and inserting ``section 414(d)).''.
          (2) Subparagraph (G) of section 401(k)(3) of the Internal 
        Revenue Code of 1986 and paragraph (2) of section 1505(d) of 
        the Taxpayer Relief Act of 1997 (26 U.S.C. 401 note) are each 
        amended by striking ``maintained by a State or local government 
        or political subdivision thereof (or agency or instrumentality 
        thereof)''.
  (b) Conforming Amendments.--
          (1) The heading for subparagraph (G) of section 401(a)(5) of 
        such Code is amended to read as follows: ``Governmental 
        plans.--''.
          (2) The heading for subparagraph (H) of section 401(a)(26) of 
        such Code is amended to read as follows: ``Exception for 
        governmental 
        plans.--''.
          (3) Subparagraph (G) of section 401(k)(3) of such Code is 
        amended by inserting ``Governmental plans.--'' after ``(G)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to years beginning after December 31, 2003.

SEC. 206. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

  (a) Expansion of Period.--
          (1) Amendment of internal revenue code.--
                  (A) In general.--Subparagraph (A) of section 
                417(a)(6) of the Internal Revenue Code of 1986 is 
                amended by striking ``90-day'' and inserting ``180-
                day''.
                  (B) Modification of regulations.--The Secretary of 
                the Treasury shall modify the regulations under 
                sections 402(f), 411(a)(11), and 417 of the Internal 
                Revenue Code of 1986 to substitute ``180 days'' for 
                ``90 days'' each place it appears in Treasury 
                Regulations sections 1.402(f)-1, 1.411(a)-11(c), and 
                1.417(e)-1(b).
          (2) Amendment of erisa.--
                  (A) In general.--Section 205(c)(7)(A) of the Employee 
                Retirement Income Security Act of 1974 (29 U.S.C. 
                1055(c)(7)(A)) is amended by striking ``90-day'' and 
                inserting ``180-day''.
                  (B) Modification of regulations.--The Secretary of 
                the Treasury shall modify the regulations under part 2 
                of subtitle B of title I of the Employee Retirement 
                Income Security Act of 1974 to the extent that they 
                relate to sections 203(e) and 205 of such Act to 
                substitute ``180 days'' for ``90 days'' each place it 
                appears.
          (3) Effective date.--The amendments made by paragraphs (1)(A) 
        and (2)(A) and the modifications required by paragraphs (1)(B) 
        and (2)(B) shall apply to years beginning after December 31, 
        2003.
  (b) Consent Regulation Inapplicable to Certain Distributions.--
          (1) In general.--The Secretary of the Treasury shall modify 
        the regulations under section 411(a)(11) of the Internal 
        Revenue Code of 1986 and under section 205 of the Employee 
        Retirement Income Security Act of 1974 to provide that the 
        description of a participant's right, if any, to defer receipt 
        of a distribution shall also describe the consequences of 
        failing to defer such receipt.
          (2) Effective date.--
                  (A) In general.--The modifications required by 
                paragraph (1) shall apply to years beginning after 
                December 31, 2003.
                  (B) Reasonable notice.--In the case of any 
                description of such consequences made before the date 
                that is 90 days after the date on which the Secretary 
                of the Treasury issues a safe harbor description under 
                paragraph (1), a plan shall not be treated as failing 
                to satisfy the requirements of section 411(a)(11) of 
                such Code or section 205 of such Act by reason of the 
                failure to provide the information required by the 
                modifications made under paragraph (1) if the 
                Administrator of such plan makes a reasonable attempt 
                to comply with such requirements.

SEC. 207. ANNUAL REPORT DISSEMINATION.

  (a) Report Available Through Electronic Means.--Section 104(b)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1024(b)(3)) is amended by adding at the end the following new sentence: 
``The requirement to furnish information under the previous sentence 
with respect to an employee pension benefit plan shall be satisfied if 
the administrator makes such information reasonably available through 
electronic means or other new technology.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to reports for years beginning after December 31, 2003.

SEC. 208. TECHNICAL CORRECTIONS TO SAVER ACT.

  Section 517 of the Employee Retirement Income Security Act of 1974 
(29 U.S.C. 1147) is amended--
          (1) in subsection (a), by striking ``2001 and 2005 on or 
        after September 1 of each year involved'' and inserting ``2006 
        and 2010'';
          (2) in subsection (e)(2)--
                  (A) by striking ``Committee on Labor and Human 
                Resources'' in subparagraph (D) and inserting 
                ``Committee on Health, Education, Labor, and 
                Pensions'';
                  (B) by striking subparagraph (F) and inserting the 
                following:
                  ``(F) the Chairman and Ranking Member of the 
                Subcommittee on Labor, Health and Human Services, and 
                Education of the Committee on Appropriations of the 
                House of Representatives and the Chairman and Ranking 
                Member of the Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the Senate;'';
                  (C) by redesignating subparagraph (G) as subparagraph 
                (J); and
                  (D) by inserting after subparagraph (F) the following 
                new subparagraphs:
                  ``(G) the Chairman and Ranking Member of the 
                Committee on Finance of the Senate;
                  ``(H) the Chairman and Ranking Member of the 
                Committee on Ways and Means of the House of 
                Representatives;
                  ``(I) the Chairman and Ranking Member of the 
                Subcommittee on Employer-Employee Relations of the 
                Committee on Education and the Workforce of the House 
                of Representatives; and'';
          (3) in subsection (e)(3)(B), by striking ``January 31, 1998'' 
        and inserting ``2 months before the convening of each summit'';
          (4) in subsection (f)(1)(C), by inserting ``, no later than 
        60 days prior to the date of the commencement of the National 
        Summit,'' after ``comment'';
          (5) in subsection (i)--
                  (A) by striking ``for fiscal years beginning on or 
                after October 1, 1997,''; and
                  (B) by adding at the end the following new paragraph:
          ``(3) Reception and representation authority.--The Secretary 
        is hereby granted reception and representation authority 
        limited specifically to the events at the National Summit. The 
        Secretary shall use any private contributions accepted in 
        connection with the National Summit prior to using funds 
        appropriated for purposes of the National Summit pursuant to 
        this paragraph.''; and
          (6) in subsection (k)--
                  (A) by striking ``shall enter into a contract on a 
                sole-source basis'' and inserting ``may enter into a 
                contract on a sole-source basis''; and
                  (B) by striking ``in fiscal year 1998''.

SEC. 209. MISSING PARTICIPANTS AND BENEFICIARIES.

  (a) In General.--Section 4050 of the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1350) is amended by redesignating 
subsection (c) as subsection (e) and by inserting after subsection (b) 
the following new subsections:
  ``(c) Multiemployer Plans.--The corporation shall prescribe rules 
similar to the rules in subsection (a) for multiemployer plans covered 
by this title that terminate under section 4041A.
  ``(d) Plans Not Otherwise Subject to Title.--
          ``(1) Transfer to corporation.--The plan administrator of a 
        plan described in paragraph (4) may elect to transfer the 
        benefits of a missing participant or beneficiary to the 
        corporation upon termination of the plan.
          ``(2) Information to the corporation.--To the extent provided 
        in regulations, the plan administrator of a plan described in 
        paragraph (4) shall, upon termination of the plan, provide the 
        corporation information with respect to benefits of a missing 
        participant or beneficiary if the plan transfers such 
        benefits--
                  ``(A) to the corporation, or
                  ``(B) to an entity other than the corporation or a 
                plan described in paragraph (4)(B)(ii).
          ``(3) Payment by the corporation.--If benefits of a missing 
        participant or beneficiary were transferred to the corporation 
        under paragraph (1), the corporation shall, upon location of 
        the participant or beneficiary, pay to the participant or 
        beneficiary the amount transferred (or the appropriate survivor 
        benefit) either--
                  ``(A) in a single sum (plus interest), or
                  ``(B) in such other form as is specified in 
                regulations of the corporation.
          ``(4) Plans described.--A plan is described in this paragraph 
        if--
                  ``(A) the plan is a pension plan (within the meaning 
                of section 3(2))--
                          ``(i) to which the provisions of this section 
                        do not apply (without regard to this 
                        subsection), and
                          ``(ii) which is not a plan described in 
                        paragraphs (2) through (11) of section 4021(b), 
                        and
                  ``(B) at the time the assets are to be distributed 
                upon termination, the plan--
                          ``(i) has one or more missing participants or 
                        beneficiaries, and
                          ``(ii) has not provided for the transfer of 
                        assets to pay the benefits of all missing 
                        participants and beneficiaries to another 
                        pension plan (within the meaning of section 
                        3(2)).
          ``(5) Certain provisions not to apply.--Subsections (a)(1) 
        and (a)(3) shall not apply to a plan described in paragraph 
        (4).''.
  (b) Conforming Amendments.--Section 206(f) of such Act (29 U.S.C. 
1056(f)) is amended--
          (1) by striking ``title IV'' and inserting ``section 4050''; 
        and
          (2) by striking ``the plan shall provide that,''.
  (c) Effective Date.--The amendments made by this section shall apply 
to distributions made after final regulations implementing subsections 
(c) and (d) of section 4050 of the Employee Retirement Income Security 
Act of 1974 (as added by subsection (a)), respectively, are prescribed.

SEC. 210. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS.

  (a) In General.--Subparagraph (A) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(A)) is amended--
          (1) in clause (i), by inserting ``other than a new single-
        employer plan (as defined in subparagraph (F)) maintained by a 
        small employer (as so defined),'' after ``single-employer 
        plan,'',
          (2) in clause (iii), by striking the period at the end and 
        inserting ``, and'', and
          (3) by adding at the end the following new clause:
          ``(iv) in the case of a new single-employer plan (as defined 
        in subparagraph (F)) maintained by a small employer (as so 
        defined) for the plan year, $5 for each individual who is a 
        participant in such plan during the plan year.''.
  (b) Definition of New Single-Employer Plan.--Section 4006(a)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)) is amended by adding at the end the following new 
subparagraph:
  ``(F)(i) For purposes of this paragraph, a single-employer plan 
maintained by a contributing sponsor shall be treated as a new single-
employer plan for each of its first 5 plan years if, during the 36-
month period ending on the date of the adoption of such plan, the 
sponsor or any member of such sponsor's controlled group (or any 
predecessor of either) did not establish or maintain a plan to which 
this title applies with respect to which benefits were accrued for 
substantially the same employees as are in the new single-employer 
plan.
  ``(ii)(I) For purposes of this paragraph, the term `small employer' 
means an employer which on the first day of any plan year has, in 
aggregation with all members of the controlled group of such employer, 
100 or fewer employees.
  ``(II) In the case of a plan maintained by two or more contributing 
sponsors that are not part of the same controlled group, the employees 
of all contributing sponsors and controlled groups of such sponsors 
shall be aggregated for purposes of determining whether any 
contributing sponsor is a small employer.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plans first effective after December 31, 2003.

SEC. 211. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND SMALL PLANS.

  (a) New Plans.--Subparagraph (E) of section 4006(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(E)) is amended by adding at the end the following new 
clause:
  ``(v) In the case of a new defined benefit plan, the amount 
determined under clause (ii) for any plan year shall be an amount equal 
to the product of the amount determined under clause (ii) and the 
applicable percentage. For purposes of this clause, the term 
`applicable percentage' means--
          ``(I) 0 percent, for the first plan year.
          ``(II) 20 percent, for the second plan year.
          ``(III) 40 percent, for the third plan year.
          ``(IV) 60 percent, for the fourth plan year.
          ``(V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined in 
section 3(35)) maintained by a contributing sponsor shall be treated as 
a new defined benefit plan for each of its first 5 plan years if, 
during the 36-month period ending on the date of the adoption of the 
plan, the sponsor and each member of any controlled group including the 
sponsor (or any predecessor of either) did not establish or maintain a 
plan to which this title applies with respect to which benefits were 
accrued for substantially the same employees as are in the new plan.''.
  (b) Small Plans.--Paragraph (3) of section 4006(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1306(a)), as amended 
by section 210(b), is amended--
          (1) by striking ``The'' in subparagraph (E)(i) and inserting 
        ``Except as provided in subparagraph (G), the'', and
          (2) by inserting after subparagraph (F) the following new 
        subparagraph:
  ``(G)(i) In the case of an employer who has 25 or fewer employees on 
the first day of the plan year, the additional premium determined under 
subparagraph (E) for each participant shall not exceed $5 multiplied by 
the number of participants in the plan as of the close of the preceding 
plan year.
  ``(ii) For purposes of clause (i), whether an employer has 25 or 
fewer employees on the first day of the plan year is determined by 
taking into consideration all of the employees of all members of the 
contributing sponsor's controlled group. In the case of a plan 
maintained by two or more contributing sponsors, the employees of all 
contributing sponsors and their controlled groups shall be aggregated 
for purposes of determining whether the 25-or-fewer-employees 
limitation has been satisfied.''.
  (c) Effective Dates.--
          (1) Subsection (a).--The amendments made by subsection (a) 
        shall apply to plans first effective after December 31, 2003.
          (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to plan years beginning after December 31, 2003.

SEC. 212. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM OVERPAYMENT 
                    REFUNDS.

  (a) In General.--Section 4007(b) of the Employment Retirement Income 
Security Act of 1974 (29 U.S.C. 1307(b)) is amended--
          (1) by striking ``(b)'' and inserting ``(b)(1)'', and
          (2) by inserting at the end the following new paragraph:
  ``(2) The corporation is authorized to pay, subject to regulations 
prescribed by the corporation, interest on the amount of any 
overpayment of premium refunded to a designated payor. Interest under 
this paragraph shall be calculated at the same rate and in the same 
manner as interest is calculated for underpayments under paragraph 
(1).''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to interest accruing for periods beginning not earlier than the date of 
the enactment of this Act.

SEC. 213. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

  (a) Modification of Phase-In of Guarantee.--Section 4022(b)(5) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1322(b)(5)) 
is amended to read as follows:
  ``(5)(A) For purposes of this paragraph, the term `majority owner' 
means an individual who, at any time during the 60-month period ending 
on the date the determination is being made--
          ``(i) owns the entire interest in an unincorporated trade or 
        business,
          ``(ii) in the case of a partnership, is a partner who owns, 
        directly or indirectly, 50 percent or more of either the 
        capital interest or the profits interest in such partnership, 
        or
          ``(iii) in the case of a corporation, owns, directly or 
        indirectly, 50 percent or more in value of either the voting 
        stock of that corporation or all the stock of that corporation.
For purposes of clause (iii), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).
  ``(B) In the case of a participant who is a majority owner, the 
amount of benefits guaranteed under this section shall equal the 
product of--
          ``(i) a fraction (not to exceed 1) the numerator of which is 
        the number of years from the later of the effective date or the 
        adoption date of the plan to the termination date, and the 
        denominator of which is 10, and
          ``(ii) the amount of benefits that would be guaranteed under 
        this section if the participant were not a majority owner.''.
  (b) Modification of Allocation of Assets.--
          (1) Section 4044(a)(4)(B) of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1344(a)(4)(B)) is amended by 
        striking ``section 4022(b)(5)'' and inserting ``section 
        4022(b)(5)(B)''.
          (2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) is 
        amended--
                  (A) by striking ``(5)'' in paragraph (2) and 
                inserting ``(4), (5),'', and
                  (B) by redesignating paragraphs (3) through (6) as 
                paragraphs (4) through (7), respectively, and by 
                inserting after paragraph (2) the following new 
                paragraph:
          ``(3) If assets available for allocation under paragraph (4) 
        of subsection (a) are insufficient to satisfy in full the 
        benefits of all individuals who are described in that 
        paragraph, the assets shall be allocated first to benefits 
        described in subparagraph (A) of that paragraph. Any remaining 
        assets shall then be allocated to benefits described in 
        subparagraph (B) of that paragraph. If assets allocated to such 
        subparagraph (B) are insufficient to satisfy in full the 
        benefits described in that subparagraph, the assets shall be 
        allocated pro rata among individuals on the basis of the 
        present value (as of the termination date) of their respective 
        benefits described in that subparagraph.''.
  (c) Conforming Amendments.--
          (1) Section 4021 of the Employee Retirement Income Security 
        Act of 1974 (29 U.S.C. 1321) is amended--
                  (A) in subsection (b)(9), by striking ``as defined in 
                section 4022(b)(6)'', and
                  (B) by adding at the end the following new 
                subsection:
  ``(d) For purposes of subsection (b)(9), the term `substantial owner' 
means an individual who, at any time during the 60-month period ending 
on the date the determination is being made--
          ``(1) owns the entire interest in an unincorporated trade or 
        business,
          ``(2) in the case of a partnership, is a partner who owns, 
        directly or indirectly, more than 10 percent of either the 
        capital interest or the profits interest in such partnership, 
        or
          ``(3) in the case of a corporation, owns, directly or 
        indirectly, more than 10 percent in value of either the voting 
        stock of that corporation or all the stock of that corporation.
For purposes of paragraph (3), the constructive ownership rules of 
section 1563(e) of the Internal Revenue Code of 1986 shall apply 
(determined without regard to section 1563(e)(3)(C)).''.
  (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) is amended 
by striking ``section 4022(b)(6)'' and inserting ``section 4021(d)''.
  (d) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to plan 
        terminations--
                  (A) under section 4041(c) of the Employee Retirement 
                Income Security Act of 1974 (29 U.S.C. 1341(c)) with 
                respect to which notices of intent to terminate are 
                provided under section 4041(a)(2) of such Act (29 
                U.S.C. 1341(a)(2)) after December 31, 2003, and
                  (B) under section 4042 of such Act (29 U.S.C. 1342) 
                with respect to which proceedings are instituted by the 
                corporation after such date.
          (2) Conforming amendments.--The amendments made by subsection 
        (c) shall take effect on January 1, 2004.

SEC. 214. BENEFIT SUSPENSION NOTICE.

  (a) Modification of Regulation.--The Secretary of Labor shall modify 
the regulation under subparagraph (B) of section 203(a)(3) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1053(a)(3)(B)) to provide that the notification required by such 
regulation in connection with any suspension of benefits described in 
such subparagraph--
          (1) in the case of an employee who returns to service 
        described in section 203(a)(3)(B)(i) or (ii) of such Act after 
        commencement of payment of benefits under the plan, shall be 
        made during the first calendar month or the first 4 or 5-week 
        payroll period ending in a calendar month in which the plan 
        withholds payments, and
          (2) in the case of any employee who is not described in 
        paragraph (1)--
                  (A) may be included in the summary plan description 
                for the plan furnished in accordance with section 
                104(b) of such Act (29 U.S.C. 1024(b)), rather than in 
                a separate notice, and
                  (B) need not include a copy of the relevant plan 
                provisions.
  (b) Effective Date.--The modification made under this section shall 
apply to plan years beginning after December 31, 2003.

SEC. 215. STUDIES.

  (a) Model Small Employer Group Plans Study.--As soon as practicable 
after the date of the enactment of this Act, the Secretary of Labor, in 
consultation with the Secretary of the Treasury, shall conduct a study 
to determine--
          (1) the most appropriate form or forms of--
                  (A) employee pension benefit plans which would--
                          (i) be simple in form and easily maintained 
                        by multiple small employers, and
                          (ii) provide for ready portability of 
                        benefits for all participants and 
                        beneficiaries,
                  (B) alternative arrangements providing comparable 
                benefits which may be established by employee or 
                employer associations, and
                  (C) alternative arrangements providing comparable 
                benefits to which employees may contribute in a manner 
                independent of employer sponsorship, and
          (2) appropriate methods and strategies for making pension 
        plan coverage described in paragraph (1) more widely available 
        to American workers.
  (b) Matters to Be Considered.--In conducting the study under 
subsection (a), the Secretary of Labor shall consider the adequacy and 
availability of existing employee pension benefit plans and the extent 
to which existing models may be modified to be more accessible to both 
employees and employers.
  (c) Report.--Not later than 18 months after the date of the enactment 
of this Act, the Secretary of Labor shall report the results of the 
study under subsection (a), together with the Secretary's 
recommendations, to the Committee on Education and the Workforce and 
the Committee on Ways and Means of the House of Representatives and the 
Committee on Health, Education, Labor, and Pensions and the Committee 
on Finance of the Senate. Such recommendations shall include one or 
more model plans described in subsection (a)(1)(A) and model 
alternative arrangements described in subsections (a)(1)(B) and 
(a)(1)(C) which may serve as the basis for appropriate administrative 
or legislative action.
  (d) Study on Effect of Legislation.--Not later than 5 years after the 
date of the enactment of this Act, the Secretary of Labor shall submit 
to the Committee on Education and the Workforce of the House of 
Representatives and the Committee on Health, Education, Labor, and 
Pensions of the Senate a report on the effect of the provisions of this 
Act and title VI of the Economic Growth and Tax Relief Reconciliation 
Act of 2001 on pension plan coverage, including any change in--
          (1) the extent of pension plan coverage for low and middle-
        income workers,
          (2) the levels of pension plan benefits generally,
          (3) the quality of pension plan coverage generally,
          (4) workers' access to and participation in pension plans, 
        and
          (5) retirement security.

SEC. 216. INTEREST RATE RANGE FOR ADDITIONAL FUNDING REQUIREMENTS.

  (a) In General.--Subclause (III) of section 412(l)(7)(C)(i) of the 
Internal Revenue Code of 1986 is amended--
          (1) by striking ``2002 or 2003'' in the text and inserting 
        ``2001, 2002, or 2003'', and
          (2) by striking ``2002 and 2003'' in the heading and 
        inserting ``2001, 2002, and 2003''.
  (b) Special Rule.--Subclause (III) of section 302(d)(7)(C)(i) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1082(d)(7)(C)(i)) is amended--
          (1) by striking ``2002 or 2003'' in the text and inserting 
        ``2001, 2002, or 2003'', and
          (2) by striking ``2002 and 2003'' in the heading and 
        inserting ``2001, 2002, and 2003''.
  (c) PBGC.--Subclause (IV) of section 4006(a)(3)(E)(iii) of such Act 
(29 U.S.C. 1306(a)(3)(E)(iii)) is amended to read as follows--
          ``(IV) In the case of plan years beginning after December 31, 
        2001, and before January 1, 2004, subclause (II) shall be 
        applied by substituting `100 percent' for `85 percent' and by 
        substituting `115 percent' for `100 percent'. Subclause (III) 
        shall be applied for such years without regard to the preceding 
        sentence. Any reference to this clause or this subparagraph by 
        any other sections or subsections (other than sections 4005, 
        4010, 4011 and 4043) shall be treated as a reference to this 
        clause or this subparagraph without regard to this 
        subclause.''.
  (d) Effective Date.--
          (1) General rule.--Subject to paragraph (2), the amendments 
        made by this section shall take effect as if included in the 
        amendments made by section 405 of the Job Creation and Worker 
        Assistance Act of 2002.
          (2) Election.--The plan sponsor or plan administrator of a 
        plan may elect whether to have the amendments made by 
        subsections (a) and (b) apply. Such election shall be made in 
        such manner and at such time as the Secretary of the Treasury 
        or his delegate may prescribe and, once made, may not be 
        revoked. An election to apply such amendments shall not be 
        treated as a prohibited change in actuarial assumptions for 
        purposes of reports required to be filed with the Secretary of 
        Labor, the Secretary of Treasury, or the Pension Benefit 
        Guaranty Corporation

                     TITLE III--GENERAL PROVISIONS

SEC. 301. PROVISIONS RELATING TO PLAN AMENDMENTS.

  (a) In General.--If this section applies to any pension plan or 
contract amendment--
          (1) such pension plan or contract shall be treated as being 
        operated in accordance with the terms of the plan during the 
        period described in subsection (b)(2)(A), and
          (2) except as provided by the Secretary of the Treasury, such 
        pension plan shall not fail to meet the requirements of section 
        411(d)(6) of the Internal Revenue Code of 1986 and section 
        204(g) of the Employee Retirement Income Security Act of 1974 
        by reason of such amendment.
  (b) Amendments to Which Section Applies.--
          (1) In general.--This section shall apply to any amendment to 
        any pension plan or annuity contract which is made--
                  (A) pursuant to any amendment made by this Act or by 
                title VI of the Economic Growth and Tax Relief 
                Reconciliation Act of 2001, or pursuant to any 
                regulation issued by the Secretary of the Treasury or 
                the Secretary of Labor under this Act or such title VI, 
                and
                  (B) on or before the last day of the first plan year 
                beginning on or after January 1, 2006.
        In the case of a governmental plan (as defined in section 
        414(d) of the Internal Revenue Code of 1986), this paragraph 
        shall be applied by substituting ``2008'' for ``2006''.
          (2) Conditions.--This section shall not apply to any 
        amendment unless--
                  (A) during the period--
                          (i) beginning on the date the legislative or 
                        regulatory amendment described in paragraph 
                        (1)(A) takes effect (or in the case of a plan 
                        or contract amendment not required by such 
                        legislative or regulatory amendment, the 
                        effective date specified by the plan), and
                          (ii) ending on the date described in 
                        paragraph (1)(B) (or, if earlier, the date the 
                        plan or contract amendment is adopted),
                the plan or contract is operated as if such plan or 
                contract amendment were in effect; and
                  (B) such plan or contract amendment applies 
                retroactively for such period.

                                Purpose

    The purpose of H.R. 1000 is to restore worker confidence in 
America's pension system by establishing new 401(k) plan 
protections and giving workers new tools to protect and enhance 
their retirement savings. H.R. 1000 gives workers new freedom 
to diversify their investments, much greater access to quality 
investment advice, more information about their pensions, and 
other tools they can use to maximize the potential of their 
401(k) plans and ensure a secure retirement future.

                            Committee Action

    Committee Chairman John Boehner, Subcommittee on Employer-
Employee Relations Chairman Sam Johnson and 51 other co-
sponsors introduced H.R. 1000 on February 27, 2003. The bill is 
the culmination of legislative activity, including hearings, 
bill introduction, mark-up, floor consideration started in the 
106th and 107th Congresses and continuing in the 108th, on a 
number of bills proposed to better serve the pension needs of 
American workers.

                             106TH CONGRESS

    In the 106th Congress, the Committee began reviewing the 
pension provisions of the Employee Retirement Income Security 
Act (``ERISA'') and its relevance to the needs of participants, 
beneficiaries and employers in the 21st Century. The forum for 
these hearings was the Committee on Education and the 
Workforce, Subcommittee on Employer-Employee Relations, chaired 
during the 106th Congress by Rep. John Boehner.
    On March 11, 1999, Rep. Rob Portman and Rep. Benjamin 
Cardin introduced H.R. 1102, the ``Comprehensive Retirement 
Security and Pension Reform Act of 1999.'' That bill was 
jointly referred to the Employer-Employee Relations 
Subcommittee of the Education and Workforce Committee and to 
the Ways and Means Committee. The purpose of the bill was to 
make retirement security more available to millions of workers 
by (1) expanding small business retirement plans, (2) allowing 
workers to save more, (3) addressing the needs of an 
increasingly mobile workforce through greater portability and 
other changes, (4) making pensions more secure, and (5) cutting 
the red tape that has hamstrung employers who want to establish 
pension plans for their workers.
    On June 29, 1999, the Subcommittee on Employer-Employee 
Relations held a hearing, entitled ``Enhancing Retirement 
Security: A Hearing on H.R. 1102, The `Comprehensive Retirement 
Security and Pension Reform Act of 1999.' '' Testimony was 
received from the bill's authors, Representatives Portman and 
Cardin. On July 14, 1999, the full Education and the Workforce 
Committee marked up the bill and favorably reported it by voice 
vote to the full House of Representatives on the same date. On 
July 19, 2000, the House of Representatives passed the bill by 
a vote of 401 yeas to 25 nays.
    Although the bill had a great deal of support, it failed to 
become law during the 106th Congress. Fifteen provisions of 
Title VI of the bill, containing amendments to the Employee 
Retirement Income Security Act (ERISA), were added to H.R. 
2488, the ``Taxpayer Refund and Relief Act of 1999,'' which 
passed the House and Senate on August 5, 1999, but was vetoed 
by President Clinton. Subsequently, twenty-two ERISA provisions 
from H.R. 1102 were included in the ``Retirement Savings and 
Pension Coverage Act of 2000,'' part of H.R. 2614, the 
``Taxpayer Relief Act of 2000'' which passed the House on 
October 26, 2000, but was not acted upon by the Senate.
    The Employer-Employee Relations Subcommittee also laid the 
framework for other pension legislation in the second session 
of the 106th Congress by holding hearings on the modernization 
of ERISA. On February 15, 2000, the Subcommittee on Employer-
Employee Relations held a hearing entitled, ``The Evolving 
Pension and Investment World after 25 Years of ERISA.'' The 
witnesses discussed the larger challenges facing the Employee 
Retirement Income Security Act (ERISA) and private pension 
plans now and in the future. The following individuals 
testified: Professor John H. Langbein, Chancellor Kent 
Professor of Law and Legal History, Yale Law School; Mr. 
Michael S. Gordon, Esquire, from the law offices of Michael S. 
Gordon, Washington, DC; Dr. John B. Shoven, Charles R. Schwab 
Professor of Economics, Stanford University; and Dr. Teresa 
Ghilarducci, Associate Professor of Economics at the University 
of Notre Dame.
    The Subcommittee on Employer-Employee Relations also held 
two days of hearings on pension reform March 9 and 10, 2000 
with a hearing entitled: ``A More Secure Retirement for 
Workers: Proposals for ERISA Reform.'' Testifying at the March 
9th hearing were: Mr. W. Allen Reed, President, General Motors 
Investment Management Company, on behalf of the Committee on 
Investment of Employee Benefit Assets (CIEBA) of the Financial 
Executives Institute; Mr. Daniel P. O'Connell, Corporate 
Director for Employee Benefits and HR Systems, United 
Technologies Corporation, on behalf of the ERISA Industry 
Committee (ERIC); Mr. Damon Silvers, Associate General Counsel 
of the AFL-CIO; Professor Joseph A. Grundfest, William A. 
Franke Professor of Law and Business and co-founder of 
Financial Engines, Incorporated; Ms. Eula Ossofsky, President 
of the Board of Directors, the Older Women's League; and Ms. 
Margaret Raymond, Assistant General Counsel, Fidelity 
Investments, on behalf of the Investment Company Institute.
    During the second day of hearings on March 10th, the 
following individuals testified before the Subcommittee on 
Employer-Employee Relations: Mr. Kenneth S. Cohen, Senior Vice 
President and Deputy General Counsel of the Massachusetts 
Mutual Life Insurance Company, on behalf of the American 
Council of Life Insurers; Mr. Marc E. Lackritz, President, the 
Securities Industry Association; Mr. David Certner, Senior 
Coordinator, Department of Federal Affairs for the American 
Association of Retired Persons; Mr. Louis Colosimo, Managing 
Director, Morgan Stanley Dean Witter & Company, Incorporated, 
on behalf of the Bond Market Association; Mr. John Hotz, Deputy 
Director of the Pension Rights Center; and Ms. Deedra Walkey, 
Assistant General Counsel for the Frank Russell Company.
    On March 16, 2000, the Subcommittee held a hearing entitled 
``The Wealth through the Workplace Act: Worker Ownership in 
Today's Economy.'' The hearing focused on a bill introduced by 
then Subcommittee Chairman John A. Boehner, H.R. 3462, which 
made stock options more available to ERISA participants. 
Testifying before the Subcommittee that day was Jane F. 
Greenman, Esquire, Deputy General Counsel, Human Resources, 
Honeywell on behalf of the American Benefits Counsel; Mr. Tim 
Byland, Senior Sales Executive, INTERVU, Inc., Fairfax, VA; and 
Mr. Patrick Von Bargen, Executive Director, National Commission 
on Entrepreneurship, Washington, DC.
    On April 4, 2000, the Subcommittee on Employer-Employee 
Relations held a subsequent hearing laying the framework for 
future legislation entitled ``Modernizing ERISA to Promote 
Retirement Security.'' The following individuals testified: the 
Honorable Leslie Kramerich, Acting Assistant Secretary of Labor 
for Pension and Welfare Benefits, U.S. Department of Labor; and 
the Honorable David M. Strauss, Executive Director of the 
Pension Benefit Guaranty Corporation.
    On June 26, 2000, Representative John A. Boehner, then 
Chairman of the Subcommittee on Employer-Employee Relations, 
introduced H.R. 4747, the Retirement Security Advice Act of 
2000. On July 19, 2000, the Subcommittee on Employer-Employee 
Relations ordered H.R. 4747 favorably reported, as amended, by 
voice vote. There was no further action taken on the 
legislation prior to the conclusion of the 106th Congress.
    Concluding the legislative activity for the 106th Congress, 
the Subcommittee held a hearing on September 14, 2000 entitled 
``How to Improve Pension Coverage for American Workers.'' 
Testifying at the hearing was: Theodore Groom, Esquire, Groom 
Law Group, Washington, DC; Mr. Michael Calabrese, Director, 
Public Assets Program, New America Foundation, Washington, DC; 
and Mr. Ed Tinsley, III, President and CEO, K-Bob's Steakhouse, 
Albuquerque, NM.

                             107TH CONGRESS

    Building upon the activity of the previous Congress, 
Representative Rob Portman and Representative Ben Cardin, 
introduced on March 14, 2001, H.R. 10, a bill very similar to 
the House-passed H.R. 1102 of the previous Congress. The bill 
had 305 cosponsors--175 Republicans and 130 Democrats, 
including Committee Chairman John Boehner, Subcommittee on 
Employer-Employee Relations Chairman Sam Johnson, and 
Subcommittee Ranking Member Rob Andrews.
    The Subcommittee on Employer-Employee Relations held a 
legislative hearing on the bill on April 5, 2001. At the 
hearing, entitled ``Enhancing Retirement Security: A Hearing on 
H.R. 10, The `Comprehensive Retirement Security and Pension 
Reform Act of 2001,' '' testimony was received from the bill's 
authors, Representatives Portman and Cardin, as well as Nanci 
S. Palmintere, director of Tax, Licensing and Customs, Intel 
Corporation, appearing on behalf of the American Benefits 
Council; Richard Turner, Associate General Counsel, American 
General Financial Group, appearing on behalf of the American 
Council of Life Insurers; Judith Mazo, Senior Vice President, 
The Segal Co., on behalf of the Building and Construction 
Trades Department, AFL-CIO and the National Coordinating 
Committee for Multiemployer Plans; and Karen Ferguson, 
Director, the Pension Rights Center.
    On April 26, 2001, the Committee on Education and the 
Workforce approved H.R. 10, as amended, by a voice vote, a 
quorum being present, and by voice vote ordered the bill 
favorably reported. On May 5, 2001, the House of 
Representatives passed H.R. 10 on a vote of 407 yeas-24 nays. 
On May 16, 2001, H.R. 10 was included in H.R. 1836, the 
Economic Growth and Tax Relief Reconciliation Act, and passed 
by the House of Representatives on a vote of 230 yeas-197 nays. 
After a conference with the Senate, the House passed the 
Conference Report on May 26th 2001, on a vote of 240 yea-154 
nays and President George W. Bush signed the bill into law on 
June 7, 2001.\1\ Due to the imposition of the ``Byrd Rule'' in 
the Senate,\2\ some of the ERISA provisions contained in H.R. 
10 were dropped from the bill and not included in final 
passage.
---------------------------------------------------------------------------
    \1\ See House Committee Report 84; Public Law 107-16.
    \2\ Sec. 313 of the Congressional Budget Act restricts non-
mandatory spending provision through budget reconciliation.
---------------------------------------------------------------------------
    On June 21, 2001, Representative John A. Boehner, Chairman 
of the Committee on Education and the Workforce, introduced 
H.R. 2269, ``The Retirement Security Advice Act of 2001,'' a 
bill to promote the provision of retirement investment advice 
to workers managing their retirement income assets. The bill 
was referred to the Committee on Education and Workforce, 
Employee-Employer Subcommittee and the Committee on Ways and 
Means. On July 17, 2001, the Subcommittee on Employer-Employee 
Relations held a hearing on the bill. Testifying before the 
Subcommittee were: the Honorable Ann L. Combs, Assistant 
Secretary for Pension and Welfare Benefits, U.S. Department of 
Labor; Ms. Betty Shepard, Human Resources Administrator, Mohawk 
Industries, Inc.; Mr. Damon Silvers, Associate General Counsel, 
AFL-CIO; Mr. Richard A. Hiller, Vice President, Western 
Division, of TIAA-CREF; Mr. Joseph Perkins, Immediate Past 
President of the American Association for Retired Persons; and 
Mr. Jon Breyfogle, Principal, The Groom Law Group, on behalf of 
the American Council of Life Insurers.
    On August 2, 2001, the Subcommittee on Employer-Employee 
Relations approved H.R. 2269, without amendment, by voice vote 
and ordered the bill favorably reported to the Full Committee. 
On October 3, 2001, the Committee on Education and the 
Workforce approved H.R. 2269, as amended, by voice vote and 
ordered the bill favorably reported by a roll call vote of 29-
17. Following this action, the Committee on Ways and Means 
considered and marked up the bill on November 7, 2001 and 
reported the bill to the full House on November 13, 2001. The 
bill as amended passed the House of Representatives on November 
15, 2001 on a roll call vote of 280 yeas-144 nays.
    On February 6 and 7, 2002, the full Committee held a 
hearing entitled ``The Enron Collapse and its Implications for 
Worker Retirement Security''. At the first session of this 
hearing the sole witness was the Honorable Elaine Chao, 
Secretary of Labor. On the second day, the witnesses were: Mr. 
Thomas O. Padgett, Senior Lab Analyst, EOTT (Enron Subsidiary); 
Ms. Cindy K. Olson, Executive Vice President, Human Resources 
and Community Relations, and Building Services, Enron 
Corporation; Ms. Mikie Rath, Benefits Manager, Enron 
Corporation; Mr. Scott Peterson, Global Practice Leader for 
Defined Contribution Services, Hewitt Associates; and Ms. 
Teresa Ghilarducci, Associate Professor, Department of 
Economics, University of Notre Dame.
    Following the two-day hearing of the full Committee, the 
Subcommittee on Employer-Employee Relations, held a hearing on 
February 13, 2002 entitled ``Enron and Beyond: Enhancing Worker 
Retirement Security.'' The witnesses were: Jack L. VanDerhei, 
PhD, CEBS, Professor, Department of Risk, Insurance, and 
Healthcare Management, The Fox School of Business and 
Management, Temple University, appearing on behalf of the 
Employee Benefit Research Institute; Douglas Kruse, PhD, 
Professor, School of Management and Labor Relations, Rutgers 
University; Mr. Norman Stein, Douglas Arant Professor of Law, 
University of Alabama, School of Law; and Ms. Rebecca Miller, 
CPA, Partner, McGladrey & Pullen, LLP.
    On February 14, 2002, Chairman John Boehner and 
Subcommittee on Employer-Employee Relations Chairman Sam 
Johnson introduced H.R. 3762, ``The Pension Security Act.'' The 
bill embodied the pension reform principles outlined by 
President George W. Bush. The President envisioned new 
protections for workers so that they would have the freedom to 
diversify employer contributions after three years. To ensure 
parity between the top floor and the shop floor, the 
President's proposal would preclude senior executives from 
selling company stock outside of the company 401(k) while 
workers were unable to diversify their plan account during a 
blackout. In order to ensure that employer plan administrators 
made sound decisions about blackouts, the President's proposed 
plan would have held fiduciaries liable if they violated their 
duty to act in the interests of workers when they created the 
blackout period. The President's plan would also increase the 
information workers receive about their benefits and their 
notice as to the limiting of their rights during a blackout. 
The final prong of the President's plan was his call for the 
enactment of the Retirement Security Advice Act, H.R. 2269, 
which encouraged employers to make investment advice available 
to their workers.
    After the introduction of this bill, the Employer-Employee 
Relations Subcommittee held a hearing entitled ``Enron and 
Beyond: Legislative Solutions'' on February 27, 2002. The 
witnesses were: Mr. Dave Evans, Vice President, Retirement and 
Financial Services, Independent Insurance Agents of America Ms. 
Angela Reynolds, Director, International Pension and Benefits, 
NCR Corporation; Mr. Erik Olsen, Member, Board of Directors, 
American Association of Retired Persons; Dr. John H. Warner, 
Jr., Corporate Executive Vice President, Science Applications 
International Corp., appearing on behalf of the Profit Sharing 
Council of America; Mr. Richard Ferlauto, Director of Pensions 
and Benefits, American Federation of State, County, and 
Municipal Employees, testifying on behalf of AFSCME and AFL-
CIO; and John M. Vine, Esq., Partner, Covington and Burling, 
testifying on behalf of the ERISA Industry Committee.
    On March 20, 2002, the Committee on the Education and the 
Workforce marked-up and approved H.R. 3762, as amended, the 
``Pension Security Act of 2002.'' The Committee considered 
seventeen amendments, adopted three of them, and ordered the 
bill favorably reported to the House of Representatives by a 
roll call vote of 28 yeas-19 nays. The bill as amended passed 
the House of Representatives on April 11, 2002 on a roll call 
vote of 255 yeas-163 nays.
    On February 14, 2002, Rep. Mike Oxley introduced H.R. 3763, 
the Corporate and Auditing Accountability, Responsibility, and 
Transparency Act of 2002. Provisions from the bill were 
combined with provisions from the Public Company Accounting 
Reform and Investor Protection Act, introduced by Sen. Paul 
Sarbanes on June 18, 2002. The final bill, the ``Sarbanes-
Oxley'' bill, passed the House by a roll call vote of 423-3 and 
by the Senate by a vote of 99-0 on July 25, 2002. The President 
signed the Sarbanes-Oxley Act into law on July 30, 2002 (P.L. 
104-204). Incorporated into the Sarbanes-Oxley Act were two 
provisions originally included in H.R. 3762 regarding notice to 
plan participants regarding blackout periods and a prohibition 
on corporate trading during pension plan blackout periods.
    On September 10, 2002, the Employer-Employee Relations 
Subcommittee held a hearing entitled ``Retirement Security for 
American Workers: Examining Pension Enforcement and 
Accountability.'' The witnesses were: The Honorable Ann L. 
Combs, Assistant Secretary for the Pensions Welfare Benefits 
Administration, U.S. Department of Labor; Stephen J. Cossu, 
Deputy Inspector General, Office of Labor Racketeering and 
Fraud Investigations, Office of Inspector General, U.S. 
Department of Labor; Kenneth Boehm, Chairman, National Legal 
and Policy Center; Karen Ferguson, Director, Pension Rights 
Center.

                             108TH CONGRESS

    Building on the success of corporate reform and the 
foundation of the pension reform principles started in the 
107th Congress, on February 13, 2003, the Employer-Employee 
Relations Subcommittee held a hearing entitled: ``The Pension 
Security Act: New Pension Protections to Safeguard the 
Retirement Savings of American Workers.'' The witnesses were: 
the Honorable Ann L. Combs, Assistant Secretary, Employee 
Benefits Security Administration, United States Department of 
Labor; Ed Rosic, Vice President and Managing Assistant General 
Counsel, Marriott International, Inc., appearing on behalf of 
The American Benefits Council; Nell Minow, Editor, The 
Corporate Library, appearing on behalf of Robert Monks, Lens 
Governance Advisors; and Scott Sleyster, Senior Vice President 
and President of Retirement Services and Guaranteed Products, 
Prudential Financial.
    On February 27, 2003, Chairman John Boehner and 
Subcommittee on Employer-Employee Relations Chairman Sam 
Johnson introduced H.R. 1000, ``The Pension Security Act of 
2003.'' The bill contained the same pension reform principles 
outlined by President George W. Bush in 2002, omitting the two 
provisions that were passed into law in the Sarbanes-Oxley Act. 
The bill contained new protections for workers so that they 
would have the freedom to diversify employer contributions 
after three years. In order to ensure that employer plan 
administrators made sound decisions about blackouts, the bill 
clarified the duty of fiduciaries to act in the best interests 
of workers during blackout periods. Finally, the bill 
incorporated the provisions of the Retirement Security Advice 
Act, H.R. 2269, which encouraged employers to make investment 
advice available to their workers. The legislation also 
contains a number of ERISA provisions from H.R. 10 in the 107th 
Congress that were dropped prior to final passage. These would 
make it easier for small businesses to adopt and maintain 
defined benefit pension plans. The legislation also makes 
technical changes to the National Saver Summit.
    On March 5, 2003, the Committee on Education and the 
Workforce marked-up and approved H.R. 1000, as amended, the 
``Pension Security Act of 2003.'' The Committee considered 7 
amendments, adopted the Chairman's Amendment in the Nature of a 
Substitute, and ordered the bill favorably reported to the 
House of Representatives by a roll call vote of 29 yeas-19 
nays.

                     Committee Statement and Views


                 A. BACKGROUND AND NEED FOR LEGISLATION

    The Employee Retirement Income Security Act (``ERISA'') \3\ 
was enacted in 1974 to provide a safe, honest and efficient 
structure for protecting pension benefits for America's private 
sector employees. ERISA created federal standards and remedies 
for pensions with U.S. Department of Labor oversight. As 
demonstrated at a number of bipartisan hearings held by the 
Committee on Education and the Workforce, (hereinafter the 
``Committee'') and the Subcommittee on Employer-Employee 
Relations during the 108th and 107th Congresses, as well as 
hearings held by the Subcommittee during the 106th Congress, 
ERISA has been largely successful in protecting the integrity 
of privately managed pension plans.
---------------------------------------------------------------------------
    \3\ 29 U.S.C. Sec. 1001, et seq.
---------------------------------------------------------------------------
    In fact, there is a great deal of evidence that the private 
pension system is a great success story. As Secretary of Labor 
Elaine Chao stated in her testimony before the Committee on 
February 6, 2002:

          Just two generations ago, a ``comfortable 
        retirement'' was available to just a privileged few; 
        for many, old age was characterized by poverty and 
        insecurity. Today, thanks to the private pension system 
        that has flourished under ERISA, the majority of 
        American workers and their families can look forward to 
        spending their retirement years in relative comfort. 
        Today, more than 46 million Americans are earning 
        pension benefits on the job. More than $4 trillion is 
        invested in the private pension system. This is, by any 
        measure, a remarkable achievement.\4\
---------------------------------------------------------------------------
    \4\ Hearing on ``The Enron Collapse and Its Implications for Worker 
Retirement Security'' before the Committee on Education and the 
Workforce, U.S. House of Representatives, 107th Congress, Second 
Session, February 6, 2002, Serial No. 107-42, p. 45.

    Secretary Chao explained the basic structure of ERISA and 
how that structure preserves security for plan participants and 
---------------------------------------------------------------------------
beneficiaries.

          The fiduciary provisions of Title I of ERISA, which 
        are administered by the Labor Department, were enacted 
        to address public concern that funding, vesting and 
        management of plan assets were inadequate. ERISA's 
        enactment was the culmination of a long line of 
        legislative proposals concerned with the labor and tax 
        aspects of employee benefit plans. Since its enactment 
        in 1974, ERISA has been strengthened and amended to 
        meet the changing retirement and health care needs of 
        employees and their families. The Department's Pension 
        and Welfare Benefits Administration is charged with 
        interpreting and enforcing the statute. The Office of 
        the Inspector General also has some criminal 
        enforcement responsibilities regarding certain ERISA 
        covered plans.
          Under ERISA, the Department has enforcement and 
        interpretative authority over issues related to pension 
        plan coverage, reporting, disclosure and fiduciary 
        responsibilities of those who handle plan funds. 
        Additionally, the Labor Department regularly works in 
        coordination with other state and federal enforcement 
        agencies including the Internal Revenue Service, 
        Federal Bureau of Investigation, and the Securities and 
        Exchange Commission. Another agency with responsibility 
        for private pensions is the Pension Benefit Guaranty 
        Corporation, which insures defined-benefit pensions.
          ERISA focuses on the conduct of persons (fiduciaries) 
        who are responsible for operating pension and welfare 
        benefit plans. Such persons must operate the plans 
        solely in the interests of the participants and 
        beneficiaries. If a fiduciary's conduct fails to meet 
        ERISA's standard, the fiduciary is personally liable 
        for plan losses attributable to such failure.\5\
---------------------------------------------------------------------------
    \5\ Hearing on ``The Enron Collapse and Its Implications for Worker 
Retirement Security'' before the Committee on Education and the 
Workforce, U.S. House of Representatives, 107th Congress, Second 
Session, February 6, 2002, Serial No. 107-42, p. 46.

    Although ERISA has made pensions safer for participants, 
the evolving nature of pension plans with increased 
participation of participants in securities markets call for 
improved safeguards to protect these individually controlled 
pension accounts. That was illustrated in significant fashion 
by the collapse of Enron Corporation, a Houston Texas energy 
bond-trading firm. On December 2, 2001, Enron Corp. filed the 
then largest bankruptcy petition in U.S. history.\6\ The day 
after declaring bankruptcy, the company announced that it would 
lay off 4,000 of its 7,500 employees as part of a corporate 
restructuring program to drastically cut costs. Significant 
scrutiny by the Congress, federal regulatory authorities and 
media and public attention followed and focused on two main 
areas: alleged accounting errors and/or securities violations 
that caused the company to vastly overstate its earnings and 
ultimately collapse financially and, most important to the 
Committee on Education and the Workforce's jurisdiction, the 
losses in the company's 401(k) plan \7\ that diminished the 
retirement funds of many Enron employees.
---------------------------------------------------------------------------
    \6\ WorldCom, Inc. has since filed the largest bankruptcy petition 
in U.S. history on July 22, 2002.
    \7\ Sponsorship of any retirement plan is voluntary, but any 
company that sponsors a plan for its employees must abide by the 
standards established by ERISA. A 401(k) plan is a type of benefit plan 
that can be offered under ERISA as individual account plan. 401(k) 
refers to a provision in the Internal Revenue Code that provides for 
tax-qualified retirement plans with the requirement that cash-deferred 
plans be nondiscriminatory, ensuring that highly paid executives do not 
benefit disproportionately. I.R. Code Sec. 401(k). These tax-qualified 
plans can be funded by contributions from employer, employee or both. 
Savings are paid out at retirement, which is when the taxes are paid.
---------------------------------------------------------------------------
    In response to the Enron situation, the Committee held 
three hearings to examine the facts of the Enron situation and 
whether it demonstrated any broader implications for pension 
reforms. The facts in the Enron bankruptcy showed that 57% of 
Enron's 401(k) plan assets were invested in company stock, 
which fell in value by 98.8% during 2001.\8\ Most of these plan 
assets were voluntarily directed by participants into Enron 
stock. Enron contributed an employer match of up to 3% of the 
employee's contribution in Enron stock. The employer match was 
restricted from trading until age 50--meaning that employees 
could not divest the company stock contributed by Enron until 
they reached age 50. Otherwise, the investment allocations in 
the Enron plan were unrestricted and could be traded daily.\9\ 
A further complicating factor in the Enron situation was that 
prior to Enron announcing bankruptcy, Enron's 401(k) plan 
changed plan record keepers.\10\ The change of plan record 
keepers required the plan to enter into an eleven business day 
trading suspension period during which Enron employees could 
not have access to their accounts. During the suspension 
period, Enron announced a $600 million loss. Enron stock 
consequently dropped during that period, from approximately $13 
to $8. In the year prior to the suspension period, Enron stock 
had dropped from $81.39 in January 2001 to $20.65 in October 
2001.
---------------------------------------------------------------------------
    \8\ Hearing on ``The Enron Collapse and Its Implications for Worker 
Retirement Security'' before the Committee on Education and the 
Workforce, U.S. House of Representatives, 107th Congress, Second 
Session, February 7, 2002, Serial No. 107-42, p. 113.
    \9\ Ibid at 112.
    \10\ A plan record keeper's role includes processing all 
transactions by plan participants, including contributions, changes in 
investments and withdrawals, loans, and distributions. Record keepers 
can also provide customer service centers and can respond to 
participant inquiries. The record keeper, however, does not design the 
plan or determine investment options in the plan. Likewise, record 
keepers do not make any discretionary decisions about the plan.
---------------------------------------------------------------------------
    At the Committee's first day of hearings regarding Enron, 
Secretary of Labor Elaine Chao testified about the steps the 
Department of Labor was taking to respond to Enron. In 
addition, she outlined changes the Bush Administration felt 
were necessary to protect pension plan participants from future 
Enron situations. The second day featured a panel of Enron 
executives, an Enron employee, a representative from Enron's 
plan record keeper, and an economist. The Enron employee, the 
Enron executives, and the plan record keeper testified about 
the events surrounding the Enron situation.
    The second day of hearings gave the Committee an 
understanding of the facts that lead to problems at Enron, 
which included areas such as the lack of investment advice and 
confusion about the blackout period. An Enron employee, Tom 
Padgett, testified he lost over $600,000 over the course of a 
year in his 401(k) plan because it was primarily invested in 
Enron stock. Mr. Padgett observed that he managed his own 
retirement funds and did not have access to ``Wall Street'' 
information:

          Based on what we were told--repeatedly by the men at 
        the top--I never dreamed that this disaster could have 
        happened. We are not Wall Street analysts. I am sure 
        that most Enron employees manage their investments 
        themselves, like * * * I did. The fact remains, though, 
        that good investment decisions require honest 
        information. We all know now that the information that 
        we were given was false.\11\
---------------------------------------------------------------------------
    \11\ Hearing on ``The Enron Collapse and Its Implications for 
Worker Retirement Security'' before the Committee on Education and the 
Workforce, U.S. House of Representatives, 107th Congress, Second 
Session, February 7, 2002, Serial No. 107-42, p. 112.

    The Committee also heard from Enron Benefits Manager, Mikie 
Rath, who testified that Enron's 401(k) plan offered a menu of 
20 investment options, including mutual funds, a Schwab self-
directed brokerage account, and Enron stock. Ms. Rath confirmed 
that Enron offered a matching contribution in company stock 
starting in 1998. Finally, Ms. Rath explained that the Enron 
plan offered daily trading for all investments, including Enron 
stock. Only the matching stock contribution was restricted from 
trading until the participant reached age 50.
    Ms. Rath also offered insight into the so-called 
``lockdown'' or ``blackout'' period at Enron when trading in 
the 401(k) plan was suspended for eleven days while Enron 
changed plan service providers.

          After Enron outsourced its benefits services in 2000, 
        it became clear that Northern Trust [Enron's former 
        plan record keeper] had difficulty providing the level 
        of service demanded by Enron's employees. In January 
        2001, Enron began searching for a new benefits 
        administrator, and after a Request for Proposal 
        process, we selected Hewitt in May of 2001.

    Ms. Rath explained what happened during the lockdown 
period:

          Enron, Northern Trust, and Hewitt worked together to 
        shorten [the] time period as much as possible without 
        sacrificing the integrity of participants' accounts. 
        Ultimately, the trading suspension encompassed eleven 
        trading days from October 29 to November 13, 2001. 
        Enron mailed a brochure to all participants some three 
        weeks before the trading suspension, explaining the 
        transition and notifying them of the temporary 
        suspension. Enron employees with email accounts 
        received additional reminders in the days leading up to 
        the transition.
          Unfortunately, as the Committee is no doubt aware, 
        the commencement of the transition coincided with 
        certain bad news about the state of Enron's finances. 
        We considered postponing the transition but found it 
        was not feasible to notify more than 20,000 
        participants in a timely fashion. As the Enron news 
        continued to break, we and the plan's Administrative 
        Committee again considered stopping the transition. 
        However, in addition to the problem of notifying 
        participants, it would actually take longer to reverse 
        the transition than to finish it. Ultimately, we worked 
        with Hewitt to shave one week off the transition and we 
        implemented a process for notifying participants of the 
        early resumption of trading.\12\
---------------------------------------------------------------------------
    \12\ Hearing on ``The Enron Collapse and Its Implications for 
Worker Retirement Security'' before the Committee on Education and the 
Workforce, U.S. House of Representatives, 107th Congress, Second 
Session, February 7, 2002, Serial No. 107-42, p.104.

    Scott Peterson, Practice Leader for the Defined 
Contribution Services of Hewitt Associates LLC, also testified 
before the Committee about how lockdowns, in general, work. 
Hewitt Associates became the new plan record keeper for the 
---------------------------------------------------------------------------
Enron plan in May 2001.

          In the case of large plans such as the Enron 401(k) 
        plan, a transition period, commonly referred to as a 
        blackout period, is standard. A blackout period is 
        designed to ensure accuracy of the date transferred by 
        the old record keeper and to enable the new record 
        keeper to transfer the data to its system and confirm 
        its operational integrity. Trustees need to follow a 
        similar process if trustees are changing. During all 
        portions of this period, plan participants are 
        restricted in their ability to deposit or withdraw 
        funds or to change their investments.\13\
---------------------------------------------------------------------------
    \13\ Ibid. at p. 198.

    Mr. Peterson also detailed some of the events that occurred 
---------------------------------------------------------------------------
during Enron's lockdown period:

          [T]he blackout period for loans, withdrawals, etc. 
        actually began after the close of trading on October 
        19, 2001. The blackout period for changes in investment 
        options including the Enron Corp. stock fund, was 
        scheduled to begin after the close of trading on 
        October 26, 2001.
          On October 25, 2001, almost a week into the first 
        phase of the blackout period, a member of the Enron 
        Benefits Department contacted Hewitt and posed a few 
        questions. Specifically, we were asked about the 
        systems issues and similar practical consequences of 
        accelerating the live date by shortening the blackout 
        period. * * * Enron mentioned the possibility that they 
        could postpone the whole conversion and wait until the 
        following February or March.
          Enron asked that we respond to these questions that 
        same day and we did so. With respect to accelerating 
        the live date, we pointed out a series of risk 
        considerations. These risks included the adverse 
        effects on plan participants of commencing our record 
        keeping activities with incorrect plan data due to a 
        shortened review period and the possible compromising 
        of the quality of the services we could provide to plan 
        participants. In addition, we noted that similar data 
        quality issues could arise with respect to the new 
        trustee's reconciliation process. * * * Finally, we 
        discussed some of the factors Enron would want to 
        consider in deciding whether to delay the transition 
        period in its entirety. These factors include extra 
        cost, staffing implications, and the inability to 
        predict whether the Enron stock would be any less 
        volatile. We also made clear that we would work with 
        Enron to accommodate any changes it might decide to 
        make in the schedule.
          Later on October 25, 2001, a member of Enron's 
        Benefit Resources Department called to notify us that a 
        determination had been made that the transition would 
        go forward on the then current schedule. We 
        subsequently learned that Enron had been advised by its 
        legal counsel that it should not alter the blackout 
        schedule. As a result, restrictions on changes in 
        investment allocations took effect at the close of 
        business on the next day, October 26, 2001.\14\
---------------------------------------------------------------------------
    \14\ Hearing on ``The Enron Collapse and Its Implications for 
Worker Retirement Security'' before the Committee on Education and the 
Workforce, U.S. House of Representatives, 107th Congress, Second 
Session, February 7, 2002, Serial No. 107-42, p. 199-200.

    At the prior day's hearing, Secretary Chao testified about 
the Department of Labor's resources in responding to companies 
---------------------------------------------------------------------------
in crisis and their specific efforts with respect to Enron:

          On November 16, 2001, over two weeks before Enron 
        declared bankruptcy, the Department launched an 
        investigation into the activities of Enron's pension 
        plans. Our investigation is fact intensive with our 
        investigators conducting document searches and 
        interviews. The investigation is examining the full 
        range of relevant issues to determine whether 
        violations of ERISA occurred, including Enron's 
        treatment of their recent blackout period.
          In early December, it became apparent that Enron 
        would enter bankruptcy. Because the health and pension 
        benefits of workers were at risk, we initiated our 
        rapid response participant assistance program to 
        provide as much help as possible to individual workers.
          On December 6 and 7, 2001, the Department, working 
        directly with the Texas Workforce Commission, met on-
        site in Houston with 1200 laid-off employees from Enron 
        to provide information about unemployment insurance, 
        job placement, retraining and employee benefits issues. 
        PWBA's staff was there to answer questions about health 
        care continuation coverage under COBRA, special 
        enrollment rights under HIPAA, pension plans, how to 
        file claims for benefits, and other questions posed by 
        the employees. We also distributed 4500 booklets to the 
        workers and Enron personnel describing employee 
        benefits rights after job loss, and provided Enron 
        employees with a direct line to our benefit advisors 
        and to nearby One-Stop reemployment centers. These 
        services were made available nationwide to other Enron 
        locations.
          The Rapid ERISA Action Team (REACT) enforcement 
        program is designed to assist vulnerable workers who 
        are potentially exposed to the greatest risk of loss, 
        such as when their employer has filed for bankruptcy. 
        The new REACT initiative enables PWBA to respond in an 
        expedited manner to protect the rights and benefits of 
        plan participants. Since introduction of the REACT 
        program in 2000, we have initiated over 500 REACT 
        investigations and recovered over $10 million.
          Under REACT, PWBA reviews the company's benefit 
        plans, the rules that govern them, and takes immediate 
        action to ascertain whether the plan's assets are 
        accounted for. We also advise all those affected by the 
        bankruptcy filing, and provide rapid assistance in 
        filing proofs of claim to protect the plans, the 
        participants, and the beneficiaries. PWBA investigates 
        the conduct of the responsible fiduciaries and 
        evaluated whether a lawsuit should be filed to recover 
        plan losses and secure benefits.
          Our investigation of Enron was begun under REACT. 
        Because I do not want to jeopardize our ongoing Enron 
        investigation, I cannot discuss the details of the 
        case. Without drawing any conclusions about Enron 
        activities, I will attempt to briefly describe what 
        constitutes a fiduciary duty under ERISA, how that duty 
        impacts [a]n investment in employer securities, the 
        duty to disclose, and the ability to impose blackout 
        periods.
          Determining whether ERISA has been violated often 
        requires a finding of a breach of fiduciary 
        responsibility. Fiduciaries include the named fiduciary 
        of a plan, as well as those individuals who exercise 
        discretionary authority in the management of employee 
        benefits plans, individuals who give investment advice 
        for compensation, and those who have discretionary 
        responsibility for administration of the pension plan.
          ERISA holds fiduciaries to an extremely high standard 
        of care, under which the fiduciary must act in the sole 
        interest of the plan, its participants and 
        beneficiaries, using the care, skill and diligence of 
        an expert--the ``prudent expert'' rule. The fiduciary 
        also must follow plan documents to the extent 
        consistent with the law. Fiduciaries may be held 
        personally liable for damages and equitable relief, 
        such as disgorgement of profits, for breaching their 
        duties under ERISA.
          While a participant or beneficiary can sue on their 
        behalf of the plan, the Secretary of the Labor can also 
        sue on behalf of the plan, and pursue civil penalties. 
        We have 683 enforcement and compliance personnel and 65 
        attorneys who work on ERISA matters. In calendar year 
        2001, the Department closed approximately 4,800 civil 
        cases and recovered over $662 million. There were also 
        77 criminal indictments during the year, as well as 42 
        convictions and 49 guilty pleas.\15\
---------------------------------------------------------------------------
    \15\ Hearing on ``The Enron Collapse and Its Implications for 
Worker Retirement Security'' before the Committee on Education and the 
Workforce, U.S. House of Representatives, 107th Congress, Second 
Session, February 6, 2002 Serial No. 107-42, p. 49-51.

    Secretary Chao also detailed principles for a legislative 
proposal announced by President George W. Bush. She explained, 
at the President's direction, a Task Force comprised of the 
Department of Labor, Treasury and Commerce, had studied the 
broader implications of the Enron situation in regard to 
retirement security, and made recommendations to the President. 
Secretary Chao summarized the President's plan as follows: 
``The President's Retirement Security Plan, announced on 
February 1, would strengthen workers' ability to manage their 
retirement funds more effectively by giving them freedom to 
diversify, better information, and access to professional 
investment advice. It would ensure that senior executives are 
held to the same restrictions as American workers during 
temporary blackout periods and that employers assume full 
fiduciary responsibility during such times.'' \16\
---------------------------------------------------------------------------
    \16\ Ibid. at p. 51.
---------------------------------------------------------------------------
    On February 13, 2002, the Subcommittee on Employer-Employee 
Relations held a hearing to discuss legislative solutions to 
some of the problems the Enron situation had presented. One of 
the focal points at the hearing was Congress' policy decision 
to encourage employers to offer contributions in the form of 
company stock to their employees' 401(k) plans.
    Dr. Jack VanDerhei, testifying on behalf of the Employee 
Benefits Research Institute (EBRI), explained that EBRI has 
maintained a database on 35,367 401(k) plans from 1996 through 
2000. Of the approximately 36,000 plans in the EBRI database, 
only 2.9% of 401(k) plans include company stock, however of 
that small number of plans, Dr. VanDerhei noted that the plans 
that hold company stock represented 42% of the participants in 
the database. Dr. VanDerhei also observed that ``[p]revious 
research has shown that the availability and level of a company 
match is a primary impetus for at least some employees to make 
contributions to their 401(k) plan.'' \17\
---------------------------------------------------------------------------
    \17\ Ibid. at p. 64-65.
---------------------------------------------------------------------------
    Dr. Douglas Kruse, Professor of Management and Labor 
Relations at Rutgers University testified ``employee-owners 
represent a substantial portion of the U.S. workforce and 25 
years of research shows that employee ownership often leads to 
higher-performing workplaces and better compensation and 
worklives for employees.'' \18\
---------------------------------------------------------------------------
    \18\ Ibid. at p. 103.
---------------------------------------------------------------------------
    Dr. Kruse recognized that ``employee-owners'' may have 
limited information about the state of their company, but 
believed that this should not be an impediment to employee 
ownership.

          Employees clearly need good information and 
        investment advice to ensure that they make intelligent 
        decisions; once they receive such information and 
        advice, they should not be prevented from accepting 
        company stock from employers or investing their own 
        assets in company stock. Obviously many individuals 
        make well-informed choices to invest much of their 
        assets in farms or small businesses that they operate, 
        which are often very risky assets. Limiting workers' 
        involvement in employee ownership plans due to a 
        concern about their financial risk would be akin to 
        preventing individuals from owning their own farms or 
        small businesses. Substantial new restrictions on 
        employee ownership of stock would very likely cut back 
        a potentially lucrative benefit for employees, without 
        providing anything of value in return since employees 
        generally do not sacrifice pay or other benefits when 
        they participate in employee ownership plans. \19\
---------------------------------------------------------------------------
    \19\ Hearing on ``Enron and Beyond: Enhancing Worker Retirement 
Security'' before the Subcommittee on Employer-Employee Relations, 
Committee on Education and the Workforce, U.S. House of 
Representatives, 107th Congress, Second Session, February 13, 2002, 
Serial No. 107-44, p. 103.

    Additionally, Rebecca Miller, Managing Director for 
Employee Benefits Practice Policy, RSM McGladrey, Inc., 
testified that employee ownership was a positive tool and 
resulted in increases in productivity and performance for 
companies, and better benefits and higher retirement income and 
wages for employees.\20\ Ms. Miller recommended that if any 
legislative change should be made, ``[t]he first focus of 
change in the retirement plan rules should be on investment 
education and assistance. It is clear from Enron, Lucent and 
other recent experiences with participant directed 401(k) 
plans--employees are generally unsophisticated investors. They 
need a better understanding of risk management, 
diversification, etc.'' \21\
---------------------------------------------------------------------------
    \20\ Ibid. at p. 5.
    \21\ Ibid. at p. 54.
---------------------------------------------------------------------------
    As a result of the hearings held by the Committee and 
Subcommittee, on February 14, 2002, Chairman John Boehner and 
Subcommittee Chairman Sam Johnson introduced H.R. 3762, the 
Pension Security Act, embodying the principles set forth by the 
President.\22\ Following introduction of the bill, the 
Subcommittee on Employer-Employee Relations held a hearing on 
February 27, 2002 on the legislative solutions to Enron. \23\ 
Interest groups expressed support for H.R. 3762, but also 
cautioned the Subcommittee to tread carefully in creating 
additional regulations for employers.
---------------------------------------------------------------------------
    \22\ The substance of H.R. 1000 is explained more thoroughly infra 
n. 34-75.
    \23\ By the time of the Feb. 27, 2002 hearing, more than fourteen 
bills had been introduced in the second session of the 107th Congress 
related to pensions and the fallout from Enron. They include H.R. 3416, 
H.R. 3463, H.R. 3509, H.R. 3622, H.R. 3623, H.R. 3640, H.R. 3692, H.R. 
3642, H.R. 3657, H.R. 3669, H.R. 3677, S. 1838, S. 1919, and S. 1921.
---------------------------------------------------------------------------
    Angela Reynolds, the Director of International Pension & 
Benefits of NCR Corporation, appeared on behalf of the American 
Benefits Council and testified:

          [O]ne cannot examine the realities of the 401(k) 
        system without concluding that overly aggressive 
        legislative change could unintentionally harm the very 
        people that Congress hopes to protect. Chairman Johnson 
        and Chairman Boehner, you both understand the delicate 
        balance of regulation and incentives upon which the 
        success of our voluntary, employer-sponsored pension 
        system depends, and we appreciate your sensitivity to 
        these issues as you lead this Committee's response to 
        the Enron bankruptcy. In order to avoid unintended 
        harms, the Council believes that retirement policy 
        responses to Enron should focus on ensuring that 401(k) 
        participants have the information, education and 
        professional advice they need to wisely exercise their 
        investment responsibility. Chairman Johnson, this is 
        the course that you and Chairman Boehner have 
        charted.\24\
---------------------------------------------------------------------------
    \24\ 1Hearing on ``Enron and Beyond: Legislative Solutions'' before 
the Subcommittee on Employer-Employee Relations, Committee on Education 
and the Workforce, U.S. House of Representatives, 107th Congress, 
Second Session, February 27, 2002, Serial No. 107-49, p. 50-51.

    Dr. John Warner, the Corporate Executive Vice President and 
Director, Science Applications International Corporation, 
appearing on behalf of Profit Sharing Council of America agreed 
with Ms. Reynolds and underscored the need for additional 
---------------------------------------------------------------------------
education and advice for plan participants:

          There is an ongoing need to educate all employees in 
        the basics of investing. Congress should work with 
        employers to encourage financial education for 
        employees and identify and remove barriers that deter 
        many employers from making professional investment 
        advice available to workers. The advice provision in 
        H.R. 3762 will help some plan sponsors, as will a 
        provision in H.R. 3669, cosponsored by Reps. Portman 
        and Cardin, that will allow workers to purchase 
        financial advice with pre-tax dollars.\25\
---------------------------------------------------------------------------
    \25\ Ibid. at p. 76-77.

    In addition, some of the witnesses expressed concern for 
other legislative proposals regarding pension reform. Ms. 
Reynolds addressed her concerns about H.R. 3657, the bill 
introduced by Rep. George Miller, ranking member of the 
---------------------------------------------------------------------------
Committee:

          One of our * * * concerns about H.R. 3657 is that, 
        unlike the Boehner/Johnson legislation (H.R. 3762), it 
        does not advance targeted responses to the specific 
        issues raised by Enron but rather seeks to make wide-
        ranging and fundamental changes to our nation's defined 
        contribution plan retirement system. The bill would 
        fundamentally alter the governance system for 401(k) 
        and other defined contribution plans, radically change 
        the enforcement mechanism applicable to all ERISA 
        claims (not those just in the pension area) and 
        substantially revise the rules on vesting of employer 
        contributions. The results would be increased workplace 
        conflict, hampered plan administration, more 
        litigation, fewer employer contributions and, for many 
        employees, no retirement plan at all. These changes 
        would undermine the 401(k) system's current success and 
        should be rejected.\26\

    \26\ Hearing on ``Enron and Beyond: Legislative Solutions'' before 
the Subcommittee on Employer-Employee Relations, Committee on Education 
and the Workforce, U.S. House of Representatives, 107th Congress, 
Second Session, February 27, 2002, Serial No. 107-49, p. 52.

    John M. Vine, Esq., representing the ERISA Industry 
Committee (ERIC), testified that the proposal to mandate joint 
trusteeship in H.R. 3657, Rep. Miller's proposal, on individual 
---------------------------------------------------------------------------
account plans would create problems:

          ERIC also strongly opposes proposals that have been 
        made for the joint trusteeship of individual account 
        plans. Joint trusteeship will be divisive, disruptive, 
        and counter-productive. It will politicize fiduciary 
        responsibility. It will create employee relations 
        strife. It will allow unions to speak for nonunion 
        workers. It will require employers to spend resources 
        on conducting [plan] elections rather than on 
        discharging fiduciary responsibilities. It will 
        disrupt, rather than strengthen, plan management. And 
        because it will discourage employers from setting up 
        plans, it will reduce retirement savings.\27\
---------------------------------------------------------------------------
    \27\ Ibid. at p. 92.

    David G. Evans from the Independent Insurance Agents of 
America echoed Ms. Reynolds' testimony and added that over-
regulation would lead to employers offering plans that are not 
subject to ERISA's same fiduciary standards. Mr. Evans noted 
that other plans including IRA, SEP (Simplified Employer 
Pension) or SIMPLE IRAs do not have fiduciary liability 
exposure as it relates to investments because employees can 
move their account to any investment vehicle. ``This ability 
becomes a two-edged sword because they can choose to take 
monies out of these accounts even though they have to pay an 
excise tax in addition to ordinary income tax. Yet, some 
employees will do this, damaging their future standard of 
living in retirement, in order to get their hands on the 
money.'' \28\
---------------------------------------------------------------------------
    \28\ Ibid. at p. 46.
---------------------------------------------------------------------------
    Although the House ultimately passed H.R. 3762 on April 11, 
2002 by a vote of 255-163, the Senate failed to act on the 
legislation prior the end of the 107th Congress. At the 
beginning of the 108th Congress, the Employer-Employee 
Relations Subcommittee again took up the issue of pension 
reform and held a hearing on the pension reform provisions 
introduced in the previous Congress. The Subcommittee heard 
from the Honorable Ann L. Combs, Assistant Secretary in the 
Employee Benefit Security Administration, U.S. Department of 
Labor, about the importance of completing the pension reforms 
that were begun in the previous Congress:

          Congress made a down payment on improving retirement 
        security by passing a portion of the President's 
        Retirement Security Plan last year. The Administration 
        believes the first order of business should be to pass 
        the remainder of the Plan, as reiterated in the 
        President's 2004 budget sent to Congress last week. We 
        are pleased that the Chairman has made this an 
        immediate priority.\29\
---------------------------------------------------------------------------
    \29\ Hearing on ``The Pension Security Act: New Pension Protections 
to Safeguard the Retirement Savings of American Workers'' before the 
Subcommittee on Employer-Employee Relations, Committee on Education and 
the Workforce, U.S. House of Representatives, 108th Congress, First 
Session, February 13, 2003 .

    Assistant Secretary Combs also addressed the importance of 
---------------------------------------------------------------------------
the investment advice provisions in the Pension Security Act:

          It's clear that people who participate in 401(k) 
        plans want their employers and plans to provide more 
        investment advice. According to a survey recently 
        released by CIGNA Retirement and Investment Services, 
        89 percent of 401(k) investors want ``specific 
        information on investment decision-making.''
          Investment advice also encourages participation in 
        employer-provided retirement plans. Studies conducted 
        on behalf of the investment advisory firm mPower show 
        workers who receive advice are more likely to 
        participate in savings plans and to save more than 
        workers who never get any guidance.
          On December 14, 2001, the Department of Labor took a 
        first step toward facilitating the broader availability 
        of investment advice by issuing an advisory opinion (to 
        SunAmerica) providing a model for independent 
        investment advice. The model allows a financial 
        services firm to provide advice services, including 
        advice with respect to investment options offered by 
        the firm, provided it hires an independent financial 
        expert to make investment recommendations for their 
        clients. Over the last year, several financial services 
        companies have launched initiatives based on the 
        advisory opinion, making independent investment advice 
        more widely available to workers and their families.
          The independent advice model of the advisory opinion, 
        however, has limitations. For example, when a worker 
        receives specific recommendations generated by the 
        independent advisor and delivered by the financial 
        service provider, the worker cannot consult with the 
        financial services firm to question or deviate from 
        those recommendations. A financial services firm cannot 
        discuss its own products with a plan participant 
        because of ERISA's prohibited transaction rules.
          For many workers, investment decisions are 
        intimidating. The Department is encouraged to see 
        growing interest in the adoption of an alternative 
        method sanctioned by the advisory opinion where workers 
        turn over the decision making to the financial services 
        firm who manages their account in accordance with the 
        independent adviser's decisions.\30\
---------------------------------------------------------------------------
    \30\ Hearing on ``The Pension Security Act: New Pension Protections 
to Safeguard the Retirement Savings of American Workers'' before the 
Subcommittee on Employer-Employee Relations, Committee on Education and 
the Workforce, U.S. House of Representatives, 108th Congress, First 
Session, February 13, 2003 (to be published).

    Assistant Secretary Combs also discussed how the provisions 
in the Pension Security Act were inter-related and important to 
---------------------------------------------------------------------------
each other:

          The reforms set forth in the President's Retirement 
        Security Plan complement each other. The need for 
        investment advice will increase once workers are 
        provided additional rights to diversify their 
        retirement savings, as will the benefits of this 
        advice. The President's Plan will give workers new 
        freedom to sell company stock and diversify into other 
        investment options after three years of participation 
        in the plan. For workers with little or no investment 
        sophistication, this new diversification right will be 
        much more valuable when workers have access to 
        professional investment advice to assist them in making 
        these important decisions.
          For example, the workers who may need to diversify 
        the most, such as those Enron and WorldCom workers who 
        held a high percentage of company stock in their 
        accounts, could most benefit from access to 
        professional investment advisers who could alert them 
        to the benefits of diversification.
          Taken together, the measures proposed by the 
        President will give workers the choice, confidence and 
        control they need to protect their savings and plan for 
        a secure retirement future. Workers deserve the chance 
        to make unrestricted investment decisions, the 
        confidence that comes from good information and 
        professional investment advice, and control over their 
        retirement savings.\31\
---------------------------------------------------------------------------
    \31\ Hearing on ``The Pension Security Act: New Pension Protections 
to Safeguard the Retirement Savings of American Workers'' before the 
Subcommittee on Employer-Employee Relations, Committee on Education and 
the Workforce, U.S. House of Representatives, 108th Congress, First 
Session, February 13, 2003 (to be published).

    Ed Rosic, Vice President at Marriott International, Inc., 
spoke about his experience working for a plan sponsor and how 
the provisions in the Pension Security Act could help plan 
participants. Mr. Rosic specifically applauded the bill's 
---------------------------------------------------------------------------
three-year diversification rule:

          In addressing the question of company stock and 
        retirement plans, we have been concerned that 
        aggressive diversification rules could risk reduced 
        matching contributions in some circumstances since 
        employers would no longer be able to guarantee that 
        every worker has a long-term ownership stake. The 
        Pension Security Act's diversification rule under which 
        employees can exchange shares of company stock after 
        three years, is directly responsive to our concern. It 
        allows employers to use either 3 years of service rule, 
        or a rolling 3 years from date of grant rule, and also 
        adopts a transition rule under the proposed 
        diversification regime. We sincerely appreciated the 
        bill's approach on this issue.\32\
---------------------------------------------------------------------------
    \32\ Hearing on ``The Pension Security Act: New Pension Protections 
to Safeguard the Retirement Savings of American Workers'' before the 
Subcommittee on Employer-Employee Relations, Committee on Education and 
the Workforce, U.S. House of Representatives, 108th Congress, First 
Session, February 13, 2003 (to be published).

    Scott Sleyster, Senior Vice President and President of 
Retirement Services and Guaranteed Products, Prudential 
Financial, testified about the importance of investment advice 
---------------------------------------------------------------------------
and addressed the so-called ``conflict'' issue in the bill.

          [F]irst and foremost, you need to remember that the 
        choices, the options that are being offered in DC 
        [defined contribution] plans have already been reviewed 
        by the plan sponsor. The industry has demanded open 
        architecture for some time. So you typically have 11 to 
        15 choices, and in most cases, our funds and any 
        company's funds would probably only represent about a 
        third of that.
          Second, the * * * most important decision here isn't 
        the individual fund or even fund manager. The most 
        important issue in managing a portfolio is asset 
        allocation. And models are built to design asset 
        allocation, and that is really what designs the choices 
        you have. So, that if you have 15 funds, you don't have 
        15 growth funds; you have some that are growth, some 
        that are international, some that are small capped, 
        some that are fixed income, [and] some that are stable 
        value. And I think that what really drives this is 
        asset allocation.
          [T]he issue here is how are we going to get advice to 
        people in a cost effective manner. While you can 
        probably come up with more esoteric and elegant 
        solutions that seem pure, if you are asking the company 
        to fund that or you are asking the participant to pay 
        an additional fee for that, then you are going to end 
        up with what we have ended up already, which tools out 
        there that aren't utilized or options that plan 
        sponsors don't want to pay for. And, you know, quite 
        frankly, that is really the issue: How do we get 
        investment advice to the average employee--remember, 
        the average 401(k) balance, 45 percent of plan 
        participant have less than $10,000. People aren't 
        typically trying to go after those customers to sell 
        them other products. The real question is, how do we 
        get them advice that is as close to unbiased as 
        possible, but also in a very cost efficient and simple 
        manner.\33\
---------------------------------------------------------------------------
    \33\ Hearing on ``The Pension Security Act: New Pension Protections 
to Safeguard the Retirement Savings of American Workers'' before the 
Subcommittee on Employer-Employee Relations, Committee on Education and 
the Workforce, U.S. House of Representatives, 108th Congress, First 
Session, February 13, 2003 (to be published).
---------------------------------------------------------------------------

                             B. LEGISLATION

    As described supra, improving the retirement security of 
American workers will be the subject of considerable Committee 
attention during the current Congress, as it has been during 
the past two Congresses. The corporate scandals of Enron, 
WorldCom, Global Crossing and Union Labor Life Insurance 
Company, the tragic losses to retirement savings faced by Enron 
employees, and the downturn in the stock market has sharpened 
the focus on some immediate needs to shore up the pension laws 
that govern 42 million American workers with individual account 
pension plans. More than $2.0 trillion are currently held in 
retirement assets by American workers.
    The proposal offered by President Bush on Feb. 1, 2002 
outlined new principles to protect the retirement security of 
American workers. Those principles would:
           Provide workers with greater freedom to 
        diversify and manage their own retirement funds;
           Ensure that senior corporate executives are 
        held to the same restrictions as average American 
        workers during ``blackout periods'' and that employers 
        assume full fiduciary responsibility during these 
        times;
           Give workers quarterly information about 
        their investments and rights to diversify them; and
           Expand workers' access to investment 
        advice.\34\
---------------------------------------------------------------------------
    \34\ February 1, 2002 Press Release, Office of the Press Secretary, 
President of the United States.
---------------------------------------------------------------------------
    As outlined, President Bush envisioned new protections for 
workers so that they would have the freedom to diversify 
employer contributions to their individual accounts after three 
years. To ensure parity between the top floor and the shop 
floor, the President's proposal would preclude senior 
executives from selling company stock outside of the company 
401(k) while workers were unable to diversify their plan assets 
during a blackout. In order to ensure that employer plan 
administrators made sound decisions about blackouts, the 
President's plan would clarify that they were liable if they 
violated their duty to act in the interests of workers when 
they created the blackout period. The President's plan proposed 
to increase the information workers receive about their pension 
benefits and their notice as to the limiting of their rights 
during a blackout. The final prong of the President's plan was 
his call for enactment of the Retirement Security Advice Act, 
H.R. 2269, which encouraged employers to make investment advice 
available to their workers.\35\
---------------------------------------------------------------------------
    \35\ Ibid; see also discussion of H.R. 2269, Committee Action, 
infra n. 71-72.
---------------------------------------------------------------------------
    Two of the provisions in the President's proposal were 
enacted into law by the Sarbanes-Oxley Act (P.L. 104-204): the 
preclusion of insiders selling company stock during blackouts 
and notice of those blackout periods to participants and 
beneficiaries. The Committee also notes that the Department of 
Labor recently finalized regulations clarifying the 
requirements for the blackout notices.\36\
---------------------------------------------------------------------------
    \36\ 29 C.F.R. Sec. 2520, et. al.
---------------------------------------------------------------------------
    This year, Committee Chairman John Boehner and Subcommittee 
Chairman Sam Johnson re-introduced the Pension Security Act on 
Feb. 27, 2002 with bipartisan support to complete the work 
Congress began on the President's proposal.
    The legislation builds on the rights and protections 
contained in Title I of the Employee Retirement Income Security 
Act of 1974 (ERISA). Section 2(b)\37\ of ERISA sets forth this 
Congressional Finding and Declaration of Policy:
---------------------------------------------------------------------------
    \37\ 29 U.S.C. Sec. 1001(b).

          It is hereby declared to be the policy of this Act to 
        protect interstate commerce and the interests of 
        participants in employee benefit plans and their 
        beneficiaries, by requiring the disclosure and 
        reporting to participants and beneficiaries of 
        financial and other information with respect thereto, 
        by establishing standards of conduct, responsibility, 
        and obligation for fiduciaries of employee benefit 
        plans, and by providing for appropriate remedies, 
        sanctions and ready access to the Federal courts.\38\
---------------------------------------------------------------------------
    \38\ Ibid.

    Title I of ERISA contains these fundamental protections for 
participants and beneficiaries of employee benefit plans. Part 
1 of Title I\39\ sets forth the duties of plan administrators 
to notify participants and beneficiaries of the terms of the 
benefit plans in which they participate, their rights under 
these plans, the benefits which have accrued under the terms of 
their plans, and any changes which may be made to these 
benefits or rights.
---------------------------------------------------------------------------
    \39\ 29 U.S.C. Sec. 1021, 1022, 1024, 1025.
---------------------------------------------------------------------------
    Equally important, Part 4 of Title I of ERISA\40\ explains 
the fundamental duties of fiduciaries to employee benefit 
plans. In short, fiduciaries are to act solely in the interest 
of participants and beneficiaries with care, skill, prudence 
and diligence. Fiduciaries are to diversify the investments of 
employee benefit plans so as to minimize the risk of large 
losses, and are to act in accordance with the terms of the 
plan.\41\
---------------------------------------------------------------------------
    \40\ 29 U.S.C. Sec. 1104.
    \41\ ERISA has included a general exception to the diversification 
requirement with respect to employer securities in individual account 
plans in order to accommodate employee stock option plans (ESOPs).
---------------------------------------------------------------------------
    In 1974, the Congressional crafters of ERISA noted the lack 
of employee information and safeguards with regard to employee 
benefit plans and provided for such disclosure and safeguards 
as would protect employees' interests.\42\ In 1974, however, 
pension plans were primarily in the form of traditional defined 
benefit plans, which typically guaranteed specific monthly 
pension payments for the duration of a participant's lifetime. 
In this context, ERISA's one per year limit on the reports that 
outlined the total and nonforfeitable pension benefits that had 
accrued to the participant was more than adequate.\43\
---------------------------------------------------------------------------
    \42\ 29 U.S.C. Sec. 1001(a).
    \43\ 29 U.S.C. Sec. 1025(b).
---------------------------------------------------------------------------
    Likewise, in 1974 the fiduciary duty to diversify the 
investments of the plan was an adequate safeguard to minimize 
the risk of large losses to defined benefit plans where risk is 
borne by the sponsor.\44\
---------------------------------------------------------------------------
    \44\ 29 U.S.C. Sec. 1104(a)(1)(C).
---------------------------------------------------------------------------
    Today's workforce is very different than the workforce in 
1974. Employees are much less likely to work for long periods 
of time for a single employer and are less likely to 
participate in traditional defined benefit plans. In response 
to these labor trends, Congress has adapted pension and tax law 
to allow for individual retirement account plans, such as the 
401(k) plan, which are well suited for today's mobile 
workforce. Today's retirement plan system is largely one of 
pension plans that, while employer sponsored, are individual in 
nature where employers and employees jointly contribute to an 
account and the employee has the ability to direct its own 
account, choosing investments that best meet its retirement 
needs.
    Individual account plans necessitate different safeguards 
and standards for information disclosure in order to provide 
the same level of retirement security for participants and 
beneficiaries that were envisioned in 1974. As such, the 
provisions of H.R. 1000 represent a logical upgrade to the 
provisions of Title I of ERISA to ensure adequate retirement 
protection for today's workforce.

                                TITLE I


H.R. 1000's Investment Education and Benefit Statement

    H.R. 1000 amends ERISA to require plan administrators of 
``applicable individual account plan'' to provide a quarterly 
notice to plan participants and beneficiaries of the value of 
investments allocated to their individual account. Building 
upon ERISA's current requirement to provide an annual notice of 
benefits at the request of participants and beneficiaries,\45\ 
the new provision will increase the benefit information 
available to participants who may be making real time 
investment decisions about the assets held in their 
``applicable individual account plans.'' Provisions from H.R. 
10, the Comprehensive Retirement Security and Pension Reform 
Act of 2001, were also incorporated into H.R. 1000 to require 
plan administrators of all individual account plans, as defined 
by Section 3 (34) of ERISA to provide a pension benefit 
statement at least annually.
---------------------------------------------------------------------------
    \45\ 29 U.S.C. Sec. 1025(a).
---------------------------------------------------------------------------
    For the purpose of the benefit statements, H.R. 1000 
defines ``applicable individual account plan'' by limiting the 
existing definition of individual account plan in ERISA\46\ to 
exclude employee stock ownership plans (ESOP)\47\ unless there 
are any contributions to such plan or earnings held within such 
plan that are subject to subsection (k)(3) or (m)(2) of section 
401 of the Internal Revenue Code of 1986. In H.R. 1000, the 
Committee clarified that the quarterly benefits statement does 
not require that the value of non-publicly traded stock held in 
an individual account plan be determined quarterly. Rather, the 
bill provides that the quarterly statement will give the value 
of any securities that are not readily tradable on an 
established securities market based upon the most recent 
valuation of such securities.
---------------------------------------------------------------------------
    \46\ 29 U.S.C. Sec. 1102 (34).
    \47\ 26 U.S.C. Sec. 4975 (e)(7).
---------------------------------------------------------------------------
    Additional provisions from H.R. 10 which were added to H.R. 
1000 require administrators of traditional defined benefit 
plans to furnish a benefit statement to each participant of a 
defined benefit plan at least once every three years and to a 
plan participant or beneficiary upon written request. In the 
case of a defined benefit plan, if administrators annually 
provide participants with a notice of the availability of a 
pension benefit statement, the new requirements are treated as 
having been met.
    Because many participants and beneficiaries have on-line 
access to their accounts, H.R. 1000 continues to allow that the 
new notices may be provided in electronic or other appropriate 
form provided that such form is reasonably accessible to the 
recipient. H.R. 1000 is intended to work in tandem with 
Department of Labor regulations regarding electronic delivery 
of notices to participants.\48\ The Committee intends that plan 
sponsors who make the quarterly benefits information available 
through the company's website or other electronic means as 
prescribed in the Department of Labor's regulations will have 
``furnished'' the disclosures required in section 105.
---------------------------------------------------------------------------
    \48\ 29 C.F.R. Sec. 2520.104b-1(c).
---------------------------------------------------------------------------
    H.R. 1000 gives participants new rights to diversify the 
assets that are contributed to their account in the form of 
employer securities. Because of this new right, the new 
quarterly benefit statement for applicable individual accounts 
will include an explanation of any limitations or restrictions 
on the right of the participant or beneficiary to direct an 
investment, including their right to diversify any assets held 
in employer securities. Because Section 105 of ERISA was 
created not only to report on the benefits of participants and 
beneficiaries, but also to report on the rights of participants 
and beneficiaries under their benefit plans, this new 
diversification right is correctly placed in Section 105 of 
ERISA.
    As shown by the concentration of Enron securities held by 
Enron pension plan participants, American workers need 
assistance in recognizing the importance of diversification to 
a well-balanced and secure retirement account. Because of this, 
the benefit statement will also include an explanation of the 
importance of a diversified investment portfolio, including the 
risk of holding substantial portions of a portfolio in any one 
security, such as employer securities. As in the case of the 
Enron employees, participants of individual account pension 
plans all too frequently depart from the principles of 
diversification by holding more than one fourth of their 
retirement portfolio in employer securities, particularly in 
pension plans that have more than 5,000 participants.\49\ 
Because of this, the required educational information about the 
importance of diversification is appropriately placed in the 
same statement that specifies the participant's right to 
diversify assets held in employer securities.
---------------------------------------------------------------------------
    \49\ Testimony of Jack L. VanDerhei, Ph.D., CEBS, EBRI Fellow, 
Hearing on ``Enron and Beyond: Enhancing Worker Retirement Security'' 
before the Subcommittee on Employer-Employee Relations, Committee on 
Education and the Workforce, U.S. House of Representatives, 107th 
Congress, Second Session, February 13, 2002 (to be published).
---------------------------------------------------------------------------
    In order to help plan sponsors and administrators comply 
with the bill's requirements relating to investment education 
and benefit statements, the Secretary of Labor shall issue 
guidance and model notices that include the value of 
investments, the rights of employees to diversify any employer 
securities and an explanation of the importance of a 
diversified investment portfolio. This initial guidance will be 
promulgated no later than 180 days after the enactment. So that 
plan sponsors and administrators are able to comply in a timely 
fashion, the Secretary may also issue interim model guidance.
    Consistent with current law civil penalties of $1000 for a 
plan administrator's failure to file an annual report,\50\ H.R. 
1000 amends Section 502 of ERISA \51\ to allow the Secretary to 
assess a civil penalty against a plan administrator of up to 
$1,000 a day from the date of such plan administrator's failure 
to provide participants and beneficiaries with a benefit 
statement on a quarterly basis.
---------------------------------------------------------------------------
    \50\ 29 U.S.C. Sec. 1132 (c)(2).
    \51\ 29 U.S.C. Sec. 1132.
---------------------------------------------------------------------------

H.R. 1000's Clarification of Fiduciary Duty

    In order to protect against large losses, ERISA places a 
duty on plan fiduciaries to diversify assets.\52\ In the case 
of individual account pension plans that permit participants 
and beneficiaries to exercise control over the assets in their 
account, Section 404(c) of ERISA specifies that fiduciaries are 
not liable for any loss that results from such participant's or 
beneficiary's exercise of control.\53\ As such, the 
responsibility to diversify to protect against large losses 
passes from the fiduciary to the participant or beneficiary. 
This presents a unique challenge when plan administrators 
interrupt the otherwise available ability of participants and 
beneficiaries to direct or diversify assets, as in the case of 
a ``blackout'' where participants are unable to access their 
accounts while the administration of the plan is switched from 
one service provider to another or plan investment options are 
changed. In order to protect the retirement security of pension 
plan participants in these cases, the Committee believes that 
additional clarification for plan administrators is needed.
---------------------------------------------------------------------------
    \52\ 29 U.S.C. Sec. 1104(a)(1)(C).
    \53\ 29 U.S.C. Sec. 1104(c)(1)(B).
---------------------------------------------------------------------------
    During a blackout, as defined in the Sarbanes-Oxley 
Act,\54\ H.R. 1000 requires that the administrator must 
consider the reasonableness of the expected period of the 
blackout. The Committee intends this duty to determine the 
reasonableness of the period of suspension to be read in the 
context of part 4 of ERISA \55\ which requires that plan 
fiduciaries discharge their duties prudently and solely in the 
interest of participants and beneficiaries--the highest duty of 
loyalty known to the law.\56\ Like fiduciary conduct in 
general, whether a fiduciary meets these requirement is 
determined by evaluating the conduct of the fiduciary ex ante, 
rather than ex post, with the benefit of 20-20 hindsight. Plan 
administrators should evaluate the amount of time that the 
participants' ability to direct or diversify will be suspended 
and the potential impact of this suspension on the 
participants' accounts in light of the need for the suspension 
and its potential benefits for participants and the plan. The 
Committee understands that there are many good reasons that may 
justify a suspension period, including hiring a more efficient 
recordkeeper, reducing plan administrative expenses, and 
enhancing plan investment options by making available more 
choices or better performing, lower expense investments.
---------------------------------------------------------------------------
    \54\ 29 U.S.C. Sec. 1021(i)(7).
    \55\ 29 U.S.C. Sec. 1104(a)(1).
    \56\ See, e.g., Donovan v. Bierwith, 680 F.2d 263, 272 n.8 (2d 
Cir.1982).
---------------------------------------------------------------------------
    In addition to considering the reasonableness of the 
blackout period, H.R. 1000 requires plan administrators to 
provide notice to participants and beneficiaries as required in 
section 101(i)(2) of ERISA.
    As was clearly the case in the Enron situation, employees 
did not take appropriate action to diversify their accounts in 
advance of the ``blackout.'' \57\ Because the stock market and 
the Enron securities specifically were in an extremely volatile 
state, a warning to participants and beneficiaries about their 
own responsibilities may have protected the Enron employees 
from some of their losses. In the view of the Committee, it is 
only when participants and beneficiaries have been provided 
with this notice that they are adequately prepared to be 
responsible for their own individual accounts in the event of a 
blackout.
---------------------------------------------------------------------------
    \57\ Testimony of Mr. Thomas O. Padgett, Senior Lab Analyst at EOTT 
(an Enron subsidiary), Hearing on ``The Enron Collapse and its 
Implications for Worker Retirement Security'' before the Committee on 
Education and the Workforce, U.S. House of Representatives, 107th 
Congress, Second Session, February 7, 2002, Serial No. 107-42, p. 182.
---------------------------------------------------------------------------
    The Committee believes that the consideration of 
reasonableness with respect to a ``blackout'' and the provision 
of additional information to participants and beneficiaries 
about their own duty to evaluate the appropriateness of their 
current investment decisions are fundamental to the fiduciary 
protection from liability contained in 404(c) of ERISA.\58\ 
Generally, participants and beneficiaries of applicable 
individual account plans bear the risk of their own accounts. 
The Committee believes that during a suspension, the plan 
fiduciary and the plan participants and beneficiaries each have 
responsibilities that amount to a shared risk. H.R. 1000 
balances this shared responsibility by requiring plan 
administrators to consider the reasonableness of the blackout 
and to provide information to participants and beneficiaries 
about the blackout. As H.R. 1000 clarifies, after this, 
fiduciaries are relieved of their own liability and granted the 
404(c) \59\ liability protection.
---------------------------------------------------------------------------
    \58\ 29 U.S.C. Sec. 1104(c)(1)(B).
    \59\ Ibid.
---------------------------------------------------------------------------
    H.R. 1000 amends section 404(c) of ERISA to clarify that 
the protection afforded plan fiduciaries under this section 
will be lost in the event of a suspension period unless the 
fiduciary acts in a manner consistent with the requirements of 
title 1 of ERISA in entering into the suspension period. The 
intention of the provision is to ensure that plan fiduciaries 
address suspension periods in a manner that ensures the 
interests of plan participants are protected. In the 
Committee's view, even prior to this amendment, plan 
fiduciaries generally had a fiduciary duty to act solely in the 
interest of participants and beneficiaries when taking the 
actions that typically lead to a suspension period, such as 
hiring a new record keeper or selecting new plan investment 
options.\60\ The amendment makes clear that among the factors 
the Department or a court should consider in evaluating whether 
a fiduciary met its fiduciary obligations include whether the 
fiduciary considered in advance the reasonableness of the 
expected suspension period, provided the suspension notice 
required by H.R. 1000 and acted solely in the interest of 
participants and beneficiaries in determining whether or not to 
enter into the suspension. The Committee notes that the duty to 
act solely in the interest of participants is one of the 
several duties set forth in section 404(a)(1) of ERISA that 
have applied to all fiduciary decisions since ERISA's 
enactment. Of course, in entering into a suspension period a 
plan fiduciary must meet the other applicable requirements of 
part 4 of ERISA, including the duty to act prudently and follow 
the terms of the plan (where consistent with the requirements 
of title I).
---------------------------------------------------------------------------
    \60\ The Committee notes that both the courts and the Department of 
Labor have indicated that selecting service providers (like a plan 
record keeper) and selecting plan investment options are fiduciary 
duties subject to the requirements of Title I of ERISA. See, e.g., 
Brock v. Hendershott, 840 F.2d 339, 342 (6th Cir. 1988) (selection of 
service provider is a fiduciary decision); 57 Fed. Reg. 46906, 46924 
n.27 (Oct. 13, 1992) (Preamble to Department of Labor Regulation 
interpreting ERISA section 404(c)) (limiting or designating investment 
options under a section 404(c) plan is itself a fiduciary function).
---------------------------------------------------------------------------
    Provided the plan fiduciary entering into the suspension 
period satisfies his duties under title I of ERISA, the 
amendments to section 404(c) make clear that the fiduciary will 
not be liable for investment losses that are attributable to a 
plan participant's prior exercise of control over plan 
investments (i.e., the investment elections made by the 
participant prior to the suspension). In the event of a 
suspension that occurs when a plan is changing investment 
options, H.R. 1000 clarifies that a participant will have 
exercised prior investment control over investment in the 
plan's new investments options if (1) the participant gave 
affirmative investment instructions with respect to the new 
investment options, or (2) the participant approved the 
investment through a negative consent process. Under the latter 
option, participant consent would occur where the participant 
is informed in advance of the change in investment options, is 
told how the account will be invested if the participant fails 
to provide an affirmative election (i.e., was informed of the 
default selections) and elects not to make an affirmative 
direction selecting new investment options. It is the 
Committee's expectation that information regarding new plan 
investment options, including default investments for 
participants, may be included in connection with the notice of 
an upcoming blackout. It is the Committee's further view that 
by providing for both affirmative and negative election, 
participants will generally exercise investment control over 
the selection of new investment options when a plan fiduciary 
or service provider employs common processes such as ``fund 
mapping'' (i.e., matching the plan's new investment options to 
the plan's prior investment options) provided proper advance 
notice is provided. The Committee notes that both the 
Department of Labor and the courts have on numerous occasions 
endorsed the concept of negative consent, concluding that both 
plan fiduciaries and plan participants may exercise control 
over plan investments through negative consent.\61\
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    \61\ DOL Adv. Op. 2001-02A (Feb. 15, 2001) (default allocation of 
demutualization proceeds where fiduciary of 401(k) plan fails to 
respond to insurer notices seeking affirmative direction); DOL Adv. Op. 
97-16A (May 22, 1997) (substitution of new mutual fund in defined 
contribution plans where plan fiduciary fails to respond to advance 
notices by insurer seeking approval of new fund); Herman v. NationsBank 
Trust Co., 126 F. 3d 1354, 1370-71 (11th Cir. 1997) (participants with 
voting rights over shares allocated to their individual ESOP accounts 
failed to vote proxies with respect to allocated shares are deemed to 
have exercised control over shares).
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    H.R. 1000 provides that the Secretary of Labor shall issue 
guidance and model notices that include the above factors and 
such other provisions the Secretary may specify. The initial 
guidance will be promulgated no later than December 31, 2004. 
In order to assist plan administrators in complying with the 
new requirements in a timely fashion, the Secretary may issue 
interim model guidance.

H.R. 1000's Provision for Fiduciary Education

    H.R. 1000 also directs the Department of Labor to establish 
a program to make information and educational resources 
available to pension plan fiduciaries on an ongoing basis in 
order to assist them in diligently and efficiently carrying out 
their fiduciary duties with respect to the plan. H.R. 1000 
clarifies that in developing this program, the Secretary shall 
solicit information from the public, including investment 
education professionals.
    The fiduciary duty of loyalty--the highest duty of loyalty 
known to the law,\62\ is a protection to participants and 
beneficiaries only if the fiduciary understands the 
responsibilities and implications of this duty. As such, the 
Committee unanimously agreed that the provision of educational 
information to pension plan fiduciaries is of the utmost 
importance.
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    \62\ See, e.g., Donovan v. Bierwith, 680 F.2d 263, 272 n.8 (2d Cir. 
1982).
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H.R. 1000's Right To Diversify

    H.R. 1000 amends ERISA to reduce the period of time in 
which companies can require workers to hold company stock to 
three years. Currently, ERISA limits to 10 percent the amount 
of company stock that can be held in a pension plan.\63\ The 
Internal Revenue Code provides that for employer stock 
contributions made in an ESOP, the time these securities can be 
required to be held is until the participant is age 55 and has 
at least 10 years of participation in the plan.\64\
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    \63\ See 29 U.S.C. Sec. 1107, 1114.
    \64\ 26 U.S.C. Sec. 401(a)(28).
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    H.R. 1000 gives employees a new right to diversify employer 
securities in their individual account after three years of 
service with the employer or three years after receiving 
employer stock in their individual account plan. In a survey 
conducted by EBRI of the International Society of Certified 
Employee Benefit Specialist members, of the plans where 
employer contributions were required to be in company stock, 
60% of them reported that the stock was restricted until a 
specified age and/or service requirement is met.\65\ Current 
law has encouraged employers to offer employer securities as 
part of ERISA plans and the Committee has received a great deal 
of testimony regarding the benefits of increasing employee 
ownership through employer securities.\66\ In light of the 
recent events of Enron, which demonstrated the problems with 
over-concentration in one particular investment, the Committee 
recognizes that requiring employees to hold employer securities 
for long periods of time may run counter to an employee's 
objective of a diversified retirement portfolio. The Committee 
believes that the three-year diversification rule will provide 
employees the flexibility to choose how to invest their savings 
while continuing to encourage employers to make matching 
contributions.
---------------------------------------------------------------------------
    \65\ Testimony of Dr. Jack VanDerhei, Hearing on ``Enron and 
Beyond: Enhancing Worker Retirement Security'' before the Subcommittee 
on Employer Employee Relations, U.S. House of Representatives, 107th 
Congress, Second Session, February 13, 2002, Serial No. 107-44, p. 68.
    \66\ ``Although the topic of company stock investment in 401(k) 
plans has recently been the focus of considerable interest, the concept 
of preferred status for employee ownership has been part of the U.S. 
tax code for more than 80 years. When the Employee Retirement Income 
Security Act (ERISA) was passed in 1974, it required fiduciaries to 
diversify plan investments for defined benefit plans and some types of 
defined contribution plans. However, ERISA includes an exception for 
`eligible individual account plans' that invest in `qualifying employer 
securities.' An Employee Stock Ownership Plan (ESOP) normally qualifies 
for this exception, as do profit-sharing plans.'' Testimony of Dr. Jack 
VanDerhei, Hearing on ``Enron and Beyond: Enhancing Worker Retirement 
Security'' before the Subcommittee on Employer-Employee Relations, U.S. 
House of Representatives, 107th Congress, Second Session, February 13, 
2002, Serial No. 107-44, 64; see also generally ibid. at 45-54, 64-87 
and Hearing on Enron and Beyond: Legislative Solutions'' before the 
Subcommittee on Employer Employee Relations, Committee on Education and 
the Workforce, U.S. House of Representatives, 107th Congress, Second 
Session, February 27, 2002, Serial No. 107-49, 49-54, 75-78.
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    The President specifically outlined this proposal in his 
plan and stated that: ``Employers should be encouraged to make 
generous contributions to workers' 401(k) plans, including the 
option to use company stock to make matching contributions. 
However, workers must be free to choose how to invest their 
retirement savings. The President's proposal will ensure that 
workers can sell company stock and diversify into other 
investment options after they have participated in the 401(k) 
plan for three years. While many companies already allow rapid 
diversification, others impose holding periods which can last 
for decades.'' \67\
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    \67\ February 1, 2002 Press Release, Office of the Press Secretary, 
President of the United States.
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    The Committee believes that employees should have greater 
options in determining if and when to diversify from employer 
securities. The Committee also wants to continue to encourage 
employers to offer matching contributions and employee stock 
ownership programs. To that end, the Committee requires 
employers that have publicly traded employer securities to 
permit employees to diversify from employer securities into 
other investments either three years after the employee begins 
employment or three years after the employer contribution is 
credited to the participant's account. The three-year time 
period tracks the new three-year vesting rules implemented by 
the Economic Growth and Tax Relief Act, H.R. 1836, passed by 
Congress in 2001. Allowing plan sponsors to require the 
employee to hold the security for three years preserves the 
benefits of employee ownership while still providing employees 
much more flexibility than currently allowed. The Committee 
also continues to encourage employee stock ownership plans 
(``ESOPs'') by exempting ``stand alone'' ESOPs from the bill's 
diversification provisions.\68\ The Committee believes this 
strikes a balance between preserving the incentives for 
employers to offer employer stock to their employees while 
allowing employees the freedom to make greater investment 
decisions.
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    \68\ A ``stand-alone'' ESOP does not contain employer matching or 
employee pre-tax or after-tax contributions.
---------------------------------------------------------------------------
    Finally, the Committee exempts privately held companies 
from the diversification requirement. The Committee believes 
that the three-year rule for privately held companies would be 
too onerous and would discourage them from offering 
contributions because the companies would be required to hold 
cash in reserve to purchase back any stock contributions. This 
could result in serious financial strain on these companies. 
The Committee believes, however, that employers who have 
publicly traded stock do not feel the same financial burden. 
H.R. 1000 additionally clarifies that there may be 
circumstances in which a privately held company has limited 
publicly traded securities where it is not appropriate to apply 
the diversification requirement. H.R. 1000 allows the 
Secretaries of Labor and Treasury to fashion regulations to 
determine when such companies may be exempt from the 
diversification rules. The Committee intends that the 
regulations shall provide an exclusion from the diversification 
requirement in the case of a controlled group of corporations 
treated as a single employer with respect to the plan where all 
employer securities held by the plan consist of stock of the 
common parent that is not publicly traded; the common parent 
has no publicly traded stock; and the gross receipts and the 
employees of all publicly-traded subsidiaries together 
constitute a relatively small amount of the total gross 
receipts and a small amount of the total employees of the 
employer's controlled group as a whole. The Secretaries of 
Labor and Treasury will have regulatory authority to determine 
the appropriate thresholds for this standard.
    At the time diversification is required to be permitted by 
the employer, the Committee has specified that employers must 
offer a ``broad range of investment alternatives'' to the 
employees. The Committee does not want to be overly 
prescriptive by specifying the types of investment vehicles 
into which employers may offer re-investment. However, the 
Committee intends that employers should offer a range of 
investment options that would be acceptable to meet section 
404(c) standards.\69\ If necessary, the Department of Labor may 
issue clarifications on how the investment alternatives of 
404(c) relate to this provision.
---------------------------------------------------------------------------
    \69\ 29 C.F.R. Sec. 2550.404(c)-1(b)(2)(ii)(C).
---------------------------------------------------------------------------
    Opponents of the bill have argued that three years is too 
long to require employees to hold employer stock in their 
accounts and that the diversification should be one year after 
the employee begins service. The Committee notes several 
difficulties with that proposal. First, many plans do not even 
allow employees to participate in the pension plan until they 
have served for a year. Reducing diversification to one year 
would, in essence, require immediate diversification once the 
employee is enrolled in the plan. Second, such a short 
diversification time greatly reduces the incentive to employers 
to provide any company match because it can be so quickly 
transferred out of employer securities. Third, the 
diversification does not coordinate with the three and five 
year vesting rules. The Committee believes that the three-year 
diversification rule strikes the appropriate balance between 
allowing diversification, coordinating with current vesting 
structure, and continuing to encourage employers to contribute 
a company match to participants' accounts.
    H.R. 1000 provides an option for plans to administer the 
three-year diversification requirement through a cliff or a 
rolling vehicle. In the cliff situation, once the participant 
completed three years of service with the employer, all 
employer security contributions made by the employer will be 
immediately diversifiable. For the rolling option, the plan may 
require the participant to hold the employer security for three 
years once the security has been credited to the participant's 
account. Although the three-year rolling option would be more 
difficult to administer, the employer community has expressed a 
strong desire to provide them with the option.\70\ The rolling 
option will apply only to those contributions made after the 
effective date of the amendment, i.e., plan years beginning one 
year after the date of enactment. The Committee believes the 
rolling option provides employers a continued incentive to make 
matches while still providing diversification rights to 
employees within a short period of time.
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    \70\ A plan sponsor testifying before the Employer-Employee 
Relations Subcommittee underscored the business community's desire for 
a transition period on the diversifications requirements: ``The 
[American Benefits] Council also appreciates the inclusion of a 
transition rule under the new diversification regime. This will prevent 
market instability and ensure that the price at which employees sell 
shares is not decreased by a glut of stock all reaching the market at 
the same time.'' Testimony of Ed L. Rosic, Vice President, Marriott 
International, Inc., Hearing on ``The Pension Security Act: New Pension 
Protections to Safeguard the Retirement Savings of American Workers'' 
before the Subcommittee on Employer-Employee Relations, Committee on 
Education and the Workforce, U.S. House of Representatives, 108th 
Congress, First Session, February 13, 2003 (to be published). 
Additionally, the Subcommittee heard testimony in the 107th Congress 
that a rolling option would permit employees to have a meaningful stake 
in the company. See Hearing on ``Enron and Beyond: Legislative 
Solutions'' before the Subcommittee on Employer-Employee Relations, 
Committee on Education and the Workforce, U.S. House of 
Representatives, 107th Congress, Second Session, February 27, 2002, 
Serial No. 107-49 at 19.
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    H.R. 1000 provides a five-year transition rule with respect 
to the diversification of amounts held in an applicable 
individual account plan as of the effective date of the 
provision. Under this transition rule, applicable individual 
account plans must allow assets invested in employer securities 
on which there are restrictions on divestment to be reinvested 
in other investments over a five-year period based on an 
applicable percentage of such amounts. The transition rule 
applies only to contributions that exist in plan participant 
accounts on the day of enactment. The transition rule does not 
apply to contributions that are received after the day of 
enactment. The Committee also intends that the three-year 
holding requirement not apply to employer contributions that 
are subject to the five-year transition rule.

H.R. 1000's Department of Labor Study on Requiring Fiduciary 
        Consultants to Plans

    H.R. 1000 also contains a provision that requires the 
Secretary of Labor to undertake a study of the costs and 
benefits to participants and beneficiaries of requiring 
independent consultants to advise plan fiduciaries in 
connection with the administration of individual account plans.
    The Committee believes that independent consultants to the 
fiduciaries of individual account pension plans could have 
merit, however the Committee is concerned that a requirement to 
obtain such counsel could add to plan costs that may be borne 
by participants and beneficiaries, and even more seriously, 
impact the availability of individual account plans altogether. 
Because of this, the Committee has determined that a study to 
determine the relative costs and benefits of such a new 
requirement is the appropriate action to take in order to allow 
the Committee to make an informed decision about a new 
requirement.

H.R. 1000's Investment Advice Provision

    The Pension Security Act also provides for employees to 
have greater access to investment advice in making investment 
decisions. H.R. 1000 incorporates the Retirement Security 
Advice Act, H.R. 2269, which passed the House in the fall of 
2001 with a large bipartisan vote. Although ERISA has been 
largely successful in protecting the integrity of privately 
managed pension plans, its drafters did not contemplate the 
explosive growth of defined contribution plans. In particular, 
provisions of ERISA have resulted in a huge shift of 
responsibility to plan participants for investing individual 
assets effectively without a corresponding shift in investment 
advice.
    That concern is even clearer now, with the decline of many 
high-technology stocks and greater volatility in the financial 
markets. Despite the obvious benefits of equity investment, for 
the first time since the inception of the 401(k) program, total 
401(k) assets declined in 2000. This decline was due in large 
part to volatile equity markets, but the lack of available 
investment advice exacerbated the problem. The average 401(k) 
participant balance dropped to $41,919 in 2000 from $46,740 in 
1999. The hearings on Enron's pension funds made the concern 
even more palpable. Some executives with independent access to 
investment advice were counseled to diversify well before 
Enron's stock collapsed. Many employees who lacked such access 
lost enormous retirement savings assets, even though their 
Enron shares were largely tradable.
    The bill amends ERISA and the Internal Revenue Code to 
permit the provision of investment advice to plan participants 
and beneficiaries, the purchase or sale of assets pursuant to 
the investment advice and the direct or indirect receipt of 
fees in connection with providing the advice. The bill is 
intended to enable regulated financial institutions that 
provide investment options and administrative and other 
services to employee benefit plans also to provide investment 
advisory services directly to plans, participants and 
beneficiaries desiring these services.
    In order to nurture a dynamic, competitive, and consumer-
responsive market for employer-provided investment advice, the 
bill seeks to give providers, sponsors, and participants 
flexibility within which to be innovative while protecting 
participants through strong and clear expressions of the 
adviser's overarching fiduciary duty--the highest duty of 
loyalty known to the law \71\--and through rigorous but 
practical disclosures of any potential conflicts of interest.
---------------------------------------------------------------------------
    \71\ See, e.g., Donovan v. Bierwith, 680 F.2d 263, 272 n.8 (2d Cir. 
1982).
---------------------------------------------------------------------------
    The bill establishes a new statutory exemption from ERISA's 
prohibited transaction rules for certain comprehensively 
regulated entities to provide advice services to plan 
fiduciaries or plan participants (``fiduciary advisers''). The 
Committee intends the exemption to specifically provide relief 
from both the party in interest restrictions (section 406(a)) 
and conflict of interest rules (section 406(b)) and is 
therefore broader than the Department of Labor has construed 
other statutory exemptions.\72\
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    \72\ Compare with 29 C.F.R. 2550.408b-2(a) (limiting relief of 
section 408(b)(2) to transactions described in section 406(a)).
---------------------------------------------------------------------------
    The Committee intends that the investment advice provision 
in this bill incorporate the substantive provisions and report 
language of H.R. 2269, as reported by this Committee on October 
31, 2001, with three distinctions. In the floor debate on 
November 15, 2001, Chairman Boehner engaged in a colloquy with 
Representative Earl Pomeroy wherein Chairman Boehner agreed to 
add three provisions to the bill. The investment advice 
provision in H.R. 1000 contains those additional provisions and 
further discussion about them is provided below.
    Adviser Qualifications.--The first concern raised in the 
colloquy was that advisers who provide advice should have an 
individual license or test administered by a state or federal 
agency in order to insure that plan participants receive 
qualified advice. The Committee added language that clarifies 
that in the situation that agents of banks or credit unions 
offer advice, the agent or employee must be in the 
institution's trust department, which is regularly examined by 
a state or federal agency. While this provision does not 
require those employees or agents of a bank or similar 
institution to have a license, it does ensure that the bank 
employees giving advice are well regulated and supervised, thus 
ensuring quality advice by banking institutions.
    Two Improvements to the Disclosure Form.--In response to 
Chairman Boehner's and Representative Pomeroy's colloquy 
regarding H.R. 2269, the Committee has made two other 
improvements to the disclosure form in H.R. 1000 required to be 
provided to participants prior to the advice. First, the 
Committee has required the Secretary of Labor to issue a model 
disclosure. The Committee intends that this model disclosure 
will promote uniformity among the disclosures, which should 
assure that the disclosures are readily understandable to the 
average plan participant. Second, the Committee has added a 
disclosure that requires the fiduciary adviser to remind plan 
participants that they are free to seek advice elsewhere and 
that the other advisor may be unaffiliated with the plan and 
its investment options. The purpose of this disclosure is to 
remind participants that independent advice can be sought 
outside of the plan context.
    With the addition of these three provisions, the investment 
advice provision contained in H.R. 1000 bill will empower 
workers with the information they need to make the most of the 
retirement savings and investment opportunities afforded them 
by today's 401(k)-type plans. This legislation will foster a 
competitive, dynamic investment advice marketplace that serves 
worker needs but also establish a strong, protective framework 
that safeguards their interests.

Other Proposals Offered on Title I of the Pension Security Act

    The Committee also considered other substantive changes to 
the administration of pension plans. During consideration of 
H.R. 1000 the Committee considered and rejected an amendment 
that would have required that any plan which permits employee 
control of investment decisions must have a joint board of 
trustees to act as fiduciaries of the plan. This board would be 
comprised of both employer and employee representative.
    The Committee notes that employee representation on a board 
of trustees is currently allowable under ERISA and is practiced 
by many companies. However, requiring all pension plans to 
include employee representatives is a fundamental change to 
pension law--a change that Congress rejected in 1989 by a vote 
of 250-173. Advocates of joint trusteeship argue that employees 
are the only party that truly has the employee's best interest 
at heart. The Committee strongly disagrees with this viewpoint. 
ERISA standards strictly govern the duty of every fiduciary--
whether an employee or an employer. Each fiduciary must act in 
the sole interest of participants and beneficiaries. If 
fiduciaries don't act in the sole interest of participants and 
beneficiaries they are liable under ERISA.
    In addition to these fundamental concerns, the Committee 
also fears that the amendment would have greatly increased the 
administrative burdens of pension plans by requiring new 
processes to select employees as trustees, allow for votes of 
all pension plan participants and resolve disputes related to 
pension issues. These administrative costs would be borne by 
the pension plan itself--a detriment to account balances for 
participants.

                                TITLE II


H.R. 1000's Modification of Funding Rules for Plans Sponsored by 
        Interurban or Interstate Bus Service Companies

    Under present law, defined benefit pension plans are 
required to meet certain minimum funding rules. In some cases, 
additional contributions are required if a defined benefit 
pension plan is underfunded. Additional contributions generally 
are not required in the case of a plan with a funded current 
liability percentage of at least 90 percent. A plan's funded 
current liability percentage is the value of plan assets as a 
percentage of current liability. In general, a plan's current 
liability means all liabilities to employees and their 
beneficiaries under the plan. Quarterly minimum funding 
contributions are required in the case of underfunded plans.
    The Pension Benefit Guaranty Corporation (``PBGC'') insures 
benefits under most defined benefit pension plans in the event 
the plan is terminated with insufficient assets to pay for plan 
benefits. The PBGC is funded in part by a flat-rate premium per 
plan participant, and a variable rate premium based on plan 
underfunding.
    Under present law, a special rule modifies the minimum 
funding requirements in the case of certain plans. The special 
rule applies in the case of plans that (1) were not required to 
pay a variable rate PBGC premium for the plan year beginning in 
1996, (2) do not, in plan years beginning after 1995 and before 
2009, merge with another plan (other than a plan sponsored by 
an employer that was a member of the controlled group of the 
employer in 1996), and (3) are sponsored by a company that is 
engaged primarily in interurban or interstate passenger bus 
service.
    The special rule treats a plan to which it applies as 
having a funded current liability percentage of at least 90 
percent for plan years beginning after 1996 and before 2005 if 
for such plan year the funded current liability percentage is 
at least 85 percent. If the funded current liability of the 
plan is less than 85 percent for any plan year beginning after 
1996 and before 2005, the relief from the minimum funding 
requirements applies only if certain specified contributions 
are made.
    For plan years beginning after 2004 and before 2010, the 
funded current liability percentage will be deemed to be at 
least 90 percent if the actual funded current liability 
percentage is at least at certain specified levels.
    The relief from the minimum funding requirements applies 
for the plan year beginning in 2005, 2006, 2007, and 2008 only 
if contributions to the plan equal at least the expected 
increase in current liability due to benefits accruing during 
the plan year.
    H.R. 1000 modifies the special funding rule for plans 
sponsored by a company engaged primarily in interurban or 
interstate passenger bus service. Currently, plans must use the 
fixed mortality assumption under the General Agreement on 
Tariffs and Trade (GATT) legislation. Recognizing this 
situation, Congress temporarily exempted this industry from 
these rules in the Taxpayer Relief Act of 1997,\73\ and 
required them to comply with the normal funding rules of ERISA 
apply to them. In addition, the modification of the current 
rule provides that (1) the funded current liability percentage 
of a plan to which the rule applies is treated as not less than 
90 percent for purposes of the minimum funding rules applicable 
to underfunded plans, and (2) the funded current liability 
percentage of a plan to which the rule applies is treated as 
not less than 100 percent for purposes of the quarterly 
contribution requirement. The provision is effective with 
respect to plan years beginning after December 31, 2002.
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    \73\ P.L. 105-34.
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    The Committee believes that this provision is proper 
pension policy since these plans are ``frozen'' (not accepting 
new participants) and are adequately funded. Application of the 
GATT rules is not proper for these plans due to their different 
mortality experience. If the provision was not enacted, these 
bus companies would have to divert capital from other corporate 
needs to be in technical compliance with pension rules that do 
not practically apply or benefit their employees.

H.R. 1000's Reporting Simplification

    Under present law, each employer that maintains a qualified 
retirement plan must file an annual report with both the 
Internal Revenue Service and the Department of Labor. This 
report contains, among other things, information relative to 
the assets of the plan, number of participants, identification 
of service providers, and the identity of the fiduciaries. 
Presently, a one participant plan and those plans with less 
than 100 participants are allowed to file a more abbreviated 
form than larger plans.
    H.R. 1000 allows a one participant plan with $250,000 or 
less in assets at the close of the plan year not to have to 
file an annual report. Additionally, for those plans that cover 
less than 25 employees, the Secretaries of Labor and the 
Treasury will provide for the filing of a simplified annual 
return for each plan year.
    The Committee believes that small employers should be 
encouraged to both start and maintain defined benefit plans for 
their employees. Over the past three Congresses, the Committee 
has heard a substantial amount of testimony that the costs of 
establishing and maintaining a defined benefit pension plan 
have discouraged those employers who had put them in place from 
continuing them and those employers who had not started one 
from creating one.

H.R. 1000's Improvement of Employee Plans Compliance Resolution System

    Presently, the Internal Revenue Service (``IRS'') has 
established the Employee Plans Compliance Resolution System, 
which is a comprehensive system of programs for the sponsors of 
pension plans to correct their unintended failures to follow 
statutory and regulatory requirements for maintaining 
qualification under the tax code. This program permits plan 
sponsors to correct compliance failures in their plan operation 
while continuing to provide their employees with retiree 
benefits on a tax favored basis without interruption.
    H.R. 1000 mandates that the Secretary of the Treasury 
continue to update and improve this successful program with 
emphasis on the special circumstances of small employers, in 
terms of awareness of the program, compliance, and the 
reasonableness of any tax, penalty, or sanction imposed on 
small businesses under this program.

H.R. 1000's Flexibility in Nondiscrimination, Coverage, and Line of 
        Business Rules

    A plan is not a qualified retirement plan under the 
Internal Revenue Code if the contributions or benefits provided 
under the plan discriminate in favor of highly compensated 
employees (sec. 401(a)(4)). The applicable Treasury regulations 
set forth the exclusive rules for determining whether a plan 
satisfies the nondiscrimination requirement. These regulations 
state that the form of the plan and the effect of the plan in 
operation determine whether the plan is nondiscriminatory and 
that intent is irrelevant.
    Similarly, a plan is not a qualified retirement plan if the 
plan does not benefit a minimum number of employees (sec. 
410(b)). A plan satisfies this minimum coverage requirement if 
and only if it satisfies one of the tests specified in the 
applicable Treasury regulations. If an employer is treated as 
operating separate lines of business, the employer may apply 
the minimum coverage requirements to a plan separately with 
respect to the employees in each separate line of business 
(sec. 414(r)). Under a so-called ``gateway'' requirement, 
however, the plan must benefit a classification of employees 
that does not discriminate in favor of highly compensated 
employees in order for the employer to apply the minimum 
coverage requirements separately for the employees in each 
separate line of business. A plan satisfies this gateway 
requirement only if it satisfies one of the tests specified in 
the applicable Treasury regulations.
    In H.R. 1000, the Secretary of the Treasury is directed to 
modify, on or before December 31, 2004, the existing 
regulations issued under section 414(r) in order to expand (to 
the extent that the Secretary may determine to be appropriate) 
the ability of a plan to demonstrate compliance with the line 
of business requirements based upon the facts and circumstances 
surrounding the design and operation of the plan, even though 
the plan is unable to satisfy the mechanical tests currently 
used to determine compliance.
    Also, H.R. 1000 directs the Secretary of the Treasury to 
provide by regulation applicable to years beginning after 
December 31, 2004, that a plan is deemed to satisfy the 
nondiscrimination requirements of section 401(a)(4) if the plan 
satisfied the pre-1994 facts and circumstances test, satisfied 
the conditions prescribed by the Secretary to appropriately 
limit the availability of such test, and is submitted to the 
Secretary for a determination of whether it satisfies such test 
(to the extent provided by the Secretary).
    Similarly, a plan will comply with the minimum coverage 
requirement of section 410(b) if the plan satisfied the pre-
1989 coverage rules, is submitted to the Secretary for a 
determination of whether it satisfied the pre-1989 coverage 
rules (to the extent provided by the Secretary), and satisfies 
conditions prescribed by the Secretary by regulation that 
appropriately limit the availability of the pre-1989 coverage 
rules.

H.R. 1000's Extension to All Governmental Plans of Moratorium on 
        Application of Certain Nondiscrimination Rules Applicable to 
        State and Local Plans

    A qualified retirement plan maintained by a State or local 
government is exempt from the rules concerning 
nondiscrimination (sec. 401(a)(4)) and minimum participation 
(sec. 401(a)(26)). All other governmental plans are not exempt 
from the nondiscrimination and minimum participation rules.
    Under H.R. 1000, all governmental plans (as defined in sec. 
414(d)) are exempted from the nondiscrimination and minimum 
participation rules.

H.R. 1000's Notice and Consent Period Regarding Distributions

    Notice and consent requirements in Section 205 of ERISA 
apply to certain distributions from qualified retirement plans. 
These requirements relate to the content and timing of 
information that a plan must provide to a participant prior to 
a distribution, and to whether the plan must obtain the 
participant's consent to the distribution. The nature and 
extent of the notice and consent requirements applicable to a 
distribution depend upon the value of the participant's vested 
accrued benefit and whether the joint and survivor annuity 
requirements apply to the participant.
    If the present value of the participant's vested accrued 
benefit exceeds $5,000, the plan may not distribute the 
participant's benefit without the written consent of the 
participant. The participant's consent to a distribution is not 
valid unless the participant has received from the plan a 
notice that contains a written explanation of: (1) the material 
features and the relative values of the optional forms of 
benefit available under the plan, (2) the participant's right, 
if any, to have the distribution directly transferred to 
another retirement plan or IRA, and (3) the rules concerning 
the taxation of a distribution. If the joint and survivor 
annuity requirements apply to the participant, this notice also 
must contain a written explanation of (1) the terms and 
conditions of the qualified joint and survivor annuity 
(``QJSA''), (2) the participant's right to make, and the effect 
of, an election to waive the QJSA, (3) the rights of the 
participant's spouse with respect to a participant's waiver of 
the QJSA, and (4) the right to make, and the effect of, a 
revocation of a waiver of the QJSA. The plan generally must 
provide this notice to the participant no less than 30 days and 
no more than 90 days before the date distribution commences.
    If the participant's vested accrued benefit does not exceed 
$5,000, the terms of the plan may provide for distribution 
without the participant's consent. The plan generally is 
required, however, to provide to the participant a notice that 
contains a written explanation of: (1) the participant's right, 
if any, to have the distribution directly transferred to 
another retirement plan or IRA, and (2) the rules concerning 
the taxation of a distribution. The plan generally must provide 
this notice to the participant no less than 30 days and no more 
than 90 days before the date distribution commences.
    H.R. 1000 requires qualified retirement plans to provide 
the applicable distribution notice no less than 30 days and no 
more than 180 days before the date distribution commences. The 
Secretary of the Treasury is directed to modify the applicable 
regulations to reflect the extension of the notice period to 
180 days and to provide that the description of a participant's 
right, if any, to defer receipt of a distribution shall also 
describe the consequences of failing to defer such receipt. The 
provision is effective for years beginning after December 31, 
2003.
    The Committee understands that an employee is not always 
able to evaluate distribution alternatives, select the most 
appropriate alternative, and notify the plan of the selection 
within a 90-day period. The Committee believes that requiring a 
plan to furnish multiple distribution notices to an employee 
who does not make a distribution election within 90 days is 
administratively burdensome. In addition, the Committee 
believes that participants who are entitled to defer 
distributions should be informed of the impact of a decision 
not to defer distribution on the taxation and accumulation of 
their retirement benefits.

H.R. 1000's Annual Report Dissemination

    Section 104(b)(3) of ERISA requires that within nine months 
after the close of each plan year, the plan administrator must 
``furnish'' a summary annual report to each plan participant 
and to each beneficiary receiving benefit. The summary annual 
report is a summary of the annual report filed with the DOL 
regarding the financial position and management of the plan.
    The bill requires that plan administrators furnish a 
summary annual report would be satisfied if the report were 
made reasonably available through electronic means or other new 
technology. This provision would be interpreted consistent with 
the regulations of the Departments of Labor and Treasury. The 
change applies to reports for years beginning after December 
31, 2003.
    The Committee believes that this simplification of the 
summary annual report requirement will reduce the burden and 
cost of plan administration and disclosure, thereby encouraging 
more employers to establish and maintain retirement plans.

H.R. 1000's Technical Corrections to the SAVER Act

    The Savings Are Vital to Everyone's Retirement (SAVER) Act 
of 1997 (P.L. 105-92), in addition to establishing an ongoing 
program by the Department of Labor on retirement savings 
education and outreach \74\ convenes a National Summit on 
Retirement Savings at the White House, cohosted by the 
President and the bipartisan Congressional leadership.\75\ 
Summits were held in 1998 and 2002. The National Summit brings 
together experts in the fields of employee benefits and 
retirement savings, key leaders of government, and interested 
parties from the private sector and general public. The 
Congressional leadership and the President select the 
delegates. The National Summit is a public-private partnership, 
receiving substantial funding from private sector 
contributions. The goals of the National Summits are to: (1) 
advance the public's knowledge and understanding of retirement 
savings and facilitate the development of a broad-based, public 
education program; (2) identify the barriers which hinder 
workers from setting aside adequate savings for retirement and 
impede employers, especially small employers, from assisting 
their workers in accumulating retirement savings; and (3) 
develop specific recommendations for legislative, executive, 
and private sector actions to promote retirement income savings 
among American workers.
---------------------------------------------------------------------------
    \74\ P.L. 105-92, sec. 516.
    \75\ Ibid. sec. 517.
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    This section of H.R. 1000 makes technical amendments to the 
SAVER Act regarding the administration of future statutorily 
created National Summits on Retirement Savings. It clarifies 
that a National Summit shall be held in 2006, and adds an 
additional National Summit in 2010. To facilitate the 
administration of future National Summits, the DOL is given 
authority to enter into cooperative agreements (pursuant to the 
Federal Grant and Cooperative Agreement Act of 1977) with any 
appropriate, qualified entity.
    Six new statutory delegates are added to future summits: 
the Chairman and Ranking Member of the House Ways and Means 
Committee, the Senate Finance Committee, and the Subcommittee 
on Employer-Employee Relations of the House Education and the 
Workforce Committee, respectively.
    H.R. 1000 also sets deadlines for DOL to publish the Summit 
agenda, make delegate appointment, and gives DOL limited 
reception and representation authority. The section is 
effective upon date of enactment.
    H.R. 1000 clarifies the administration of future National 
Summits and is designed to assist in their planning and 
execution.

H.R. 1000's Expansion of the Missing Participants Program

    The plan administrator of a defined benefit pension plan 
that is subject to Title IV of ERISA, is maintained by a single 
employer, and terminates under a standard termination is 
required to distribute the assets of the plan. With respect to 
a participant whom the plan administrator cannot locate after a 
diligent search, the plan administrator satisfies the 
distribution requirement only by purchasing irrevocable 
commitments from an insurer to provide all benefit liabilities 
under the plan or transferring the participant's designated 
benefit to the PBGC, which holds the benefit of the missing 
participant as trustee until the PBGC locates the missing 
participant and distributes the benefit. The PBGC missing 
participant program is not available to multiemployer plans or 
defined contribution plans and other plans not covered by Title 
IV of ERISA.
    H.R. 1000 directs the PBGC to prescribe rules for 
terminating multiemployer plans similar to the present-law 
missing participant rules applicable to terminating single 
employer plans that are subject to Title IV of ERISA. The 
missing participants program is also extended to defined 
contribution plans, defined benefit plans that do not have more 
than 25 active participants and are maintained by professional 
service employers, and the portions of defined benefit plans 
that provide benefits based upon the separate accounts of 
participants and therefore are treated as defined contribution 
plans under ERISA.
    The provision is effective for distributions from 
terminating plans that occur after the PBGC adopts final 
regulations implementing the provision. The Committee expects 
the regulations to be completed within one year.
    By allowing plan sponsors the option of transferring 
pension funds to PBGC, the chances will be increased that a 
missing participant will be able to recover benefits. Sponsors 
of terminated multiemployer plans and plans that are not 
covered by Title IV face uncertainty with respect to missing 
participants due to a lack of statutory or regulatory guidance. 
The Committee believes that it is appropriate to extend the 
established PBGC missing participant program to these plans in 
order to reduce uncertainty for plan sponsors and increase the 
likelihood that missing participants will receive their 
retirement benefits.

H.R. 1000's Reduction of PBGC Premium for New Plans of Small Employers

    Under present law ERISA sec. 4006, the Pension Benefit 
Guaranty Corporation (``PBGC'') provides insurance protection 
for participants and beneficiaries under certain defined 
benefit pension plans by guaranteeing certain basic benefits 
under the plan in the event the plan is terminated with 
insufficient assets to pay benefits promised under the plan. 
The guaranteed benefits are funded in part by premium payments 
from employers who sponsor defined benefit plans. The amount of 
the required annual PBGC premium for a single-employer plan is 
generally a flat rate premium of $19 per participant and an 
additional variable rate premium based on a charge of $9 per 
$1,000 of unfunded vested benefits. Unfunded vested benefits 
under a plan generally means (1) the unfunded current liability 
for vested benefits under the plan, over (2) the value of the 
plan's assets, reduced by any credit balance in the funding 
standard account. No variable rate premium is imposed for a 
year if contributions to the plan were at least equal to the 
full funding limit.
    The PBGC guarantee is phased in ratably in the case of 
plans that have been in effect for less than 5 years, and with 
respect to benefit increases from a plan amendment that was in 
effect for less than 5 years before termination of the plan.
    Under the provision in H.R. 1000, for the first five plan 
years of a new single-employer plan of a small employer, the 
flat-rate PBGC premium is $5 per plan participant.
    A small employer is a contributing sponsor that, on the 
first day of the plan year, has 100 or fewer employees. For 
this purpose, all employees of the members of the controlled 
group of the contributing sponsor are taken into account. In 
the case of a plan to which more than one unrelated 
contributing sponsor contributes, employees of all contributing 
sponsors (and their controlled group members) are taken into 
account in determining whether the plan is a plan of a small 
employer.
    A new plan means a defined benefit plan maintained by a 
contributing sponsor if, during the 36-month period ending on 
the date of adoption of the plan, such contributing sponsor (or 
controlled group member or a predecessor of either) has not 
established or maintained a plan subject to PBGC coverage with 
respect to which benefits were accrued for substantially the 
same employees as are in the new plan. The provisions relating 
to new plans apply for plans effective after December 31, 2003.
    The Committee believes that reducing the PBGC premiums for 
new and small plans will help encourage the establishment of 
defined benefit pension plans. The number of single-employer 
defined benefit plans covered by PBGC has declined dramatically 
in recent years--from 112,000 in 1985 to 43,000 in 1997. Most 
of the decline is because of the termination of small plans. An 
employer incurs a number of one-time costs to establish a plan. 
The legislation is intended to remove the PBGC premium as a 
disincentive to the establishment of a defined benefit plan by 
a small employer.

H.R. 1000's Reduction of Additional PBGC Premium for New and Small 
        Plans

    Under present law, the PBGC provides insurance protection 
for participants and beneficiaries under certain defined 
benefit pension plans by guaranteeing certain basic benefits 
under the plan in the event the plan is terminated with 
insufficient assets to pay benefits promised under the plan. 
The guaranteed benefits are funded in part by premium payments 
from employers who sponsor defined benefit plans. The amount of 
the required annual PBGC premium for a single-employer plan is 
generally a flat rate premium of $19 per participant and an 
additional variable rate premium based on a charge of $9 per 
$1,000 of unfunded vested benefits. Unfunded vested benefits 
under a plan generally means (1) the unfunded current liability 
for vested benefits under the plan, over (2) the value of the 
plan's assets, reduced by any credit balance in the funding 
standard account. No variable rate premium is imposed for a 
year if contributions to the plan were at least equal to the 
full funding limit.
    The PBGC guarantee is phased in ratably in the case of 
plans that have been in effect for less than 5 years, and with 
respect to benefit increases from a plan amendment that was in 
effect for less than 5 years before termination of the plan.
    H.R. 1000 amends ERISA sec. 4006(a)(3) to provide that the 
variable premium is phased in for new defined benefit plans 
over a six-year period starting with the plan's first plan 
year. The amount of the variable premium is a percentage of the 
variable premium otherwise due, as follows: 0 percent of the 
otherwise applicable variable premium in the first plan year; 
20 percent in the second plan year; 40 percent in the third 
plan year; 60 percent in the fourth plan year; 80 percent in 
the fifth plan year; and 100 percent in the sixth plan year 
(and thereafter).
    A new plan would mean a defined benefit plan maintained by 
a contributing sponsor if, during the 36 month period ending on 
the date of adoption of such plan, such contributing sponsor 
(or controlled group member or a predecessor of either) had not 
established or maintained a plan subject to PBGC coverage with 
respect to which benefits were accrued to substantially the 
same employees as in the new plan.
    The provision also provides that, in the case of any plan 
(not just a new plan) of an employer with 25 or fewer 
employees, the variable-rate premium is no more than $5 
multiplied by the number of plan participants in the plan at 
the close of the preceding year.
    The provision relating to premiums for new plans is 
effective for plans established after December 31, 2003. The 
provision reducing the PBGC variable premium for small plans is 
effective for years beginning after December 31, 2003.
    The Committee believes this provision will help encourage 
the establishment of defined benefit pension plans. The number 
of single-employer defined benefit plans covered by PBGC has 
declined dramatically in recent years--from 112,000 in 1985 to 
43,000 in 1997. Moreover, employers that establish plans are 
not choosing defined benefit plans. The PBGC variable rate 
premium can be a disincentive to some employers.

H.R. 1000's Authorization for PBGC To Pay Interest on Premium 
        Overpayment Refunds

    Under Sec. 4007(b) of ERISA, the PBGC charges interest on 
underpayments of premiums, but is not authorized to pay 
interest on overpayments. The provision in H.R. 1000 allows the 
PBGC to pay interest on overpayments made by premium payers. 
Interest paid on overpayments is to be calculated at the same 
rate and in the same manner as interest is charged on premium 
underpayments. The provision is effective with respect to 
interest accruing for periods beginning not earlier than the 
date of enactment.
    The Committee believes that premium payers should receive 
interest on monies that are owed to them and that this 
provision will decrease the burden on employers sponsoring 
these types of plans.

H.R. 1000's Substantial Owner Benefits in Terminated Plans

    The PBGC provides participants and beneficiaries in a 
defined benefit pension plan with certain minimal guarantees as 
to the receipt of benefits under the plan in case of plan 
termination. The employer sponsoring the defined benefit 
pension plan is required to pay premiums to the PBGC to provide 
insurance for the guaranteed benefits. In general, the PBGC 
will guarantee all basic benefits which are payable in periodic 
installments for the life (or lives) of the participant and his 
or her beneficiaries and are non-forfeitable at the time of 
plan termination. The amount of the guaranteed benefit is 
subject to certain limitations. One limitation is that the plan 
(or an amendment to the plan which increases benefits) must be 
in effect for 60 months before termination for the PBGC to 
guarantee the full amount of basic benefits for a plan 
participant, other than a substantial owner. In the case of a 
substantial owner, the guaranteed basic benefit is phased in 
over 30 years beginning with participation in the plan. A 
substantial owner is one who owns, directly or indirectly, more 
than 10 percent of the voting stock of a corporation or all the 
stock of a corporation. Special rules restricting the amount of 
benefit guaranteed and the allocation of assets also apply to 
substantial owners.
    H.R. 1000 provides that the 60-month phase-in of guaranteed 
benefits applies to a substantial owner with less than 50 
percent ownership interest. For a substantial owner with a 50 
percent or more ownership interest (``majority owner''), the 
phase-in depends on the number of years the plan has been in 
effect. The majority owner's guaranteed benefit is limited so 
that it may not be more than the amount phased in over 60 
months for other participants. The rules regarding allocation 
of assets apply to substantial owners, other than majority 
owners, in the same manner as other participants.
    The provision is effective for plan terminations with 
respect to which notices of intent to terminate are provided, 
or for which proceedings for termination are instituted by the 
PBGC, after December 31, 2003.
    The Committee believes that the present-law rules 
concerning limitations on guaranteed benefits for substantial 
owners are overly complicated and restrictive and thus may 
discourage some small business owners from establishing defined 
benefit pension plans. Moreover, the current special 
substantial owner rules are inordinately complex and require 
plan documents going back as far as 30 years, which are often 
difficult or impossible to obtain.

H.R. 1000's Benefit Suspension Notice

    Section 203(a)(3)(B) of ERISA provides that a plan will not 
fail to satisfy the vesting requirements with respect to a 
participant by reason of suspending payment of the 
participant's benefits while such participant is employed. 
Under the applicable Department of Labor regulations, such a 
suspension is only permissible if the plan notifies the 
participant during the first calendar month or payroll period 
in which the plan withholds benefit payments. Such notice must 
provide certain information and must also include a copy of the 
plan's provisions relating to the suspension of payments.
    In the case of a plan that suspends benefits for 
participants working past normal retirement age (i.e., does not 
commence benefit payments to those participants and also does 
not provide an actuarially increased benefit upon retirement), 
the employer must monitor plan participants to determine when 
any participant who is still employed attains normal retirement 
age. In order to ``suspend'' payment of such a participant's 
benefits, generally a plan must, as noted above, promptly 
provide the participant with a suspension notice.
    H.R. 1000 directs the Secretary of Labor to revise the 
regulations relating to the benefit suspension notice to 
generally permit the information currently required to be set 
forth in a suspension notice to be included in the summary plan 
description. The provision also directs the Secretary of Labor 
to eliminate the requirement that the notice include a copy of 
relevant plan provisions. However, individuals reentering the 
workforce to resume work with a former employer--or with an 
employer that belongs to the same multiemployer pension plan--
after they have begun to receive benefits will still receive 
the notification of the suspension of benefits (and a copy of 
the plan's provisions relating to suspension of payments). In 
addition, if a reduced rate of future benefit accrual will 
apply to a returning employee (as of his or her first date of 
participation in the plan after returning to work) who has 
begun to receive benefits, the notice must include a statement 
that the rate of future benefit accrual will be reduced. The 
individual benefit-suspension statement only need include such 
notice of reduction of future benefit accrual where the 
reduction is the result of a plan amendment covered under 
section 204(h). Such notice should include a description of the 
change and the date it took effect. The modification made under 
this section shall apply to plan years beginning after December 
31, 2003.
    The Committee believes that the present-law rules regarding 
suspension notices create unjustified burdens on defined 
benefit plans that do not pay benefits to active participants 
upon attainment of normal retirement age when they continue to 
draw pay. This dispenses with individual notices going to 
employees at the time they attain the normal retirement age--a 
practice that often unduly alarms workers who believe they are 
being encouraged to retire by their employer. The provision 
does provide notice of suspension to those who are reentering 
the workforce, along with notice of any reduction in rate of 
future benefit accrual.

H.R. 1000's Studies

    Study on small employer group plans: H.R. 1000 directs the 
Department of Labor, in consultation with the Treasury 
Department, to conduct a study to determine (1) the most 
appropriate form(s) of pension plans that would be simple to 
create and easy to maintain by multiple small employers, while 
providing ready portability of benefits for all participants 
and beneficiaries, (2) how such arrangements could be 
established by employer or employee associations, (3) how such 
arrangements could provide for employees to contribute 
independent of employer sponsorship, and (4) appropriate 
methods and strategies for making such pension plan coverage 
more widely available to American workers.
    The Department is to consider the adequacy and availability 
of existing pension plans and the extent to which existing 
models may be modified to be more accessible to both employees 
and employers. The Secretary of Labor is to issue a report 
within 18 months, including recommendations for one or more 
model plans or arrangements as described above which may serve 
as the basis for appropriate administrative or legislative 
action.
    Study on pension coverage: H.R. 1000 also directs the 
Secretary of Labor to report to the Committee on Education and 
the Workforce of the House of Representatives and the Committee 
on Health, Education, Labor and Pensions of the Senate 
regarding the effect of the bill on pension coverage, 
including: the extent of pension plan coverage for low and 
middle-income workers, the levels of pension plan benefits 
generally, the quality of pension plan coverage generally, 
worker's access to and participation in pension plans, and 
retirement security. This report is required to be submitted no 
later than five years after the date of enactment. This section 
is effective upon enactment.
    The Committee believes that the possibility of small 
employer pooling for pension coverage is worthy of study and 
consideration. During Committee hearings, witnesses have 
focused on the problem of low pension plan sponsorship rates by 
small employers. Some have proposed a possible solution of 
allowing individual small employers to join together to sponsor 
pension plans or to join into an existing group pension plan 
vehicle (similar to the ``association health plan'' concept 
reported out by the Employer-Employee Relations Subcommittee in 
the 106th Congress in H.R. 2047).
    The Committee also believes that it is appropriate to study 
the effects of this Act on pension coverage.

H.R. 1000's Interest Rate Range for Additional Funding Requirements

    ERISA and the Code impose both minimum and maximum funding 
requirements with respect to defined benefit pension plans. The 
minimum funding requirements are designed to provide at least a 
certain level of benefit security by requiring the employer to 
make certain minimum contributions to the plan. The amount of 
contributions required for a plan year is generally the amount 
needed to fund benefits earned during that year plus that 
year's portion of other liabilities that are amortized over a 
period of years, such as benefits resulting from a grant of 
past service credit.
    Additional contributions are required under a special 
funding rule if a single-employer defined benefit pension plan 
is underfunded. Under the special rule, a plan is considered 
underfunded for a plan year if the value of the plan assets is 
less than 90 percent of the plan's current liability. The value 
of plan assets, as a percentage of current liability is the 
plan's ``funded current liability percentage.''
    In general, a plan's current liability means all 
liabilities to employees and their beneficiaries under the 
plan. The interest rate used to determine a plan's current 
liability must be within a permissible range of the weighted 
average of the interest rates on 30-year Treasury securities 
for the four-year period ending on the last day before the plan 
year begins. The permissible range is from 90 percent to 105 
percent. As a result of debt reduction, the Department of the 
Treasury does not currently issue 30-year Treasury securities.
    In general, plan contributions required to satisfy the 
funding rules must be made within 8\1/2\ months after the end 
of the plan year. If the contribution is made by such due date, 
the contribution is treated as if it were made on the last day 
of the plan year. In the case of a plan with a funded current 
liability percentage of less than 100 percent for the preceding 
plan year, estimated contributions for the current plan year 
must be made in quarterly installments during the current plan 
year. The amount of each required installment is 25 percent of 
the lesser of (1) 90 percent of the amount required to be 
contributed for the current plan year or (2) 100 percent of the 
amount required to be contributed for the preceding plan year.
    Because benefits under a defined benefit pension plan may 
be funded over a period of years, plan assets may not be 
sufficient to provide the benefits owed under the plan to 
employees and their beneficiaries if the plan terminates before 
all benefits are paid. In order to protect employees and their 
beneficiaries, the Pension Benefit Guaranty Corporation 
(``PBGC'') generally insures the benefits owed under defined 
benefit pension plans. Employers pay premiums to the PBGC for 
this insurance coverage.
    In the case of an underfunded plan, additional PBGC 
premiums are required based on the amount of unfunded vested 
benefits. These premiums are referred to as ``variable rate 
premiums.'' In determining the amount of unfunded vested 
benefits, the interest rate used is 85 percent of the interest 
rate on 30-year Treasury securities for the month preceding the 
month in which the plan year begins.
    Section 405 of the Job Creation and Worker Assistance Act 
of 2002, Public Law 107-147, enacted March 9, 2002, provides a 
special interest rate rule applicable in determining the amount 
of additional contributions for plan years beginning after 
December 31, 2001, and before January 1, 2004 (the ``applicable 
plan years'').
    The special rule expands the permissible range of the 
statutory interest rate used in calculating a plan's current 
liability for purposes of applying the additional contribution 
requirements for the applicable plan years. The permissible 
range is from 90 percent to 120 percent for these years. Use of 
a higher interest rate under the expanded range will affect the 
plan's current liability, which may in turn affect the need to 
make additional contributions and the amount of any additional 
contributions.
    Because the quarterly contributions requirements are based 
on current liability for the preceding plan year, a special 
rule is provided for applying these requirements for plan years 
beginning in 2002 (when the expanded range first applies) and 
2004 (when the expanded range no longer applies). In each of 
those years (``present year''), current liability for the 
preceding year is redetermined, using the permissible range 
applicable to the present year. This redetermined current 
liability will be used for purposes of the plan's funded 
current liability percentage for the preceding year, which may 
affect the need to make quarterly contributions and for 
purposes of determining the amount of any quarterly 
contributions in the present year, which is based in part on 
the preceding year.
    Under the provisions of H.R. 1000, the special interest 
rate rule for 2002 and 2003 would apply also in determining the 
amount of additional contributions for the 2001 plan year that 
must be contributed to the plan within 8\1/2\ months after the 
end of the plan year (e.g., by September 15, 2002). The 
proposal would not affect quarterly contributions required to 
be made for the 2001 plan year.
    In addition, due to this change in the interest rate, the 
bill conforms those provisions of ERISA which are directly 
related to the consequences of a plan being under funded such 
as the establishment of a separate fund in the PBGC for 
additional premiums, the special participant notice 
requirements, reporting requirements to the PBGC and 
information that the PBGC may request in underfunding 
situations.
    The provisions of the bill would be effective as if 
included in section 405 of the Job Creation and Worker 
Assistance Act of 2002.
    The Committee notes that the Treasury Department has 
discontinued issuing the 30-Year Treasury bond. Pension plans 
are required to use this rate as a benchmark for a variety of 
pension calculation purposes, including the valuation of 
current funding liabilities and Pension Benefit Guaranty 
Corporation (PBGC) variable premium calculations. The decision 
by Treasury compels the Committee to adjust the interest rate 
for these purposes.
    The 30-Year Treasury Bond interest rate is at historic 
lows, causing it to be an inaccurate proxy for long-term rates 
of return likely to be earned by pension funds. By increasing 
the acceptable range of the percentage part of the funding 
formula, which uses the 30-Year Treasury bond as its base, plan 
sponsors will have a more realistic interest rate assumption 
when calculating necessary contributions to defined benefit 
plans.
    The Committee believes that this change will prevent plan 
sponsors from both making unneeded contributions to pension 
plans and paying unwarranted extra premiums to the PBGC for 
under-funding situations that do not exist. Since these under-
funding situations do not exist, the special participant notice 
and PBGC reporting requirements will not apply. (The valuation 
of lump sum distributions from pension plans is not affected by 
this change.)

H.R. 1000's Provisions Relating to Plan Amendments

    Currently, plans making amendments because of changes in 
the law must make them by the time they are required to file 
income taxes for the year in which the change in law occurs.
    H.R. 1000 eases this burden on plans by permitting certain 
plan amendments made pursuant to the changes made by the bill 
(or regulations issued under the provisions of the bill) to be 
retroactively effective. If the plan amendment meets the 
requirements of the bill, then the plan is treated as being 
operated in accordance with its terms and the amendment does 
not violate the prohibition of reductions of accrued benefits. 
In order for this treatment to apply, the plan amendment must 
be made on or before the last day of the first plan year 
beginning on or after January 1, 2006.
    The provision applies to plan amendments required to 
maintain qualified status, as well as other amendments pursuant 
to the provisions of the bill (or applicable regulations). A 
plan amendment is not considered to be pursuant to the bill (or 
applicable regulations) if it has an effective date before the 
effective date of the provision of the bill (or regulations) to 
which it relates. Similarly, the provision does not provide 
relief from section 204(g) or Internal Revenue Code section 
411(d)(6) for periods prior to the effective date of the 
relevant provision of the bill (or regulations) or the plan 
amendment. The Secretary of the Treasury is given authority to 
provide exceptions to the relief from the prohibition on 
reductions in accrued benefits. The provision is effective on 
the date of enactment.
    The Committee believes that plan sponsors should have 
adequate time to amend their plans to reflect amendments to the 
law.

                                Summary

    Title I of ERISA contains fundamental protections for 
participants and beneficiaries of employee benefit plans. Part 
I of Title I sets forth the duties of plan administrators to 
notify participants and beneficiaries of the terms of the 
benefit plans in which they participate, their rights under 
these plans, and the benefits which have accrued under the 
terms of their plans. Part 4 of Title I explains the 
fundamental duty of fiduciaries to act in the sole interest of 
participants and beneficiaries of employee benefit plans.
    When ERISA was enacted in 1974, Congress provided for such 
disclosure and safeguards as would protect employees' 
retirement security. In 1974, pension plans were primarily in 
the form of defined benefit plans, which made specific 
guarantees for retirement payments to ensure the retirement 
security of participants and beneficiaries.
    Today's workforce is very different than the workforce in 
1974. Today's retirement plan context is largely one of pension 
plans that are individual in nature where participants have the 
ability to direct their own accounts, choosing investments that 
best meet their retirement needs.
    Individual account plans necessitate different safeguards 
and standards for information disclosure in order to provide 
the same level of retirement security for participants and 
beneficiaries that was envisioned in 1974. As such, the 
provisions of H.R. 1000 represent a logical upgrade to the 
provisions of Title I of ERISA to ensure adequate retirement 
protection for today's workforce.
    The bill requires the plan administrator to provide a 
quarterly notice to plan participants and beneficiaries of 
self-directed plans of the value of investments allocated to 
their individual account, including their rights to diversify 
any assets held in qualified employer securities. The notice 
will also include an explanation of the importance of a 
diversified investment portfolio including the risk of holding 
substantial portions of a portfolio in any one security, such 
as qualified employer securities. The bill also provides civil 
penalties for failure to properly adhere to such notice 
requirements.
    The bill clarifies that fiduciaries are not liable for 
losses during a period of suspension provided that fiduciaries 
satisfy their fiduciary obligation with regard to the 
interruption of participant and beneficiary's ability to direct 
or diversify assets. H.R. 1000 outlines relevant considerations 
in determining the satisfaction of fiduciary duty, such as the 
provision of the blackout notice, the fiduciary's consideration 
of the reasonableness of the period of suspension, and the 
fiduciary's actions solely in the interest of participants and 
beneficiaries. If fiduciaries meet these requirements, the bill 
protects them from any losses sustained by participants and 
beneficiaries during a period of suspension.
    In order to promote the education of fiduciaries as to 
their fiduciary obligations, the bill requires the Department 
of Labor to establish a program to make information and 
educational resources available to pension plan fiduciaries on 
an ongoing basis in order to assist them in diligently and 
efficiently carrying out their fiduciary duties with respect to 
the plan.
    H.R. 1000 mandates that participants must be able to 
diversify contributions to their account that are in the form 
of employer securities after three years. The bill provides for 
the option of a rolling three-year diversification of employer 
securities. In this case employer securities may be diversified 
three years after the calendar quarter in which they were 
contributed. The bill also sets forth a five-year transition 
rule for the allowable diversification of employer securities 
held in individual account plans as of the date of enactment. 
The bill exempts individual account plans that do not hold 
employer securities that are readily tradable on an established 
securities market from the diversification requirements.
    H.R. 1000 requires the Secretary of Labor to undertake a 
study of the costs and benefits to participants and 
beneficiaries of requiring independent consultants to advise 
plan fiduciaries in connection with the administration of 
individual account plans.
    The bill includes the text of H.R. 2269, the Retirement 
Security Advice Act, which, as modified, provides increased 
availability of investment advisors to assist plan participants 
in making good decisions about their retirement assets.
    The bill also includes provisions contained in H.R. 10 from 
the first session of the 107th Congress which were excluded 
because of a Senate procedural rule affecting the Conference 
Report of H.R. 1836, the ``Economic Growth and Tax Relief 
Reconciliation Act.'' H.R. 1000 provides incentives to small 
businesses to offer pension plans to their workers by lowering 
Pension Benefit Guaranty Corporation (PBGC) premiums for new 
small business defined benefit plans. The bill allows the PBGC 
to pay employers interest if they over pay their premiums to 
it. Furthermore, the bill also expands the missing participant 
program administered by the PBGC to include defined 
contribution plans so that individuals may locate 401(k) money 
they may have left with a previous employer. The bill also 
modifies the rules of the PBGC for small business owners when 
plans terminate.
    H.R. 1000 extends the notice and consent period for 
distributions to allow individuals to plan for and request a 
pension distribution further in advance, while also modifying 
the rules dealing with the distribution of the Benefit 
Suspension Notice to those employees who although they have 
reached retirement age, continue to work for their employer.
    Part 5 of Title I of ERISA provides for the holding of 
National Summits on Retirement Savings to advance the public's 
knowledge and awareness of the importance of saving for their 
future retirement. The bill provides for Summits in 2006 and 
2010 and modifies the appointment procedure for delegate 
selection.
    The bill also provides for a study on small employer group 
plans and the effect of the legislation on pension plans.
    Finally, the bill also includes provisions dealing with 
problems that have arisen due to the change in status of the 
30-year Treasury bond and certain mortality tables as a 
benchmark for certain pension calculations.
    On this last point, ERISA requires defined benefit plans to 
make annual contributions based upon calculations that take 
into account the liability of the plan to pay benefits to 
participants. A statutory factor in these calculations is the 
30-year Treasury bond. With the government buy back of some of 
these bonds in the past few years in response to the budget 
surplus and the announcement by the Department of the Treasury 
in the fall of 2001 that they were no longer going to issue 
these instruments, its validity as a statutory benchmark has 
been brought into question.
    The mortality tables used by defined benefit pension plans 
to determine funding requirements can sometimes be 
inappropriate for certain pension plans. In 1997, Congress 
granted interim relief to certain frozen (no new participants) 
plans of inter-city bus companies because these tables did not 
accurately reflect the mortality experience of the plan. The 
bill specifies that this relief is permanent.

                      Section-by-Section Analysis


Section 1. Short Title and Table of Contents

    ``Pension Security Act of 2003.''

Section 101. Periodic Pension Benefits Statements

    H.R. 1000 amends ERISA to require plan administrators to 
provide a quarterly notice to plan participants and 
beneficiaries who have a right to direct their investments 
regarding the value of investments allocated to their 
applicable individual account. Provisions from H.R. 10 were 
also incorporated into H.R. 1000 to require plan administrators 
of all individual account plans to provide a pension benefit 
statement at least annually. For purposes of the quarterly 
benefit statement, the value of such securities that are not 
readily tradable on an established securities market may be 
determined by using the most recent valuation.
    The bill also requires administrators of defined benefit 
plans to furnish a benefit statement to each participant of a 
defined benefit plan at least once every three years and to a 
plan participant or beneficiary upon written request. In the 
case of a defined benefit plan, if administrators annually 
provide participants with a notice of the availability of a 
pension benefit statement, the new requirements are treated as 
having been met.
    The new quarterly benefit statement for applicable 
individual accounts will include a statement of each 
participant's right to diversify any assets held in employer 
securities. The benefit statement will also include an 
explanation of the importance of a diversified investment 
portfolio including the risk of holding substantial portions of 
a portfolio in any one security, such as employer securities.
    Applicable individual account plans are defined by limiting 
the definition of individual account plan in ERISA to exclude 
employee stock ownership plans unless there are any 
contributions to such plan or earnings held within such plan 
that are subject to subsection (k)(3) or (m)(2) of section 401 
of the IRS Code of 1986.
    The Secretary shall issue guidance and model notices that 
include the value of investments, the rights of employees to 
diversify any employer securities and an explanation of the 
importance of a diversified investment portfolio. The Secretary 
may also issue interim model guidance.
    The bill amends Section 502 of ERISA to allow the Secretary 
to assess a civil penalty against a plan administrator of up to 
$1,000 a day from the date of such plan administrator's failure 
to provide participants and beneficiaries with a benefit 
statement on a quarterly basis.

Section 102. Inapplicability of Relief From Fiduciary Liability During 
        Blackout Periods

    H.R. 1000 amends Section 404(c)(1) of ERISA to state that 
the exemption from liability shall not apply in connection with 
any period where a participant or beneficiary's ability to 
direct the investment of the assets in his or her account is 
suspended by a plan sponsor or fiduciary. The bill also adds 
another paragraph that specifies that if fiduciaries meet 
certain requirements, they shall not be liable in a suspension 
period. The bill adds relevant matters to be considered in 
determining whether or not a fiduciary has met their 
obligations. These include the consideration of the 
reasonableness of the suspension period and the provision of 
notice to participants and beneficiaries. The bill also 
restates the implicit fiduciary duty to act in the sole 
interest of participants and beneficiaries in determining to 
enter into the suspension as another matter to be considered. 
As H.R. 1000 indicates, it is only then that fiduciaries are 
relieved of their own liability and granted the 404(c) 
liability protection.
    H.R. 1000 provides that limitations or restrictions in 
trading that are disclosed to plan participants in the summary 
plan description are not considered a blackout.
    In connection with changes in investment options offered 
under the plan, the participant or beneficiary will be deemed 
to have exercised control if the participant or beneficiary 
received notice of the change in investment option and either 
transferred their assets in an affirmative election. In the 
case where the participant or beneficiary fails to make an 
election, if the assets are transferred to the investments as 
set out in the notice of the option change, then the 
participant will be deemed to have exercised control.
    H.R. 1000 provides that the Secretary shall issue guidance 
and model notices that include the above factors and such other 
provisions the Secretary may specify. The initial guidance will 
be promulgated no later than December 31, 2004. The Secretary 
may also issue interim model guidance.

Section 103. Information and Educational Support for Pension Plan 
        Fiduciaries

    H.R. 1000 amends Section 404 of ERISA to direct the 
Department of Labor to establish a program to make information 
and educational resources available to pension plan fiduciaries 
on an ongoing basis in order to assist them in diligently and 
efficiently carrying out their fiduciary duties with respect to 
the plan.

Section 104. Limitations on Restrictions of Investments in Employer 
        Securities

    The bill creates a diversification right for individual 
account plans that hold employer securities readily tradable on 
an established securities market. After a participant has 
completed three years of service, the plan may not restrict 
divestment of any employer security held by the participant or 
it may not restrict divestment of any employer security later 
than 3 years during a calendar quarter after the employer 
security is allocated to the individual account.
    A plan must offer a broad range of investment alternatives 
as determined by the Secretary in which the plan participant 
must be allowed to re-allocate and the plan participant must be 
given the right to re-allocate on a periodic, reasonable basis, 
but no less frequently than on a quarterly basis.
    Plans holding employer securities as of the date of 
enactment, must provide for the removal of all trading 
restrictions on those securities on an increasing percentage 
basis annually and requiring complete diversification by the 
plan year beginning 2008.

Section 105. Prohibited Transaction Exemption for the Provision of 
        Investment Advice

    The bill provides a statutory exemption from the prohibited 
transaction rules of the Employee Retirement Income Security 
Act (ERISA) and the Internal Revenue Code (a new 
Sec. 408(b)(14) of ERISA and a new Sec. 4975(d)(14) of the IRC) 
for: (1) the provision of investment advice regarding plan 
assets subject to the direction of plan participants and 
beneficiaries plan to a plan, its participants and 
beneficiaries, (2) the sale, acquisition, or holding of 
securities or other property pursuant to such investment 
advice, and (3) the direct or indirect receipt of fees or other 
compensation in connection with providing the advice.
    In order to qualify for the exemption, an entity must be a 
``fiduciary adviser'' and must meet a series of detailed 
requirements. The bill defines the following regulated entities 
to qualify as fiduciary advisers: registered investment 
advisers, the trust department of banks or similar 
institutions, insurance companies, registered broker-dealers, 
and the affiliates, employees, agents, or registered 
representatives of those entities who satisfy the requirements 
of the applicable insurance, banking and securities laws with 
respect to the provision of such advice.
    The fiduciary adviser, at a time reasonably contemporaneous 
with the initial delivery of investment advice on a security or 
other property, must provide a clear and conspicuous written 
(including electronic) disclosure of: (1) the fees or other 
compensation that the fiduciary adviser and its affiliates 
receive relating to the provision of investment advice or a 
resulting sale or acquisition of securities or other property 
(including from third parties), (2) any interest of the 
fiduciary adviser (and its affiliates) in any security or other 
property recommended, purchased or sold, (3) any limitation 
placed on the fiduciary's ability to provide advice, (4) the 
advisory services offered, and (5) that the adviser is acting 
as a fiduciary of the plan in connection with the provision of 
such advice; (6) any information required to be disclosed under 
applicable securities laws and (7) that the plan participant 
may seek advice from an unaffiliated adviser. This disclosure 
must be written in a way that the average plan participant 
could understand the information. This material must be 
maintained in currently accurate form. The Secretary of Labor 
will issue a model disclosure form.
    Any investment advice provided to participants or 
beneficiaries may be implemented (through a purchase or sale of 
securities or other property) only at their direction.
    The terms of the transaction must be at least as favorable 
to the plan as an arm's length transaction would be, and the 
compensation received by the fiduciary adviser (and its 
affiliates) in connection with any transaction must be 
reasonable. The fiduciary adviser must also provide a written 
acknowledgement that it is acting as a fiduciary of the plan to 
the plan sponsor.
    Fiduciary advisers must comply with a six-year record-
keeping requirement (for records necessary to determine whether 
the conditions of the exemption have been met).
    A plan sponsor or other fiduciary that arranges for a 
fiduciary adviser to provide investment advice to participants 
and beneficiaries has no duty to monitor the specific 
investment advice given by the fiduciary adviser to any 
particular recipient of advice. The plan sponsor or other 
fiduciary retains the duty of prudent selection and periodic 
review of the fiduciary adviser. The fiduciary adviser must 
acknowledge in writing to the plan sponsor that it is acting as 
a fiduciary of the plan with respect to the advice provided. 
Plan assets may be used to pay for the expenses of providing 
investment advice to participants and beneficiaries.

Section 106. Study Regarding Impact on Retirement Savings of 
        Participants and Beneficiaries by Requiring Fiduciary 
        Consultants for Individual Account Plans

    As modified by an amendment adopted in Committee, H.R. 1000 
requires the Secretary of Labor to undertake a study of the 
costs and benefits to participants and beneficiaries of 
requiring independent consultants to advise plan fiduciaries in 
connection with the administration of individual account plans.
    The study shall address the merit of a requirement, as well 
as relationship to such a requirement to the expenses borne by 
participants and beneficiaries, and the availability of 
individual account plans.

Section 107. Treatment of Qualified Retirement Planning Services

    The provision permits employers to offer employees a choice 
between cash compensation and eligible qualified retirement 
planning services. The provision only applies to qualified 
retirement planning services provided by a qualified investment 
advisor. It is intended that qualified investment advisors will 
be certified and regulated under applicable laws and 
regulations. In addition, qualified investment advisors also 
include investment advisors within a financial institution's 
trust or custody department chartered under the National Bank 
Act.

Section 108. Effective Dates and Related Rules

    The effective date of these titles is one year after the 
date of enactment.

Section 201. Amendments to Retirement Protection Act of 1994

    Retirement plans sponsored by interstate bus companies are 
facing inappropriate funding obligations that do not accurately 
reflect the economic realities underlying these plans or the 
interstate bus transportation industry. This situation has 
arisen, in part, due to the decline and elimination of the 30 
year Treasury bond and the fixed mortality assumption that 
these plans must use under the General Agreement on Tariffs and 
Trade (GATT) legislation. Recognizing this situation, Congress 
temporarily exempted this industry from these rules in the 
Taxpayer Relief Act of 1997, thus having the normal funding 
rules of ERISA apply to them. This section makes that exemption 
from the GATT funding rules permanent.

Section 202. Reporting Simplification

    The Secretary of the Treasury and the Secretary of Labor 
are directed to modify the annual return filing requirements 
with respect to plans that satisfy the eligibility requirements 
for Form 5500-EZ (referred to as a ``one-participant plan'') to 
provide that if the total value of the plan assets of such a 
plan as of the end of the plan year does not exceed $250,000, 
the plan administrator is not required to file a return. In 
addition, the provision directs the Secretary of the Treasury 
and the Secretary of Labor to provide simplified reporting 
requirements for plan years beginning after December 31, 2003, 
for certain plans with fewer than 25 employees.

Section 203. Improvement of Employee Plans Compliance Resolution System

    The Secretary of the Treasury is directed to continue to 
update and improve EPCRS, giving special attention to (1) 
increasing the awareness and knowledge of small employers 
concerning the availability and use of EPCRS, (2) taking into 
account special concerns and circumstances that small employers 
face with respect to compliance and correction of compliance 
failures, (3) extending the duration of the self-correction 
period under SCP for significant compliance failures, (4) 
expanding the availability to correct insignificant compliance 
failures under SCP during audit, and (5) assuring that any tax, 
penalty, or sanction that is imposed by reason of a compliance 
failure is not excessive and bears a reasonable relationship to 
the nature, extent, and severity of the failure.
    The provision clarifies that the Secretary has the full 
authority to effectuate the foregoing with respect to EPCRS (or 
similar program or policies), including the authority to waive 
income, excise or other taxes to ensure that any tax, penalty 
or sanction is not excessive and bears a reasonable 
relationship to the nature, extent and severity of the failure.

Section 204. Flexibility in Nondiscrimination, Coverage, and Line of 
        Business Rules

    The Secretary of the Treasury is directed to modify, on or 
before December 31, 2003, the existing regulations issued under 
section 414(r) in order to expand (to the extent that the 
Secretary may determine to be appropriate) the ability of a 
plan to demonstrate compliance with the line of business 
requirements based upon the facts and circumstances surrounding 
the design and operation of the plan, even though the plan is 
unable to satisfy the mechanical tests currently used to 
determine compliance.
    The Secretary of the Treasury is directed to provide by 
regulation applicable to years beginning after December 31, 
2003, that a plan is deemed to satisfy the nondiscrimination 
requirements of section 401(a)(4) if the plan satisfied the 
pre-1994 facts and circumstances test, satisfied the conditions 
prescribed by the Secretary to appropriately limit the 
availability of such test, and is submitted to the Secretary 
for a determination of whether it satisfies such test (to the 
extent provided by the Secretary).
    Similarly, a plan will comply with the minimum coverage 
requirement of section 410(b) if the plan satisfied the pre-
1989 coverage rules, is submitted to the Secretary for a 
determination of whether it satisfied the pre-1989 coverage 
rules (to the extent provided by the Secretary), and satisfies 
conditions prescribed by the Secretary by regulation that 
appropriately limit the availability of the pre-1989 coverage 
rules.

Section 205. Extension to All Governmental Plans of Moratorium on 
        Application of Certain Nondiscrimination Rules Applicable to 
        State and Local Plans

    The provision exempts all governmental plans (as defined in 
sec. 414(d)) from the nondiscrimination and minimum 
participation rules.

Section 206. Notice and Consent Period Regarding Distributions

    Generally, benefits cannot be distributed before the later 
of age 62 or normal retirement age unless the participant 
consents no more than 90 days before benefit commencement. 
Also, information on the tax implications of rollovers must be 
given to the employee within 90 days of distribution. Under 
this provision, the notice and consent period regarding 
distributions would be expanded from 90 days to 180 days.

Section 207. Annual Report Dissemination

    Within 210 days after the close of a plan's fiscal year, 
the plan administrator must provide certain information to 
participants in a summary annual report (SAR). Under this 
section, Summary Annual Reports could now be distributed 
through electronic means (including Internet) or via other new 
technologies.

Section 208. Technical Corrections to the SAVER Act

    The Savings Are Vital to Everyone's Retirement (SAVER) Act 
of 1997 convenes a National Summit on Retirement Savings at the 
White House, which will be co-hosted by the executive and 
legislative branches in 2006 and 2010. The National Summit 
brings together experts in the fields of employee benefits and 
retirement savings, key leaders of government, and interested 
parties from the private sector and general public. The 
Congressional leadership and the President select the 
delegates. The National Summit is a public-private partnership, 
receiving substantial funding from private sector 
contributions. This section provides for technical amendments 
to the SAVER Act, regarding the administration of and delegate 
selection to future statutorily created National Summits on 
Retirement Savings.

Section 209. Missing Participants

    The PBGC acts as a clearinghouse for benefits due to 
participants who cannot be located. When a defined benefit plan 
terminates, the plan may transfer the benefits of the missing 
participant to the PBGC, which then attempts to locate the 
participant. Under this section, the PBGC's missing participant 
program would be expanded to cover defined contribution plans. 
This expansion would be voluntary at the election of the plan 
sponsor.

Section 210. Reduced PBGC Premiums for New Plans

    Defined benefit plans are subject to a flat-rate premium of 
$19 per participant. Underfunded defined benefit plans are 
subject to an additional variable rate premium. There is no 
variable rate premium for the first year of a new defined 
benefit plan. Under this provision, new defined benefit plans 
established by employers with 100 employees or less would only 
have to pay a $5 per participant PBGC premium for the first 5 
years of the plan. No variable rate premium would be assessed 
during this period.

Section 211. Reduction of Additional PBGC Premiums

    Defined benefit plans are subject to a flat-rate premium of 
$19 per participant. Underfunded defined benefit plans are 
subject to an additional variable rate premium. There is no 
variable rate premium for the first year of a new defined 
benefit plan. Under this section, any variable rate premium 
that might be assessed against a new defined benefit plan 
established by a larger employer would be phased-in as follows: 
0% for the first plan year; 20% for the second; 40% for the 
third; 60% for the fourth; 80% for the fifth, and 100% for the 
sixth and succeeding plan years. For employers who have 25 or 
fewer employees on the first day of the plan year, the 
additional premium for each participant would not exceed $5 
multiplied by the number of participants in the plan as of the 
close of the preceding plan year.

Section 212. Authorization for PBGC To Pay Interest on Premium 
        Overpayment Refunds

    This would allow the PBGC to pay interest on overpayments 
made by premium payers. Interest paid on overpayments would be 
calculated at the same rate and in the same manner as interest 
is charged on premium underpayments.

Section 213. Substantial Owner Benefits in Terminated Plans

    ``Substantial owners'' are individuals who own more than 
10% of a business. ERISA contains complicated rules governing 
the benefit earned by substantial owners when a plan is 
terminating. Under this section, the same five-year phase-in 
that currently applies to a participant who is not a 
substantial owner would apply to a substantial owner with less 
than a 50% ownership interest. For a majority owner, the phase-
in would depend on the number of years the plan has been in 
effect, rather than on the number of years the owner has been a 
participant and the initial plan benefit.

Section 214. Benefit Suspension Notice

    When an employee continues to work beyond normal retirement 
age, or is reemployed after commencing benefits, a defined 
benefit plan may provide for a suspension of pension payments 
during the post normal retirement age employment period. DOL 
regulations require that affected participants be notified in 
writing of such suspension and that such notice include a copy 
of the relevant plan provisions. Under this section, DOL would 
be required to modify its regulations regarding suspension of 
benefits rules to eliminate the requirement of a written 
individual notice and instead require that the suspension of 
benefits rules be outlined in the summary plan description, 
except for individuals reentering the workforce. Those 
rejoining a former employer would still receive the existing 
notice of suspension, along with a notice of any reduction in 
the rate of future benefit accrual.

Section 215. Studies

    (1) Model Small Employer Group Plans: Under this section, 
the DOL is directed to conduct a study to determine (1) the 
most appropriate form(s) of pension plans that would be simple 
to create and easy to maintain by multiple small employers, 
while providing ready portability of benefits for all 
participants and beneficiaries, (2) how such arrangements could 
be established by employer or employee associations, (3) how 
such arrangements could provide for employees to contribute 
independent of employer sponsorship, and (4) appropriate 
methods and strategies for making such pension plan coverage 
more widely available to American workers.
    (2) Pension Coverage: This section also directs the DOL to 
conduct a study regarding the effect of the bill on pension 
coverage, including: the extent of pension plan coverage for 
low and middle-income workers, the levels of pension plan 
benefits generally, the quality of pension plan coverage 
generally, worker's access to and participation in pension 
plans, and retirement security.

Section 216. Interest Rate Range for Additional Funding Requirements

    The decline in yield and elimination of the 30 year 
Treasury bond has forced defined benefit pension plan sponsors 
to artificially increase their contributions due to 
inaccurately low rate of the 30 year Treasuries that are used 
as the basis of the statutory formula that determines 
acceptable funding levels. Furthermore, this flawed formula 
might cause some companies to also have to pay to the PBGC a 
penalty for under funding under the formula but in reality 
there is no under funding. This section gives plans an expanded 
formula which takes into consideration the low rate of the 30 
year Treasury bonds for plan years 2001, 2002 and 2003.

                               TITLE III


Section 301. Provisions Relating to Plan Amendments

    The provision permits certain plan amendments made pursuant 
to the changes made by title I or II of the bill or by title VI 
of the Economic Growth and Tax Relief Reconciliation Act of 
2001 (or regulations issued thereunder) to be retroactively 
effective. If the plan amendment meets the requirements of the 
bill, then the plan will be treated as being operated in 
accordance with its terms and the amendment will not violate 
the prohibition of reductions of accrued benefits for purposes 
of the Internal Revenue Code. In order for this treatment to 
apply, the plan amendment is required to be made on or before 
the last day of the first plan year beginning on or after 
January 1, 2006 (January 1, 2008, in the case of a governmental 
plan). If the amendment is required to be made to retain 
qualified status as a result of the changes in the law (or 
regulations), the amendment is required to be made 
retroactively effective as of the date on which the change 
became effective with respect to the plan and the plan is 
required to be operated in compliance until the amendment is 
made. Amendments that are not required to retain qualified 
status but that are made pursuant to the changes made by the 
bill or the 2001 Act (or applicable regulations) could be made 
retroactive as of the first day the plan is operated in 
accordance with the amendment.
    A plan amendment will not be considered to be pursuant to 
the bill or the 2001 Act (or applicable regulations) if it has 
an effective date before the effective date of the provision of 
the bill or Act (or regulations) to which it related. 
Similarly, the provision does not provide relief from section 
411(d)(6) for periods prior to the effective date of the 
relevant provision (or regulations) or the plan amendment.
    The Secretary of Treasury is authorized to provide 
exceptions to the relief from the prohibition on reductions in 
accrued benefits. It is intended that the Secretary will not 
permit inappropriate reductions in contributions or benefits 
that are not directly related to the provisions of the bill or 
the 2001 Act. For example, it is intended that a plan that 
incorporates the Internal Revenue Code section 415 limits by 
reference can be retroactively amended to impose the section 
415 limits in effect before the 2001 Act.

                       Explanation of Amendments

    The provisions of the substitute are explained in 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. This bill gives workers new freedom to diversify their 
investments, much greater access to quality investment advice, 
more information about their pensions, and other tools they can 
use to maximize the potential of their 401(k) plans and ensure 
a secure retirement future though amendments to the Employee 
Retirement Income Security Act (ERISA) and complementary 
amendments to the Internal Revenue Code. Since ERISA excludes 
governmental plans, the bill does not apply to legislative 
branch employees. As public employees, legislative branch 
employees are eligible to participate in the Federal Employee 
Retirement System.

                       Unfunded Mandate Statement

    Section 423 of the Congressional Budget and Impoundment 
Control Act (as amended by Section 101(a)(2) of the Unfunded 
Mandates Reform Act, P.L. 104-4) requires a statement of 
whether the provisions of the reported bill include unfunded 
mandates. This bill gives workers new freedom to diversify 
their investments, much greater access to quality investment 
advice, more information about their pensions, and other tools 
they can use to maximize the potential of their 401(k) plans 
and ensure a secure retirement future through amendments to the 
Employee Retirement Income Security Act (ERISA). In compliance 
with this requirement, the Committee has received a letter from 
the Congressional Budget Office included herein.

                            Rollcall Votes 



                             Correspondence

                                  House of Representatives,
                                    Washington, DC, March 12, 2003.
Hon. John Boehner,
Chairman, Committee on Education and the Workforce,
Rayburn House Office Building, Washington, DC.
    Dear Mr. Chairman: Due to other legislative duties, I was 
unavoidably detained during Committee consideration of H.R. 
1000, ``Pension Security Act of 2003,'' Consequently, I missed 
roll call number one on the second amendment in the nature of a 
substitute offered by Representative George Miller. Had I been 
present, I would have voted against the amendment.
    I would appreciate your including this letter in the 
Committee Report to accompany H.R. 1000. Thank you for your 
attention to this matter.
            Sincerely,
                                         Michael N. Castle,
                                                Member of Congress.

  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.

     Budget Authority and Congressional Budget Office Cost Estimate

    With respect to the requirements of clause 3(c)(2) of rule 
XIII of the House of Representatives and section 308(a) of the 
Congressional Budget Act of 1974 and with respect to 
requirements of 3(c)(3) of rule XIII of the House of 
Representatives and section 402 of the Congressional Budget Act 
of 1974, the Committee has received the following cost estimate 
for H.R. 1000 from the Director of the Congressional Budget 
Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 13, 2003.
Hon. John A. Boehner,
Chairman, Committee on Education and the Workforce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: As you requested, the Congressional 
Budget Office has prepared the enclosed cost estimate for H.R. 
1000, the Pension Security Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Geoffrey 
Gerhardt.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 1000--Pension Security Act of 2003

    Summary: H.R. 1000 would make numerous changes to the 
Employee Retirement Income Security Act of 1974 (ERISA) that 
would affect the operations of private pension plans. These 
include new reporting requirements, limitations on certain 
investments, modifications in premiums paid to the Pension 
Benefit Guaranty Corporations (PBGC), and other changes.
    CBO and the Joint Committee on Taxation (JCT) estimate that 
enacting the bill would increase federal revenue by $196 
million in 2003 and by $19 million over the 2003-2008 period, 
but would reduce revenue by $482 million over the 2003-2013 
period. CBO estimates that the bill would decrease direct 
spending by $39 million in 2003, by $101 million over the 2003-
2008 period. and by $87 million over the 2003-2013 period. 
Discretionary spending under the bill would total $24 million 
over the 2004-2008 period, assuming appropriation of the 
necessary amounts.
    State, local, and tribal governments are exempt from the 
requirement of ERISA that H.R. 1000 would amend. and other 
provisions of the bill would impose no requirements on those 
governments. Consequently, CBO has determines that the non-tax 
provisions of the bill contain no intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA) and would 
impose no costs on state, local, or tribal governments.
    JCT has determined that the tax provisions of H.R. 1000 
contain no intergovernmental or private-sector mandates as 
defined in UMRA. The bill does contain private-sector mandates 
on sponsors, administrators, and fiduciaries of private pension 
plans. CBO estimates that the direct cost of those new 
requirements would not exceed the annual threshold specified in 
UMRA ($117 million in 2003, adjusted annually for inflation) in 
any of the first five years the mandates would be effective.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 1000 is shown in the following table. 
The costs of this legislation would fall within budget function 
600 (income security).

----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal year, in millions of dollars--
                                                           -----------------------------------------------------
                                                              2003     2004     2005     2006     2007     2008
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Interest rate range for calculating plans' funding              196      401       50     -266     -179      -90
 requirements.............................................
Treatment of qualified retirement planning servicess......        0      -10      -15      -20      -23      -25
                                                           -----------------------------------------------------
      Total changes in revenuestirement planning servicess      196      391       35     -286     -202     -115

                                           CHANGES IN DIRECT SPENDING

Reduced PBGC flat-rate premiums...........................        0        *        *        1        1        1
Changes in PBGC variable premiums.........................      -39      -37      -26      -10       -4       -3
Payment in interest on overpayments of PBGC premiums......        0        3        3        3        3        3
Benefits paid to substantial owners.......................        0        *        *        *        *        *
                                                           -----------------------------------------------------
      Total additional outlays............................      -39      -34      -23       -6        *        1

                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Studies by the Department of Labor:
    Estimated authorization level.........................        0        2        0        0        0        0
    Estimated outlays.....................................        0        *        1        *        *        *
Informational and educational support for pension plan
 fiduciaries:
    Estimated authorization level.........................        0        5        5        5        5        6
    Estimated outlays.....................................        0        3        5        5        5        5
Total changes:
    Estimated authorization level.........................        0        7        5        5        5        6
    Estimated outlays.....................................        0        3        6        5        5        5
----------------------------------------------------------------------------------------------------------------
Note: *=less than $500,000.

Sources: CBO and Joint Committee on Taxation.

Basis of estimate

            Revenues
    CBO and JCT estimate that, if enacted, H.R. 1000 would 
increase receipts to the federal government during the 2003-
2005 period, but decrease federal receipts after that. For the 
purposes of this estimate, CBO and JCT assume the bill will be 
enacted by July 1, 2003.
    H.R. 1000 would reduce revenues by modifying the treatment 
of qualified retirement planning services for purposes of 
computing gross income in years after 2003 and by altering the 
interest rate range for pension funding requirements. The 
former would reduce taxable income for employees, and would 
decrease revenues by $93 million over the next five years and 
by $261 million over the 2004-2013 period. Changing the 
interest rate range (the change would increase the interest 
rates used to calculate how much sponsors must contribute to 
pension plans) would reduce tax deductible contributions by 
pension plan sponsors in 2003 and 2004, but would increase such 
contributions thereafter. This has the opposite effect on 
taxable income, and therefore on revenues. JCT estimates that 
the interest rate provision would increase revenues by $112 
million over the 2003-2008 period, but would decrease revenues 
by $221 million over the 2003-2013 period.
    In addition, section 101 of H.R. 1000 would require plan 
sponsors to provide quarterly benefit statements to plan 
participants, and would subject sponsors to civil penalties for 
failure to meet these requirements. Based on information from 
the Department of Labor, CBO expects that additional civil 
penalties resulting from section 101 would increase revenues by 
less than $500,000 annually.
            Direct spending
    Reduced Flat-Rate Premiums Paid to the PBGC. Under current 
law, defined benefit pension plans operated by a single 
employer pay two types of annual permiums to the Pension 
Benefit Guaranty Corporation. All covered plans are subject to 
a flat-rate premium of $19 per participant. In addition, 
underfunded plans must also pay a variable-rate premium that 
depends on the amount by which the plan's liabilities exceed 
its assets.
    The bill would reduce the flat-rate premium from $19 to $5 
per participant for plans established by employers with 100 or 
fewer employees during the first five years of the plan's 
operation. According to information obtained from the PBGC, 
approximately 8,300 plans would eventually qualify for this 
reduction. Those plans cover an average of about 10 
participants. CBO estimates that the change would reduce the 
PBGC's premium income by less than $500,000 in 2004, by $3 
million over the 2004-2008 period, and $8 million from 2004 
thorugh 2013. Because PBGC premiums are offsetting collections 
to a mandatory spending account, reductions in premium receipts 
are reflected as increases in direct spending.
    Changes in Variable Premiums Paid to the PBGC. H.R. 1000 
would make several changes affecting the variable-rate premium 
paid by underfunded plans. CBO estimates, in total, those 
provisions would decrease premium receipts by $39 million in 
2003, $119 million over the 2003-2008 period, and $125 million 
during the 2003-2013 period.
    First, for all new plans that are underfunded, the bill 
would phase in the variable-rate premium. In the first year, 
plans would pay nothing. In the succeeding four years, they 
would pay 20 percent, 40 percent, 60 percent, and 80 percent, 
respectively, of the full amount. In the sixth and later years, 
they would pay the full variable-rate premium determined by 
their funding status. Based on information from the PBGC, CBO 
estimates that this change would affect the premiums of 
approximately 250 plans each year. It would reduce the PBGC's 
total premium receipts by about $14 million over the 2004-2008 
period and $41 million over the 2004-2013 period.
    Second, the bill would reduce the variable-rate premium 
paid by all underfunded plans (not just new plans) established 
by employers with 25 or fewer employees. Under the bill, the 
variable-rate premium per participant paid by those plans would 
not exceed $5 multiplied by the number of participants in the 
plan. CBO estimates that approximately 2,500 plans would have 
their premium payments to the PBGC reduced by this provision 
beginning in 2004. As a result, premium receipts would decline 
by $4 million during the 2004-2008 period, and by $9 million 
over the 2004-2013 period.
    Third, the bill would alter the pension funding 
requirements in ERISA, which would allow plans to become more 
underfunded in plan year 2001 without subjecting them to tax 
and other penalties. JCT estimates that this provision would 
initially cause employers to reduce pension plan contributions, 
but later increase contributions until funding returns to 
baseline levels. As a result, some plans would have to pay 
higher permiums because their level of underfunding would 
increase. Based on preliminary information from the PBGC, CBO 
estimates plan underfunding would initially increase by roughly 
$5.8 billion and that the net effect would be an increase of 
$39 million in premium receipts in 2003. Over the 2003-2008 
period, CBO estimates this provision would cause receipts to 
increase by a net of $137 million. The effects through 2013 
would total $176 billion.
    Finally, H.R. 1000 would set the interest rate used to 
determine variable-rate premiums at 115 percent of the 30-year 
Treasury bond rate once new mortality tables are issued by the 
Department of the Treasury, but only through the remainder of 
plan-years 2002 and 2003, at which time the interest rate would 
return to 100 percent. CBO anticipates that the new mortality 
tables will be issued immediately before the start of plan-year 
2004. Therefore, CBO assumes the bill would have no effect on 
premium collections.
    Authorization for the PBGC to Pay Interest on Premium 
Overpayment Refunds. The legislation would authorize the PBGC 
to pay interest to plan sponsors on premium overpayments. 
Interest paid on overpayments would be calculated at the same 
rate as interest charged on premium underpayments. On average, 
the PBGC receives $19 million per year in premium overpayments, 
charges an interest rate of 8 percent for underpayments, and 
experiences a two-year lag between the receipt of payments and 
the issuance of refunds. Based on this information, CBO 
estimates that direct spending would increase by $3 million 
annually.
    Substantial Owner Benefits in Terminated Plans. H.R. 1000 
would simplify the rules by which the PBGC pays benefits to 
substantial owners (those with an ownership interest of at 
least 10 percent) of terminated pension plans. Only about one-
third of the plans taken over by the PBGC involve substantial 
owners, and the change in benefits paid to owner-employees 
under this provision would be less than $500,000 annually.
    National Summit on Retirement Income Security. H.R. 1000 
would extend the authorization for the National Summit on 
Retirement Income Security so that meetings would be held in 
2006 and 2010. The most recent summit was held in January 2002. 
Based on donations received for that summit, CBO estimates that 
the Department of Labor would receive about $500,000 in private 
donations for each future summit, which would be spent to 
defray part of the costs of the conferences. Therefore, this 
provision would increase revenues and direct spending by the 
same amounts and would have no net impact on the budget 
surplus.
            Discretionary spending
    H.R. 1000 includes several provisions that would, assuming 
the appropriation of the necessary amounts, cost $24 million 
over the 2004-2008 period.
    Studies by the Department of Labor. H.R. 1000 would direct 
the Department of Labor to undertake three studies: one on the 
impact of requiring fiduciary consultants for individual 
account plans, one on making employee pension plans more widely 
available to workers, and one on the impact of the legislation 
on pension security and availability. Based on the costs of 
studies with comparable requirements, CBO estimates these 
studies would cost about $2 million over the 2004-2008 period.
    Informational and Educational Support for Pension Plan 
Fiduciaries. The bill also would require DOL to provide 
information and educational resources to persons serving as 
fiduciaries for employee pension benefit plans. Based on a 
review of other federal programs that provide consumer-related 
and technical information to the public, CBO estimates that 
providing this support would cost about $5 million per year.
    National Summit on Retirement Income Security. H.R. 1000 
would amend the authorization for the National Summit on 
Retirement Security to require the President to convene a 
conference on national savings in 2006 rather than in 2005, and 
to hold an additional summit in 2010. The bill would authorize 
the appropriation of such sums as may be necessary for that 
purpose. The Secretary of Labor is authorized to accept private 
donations to defray the costs of the conference, and must spend 
the donated funds prior to spending the appropriated funds. 
Based upon the experience of the 1998 and 2002 National 
Summits, CBO estimates that future summits would cost less than 
$1 million and that more than one-half of the expenses would be 
offset by private donations.
    Effects on Direct Spending and Revenues: The net changes in 
governmental receipts (i.e., revenues) and outlays from direct 
spending over the 2003-2013 period are shown in the following 
table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       By fiscal year, in millions of dollars--
                                                            --------------------------------------------------------------------------------------------
                                                              2003    2004    2005     2006     2007     2008    2009    2010     2011     2012    2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts........................................     -39     -34     -23       -6        0        1       1       1        4        5       3
Changes in outlays.........................................     196     391      35     -286     -202     -115     -56     -76     -142     -148     -79
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Estimated impact on State, local, and tribal governments: 
CBO has reviewed all provisions of H.R. 1000 that are not 
amendments to the Internal Revenue Code and determined that 
those provisions contain no intergovernmental mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments. State, local, and tribal governments are 
exempt from the requirements of ERISA that H.R. 1000 would 
amend; the other non-tax provisions of the bill would impose no 
requirements on those governments.
    Estimated impact on the private sector: JCT has determined 
that the tax provisions of H.R. 1000 contains no 
intergovernmental or private-sector mandates as defined in 
UMRA. However, CBO has determined that the non-tax provisions 
of the bill do contain private-sector mandates as defined in 
UMRA.
    With only limited exceptions, private employers who provide 
pension plans for their workers must follow rules specified in 
ERISA. Therefore, CBO considers changes to ERISA that expand 
those rules to be private-sector mandates under UMRA. H.R. 1000 
would make changes to ERISA that would affect sponsors, 
administrators, and fiduciaries of pension plans. CBO estimates 
that the direct cost to affected entities of the new 
requirements in the bill would not exceed the annual threshold 
specified in UMRA ($117 million in 2003, adjusted annually for 
inflation) in any of the first five years the mandates would be 
effective.
    Benefit Statements. Section 101 of the bill would require 
administrators of private, individual-account (defined 
contributions) pension plans to provide quarterly statements to 
participants and beneficiaries who are able to direct 
investments. Those statements would have to contain several 
items, including the amount of accrued benefits, the amount of 
nonforfeitable benefits, the value of any assets held in the 
form of securities of the employing firm, an explanation of any 
limitations or restrictions on the right of the participant or 
beneficiary to direct an investment, and an explanation of the 
importance of a well-balanced and diversified portfolio. 
Currently, plans must provide more limited statements to 
participants upon request.
    CBO estimates that the direct cost of this new requirement 
on private plans would be about $70 million annually. According 
to industry sources, the majority of plans sponsored by large 
employers already provide pension statements on a quarterly 
basis, and it is becoming increasingly common for plans 
sponsored by smaller employers to do so as well. CBO estimates 
that fewer than half of the approximately 70 million 
participants in private individual account plans in 2004 would 
newly receive statements four times per year under the bill. 
The average cost of providing each statement would be 
relatively small because plans are now required to provide 
benefit statements on request and because the bill would allow 
statements to be provided electronically to participants with 
access to the Internet.
    Section 101 would also require administrators of private, 
defined-benefit pension plans to provide vested participants 
currently employed by the sponsor with a benefit statement at 
least once every three years, or to provide notice to 
participants of the availability of benefit statements on an 
annual basis. CBO estimates that the added cost of this 
provision would be less that $5 million per year.
    Fiduciaries' Liability. Currently, plan fiduciaries 
generally are not liable for investment decisions made by 
participants, nor are they liable for the inability of 
participants to alter their investments during blackout 
periods. Section 102 of the bill would potentially expand the 
personal liability of plan fiduciaries during blackouts by 
removing the current limitation on liability and adding 
specific new requirements under which they could avoid 
liability. Fiduciaries would be required to consider the 
reasonablenesss of the length of the blackout period, provide 
30 days notice to participants, and act solely in the interest 
of participants in entering the blackout. CBO estimates that 
abiding by the new requirements to avoid liability in the bill 
would add little to their costs.
    Investment in Employers' Securities. Section 104 would 
require individual-account plans to allow participants to sell 
securities issued by their employer and acquired through 
employee contributions and elective deferrals. Participants 
would also be allowed to sell securities issued by their 
employer and allocated to their accounts through employer 
contributions either three years after the securities are 
allocated to their accounts or after three years of service. 
(The bill would phase in the requirements in 20 percent annual 
increments for certain assets acquired before the effective 
date of the bill.) Section 104 would also require plans that 
offer participants securities issued by employers to offer a 
range of investment opportunities.
    Both the expansion of participants' allowable investments 
of future contributions and the phase-in for past contributions 
would increase the administrative and record-keeping costs of 
affected pension plans. Based on information from the Employee 
Benefit Research Institute about company stock in individual 
account plans, CBO estimates that the added administrative 
costs attributable to these provisions would be about $20 
million annually. Requiring plans to offer a range of 
investment options would probably add little to plan costs 
because many plans now abide by a safe harbor provision in 
ERISA that has similar requirements.
    Estimate prepared by: Federal revenues: Annabelle Bartsch; 
outlays of the Pension Benefit Guaranty Corporation: Geoffrey 
Gerhardt; other spending by the Department of Labor: Christina 
Hawley Sadoti; impact on state, local and tribal governments: 
Leo Lex; impact on the private sector: Daniel Wilmoth.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis; G. Thomas Woodward, Assistant 
Director for Tax Analysis.

         Statement of General Performance Goals and Objectives

    In accordance with Clause (3)(c) of House rule XIII, the 
goals of H.R. 1000 to give workers new freedom to diversify 
their investments, much greater access to quality investment 
advice, more information about their pensions, and other tools 
they can use to maximize the potential of their 401(k) plans 
and ensure a secure retirement future though amendments to the 
Employee Retirement Income Security Act (ERISA) and 
complementary amendments to the Internal Revenue Code. The 
Committee expects the Department of Labor and Department of 
Treasury to implement the changes to the law in accordance with 
these stated goals.

                   Constitutional Authority Statement

    Under clause 3(d)(1) of rule XIII of the Rules of the House 
of Representatives, the Committee must include a statement 
citing the specific powers granted to Congress in the 
Constitution to enact the law proposed by H.R. 1000. The 
Employee Retirement Income Security Act (ERISA) has been 
determined by the federal courts to be within Congress' 
Constitutional authority. In Commercial Mortgage Insurance, 
Inc. v. Citizens National Bank of Dallas, 526 F.Supp. 510 (N.D. 
Tex. 1981), the court held that Congress legitimately concluded 
that employee benefit plans so affected interstate commerce as 
to be within the scope of Congressional powers under Article 1, 
Section 8, Clause 3 of the Constitution of the United States. 
In Murphy v. Wal-Mart Associates' Group Health Plan, 928 
F.Supp. 700 (E.D. Tex 1996), the court upheld the preemption 
provisions of ERISA. Because H.R. 1000 modifies but does not 
extend the federal regulation of pensions, the Committee 
believes that the Act falls within the same scope of 
Congressional authority as ERISA.

                           Committee Estimate

    Clause 3(d)(2) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs that would be incurred in carrying out 
H.R. 1000. However, clause 3(d)(3)(B) of that rule provides 
that this requirement does not apply when the Committee has 
included in its report a timely submitted cost estimate of the 
bill prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, 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) * * *

           *       *       *       *       *       *       *

  (42)(A) The term ``applicable individual account plan'' means 
any individual account plan, except that such term does not 
include an employee stock ownership plan (within the meaning of 
section 4975(e)(7) of the Internal Revenue Code of 1986) unless 
there are any contributions to such plan (or earnings 
thereunder) held within such plan that are subject to 
subsection (k)(3) or (m)(2) of section 401 of the Internal 
Revenue Code of 1986. Such term shall not include a one-
participant retirement plan.
  (B) The term ``one-participant retirement plan'' means a 
pension plan with respect to which the following requirements 
are met:
          (i) on the first day of the plan year--
                  (I) the plan covered only one individual (or 
                the individual and the individual's spouse) and 
                the individual owned 100 percent of the plan 
                sponsor (whether or not incorporated), or
                  (II) the plan covered only one or more 
                partners (or partners and their spouses) in the 
                plan sponsor;
          (ii) the plan meets the minimum coverage requirements 
        of section 410(b) of the Internal Revenue Code of 1986 
        (as in effect on the date of the enactment of this 
        paragraph) without being combined with any other plan 
        of the business that covers the employees of the 
        business;
          (iii) the plan does not provide benefits to anyone 
        except the individual (and the individual's spouse) or 
        the partners (and their spouses);
          (iv) the plan does not cover a business that is a 
        member of an affiliated service group, a controlled 
        group of corporations, or a group of businesses under 
        common control; and
          (v) the plan does not cover a business that leases 
        employees.

           *       *       *       *       *       *       *


                   Subtitle B--Regulatory Provisions 

Part 1--Reporting and Disclosure

           *       *       *       *       *       *       *


    FILING WITH SECRETARY AND FURNISHING INFORMATION TO PARTICIPANTS

  Sec. 104. (a) * * *
  (b) Publication of the summary plan descriptions and annual 
reports shall be made to participants and beneficiaries of the 
particular plan as follows:
  (1) * * *

           *       *       *       *       *       *       *

  (3) Within 210 days after the close of the fiscal year of the 
plan, the administrators shall furnish to each participant, and 
to each beneficiary receiving benefits under the plan, a copy 
of the statements and schedules, for such fiscal year, 
described in subparagraphs (A) and (B) of section 103(b)(3) and 
such other material (including the percentage determined under 
section 103(d)(11)) as is necessary to fairly summarize the 
latest annual report. The requirement to furnish information 
under the previous sentence with respect to an employee pension 
benefit plan shall be satisfied if the administrator makes such 
information reasonably available through electronic means or 
other new technology.

           *       *       *       *       *       *       *


               REPORTING OF PARTICIPANT'S BENEFIT RIGHTS

  Sec. 105. [(a) Each administrator of an employee pension 
benefit plan shall furnish to any plan participant or 
beneficiary who so requests in writing, a statement indicating, 
on the basis of the latest available information--
          [(1) the total benefits accrued, and
          [(2) the nonforfeitable pension benefits, if any, 
        which have accrued, or the earliest date on which 
        benefits will become nonforfeitable.
  [(b) In no case shall a participant or beneficiary be 
entitled under this section to receive more than one report 
described in subsection (a) during any one 12-month period.]
  (a)(1)(A) The administrator of an individual account plan 
shall furnish a pension benefit statement--
          (i) to each plan participant at least annually,
          (ii) to each plan beneficiary upon written request, 
        and
          (iii) in the case of an applicable individual account 
        plan, to each individual who is a plan participant or 
        beneficiary and who has a right to direct investments, 
        at least quarterly.
  (B) The administrator of a defined benefit plan shall furnish 
a pension benefit statement--
          (i) at least once every 3 years to each participant 
        with a nonforfeitable accrued benefit who is employed 
        by the employer maintaining the plan at the time the 
        statement is furnished to participants, and
          (ii) to a plan participant or plan beneficiary of the 
        plan upon written request.
Information furnished under clause (i) to a participant may be 
based on reasonable estimates determined under regulations 
prescribed by the Secretary, in consultation with the Pension 
Benefit Guaranty Corporation.
  (2) A pension benefit statement under paragraph (1)--
          (A) shall indicate, on the basis of the latest 
        available information--
                  (i) the total benefits accrued, and
                  (ii) the nonforfeitable pension benefits, if 
                any, which have accrued, or the earliest date 
                on which benefits will become nonforfeitable,
          (B) shall be written in a manner calculated to be 
        understood by the average plan participant, and
          (C) may be provided in written form or in electronic 
        or other appropriate form to the extent that such form 
        is reasonably accessible to the recipient.
  (3)(A) In the case of a defined benefit plan, the 
requirements of paragraph (1)(B)(i) shall be treated as met 
with respect to a participant if the administrator, at least 
once each year, provides the participant with notice, at the 
participant's last known address, of the availability of the 
pension benefit statement and the ways in which the participant 
may obtain such statement. Such notice shall be provided in 
written, electronic, or other appropriate form, and may be 
included with other communications to the participant if done 
in a manner reasonably designed to attract the attention of the 
participant.
  (B) The Secretary may provide that years in which no employee 
or former employee benefits (within the meaning of section 
410(b) of the Internal Revenue Code of 1986) under the plan 
need not be taken into account in determining the 3-year period 
under paragraph (1)(B)(i).
  (b) In no case shall a participant or beneficiary of a plan 
be entitled to more than one statement described in clause (i) 
or (ii) of subsection (a)(1)(A) or clause (i) or (ii) of 
subsection (a)(1)(B), whichever is applicable, in any 12-month 
period. If such report is required under subsection (a) to be 
furnished at least quarterly, the requirements of the preceding 
sentence shall be applied with respect to each quarter in lieu 
of the 12-month period.
  [(d) Subsection (a) of this section shall apply to a plan to 
which more than one unaffiliated employer is required to 
contribute only to the extent provided in regulations 
prescribed by the Secretary in coordination with the Secretary 
of the Treasury.]

           *       *       *       *       *       *       *

  (d)(1) The statements required to be provided at least 
quarterly under subsection (a)(1)(A)(iii) in the case of 
applicable individual account plans shall include (together 
with the information required in subsection (a)) the following:
          (A) the value of each investment to which assets in 
        the individual account have been allocated, determined 
        as of the most recent valuation date under the plan, 
        including the value of any assets held in the form of 
        employer securities, without regard to whether such 
        securities were contributed by the plan sponsor or 
        acquired at the direction of the plan or of the 
        participant or beneficiary,
          (B) an explanation, written in a manner calculated to 
        be understood by the average plan participant, of any 
        limitations or restrictions on the right of the 
        participant or beneficiary to direct an investment, and
          (C) an explanation, written in a manner calculated to 
        be understood by the average plan participant, of the 
        importance, for the long-term retirement security of 
        participants and beneficiaries, of a well-balanced and 
        diversified investment portfolio, including a 
        discussion of the risk of holding more than 25 percent 
        of a portfolio in the security of any one entity, such 
        as employer securities.
  (2) The Secretary shall issue guidance and model notices 
which meet the requirements of this subsection.

           *       *       *       *       *       *       *


Part 2--Participation and Vesting

           *       *       *       *       *       *       *


                      BENEFIT ACCRUAL REQUIREMENTS

  Sec. 204. (a) * * *

           *       *       *       *       *       *       *

  (j) Diversification Requirements for Individual Account Plans 
that Hold Employer Securities.--
          (1) In general.--An applicable individual account 
        plan shall meet the requirements of paragraphs (2) and 
        (3).
          (2) Employee contributions and elective deferrals 
        invested in employer securities.--In the case of the 
        portion of the account attributable to employee 
        contributions and elective deferrals which is invested 
        in employer securities, a plan meets the requirements 
        of this paragraph if each applicable individual may 
        elect to direct the plan to divest any such securities 
        in the individual's account and to reinvest an 
        equivalent amount in other investment options which 
        meet the requirements of paragraph (4).
          (3) Employer contributions invested in employer 
        securities.--
                  (A) In general.--In the case of the portion 
                of the account attributable to employer 
                contributions (other than elective deferrals to 
                which paragraph (2) applies) which is invested 
                in employer securities, a plan meets the 
                requirements of this paragraph if, under the 
                plan--
                          (i) each applicable individual with a 
                        benefit based on 3 years of service may 
                        elect to direct the plan to divest any 
                        such securities in the individual's 
                        account and to reinvest an equivalent 
                        amount in other investment options 
                        which meet the requirements of 
                        paragraph (4), or
                          (ii) with respect to any employer 
                        security allocated to an applicable 
                        individual's account during any plan 
                        year, such applicable individual may 
                        elect to direct the plan to divest such 
                        employer security after a date which is 
                        not later than 3 years after the end of 
                        such plan year and to reinvest an 
                        equivalent amount in other investment 
                        options which meet the requirements of 
                        paragraph (4).
                  (B) Applicable individual with benefit based 
                on 3 years of service.--For purposes of 
                subparagraph (A), an applicable individual has 
                a benefit based on 3 years of service if such 
                individual would be an applicable individual if 
                only participants in the plan who have 
                completed at least 3 years of service (as 
                determined under section 203(b)) were referred 
                to in paragraph (5)(B)(i).
          (4) Investment options.--The requirements of this 
        paragraph are met if--
                  (A) the plan offers not less than 3 
                investment options, other than employer 
                securities, to which an applicable individual 
                may direct the proceeds from the divestment of 
                employer securities pursuant to this 
                subsection, each of which is diversified and 
                has materially different risk and return 
                characteristics, and
                  (B) the plan permits the applicable 
                individual to choose from any of the investment 
                options made available under the plan to which 
                such proceeds may be so directed, subject to 
                such restrictions as may be provided by the 
                plan limiting such choice to periodic, 
                reasonable opportunities occurring no less 
                frequently than on a quarterly basis.
          (5) Definitions and rules.--For purposes of this 
        subsection--
                  (A) Applicable individual account plan.--The 
                term ``applicable individual account plan'' 
                means any individual account plan, except that 
                such term does not include an employee stock 
                ownership plan (within the meaning of section 
                4975(e)(7) of the Internal Revenue Code of 
                1986) unless there are any contributions to 
                such plan (or earnings thereon) held within 
                such plan that are subject to subsection (k)(3) 
                or (m)(2) of section 401 of the Internal 
                Revenue Code of 1986.
                  (B) Applicable individual.--The term 
                ``applicable individual'' means--
                          (i) any participant in the plan, and
                          (ii) any beneficiary of a participant 
                        referred to in clause (i) who has an 
                        account under the plan with respect to 
                        which the beneficiary is entitled to 
                        exercise the rights of the participant.
                  (C) Elective deferral.--The term ``elective 
                deferral'' means an employer contribution 
                described in section 402(g)(3)(A) of the 
                Internal Revenue Code of 1986 (as in effect on 
                the date of the enactment of this subsection).
                  (D) Employer security.--The term ``employer 
                security'' shall have the meaning given such 
                term by section 407(d)(1) of this Act (as in 
                effect on the date of the enactment of this 
                subsection).
                  (E) Employee stock ownership plan.--The term 
                ``employee stock ownership plan'' shall have 
                the same meaning given to such term by section 
                4975(e)(7) of the Internal Revenue Code of 1986 
                (as in effect on the date of the enactment of 
                this subsection).
                  (F) Elections.--Elections under this 
                subsection may be made not less frequently than 
                quarterly.
          (6) Exception where there is no readily tradable 
        stock.--This subsection shall not apply if there is no 
        class of stock issued by the employer (or by a 
        corporation which is an affiliate of the employer (as 
        defined in section 407(d)(7))) that is readily tradable 
        on an established securities market (or in such other 
        circumstances as may be determined jointly by the 
        Secretary of Labor and the Secretary of the Treasury in 
        regulations).
          (7) Transition rule.--
                  (A) In general.--In the case of any 
                individual account plan which, on the first day 
                of the first plan year to which this subsection 
                applies, holds employer securities of any class 
                that were acquired before such date and on 
                which there is a restriction on diversification 
                otherwise precluded by this subsection, this 
                subsection shall apply to such securities of 
                such class held in any plan year only with 
                respect to the number of such securities equal 
                to the applicable percentage of the total 
                number of such securities of such class held on 
                such date.
                  (B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage 
                shall be as follows:

Plan years for whichApplicable percentage:ive:
  1st plan year.....20 percent..........................................
  2nd plan year.....40 percent..........................................
  3rd plan year.....60 percent..........................................
  4th plan year.....80 percent..........................................
  5th plan year or t100 percent.........................................

                  (C) Elective deferrals treated as separate 
                plan not individual account plan.--For purposes 
                of subparagraph (A), the applicable percentage 
                shall be 100 percent with respect to--
                          (i) employee contributions to a plan 
                        under which any portion attributable to 
                        elective deferrals is treated as a 
                        separate plan under section 407(b)(2) 
                        as of the date of the enactment of this 
                        paragraph, and
                          (ii) such elective deferrals.
                  (D) Coordination with prior elections.--In 
                any case in which a divestiture of investment 
                in employer securities of any class held by an 
                employee stock ownership plan prior to the 
                effective date of this subsection was 
                undertaken pursuant to other applicable Federal 
                law prior to such date, the applicable 
                percentage (as determined without regard to 
                this subparagraph) in connection with such 
                securities shall be reduced to the extent 
                necessary to account for the amount to which 
                such election applied.
          (8) Regulations.--The Secretary of the Treasury shall 
        prescribe regulations under this subsection in 
        consultation with the Secretary of Labor.
  [(j)] (k) Cross Reference.--

          For special rules relating to plan provisions adopted to 
        preclude discrimination, see section 203(c)(2).

 REQUIREMENT OF JOINT AND SURVIVOR ANNUITY AND PRERETIREMENT SURVIVOR 
                                ANNUITY

  Sec. 205. (a) * * *

           *       *       *       *       *       *       *

  (c)(1) * * *

           *       *       *       *       *       *       *

  (7) For purposes of this subsection, the term ``applicable 
election period'' means--
          (A) in the case of an election to waive the qualified 
        joint and survivor annuity form of benefit, the [90-
        day] 180-day period ending on the annuity starting 
        date, or

           *       *       *       *       *       *       *


       OTHER PROVISIONS RELATING TO FORM AND PAYMENT OF BENEFITS

  Sec. 206. (a) * * *

           *       *       *       *       *       *       *

  (f) Missing Participants in Terminated Plans.--In the case of 
a plan covered by [title IV] section 4050, [the plan shall 
provide that,] upon termination of the plan, benefits of 
missing participants shall be treated in accordance with 
section 4050.

           *       *       *       *       *       *       *


Part 3--Funding

           *       *       *       *       *       *       *


                       MINIMUM FUNDING STANDARDS

  Sec. 302. (a) * * *

           *       *       *       *       *       *       *

  (d) Additional Funding Requirements for Plans Which Are Not 
Multiemployer Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Current liability.--For purposes of this 
        subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Interest rate and mortality assumptions 
                used.--Effective for plan years beginning after 
                December 31, 1994--
                          (i) Interest rate.--
                                  (I) * * *

           *       *       *       *       *       *       *

                                  (III) Special rule for [2002 
                                and 2003] 2001, 2002, and 
                                2003.--For a plan year 
                                beginning in [2002 or 2003] 
                                2001, 2002, or 2003, 
                                notwithstanding subclause (I), 
                                in the case that the rate of 
                                interest used under subsection 
                                (b)(5) exceeds the highest rate 
                                permitted under subclause (I), 
                                the rate of interest used to 
                                determine current liability 
                                under this subsection may 
                                exceed the rate of interest 
                                otherwise permitted under 
                                subclause (I); except that such 
                                rate of interest shall not 
                                exceed 120 percent of the 
                                weighted average referred to in 
                                subsection (b)(5)(B)(ii).

           *       *       *       *       *       *       *


Part 4--Fiduciary Responsibility

           *       *       *       *       *       *       *


                            FIDUCIARY DUTIES

  Sec. 404. (a) * * *

           *       *       *       *       *       *       *

  (c)(1) * * *

           *       *       *       *       *       *       *

  (4)(A) Paragraph (1)(B) shall not apply in connection with 
the direction or diversification of assets credited to the 
account of any participant or beneficiary during a blackout 
period if, by reason of the imposition of such blackout period, 
the ability of such participant or beneficiary to direct or 
diversify such assets is suspended, limited, or restricted.
  (B) If the fiduciary authorizing a blackout period meets the 
requirements of this title in connection with authorizing such 
blackout period, no person who is a fiduciary shall be liable 
under this title for any loss occurring during the blackout 
period as a result of any exercise by the participant or 
beneficiary of control over assets in his or her account prior 
to the blackout period. Matters to be considered in determining 
whether a fiduciary has met the requirements of this title 
include whether such fiduciary--
          (i) has considered the reasonableness of the expected 
        length of the blackout period,
          (ii) has provided the notice required under section 
        101(i)(2), and
          (iii) has acted in accordance with the requirements 
        of subsection (a) in determining whether to enter into 
        the blackout period.
  (C) If a blackout period arises in connection with a change 
in the investment options offered under the plan, a participant 
or beneficiary shall be deemed to have exercised control over 
the assets in his or her account prior to the blackout period, 
if, after reasonable notice of the change in investment options 
is given to such participant or beneficiary before such 
blackout period, assets in the account of the participant or 
beneficiary are transferred--
          (i) to plan investment options in accordance with the 
        affirmative election of the participant or beneficiary, 
        or
          (ii) in any case in which there is no such election, 
        in the manner set forth in such notice.
  (D) Any imposition of any limitation or restriction that may 
govern the frequency of transfers between investment vehicles 
shall not be treated as the imposition of a blackout period to 
the extent such limitation or restriction is disclosed to 
participants or beneficiaries through the summary plan 
description or materials describing specific investment 
alternatives under the plan.
  (E) For purposes of this paragraph, the term ``blackout 
period'' has the meaning given such term by section 101(i)(7).

           *       *       *       *       *       *       *

  (e) The Secretary shall establish a program under which 
information and educational resources shall be made available 
on an ongoing basis to persons serving as fiduciaries under 
employee pension benefit plans so as to assist such persons in 
diligently and effectively carrying out their fiduciary duties 
in accordance with this part. Such program shall provide 
information concerning the practices that define prudent 
investment procedures for plan fiduciaries. Information 
provided under the program shall address the relevant 
investment considerations for defined benefit and defined 
contribution plans, including investment in employer securities 
by such plans. In developing such program, the Secretary shall 
solicit information from the public, including investment 
education professionals.

           *       *       *       *       *       *       *


                EXEMPTIONS FROM PROHIBITED TRANSACTIONS

  Sec. 408. (a) * * *
  (b) The prohibitions provided in section 406 shall not apply 
to any of the following transactions:
          (1) * * *

           *       *       *       *       *       *       *

          (14)(A) Any transaction described in subparagraph (B) 
        in connection with the provision of investment advice 
        described in section 3(21)(A)(ii), in any case in 
        which--
                  (i) the investment of assets of the plan is 
                subject to the direction of plan participants 
                or beneficiaries,
                  (ii) the advice is provided to the plan or a 
                participant or beneficiary of the plan by a 
                fiduciary adviser in connection with any sale, 
                acquisition, or holding of a security or other 
                property for purposes of investment of plan 
                assets, and
                  (iii) the requirements of subsection (g) are 
                met in connection with the provision of the 
                advice.
          (B) The transactions described in this subparagraph 
        are the following:
                  (i) the provision of the advice to the plan, 
                participant, or beneficiary;
                  (ii) the sale, acquisition, or holding of a 
                security or other property (including any 
                lending of money or other extension of credit 
                associated with the sale, acquisition, or 
                holding of a security or other property) 
                pursuant to the advice; and
                  (iii) the direct or indirect receipt of fees 
                or other compensation by the fiduciary adviser 
                or an affiliate thereof (or any employee, 
                agent, or registered representative of the 
                fiduciary adviser or affiliate) in connection 
                with the provision of the advice or in 
                connection with a sale, acquisition, or holding 
                of a security or other property pursuant to the 
                advice.

           *       *       *       *       *       *       *

  (g) Requirements Relating to Provision of Investment Advice 
by Fiduciary Advisers.--
          (1) In general.--The requirements of this subsection 
        are met in connection with the provision of investment 
        advice referred to in section 3(21)(A)(ii), provided to 
        an employee benefit plan or a participant or 
        beneficiary of an employee benefit plan by a fiduciary 
        adviser with respect to the plan in connection with any 
        sale, acquisition, or holding of a security or other 
        property for purposes of investment of amounts held by 
        the plan, if--
                  (A) in the case of the initial provision of 
                the advice with regard to the security or other 
                property by the fiduciary adviser to the plan, 
                participant, or beneficiary, the fiduciary 
                adviser provides to the recipient of the 
                advice, at a time reasonably contemporaneous 
                with the initial provision of the advice, a 
                written notification (which may consist of 
                notification by means of electronic 
                communication)--
                          (i) of all fees or other compensation 
                        relating to the advice that the 
                        fiduciary adviser or any affiliate 
                        thereof is to receive (including 
                        compensation provided by any third 
                        party) in connection with the provision 
                        of the advice or in connection with the 
                        sale, acquisition, or holding of the 
                        security or other property,
                          (ii) of any material affiliation or 
                        contractual relationship of the 
                        fiduciary adviser or affiliates thereof 
                        in the security or other property,
                          (iii) of any limitation placed on the 
                        scope of the investment advice to be 
                        provided by the fiduciary adviser with 
                        respect to any such sale, acquisition, 
                        or holding of a security or other 
                        property,
                          (iv) of the types of services 
                        provided by the fiduciary adviser in 
                        connection with the provision of 
                        investment advice by the fiduciary 
                        adviser,
                          (v) that the adviser is acting as a 
                        fiduciary of the plan in connection 
                        with the provision of the advice, and
                          (vi) that a recipient of the advice 
                        may separately arrange for the 
                        provision of advice by another adviser, 
                        that could have no material affiliation 
                        with and receive no fees or other 
                        compensation in connection with the 
                        security or other property,
                  (B) the fiduciary adviser provides 
                appropriate disclosure, in connection with the 
                sale, acquisition, or holding of the security 
                or other property, in accordance with all 
                applicable securities laws,
                  (C) the sale, acquisition, or holding occurs 
                solely at the direction of the recipient of the 
                advice,
                  (D) the compensation received by the 
                fiduciary adviser and affiliates thereof in 
                connection with the sale, acquisition, or 
                holding of the security or other property is 
                reasonable, and
                  (E) the terms of the sale, acquisition, or 
                holding of the security or other property are 
                at least as favorable to the plan as an arm's 
                length transaction would be.
          (2) Standards for presentation of information.--
                  (A) In general.--The notification required to 
                be provided to participants and beneficiaries 
                under paragraph (1)(A) shall be written in a 
                clear and conspicuous manner and in a manner 
                calculated to be understood by the average plan 
                participant and shall be sufficiently accurate 
                and comprehensive to reasonably apprise such 
                participants and beneficiaries of the 
                information required to be provided in the 
                notification.
                  (B) Model form for disclosure of fees and 
                other compensation.--The Secretary shall issue 
                a model form for the disclosure of fees and 
                other compensation required in paragraph 
                (1)(A)(i) which meets the requirements of 
                subparagraph (A).
          (3) Exemption conditioned on making required 
        information available annually, on request, and in the 
        event of material change.--The requirements of 
        paragraph (1)(A) shall be deemed not to have been met 
        in connection with the initial or any subsequent 
        provision of advice described in paragraph (1) to the 
        plan, participant, or beneficiary if, at any time 
        during the provision of advisory services to the plan, 
        participant, or beneficiary, the fiduciary adviser 
        fails to maintain the information described in clauses 
        (i) through (iv) of subparagraph (A) in currently 
        accurate form and in the manner described in paragraph 
        (2) or fails--
                  (A) to provide, without charge, such 
                currently accurate information to the recipient 
                of the advice no less than annually,
                  (B) to make such currently accurate 
                information available, upon request and without 
                charge, to the recipient of the advice, or
                  (C) in the event of a material change to the 
                information described in clauses (i) through 
                (iv) of paragraph (1)(A), to provide, without 
                charge, such currently accurate information to 
                the recipient of the advice at a time 
                reasonably contemporaneous to the material 
                change in information.
          (4) Maintenance for 6 years of evidence of 
        compliance.--A fiduciary adviser referred to in 
        paragraph (1) who has provided advice referred to in 
        such paragraph shall, for a period of not less than 6 
        years after the provision of the advice, maintain any 
        records necessary for determining whether the 
        requirements of the preceding provisions of this 
        subsection and of subsection (b)(14) have been met. A 
        transaction prohibited under section 406 shall not be 
        considered to have occurred solely because the records 
        are lost or destroyed prior to the end of the 6-year 
        period due to circumstances beyond the control of the 
        fiduciary adviser.
          (5) Exemption for plan sponsor and certain other 
        fiduciaries.--
                  (A) In general.--Subject to subparagraph (B), 
                a plan sponsor or other person who is a 
                fiduciary (other than a fiduciary adviser) 
                shall not be treated as failing to meet the 
                requirements of this part solely by reason of 
                the provision of investment advice referred to 
                in section 3(21)(A)(ii) (or solely by reason of 
                contracting for or otherwise arranging for the 
                provision of the advice), if--
                          (i) the advice is provided by a 
                        fiduciary adviser pursuant to an 
                        arrangement between the plan sponsor or 
                        other fiduciary and the fiduciary 
                        adviser for the provision by the 
                        fiduciary adviser of investment advice 
                        referred to in such section,
                          (ii) the terms of the arrangement 
                        require compliance by the fiduciary 
                        adviser with the requirements of this 
                        subsection, and
                          (iii) the terms of the arrangement 
                        include a written acknowledgment by the 
                        fiduciary adviser that the fiduciary 
                        adviser is a fiduciary of the plan with 
                        respect to the provision of the advice.
                  (B) Continued duty of prudent selection of 
                adviser and periodic review.--Nothing in 
                subparagraph (A) shall be construed to exempt a 
                plan sponsor or other person who is a fiduciary 
                from any requirement of this part for the 
                prudent selection and periodic review of a 
                fiduciary adviser with whom the plan sponsor or 
                other person enters into an arrangement for the 
                provision of advice referred to in section 
                3(21)(A)(ii). The plan sponsor or other person 
                who is a fiduciary has no duty under this part 
                to monitor the specific investment advice given 
                by the fiduciary adviser to any particular 
                recipient of the advice.
                  (C) Availability of plan assets for payment 
                for advice.--Nothing in this part shall be 
                construed to preclude the use of plan assets to 
                pay for reasonable expenses in providing 
                investment advice referred to in section 
                3(21)(A)(ii).
          (6) Definitions.--For purposes of this subsection and 
        subsection (b)(14)--
                  (A) Fiduciary adviser.--The term ``fiduciary 
                adviser'' means, with respect to a plan, a 
                person who is a fiduciary of the plan by reason 
                of the provision of investment advice by the 
                person to the plan or to a participant or 
                beneficiary and who is--
                          (i) registered as an investment 
                        adviser under the Investment Advisers 
                        Act of 1940 (15 U.S.C. 80b-1 et seq.) 
                        or under the laws of the State in which 
                        the fiduciary maintains its principal 
                        office and place of business,
                          (ii) a bank or similar financial 
                        institution referred to in section 
                        408(b)(4) or a savings association (as 
                        defined in section 3(b)(1) of the 
                        Federal Deposit Insurance Act (12 
                        U.S.C. 1813(b)(1))), but only if the 
                        advice is provided through a trust 
                        department of the bank or similar 
                        financial institution or savings 
                        association which is subject to 
                        periodic examination and review by 
                        Federal or State banking authorities,
                          (iii) an insurance company qualified 
                        to do business under the laws of a 
                        State,
                          (iv) a person registered as a broker 
                        or dealer under the Securities Exchange 
                        Act of 1934 (15 U.S.C. 78a et seq.),
                          (v) an affiliate of a person 
                        described in any of clauses (i) through 
                        (iv), or
                          (vi) an employee, agent, or 
                        registered representative of a person 
                        described in any of clauses (i) through 
                        (v) who satisfies the requirements of 
                        applicable insurance, banking, and 
                        securities laws relating to the 
                        provision of the advice.
                  (B) Affiliate.--The term ``affiliate'' of 
                another entity means an affiliated person of 
                the entity (as defined in section 2(a)(3) of 
                the Investment Company Act of 1940 (15 U.S.C. 
                80a-2(a)(3))).
                  (C) Registered representative.--The term 
                ``registered representative'' of another entity 
                means a person described in section 3(a)(18) of 
                the Securities Exchange Act of 1934 (15 U.S.C. 
                78c(a)(18)) (substituting the entity for the 
                broker or dealer referred to in such section) 
                or a person described in section 202(a)(17) of 
                the Investment Advisers Act of 1940 (15 U.S.C. 
                80b-2(a)(17)) (substituting the entity for the 
                investment adviser referred to in such 
                section).

           *       *       *       *       *       *       *


Part 5--Administration and Enforcement

           *       *       *       *       *       *       *


                           CIVIL ENFORCEMENT

  Sec. 502. (a) A civil action may be brought--
          (1) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

  (c)(1) * * *

           *       *       *       *       *       *       *

  (8) The Secretary may assess a civil penalty against any plan 
administrator of up to $1,000 a day for each day on which the 
plan administrator has failed to comply with the requirements 
of clause (iii) of section 105(a)(1)(A) and has not corrected 
such failure by providing the required pension benefit 
statements to the affected participants and beneficiaries.
  [(8)] (9) The Secretary and the Secretary of Health and Human 
Services shall maintain such ongoing consultation as may be 
necessary and appropriate to coordinate enforcement under this 
subsection with enforcement under section 1144(c)(8) of the 
Social Security Act.

           *       *       *       *       *       *       *


                 NATIONAL SUMMIT ON RETIREMENT SAVINGS

  Sec. 517. (a) Authority To Call Summit.--Not later than July 
15, 1998, the President shall convene a National Summit on 
Retirement Income Savings at the White House, to be co-hosted 
by the President and the Speaker and the Minority Leader of the 
House of Representatives and the Majority Leader and Minority 
Leader of the Senate. Such a National Summit shall be convened 
thereafter in [2001 and 2005 on or after September 1 of each 
year involved] 2006 and 2010. Such a National Summit shall--
          (1) * * *

           *       *       *       *       *       *       *

  (e) National Summit Participants.--
          (1) * * *
          (2) Statutorily required participation.--The 
        participants in the National Summit shall include the 
        following individuals or their designees:
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) the Chairman and ranking Member of the 
                [Committee on Labor and Human Resources] 
                Committee on Health, Education, Labor, and 
                Pensions of the Senate;

           *       *       *       *       *       *       *

                  [(F) the Chairman and ranking Member of the 
                Subcommittees on Labor, Health and Human 
                Services, and Education of the Senate and House 
                of Representatives; and]
                  (F) the Chairman and Ranking Member of the 
                Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the House of Representatives 
                and the Chairman and Ranking Member of the 
                Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the Senate;
                  (G) the Chairman and Ranking Member of the 
                Committee on Finance of the Senate;
                  (H) the Chairman and Ranking Member of the 
                Committee on Ways and Means of the House of 
                Representatives;
                  (I) the Chairman and Ranking Member of the 
                Subcommittee on Employer-Employee Relations of 
                the Committee on Education and the Workforce of 
                the House of Representatives; and
                  [(G)] (J) the parties referred to in 
                subsection (b).
          (3) Additional participants.--
                  (A) * * *
                  (B) Appointment requirements.--The additional 
                participants described in subparagraph (A) 
                shall be--
                          (i) appointed not later than [January 
                        31, 1998] 2 months before the convening 
                        of each summit;

           *       *       *       *       *       *       *

  (f) National Summit Administration.--
          (1) Administration.--In administering this section, 
        the Secretary shall--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) make available for public comment, no 
                later than 60 days prior to the date of the 
                commencement of the National Summit, a proposed 
                agenda for the National Summit that reflects to 
                the greatest extent possible the purposes for 
                the National Summit set out in this section;

           *       *       *       *       *       *       *

  (i) Authorization of Appropriations.--
          (1) In general.--There is authorized to be 
        appropriated [for fiscal years beginning on or after 
        October 1, 1997,] such sums as are necessary to carry 
        out this section.

           *       *       *       *       *       *       *

          (3) Reception and representation authority.--The 
        Secretary is hereby granted reception and 
        representation authority limited specifically to the 
        events at the National Summit. The Secretary shall use 
        any private contributions accepted in connection with 
        the National Summit prior to using funds appropriated 
        for purposes of the National Summit pursuant to this 
        paragraph.

           *       *       *       *       *       *       *

  (k) Contracts.--The Secretary may enter into contracts to 
carry out the Secretary's responsibilities under this section. 
The Secretary [shall enter into a contract on a sole-source 
basis] may enter into a contract on a sole-source basis to 
ensure the timely completion of the National Summit [in fiscal 
year 1998].

           *       *       *       *       *       *       *


                  TITLE IV--PLAN TERMINATION INSURANCE

Subtitle A--Pension Benefit Guaranty Corporation

           *       *       *       *       *       *       *


                             PREMIUM RATES

  Sec. 4006. (a)(1) * * *

           *       *       *       *       *       *       *

  (3)(A) Except as provided in subparagraph (C), the annual 
premium rate payable to the corporation by all plans for basic 
benefits guaranteed under this title is--
          (i) in the case of a single-employer plan, other than 
        a new single-employer plan (as defined in subparagraph 
        (F)) maintained by a small employer (as so defined), 
        for plan years beginning after December 31, 1990, an 
        amount equal to the sum of $19 plus the additional 
        premium (if any) determined under subparagraph (E) for 
        each individual who is a participant in such plan 
        during the plan year;

           *       *       *       *       *       *       *

          (iii) in the case of a multiemployer plan, for plan 
        years beginning after the date of enactment of the 
        Multiemployer Pension Plan Amendments Act of 1980 
        [September 26, 1980], an amount equal to--
                  (I) * * *

           *       *       *       *       *       *       *

                  (IV) $2.60 for each participant, for the 
                ninth plan year, and for each succeeding plan 
                year[.], and
          (iv) in the case of a new single-employer plan (as 
        defined in subparagraph (F)) maintained by a small 
        employer (as so defined) for the plan year, $5 for each 
        individual who is a participant in such plan during the 
        plan year.

           *       *       *       *       *       *       *

  (E)(i) [The] Except as provided in subparagraph (G), the 
additional premium determined under this subparagraph with 
respect to any plan for any plan year shall be an amount equal 
to the amount determined under clause (ii) divided by the 
number of participants in such plan as of the close of the 
preceding plan year.

           *       *       *       *       *       *       *

  (iii) For purposes of clause (ii)--
          (I) * * *

           *       *       *       *       *       *       *

  [(IV) In the case of plan years beginning after December 31, 
2001, and before January 1, 2004, subclause (II) shall be 
applied by substituting ``100 percent'' for ``85 percent''. 
Subclause (III) shall be applied for such years without regard 
to the preceding sentence. Any reference to this clause by any 
other sections or subsections shall be treated as a reference 
to this clause without regard to this subclause.]
          (IV) In the case of plan years beginning after 
        December 31, 2001, and before January 1, 2004, 
        subclause (II) shall be applied by substituting ``100 
        percent'' for ``85 percent'' and by substituting ``115 
        percent'' for ``100 percent''. Subclause (III) shall be 
        applied for such years without regard to the preceding 
        sentence. Any reference to this clause or this 
        subparagraph by any other sections or subsections 
        (other than sections 4005, 4010, 4011 and 4043) shall 
        be treated as a reference to this clause or this 
        subparagraph without regard to this subclause.

           *       *       *       *       *       *       *

  (v) In the case of a new defined benefit plan, the amount 
determined under clause (ii) for any plan year shall be an 
amount equal to the product of the amount determined under 
clause (ii) and the applicable percentage. For purposes of this 
clause, the term ``applicable percentage'' means--
          (I) 0 percent, for the first plan year.
          (II) 20 percent, for the second plan year.
          (III) 40 percent, for the third plan year.
          (IV) 60 percent, for the fourth plan year.
          (V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined 
in section 3(35)) maintained by a contributing sponsor shall be 
treated as a new defined benefit plan for each of its first 5 
plan years if, during the 36-month period ending on the date of 
the adoption of the plan, the sponsor and each member of any 
controlled group including the sponsor (or any predecessor of 
either) did not establish or maintain a plan to which this 
title applies with respect to which benefits were accrued for 
substantially the same employees as are in the new plan.
  (F)(i) For purposes of this paragraph, a single-employer plan 
maintained by a contributing sponsor shall be treated as a new 
single-employer plan for each of its first 5 plan years if, 
during the 36-month period ending on the date of the adoption 
of such plan, the sponsor or any member of such sponsor's 
controlled group (or any predecessor of either) did not 
establish or maintain a plan to which this title applies with 
respect to which benefits were accrued for substantially the 
same employees as are in the new single-employer plan.
  (ii)(I) For purposes of this paragraph, the term ``small 
employer'' means an employer which on the first day of any plan 
year has, in aggregation with all members of the controlled 
group of such employer, 100 or fewer employees.
  (II) In the case of a plan maintained by two or more 
contributing sponsors that are not part of the same controlled 
group, the employees of all contributing sponsors and 
controlled groups of such sponsors shall be aggregated for 
purposes of determining whether any contributing sponsor is a 
small employer.
  (G)(i) In the case of an employer who has 25 or fewer 
employees on the first day of the plan year, the additional 
premium determined under subparagraph (E) for each participant 
shall not exceed $5 multiplied by the number of participants in 
the plan as of the close of the preceding plan year.
  (ii) For purposes of clause (i), whether an employer has 25 
or fewer employees on the first day of the plan year is 
determined by taking into consideration all of the employees of 
all members of the contributing sponsor's controlled group. In 
the case of a plan maintained by two or more contributing 
sponsors, the employees of all contributing sponsors and their 
controlled groups shall be aggregated for purposes of 
determining whether the 25-or-fewer-employees limitation has 
been satisfied.

           *       *       *       *       *       *       *


                          PAYMENT OF PREMIUMS

  Sec. 4007. (a) * * *
  [(b)] (b)(1) If any basic benefit premium is not paid when it 
is due the corporation is authorized to assess a late payment 
charge of not more than 100 percent of the premium payment 
which was not timely paid. The preceding sentence shall not 
apply to any payment of premium made within 60 days after the 
date on which payment is due, if before such date, the 
designated payor obtains a waiver from the corporation based 
upon a showing of substantial hardship arising from the timely 
payment of the premium. The corporation is authorized to grant 
a waiver under this subsection upon application made by the 
designated payor, but the corporation may not grant a waiver if 
it appears that the designated payor will be unable to pay the 
premium within 60 days after the date on which it is due. If 
any premium is not paid by the last date prescribed for a 
payment, interest on the amount of such premium at the rate 
imposed under section 6601(a) of the Internal Revenue Code of 
1986 (relating to interest on underpayment, nonpayment, or 
extensions of time for payment of tax) shall be paid for the 
period from such last date to the date paid.
  (2) The corporation is authorized to pay, subject to 
regulations prescribed by the corporation, interest on the 
amount of any overpayment of premium refunded to a designated 
payor. Interest under this paragraph shall be calculated at the 
same rate and in the same manner as interest is calculated for 
underpayments under paragraph (1).

           *       *       *       *       *       *       *


                          Subtitle B--Coverage

                             PLANS COVERED

  Sec. 4021. (a) * * *
  (b) This section does not apply to any plan--
          (1) * * *

           *       *       *       *       *       *       *

          (9) which is established and maintained exclusively 
        for substantial owners [as defined in section 
        4022(b)(6)];

           *       *       *       *       *       *       *

  (d) For purposes of subsection (b)(9), the term ``substantial 
owner'' means an individual who, at any time during the 60-
month period ending on the date the determination is being 
made--
          (1) owns the entire interest in an unincorporated 
        trade or business,
          (2) in the case of a partnership, is a partner who 
        owns, directly or indirectly, more than 10 percent of 
        either the capital interest or the profits interest in 
        such partnership, or
          (3) in the case of a corporation, owns, directly or 
        indirectly, more than 10 percent in value of either the 
        voting stock of that corporation or all the stock of 
        that corporation.
For purposes of paragraph (3), the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)).

                SINGLE-EMPLOYER PLAN BENEFITS GUARANTEED

  Sec. 4022. (a) * * *
  (b)(1) * * *

           *       *       *       *       *       *       *

  [(5)(A) For purposes of this title, the term ``substantial 
owner'' means an individual who--
          [(i) owns the entire interest in an unincorporated 
        trade or business,
          [(ii) in the case of a partnership, is a partner who 
        owns, directly or indirectly, more than 10 percent of 
        either the capital interest or the profits interest in 
        such partnership, or
          [(iii) in the case of a corporation, owns, directly 
        or indirectly, more than 10 percent in value of either 
        the voting stock of that corporation or all the stock 
        of that corporation.
For purposes of clause (iii) the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)). For 
purposes of this title an individual is also treated as a 
substantial owner with respect to a plan if, at any time within 
the 60 months preceding the date on which the determination is 
made, he was a substantial owner under the plan.
  [(B) In the case of a participant in a plan under which 
benefits have not been increased by reason of any plan 
amendments and who is covered by the plan as a substantial 
owner, the amount of benefits guaranteed under this section 
shall not exceed the product of--
          [(i) a fraction (not to exceed 1) the numerator of 
        which is the number of years the substantial owner was 
        an active participant in the plan, and the denominator 
        of which is 30, and
          [(ii) the amount of the substantial owner's monthly 
        benefits guaranteed under subsection (a) (as limited 
        under paragraph (3) of this subsection).
  [(C) In the case of a participant in a plan, other than a 
plan described in subparagraph (B), who is covered by the plan 
as a substantial owner, the amount of the benefit guaranteed 
under this section shall, under regulations prescribed by the 
corporation, treat each benefit increase attributable to a plan 
amendment as if it were provided under a new plan. The benefits 
guaranteed under this section with respect to all such 
amendments shall not exceed the amount which would be 
determined under subparagraph (B) if subparagraph (B) applied.]
  (5)(A) For purposes of this paragraph, the term ``majority 
owner'' means an individual who, at any time during the 60-
month period ending on the date the determination is being 
made--
          (i) owns the entire interest in an unincorporated 
        trade or business,
          (ii) in the case of a partnership, is a partner who 
        owns, directly or indirectly, 50 percent or more of 
        either the capital interest or the profits interest in 
        such partnership, or
          (iii) in the case of a corporation, owns, directly or 
        indirectly, 50 percent or more in value of either the 
        voting stock of that corporation or all the stock of 
        that corporation.
For purposes of clause (iii), the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)).
  (B) In the case of a participant who is a majority owner, the 
amount of benefits guaranteed under this section shall equal 
the product of--
          (i) a fraction (not to exceed 1) the numerator of 
        which is the number of years from the later of the 
        effective date or the adoption date of the plan to the 
        termination date, and the denominator of which is 10, 
        and
          (ii) the amount of benefits that would be guaranteed 
        under this section if the participant were not a 
        majority owner.

           *       *       *       *       *       *       *


Subtitle C--Terminations

           *       *       *       *       *       *       *


                           REPORTABLE EVENTS

  Sec. 4043. (a) * * *

           *       *       *       *       *       *       *

  (c) For purposes of this section a reportable event occurs--
          (1) * * *

           *       *       *       *       *       *       *

          (7) when there is a distribution under the plan to a 
        participant who is a substantial owner as defined in 
        [section 4022(b)(6)] section 4021(d) if--
                  (A) * * *

           *       *       *       *       *       *       *


                          ALLOCATION OF ASSETS

  Sec. 4044. (a) In the case of the termination of a single-
employer plan, the plan administrator shall allocate the assets 
of the plan (available to provide benefits) among the 
participants and beneficiaries of the plan in the following 
order:
          (1) * * *

           *       *       *       *       *       *       *

          (4) Fourth--
                  (A) * * *
                  (B) to the additional benefits (if any) which 
                would be determined under subparagraph (A) if 
                [section 4022(b)(5)] section 4022(b)(5)(B) did 
                not apply.

           *       *       *       *       *       *       *

  (b) For purposes of subsection (a)--
          (1) * * *
          (2) If the assets available for allocation under any 
        paragraph of subsection (a) (other than paragraphs 
        [(5)] (4), (5), and (6)) are insufficient to satisfy in 
        full the benefits of all individuals which are 
        described in that paragraph, the assets shall be 
        allocated pro rata among such individuals on the basis 
        of the present value (as of the termination date) of 
        their respective benefits described in that paragraph.
          (3) If assets available for allocation under 
        paragraph (4) of subsection (a) are insufficient to 
        satisfy in full the benefits of all individuals who are 
        described in that paragraph, the assets shall be 
        allocated first to benefits described in subparagraph 
        (A) of that paragraph. Any remaining assets shall then 
        be allocated to benefits described in subparagraph (B) 
        of that paragraph. If assets allocated to such 
        subparagraph (B) are insufficient to satisfy in full 
        the benefits described in that subparagraph, the assets 
        shall be allocated pro rata among individuals on the 
        basis of the present value (as of the termination date) 
        of their respective benefits described in that 
        subparagraph.
          [(3)] (4) This paragraph applies if the assets 
        available for allocation under paragraph (5) of 
        subsection (a) are not sufficient to satisfy in full 
        the benefits of individuals described in that 
        paragraph.
                  (A) * * *

           *       *       *       *       *       *       *

          [(4)] (5) If the Secretary of the Treasury determines 
        that the allocation made pursuant to this section 
        (without regard to this paragraph) results in 
        discrimination prohibited by section 401(a)(4) of the 
        Internal Revenue Code of 1986 then, if required to 
        prevent the disqualification of the plan (or any trust 
        under the plan) under section 401(a) or 403(a) of such 
        Code, the assets allocated under subsections (a)(4)(B), 
        (a)(5), and (a)(6) shall be reallocated to the extent 
        necessary to avoid such discrimination.
          [(5)] (6) The term ``mandatory contributions'' means 
        amounts contributed to the plan by a participant which 
        are required as a condition of employment, as a 
        condition of participation in such plan, or as a 
        condition of obtaining benefits under the plan 
        attributable to employer contributions. For this 
        purpose, the total amount of mandatory contributions of 
        a participant is the amount of such contributions 
        reduced (but not below zero) by the sum of the amounts 
        paid or distributed to him under the plan before its 
        termination.
          [(6)] (7) A plan may establish subclasses and 
        categories within the classes described in paragraphs 
        (1) through (6) of subsection (a) in accordance with 
        regulations prescribed by the corporation.

           *       *       *       *       *       *       *


SEC. 4050. MISSING PARTICIPANTS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Multiemployer Plans.--The corporation shall prescribe 
rules similar to the rules in subsection (a) for multiemployer 
plans covered by this title that terminate under section 4041A.
  (d) Plans Not Otherwise Subject to Title.--
          (1) Transfer to corporation.--The plan administrator 
        of a plan described in paragraph (4) may elect to 
        transfer the benefits of a missing participant or 
        beneficiary to the corporation upon termination of the 
        plan.
          (2) Information to the corporation.--To the extent 
        provided in regulations, the plan administrator of a 
        plan described in paragraph (4) shall, upon termination 
        of the plan, provide the corporation information with 
        respect to benefits of a missing participant or 
        beneficiary if the plan transfers such benefits--
                  (A) to the corporation, or
                  (B) to an entity other than the corporation 
                or a plan described in paragraph (4)(B)(ii).
          (3) Payment by the corporation.--If benefits of a 
        missing participant or beneficiary were transferred to 
        the corporation under paragraph (1), the corporation 
        shall, upon location of the participant or beneficiary, 
        pay to the participant or beneficiary the amount 
        transferred (or the appropriate survivor benefit) 
        either--
                  (A) in a single sum (plus interest), or
                  (B) in such other form as is specified in 
                regulations of the corporation.
          (4) Plans described.--A plan is described in this 
        paragraph if--
                  (A) the plan is a pension plan (within the 
                meaning of section 3(2))--
                          (i) to which the provisions of this 
                        section do not apply (without regard to 
                        this subsection), and
                          (ii) which is not a plan described in 
                        paragraphs (2) through (11) of section 
                        4021(b), and
                  (B) at the time the assets are to be 
                distributed upon termination, the plan--
                          (i) has one or more missing 
                        participants or beneficiaries, and
                          (ii) has not provided for the 
                        transfer of assets to pay the benefits 
                        of all missing participants and 
                        beneficiaries to another pension plan 
                        (within the meaning of section 3(2)).
          (5) Certain provisions not to apply.--Subsections 
        (a)(1) and (a)(3) shall not apply to a plan described 
        in paragraph (4).

           *       *       *       *       *       *       *

  [(c)] (e) Regulatory Authority.--The corporation shall 
prescribe such regulations as are necessary to carry out the 
purposes of this section, including rules relating to what will 
be considered a diligent search, the amount payable to the 
corporation, and the amount to be paid by the corporation.

           *       *       *       *       *       *       *

                              ----------                              


                     INTERNAL REVENUE CODE OF 1986

Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 132. CERTAIN FRINGE BENEFITS.

  (a) * * *

           *       *       *       *       *       *       *

  (m) Qualified Retirement Planning Services.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) No constructive receipt.--No amount shall be 
        included in the gross income of any employee solely 
        because the employee may choose between any qualified 
        retirement planning services provided by a qualified 
        investment advisor and compensation which would 
        otherwise be includible in the gross income of such 
        employee. The preceding sentence shall apply to highly 
        compensated employees only if the choice described in 
        such sentence is available on substantially the same 
        terms to each member of the group of employees normally 
        provided education and information regarding the 
        employer's qualified employer plan.

           *       *       *       *       *       *       *


Subchapter D--Deferred Compensation, Etc.

           *       *       *       *       *       *       *


PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.

           *       *       *       *       *       *       *


Subpart A--General Rule

           *       *       *       *       *       *       *


SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.

  (a) Requirements for Qualification.--A trust created or 
organized in the United States and forming part of a stock 
bonus, pension, or profit-sharing plan of an employer for the 
exclusive benefit of his employees or their beneficiaries shall 
constitute a qualified trust under this section--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Special rules relating to nondiscrimination 
        requirements.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) [State and local governmental plans.--] 
                Governmental plans.--Paragraphs (3) and (4) 
                shall not apply to a governmental plan (within 
                the meaning of [section 414(d)) maintained by a 
                State or local government or political 
                subdivision thereof (or agency or 
                instrumentality thereof).] section 414(d)).

           *       *       *       *       *       *       *

          (26) Additional participation requirements.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (H) [Exception for state and local 
                governmental plans.--] Exception for 
                governmental 
                plans.--This paragraph shall not apply to a 
                governmental plan (within the meaning of 
                [section 414(d)) maintained by a State or local 
                government or political subdivision thereof (or 
                agency or instrumentality thereof).] section 
                414(d)).

           *       *       *       *       *       *       *

          (28) Additional requirements relating to employee 
        stock ownership plans.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Application.--This paragraph shall not 
                apply to a plan to which paragraph (35) 
                applies.

           *       *       *       *       *       *       *

          (35) Diversification requirements for defined 
        contribution plans that hold employer securities.--
                  (A) In general.--An applicable defined 
                contribution plan shall meet the requirements 
                of subparagraphs (B) and (C).
                  (B) Employee contributions and elective 
                deferrals invested in employer securities.--In 
                the case of the portion of the account 
                attributable to employee contributions and 
                elective deferrals which is invested in 
                employer securities, a plan meets the 
                requirements of this subparagraph if each 
                applicable individual in such plan may elect to 
                direct the plan to divest any such securities 
                in the individual's account and to reinvest an 
                equivalent amount in other investment options 
                which meet the requirements of subparagraph 
                (D).
                  (C) Employer contributions invested in 
                employer securities.--
                          (i) In general.--In the case of the 
                        portion of the account attributable to 
                        employer contributions (other than 
                        elective deferrals to which 
                        subparagraph (B) applies) which is 
                        invested in employer securities, a plan 
                        meets the requirements of this 
                        subparagraph if, under the plan--
                                  (I) each applicable 
                                individual with a benefit based 
                                on 3 years of service may elect 
                                to direct the plan to divest 
                                any such securities in the 
                                individual's account and to 
                                reinvest an equivalent amount 
                                in other investment options 
                                which meet the requirements of 
                                subparagraph (D), or
                                  (II) with respect to any 
                                employer security allocated to 
                                an applicable individual's 
                                account during any plan year, 
                                such applicable individual may 
                                elect to direct the plan to 
                                divest such employer security 
                                after a date which is not later 
                                than 3 years after the end of 
                                such plan year and to reinvest 
                                an equivalent amount in other 
                                investment options which meet 
                                the requirements of 
                                subparagraph (D).
                          (ii) Applicable individual with 
                        benefit based on 3 years of service.--
                        For purposes of clause (i), an 
                        applicable individual has a benefit 
                        based on 3 years of service if such 
                        individual would be an applicable 
                        individual if only participants in the 
                        plan who have completed at least 3 
                        years of service (as determined under 
                        section 411(a)) were referred to in 
                        subparagraph (E)(ii)(I).
                  (D) Investment options.--The requirements of 
                this subparagraph are met if--
                          (i) the plan offers not less than 3 
                        investment options, other than employer 
                        securities, to which an applicable 
                        individual may direct the proceeds from 
                        the divestment of employer securities 
                        pursuant to this paragraph, each of 
                        which is diversified and has materially 
                        different risk and return 
                        characteristics, and
                          (ii) the plan permits the applicable 
                        individual to choose from any of the 
                        investment options made available under 
                        the plan to which such proceeds may be 
                        so directed, subject to such 
                        restrictions as may be provided by the 
                        plan limiting such choice to periodic, 
                        reasonable opportunities occurring no 
                        less frequently than on a quarterly 
                        basis.
                  (E) Definitions and rules.--For purposes of 
                this paragraph--
                          (i) Applicable defined contribution 
                        plan.--The term ``applicable defined 
                        contribution plan'' means any defined 
                        contribution plan, except that such 
                        term does not include an employee stock 
                        ownership plan (within the meaning of 
                        section 4975(e)(7)) unless there are 
                        any contributions to such plan (or 
                        earnings thereon) held within such plan 
                        that are subject to subsection (k)(3) 
                        or (m)(2).
                          (ii) Applicable individual.--The term 
                        ``applicable individual'' means--
                                  (I) any participant in the 
                                plan, and
                                  (II) any beneficiary of a 
                                participant referred to in 
                                clause (i) who has an account 
                                under the plan with respect to 
                                which the beneficiary is 
                                entitled to exercise the rights 
                                of the participant.
                          (iii) Elective deferral.--The term 
                        ``elective deferral'' means an employer 
                        contribution described in section 
                        402(g)(3)(A) (as in effect on the date 
                        of the enactment of this paragraph).
                          (iv) Employer security.--The term 
                        ``employer security'' shall have the 
                        meaning given such term by section 
                        407(d)(1) of the Employee Retirement 
                        Income Security Act of 1974 (as in 
                        effect on the date of the enactment of 
                        this paragraph).
                          (v) Employee stock ownership plan.--
                        The term ``employee stock ownership 
                        plan'' shall have the same meaning 
                        given to such term by section 
                        4975(e)(7) of the Internal Revenue Code 
                        of 1986 (as in effect on the date of 
                        the enactment of this paragraph).
                          (vi) Elections.--Elections under this 
                        paragraph may be made not less 
                        frequently than quarterly.
                  (F) Exception where there is no readily 
                tradable stock.--This paragraph shall not apply 
                if there is no class of stock issued by the 
                employer that is readily tradable on an 
                established securities market (or in such other 
                circumstances as may be determined jointly by 
                the Secretary of the Treasury and the Secretary 
                of Labor in regulations).
                  (G) Transition rule.--
                          (i) In general.--In the case of any 
                        defined contribution plan which, on the 
                        effective date of this subsection, 
                        holds employer securities of any class 
                        that were acquired before such date and 
                        on which there is a restriction on 
                        diversification otherwise precluded by 
                        this paragraph, this paragraph shall 
                        apply to such securities of such class 
                        held in any plan year only with respect 
                        to the number of such securities equal 
                        to the applicable percentage of the 
                        total number of such securities of such 
                        class held on such date.
                          (ii) Applicable percentage.--For 
                        purposes of clause (i), the applicable 
                        percentage shall be as follows:

Plan years for whichApplicable percentage:ive:
  1st plan year.....20 percent..........................................
  2nd plan year.....40 percent..........................................
  3rd plan year.....60 percent..........................................
  4th plan year.....80 percent..........................................
  5th plan year or t100 percent.........................................

                          (iii) Elective deferrals treated as 
                        separate plan not individual account 
                        plan.--For purposes of clause (i), the 
                        applicable percentage shall be 100 
                        percent with respect to--
                                  (I) employee contributions to 
                                a plan under which any portion 
                                attributable to elective 
                                deferrals is treated as a 
                                separate plan under section 
                                407(b)(2) of the Employee 
                                Retirement Income Security Act 
                                of 1974 as of the date of the 
                                enactment of this paragraph, 
                                and
                                  (II) such elective deferrals.
                          (iv) Contributions held within an 
                        esop.--In the case of contributions 
                        (other than elective deferrals and 
                        employee contributions) held within an 
                        employee stock ownership plan, in the 
                        case of the 1st and 2nd plan years 
                        referred to in the table in clause 
                        (ii), the applicable percentage shall 
                        be the greater of the amount determined 
                        under clause (ii) or the percentage 
                        determined under paragraph (28) 
                        (determined as if paragraph (28) 
                        applied to a plan described in this 
                        paragraph).
                          (v) Coordination with prior elections 
                        under paragraph (28).--In any case in 
                        which a divestiture of investment in 
                        employer securities of any class held 
                        by an employee stock ownership plan 
                        prior to the effective date of this 
                        paragraph was undertaken pursuant to an 
                        election under paragraph (28) prior to 
                        such date, the applicable percentage 
                        (as determined without regard to this 
                        clause) in connection with such 
                        securities shall be reduced to the 
                        extent necessary to account for the 
                        amount to which such election applied.
                  (H) Regulations.--The Secretary shall 
                prescribe regulations under this paragraph in 
                consultation with the Secretary of Labor.
  (k) Cash or Deferred Arrangements.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Application of participation and discrimination 
        standards.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) Governmental plans.--A governmental plan 
                (within the meaning of section 414(d) 
                [maintained by a State or local government or 
                political subdivision thereof (or agency or 
                instrumentality thereof)] shall be treated as 
                meeting the requirements of this paragraph.

           *       *       *       *       *       *       *


SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.

  (a) * * *
  (b) Taxability of Beneficiary Under Annuity Purchased by 
Section 501(c)(3) Organization or Public School.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Includible compensation.--For purposes of this 
        subsection, the term ``includible compensation'' means, 
        in the case of any employee, the amount of compensation 
        which is received from the employer described in 
        paragraph (1)(A), and which is includible in gross 
        income (computed without regard to section 911) for the 
        most recent period (ending not later than the close of 
        the taxable year) which under paragraph (4) may be 
        counted as one year of service, and which precedes the 
        taxable year by no more than five years. Such term does 
        not include any amount contributed by the employer for 
        any annuity contract to which this subsection applies. 
        Such term includes--
                  (A) * * *
                  (B) any amount which is contributed or 
                deferred by the employer at the election of the 
                employee and which is not includible in the 
                gross income of the employee by reason of 
                section 125, 132(f)(4), 132(m)(4), or 457.

           *       *       *       *       *       *       *


SEC. 409. QUALIFICATIONS FOR TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Right to Demand Employer Securities; Put Option.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Exception where employee elected 
        diversification.--Paragraph (1)(A) shall not apply with 
        respect to the portion of the participant's account 
        which the employee elected to have reinvested under 
        section 401(a)(28)(B) or subparagraph (B) or (C) of 
        section 401(a)(35).

           *       *       *       *       *       *       *


Subpart B--Special Rules

           *       *       *       *       *       *       *


SEC. 410. MINIMUM PARTICIPATION STANDARDS.

  (a) * * *
  (b) Minimum Coverage Requirements.--
          (1) In general.--A trust shall not constitute a 
        qualified trust under section 401(a) unless such trust 
        is designated by the employer as part of a plan which 
        meets 1 of the following requirements:
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) In the case that the plan fails to meet 
                the requirements of subparagraphs (A), (B) and 
                (C), the plan--
                          (i) satisfies subparagraph (B), as in 
                        effect immediately before the enactment 
                        of the Tax Reform Act of 1986,
                          (ii) is submitted to the Secretary 
                        for a determination of whether it 
                        satisfies the requirement described in 
                        clause (i), and
                          (iii) satisfies conditions prescribed 
                        by the Secretary by regulation that 
                        appropriately limit the availability of 
                        this subparagraph.
                Clause (ii) shall apply only to the extent 
                provided by the Secretary.

           *       *       *       *       *       *       *


SEC. 412. MINIMUM FUNDING STANDARDS.

  (a) * * *

           *       *       *       *       *       *       *

  (l) Additional Funding Requirements for Plans which Are Not 
Multiemployer Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Current liability.--For purposes of this 
        subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Interest rate and mortality assumptions 
                used.--Effective for plan years beginning after 
                December 31, 1994--
                          (i) Interest rate.--
                                  (I) * * *

           *       *       *       *       *       *       *

                                  (III) Special rule for [2002 
                                and 2003] 2001, 2002, and 
                                2003.--For a plan year 
                                beginning in [2002 or 2003] 
                                2001, 2002, or 2003, 
                                notwithstanding subclause (I), 
                                in the case that the rate of 
                                interest used under subsection 
                                (b)(5) exceeds the highest rate 
                                permitted under subclause (I), 
                                the rate of interest used to 
                                determine current liability 
                                under this subsection may 
                                exceed the rate of interest 
                                otherwise permitted under 
                                subclause (I); except that such 
                                rate of interest shall not 
                                exceed 120 percent of the 
                                weighted average referred to in 
                                subsection (b)(5)(B)(ii).

           *       *       *       *       *       *       *


SEC. 414. DEFINITIONS AND SPECIAL RULES.

  (a) * * *

           *       *       *       *       *       *       *

  (s) Compensation.--For purposes of any applicable provision--
          (1) * * *
          (2) Employer may elect not to treat certain deferrals 
        as compensation.--An employer may elect not to include 
        as compensation any amount which is contributed by the 
        employer pursuant to a salary reduction agreement and 
        which is not includible in the gross income of an 
        employee under section 125, 132(f)(4), 132(m)(4), 
        402(e)(3), 402(h), or 403(b).

           *       *       *       *       *       *       *

  (w) Provision of Investment Education Notices to Participants 
in Certain Plans.--
          (1) In general.--The plan administrator of an 
        applicable pension plan shall provide to each 
        applicable individual an investment education notice 
        described in paragraph (2) at the time of the 
        enrollment of the applicable individual in the plan and 
        not less often than annually thereafter.
          (2) Investment education notice.--An investment 
        education notice is described in this paragraph if such 
        notice contains--
                  (A) an explanation, for the long-term 
                retirement security of participants and 
                beneficiaries, of generally accepted investment 
                principles, including principles of risk 
                management and diversification, and
                  (B) a discussion of the risk of holding 
                substantial portions of a portfolio in the 
                security of any one entity, such as employer 
                securities.
          (3) Understandability.--Each notice required by 
        paragraph (1) shall be written in a manner calculated 
        to be understood by the average plan participant and 
        shall provide sufficient information (as determined in 
        accordance with guidance provided by the Secretary) to 
        allow recipients to understand such notice.
          (4) Form and manner of notices.--The notices required 
        by this subsection shall be in writing, except that 
        such notices may be in electronic or other form (or 
        electronically posted on the plan's website) to the 
        extent that such form is reasonably accessible to the 
        applicable individual.
          (5) Definitions.--For purposes of this subsection--
                  (A) Applicable individual.--The term 
                ``applicable individual'' means--
                          (i) any participant in the applicable 
                        pension plan,
                          (ii) any beneficiary who is an 
                        alternate payee (within the meaning of 
                        section 414(p)(8)) under a qualified 
                        domestic relations order (within the 
                        meaning of section 414(p)(1)(A)), and
                          (iii) any beneficiary of a deceased 
                        participant or alternate payee.
                  (B) Applicable pension plan.--The term 
                ``applicable pension plan'' means--
                          (i) a plan described in clause (i), 
                        (ii), or (iv) of section 219(g)(5)(A), 
                        and
                          (ii) an eligible deferred 
                        compensation plan (as defined in 
                        section 457(b)) of an eligible employer 
                        described in section 457(e)(1)(A),
                which permits any participant to direct the 
                investment of some or all of his account in the 
                plan or under which the accrued benefit of any 
                participant depends in whole or in part on 
                hypothetical investments directed by the 
                participant. Such term shall not include a one-
                participant retirement plan or a plan to which 
                section 105 of the Employee Retirement Income 
                Security Act of 1974 applies.
                  (C) One-participant retirement plan 
                defined.--The term ``one-participant retirement 
                plan'' means a retirement plan with respect to 
                which the following requirements are met:
                          (i) on the first day of the plan 
                        year--
                                  (I) the plan covered only one 
                                individual (or the individual 
                                and the individual's spouse) 
                                and the individual owned 100 
                                percent of the plan sponsor 
                                (whether or not incorporated), 
                                or
                                  (II) the plan covered only 
                                one or more partners (or 
                                partners and their spouses) in 
                                the plan sponsor;
                          (ii) the plan meets the minimum 
                        coverage requirements of 410(b) without 
                        being combined with any other plan of 
                        the business that covers the employees 
                        of the business;
                          (iii) the plan does not provide 
                        benefits to anyone except the 
                        individual (and the individual's 
                        spouse) or the partners (and their 
                        spouses);
                          (iv) the plan does not cover a 
                        business that is a member of an 
                        affiliated service group, a controlled 
                        group of corporations, or a group of 
                        businesses under common control; and
                          (v) the plan does not cover a 
                        business that leases employees.
          (6) Cross reference.--
          For provisions relating to penalty for failure to provide the 
        notice required by this section, see section 6652(m).

           *       *       *       *       *       *       *


SEC. 415. LIMITATIONS ON BENEFITS AND CONTRIBUTIONS UNDER QUALIFIED 
                    PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Limitation for Defined Contribution Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Participant's compensation.--For purposes of 
        paragraph (1)--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Certain deferrals included.--The term 
                ``participant's compensation'' shall include--
                          (i) * * *
                          (ii) any amount which is contributed 
                        or deferred by the employer at the 
                        election of the employee and which is 
                        not includible in the gross income of 
                        the employee by reason of section 125, 
                        132(f)(4), 132(m)(4), or 457.

           *       *       *       *       *       *       *


SEC. 417. DEFINITIONS AND SPECIAL RULES FOR PURPOSES OF MINIMUM 
                    SURVIVOR ANNUITY REQUIREMENTS.

  (a) Election to Waive Qualified Joint and Survivor Annuity or 
Qualified Preretirement Survivor Annuity.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Applicable election period defined.--For purposes 
        of this subsection, the term ``applicable election 
        period'' means--
                  (A) in the case of an election to waive the 
                qualified joint and survivor annuity form of 
                benefit, the [90-day] 180-day period ending on 
                the annuity starting date, or

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 43--QUALIFIED PENSION, ETC., PLANS

           *       *       *       *       *       *       *


SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Exemptions.--Except as provided in subsection (f)(6), the 
prohibitions provided in subsection (c) shall not apply to--
          (1) * * *

           *       *       *       *       *       *       *

          (14) any transaction required or permitted under part 
        1 of subtitle E of title IV or section 4223 of the 
        Employee Retirement Income Security Act of 1974, but 
        this paragraph shall not apply with respect to the 
        application of subsection (c)(1) (E) or (F); [or]
          (15) a merger of multiemployer plans, or the transfer 
        of assets or liabilities between multiemployer plans, 
        determined by the Pension Benefit Guaranty Corporation 
        to meet the requirements of section 4231 of such Act, 
        but this paragraph shall not apply with respect to the 
        application of subsection (c)(1) (E) or (F)[.]; or
          (16) any transaction described in subsection 
        (f)(7)(A) in connection with the provision of 
        investment advice described in subsection (e)(3)(B)(i), 
        in any case in which--
                  (A) the investment of assets of the plan is 
                subject to the direction of plan participants 
                or beneficiaries,
                  (B) the advice is provided to the plan or a 
                participant or beneficiary of the plan by a 
                fiduciary adviser in connection with any sale, 
                acquisition, or holding of a security or other 
                property for purposes of investment of plan 
                assets, and
                  (C) the requirements of subsection (f)(7)(B) 
                are met in connection with the provision of the 
                advice.

           *       *       *       *       *       *       *

  (f) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Provisions relating to investment advice provided 
        by fiduciary advisers.--
                  (A) Transactions allowable in connection with 
                investment advice provided by fiduciary 
                advisers.--The transactions referred to in 
                subsection (d)(16), in connection with the 
                provision of investment advice by a fiduciary 
                adviser, are the following:
                          (i) the provision of the advice to 
                        the plan, participant, or beneficiary;
                          (ii) the sale, acquisition, or 
                        holding of a security or other property 
                        (including any lending of money or 
                        other extension of credit associated 
                        with the sale, acquisition, or holding 
                        of a security or other property) 
                        pursuant to the advice; and
                          (iii) the direct or indirect receipt 
                        of fees or other compensation by the 
                        fiduciary adviser or an affiliate 
                        thereof (or any employee, agent, or 
                        registered representative of the 
                        fiduciary adviser or affiliate) in 
                        connection with the provision of the 
                        advice or in connection with a sale, 
                        acquisition, or holding of a security 
                        or other property pursuant to the 
                        advice.
                  (B) Requirements relating to provision of 
                investment advice by fiduciary advisers.--The 
                requirements of this subparagraph (referred to 
                in subsection (d)(16)(C)) are met in connection 
                with the provision of investment advice 
                referred to in subsection (e)(3)(B), provided 
                to a plan or a participant or beneficiary of a 
                plan by a fiduciary adviser with respect to the 
                plan in connection with any sale, acquisition, 
                or holding of a security or other property for 
                purposes of investment of amounts held by the 
                plan, if--
                          (i) in the case of the initial 
                        provision of the advice with regard to 
                        the security or other property by the 
                        fiduciary adviser to the plan, 
                        participant, or beneficiary, the 
                        fiduciary adviser provides to the 
                        recipient of the advice, at a time 
                        reasonably contemporaneous with the 
                        initial provision of the advice, a 
                        written notification (which may consist 
                        of notification by means of electronic 
                        communication)--
                                  (I) of all fees or other 
                                compensation relating to the 
                                advice that the fiduciary 
                                adviser or any affiliate 
                                thereof is to receive 
                                (including compensation 
                                provided by any third party) in 
                                connection with the provision 
                                of the advice or in connection 
                                with the sale, acquisition, or 
                                holding of the security or 
                                other property,
                                  (II) of any material 
                                affiliation or contractual 
                                relationship of the fiduciary 
                                adviser or affiliates thereof 
                                in the security or other 
                                property,
                                  (III) of any limitation 
                                placed on the scope of the 
                                investment advice to be 
                                provided by the fiduciary 
                                adviser with respect to any 
                                such sale, acquisition, or 
                                holding of a security or other 
                                property,
                                  (IV) of the types of services 
                                provided by the fiduciary 
                                adviser in connection with the 
                                provision of investment advice 
                                by the fiduciary adviser,
                                  (V) that the adviser is 
                                acting as a fiduciary of the 
                                plan in connection with the 
                                provision of the advice, and
                                  (VI) that a recipient of the 
                                advice may separately arrange 
                                for the provision of advice by 
                                another adviser, that could 
                                have no material affiliation 
                                with and receive no fees or 
                                other compensation in 
                                connection with the security or 
                                other property,
                          (ii) the fiduciary adviser provides 
                        appropriate disclosure, in connection 
                        with the sale, acquisition, or holding 
                        of the security or other property, in 
                        accordance with all applicable 
                        securities laws,
                          (iii) the sale, acquisition, or 
                        holding occurs solely at the direction 
                        of the recipient of the advice,
                          (iv) the compensation received by the 
                        fiduciary adviser and affiliates 
                        thereof in connection with the sale, 
                        acquisition, or holding of the security 
                        or other property is reasonable, and
                          (v) the terms of the sale, 
                        acquisition, or holding of the security 
                        or other property are at least as 
                        favorable to the plan as an arm's 
                        length transaction would be.
                  (C) Standards for presentation of 
                information.--The notification required to be 
                provided to participants and beneficiaries 
                under subparagraph (B)(i) shall be written in a 
                clear and conspicuous manner and in a manner 
                calculated to be understood by the average plan 
                participant and shall be sufficiently accurate 
                and comprehensive to reasonably apprise such 
                participants and beneficiaries of the 
                information required to be provided in the 
                notification.
                  (D) Exemption conditioned on making required 
                information available annually, on request, and 
                in the event of material change.--The 
                requirements of subparagraph (B)(i) shall be 
                deemed not to have been met in connection with 
                the initial or any subsequent provision of 
                advice described in subparagraph (B) to the 
                plan, participant, or beneficiary if, at any 
                time during the provision of advisory services 
                to the plan, participant, or beneficiary, the 
                fiduciary adviser fails to maintain the 
                information described in subclauses (I) through 
                (IV) of subparagraph (B)(i) in currently 
                accurate form and in the manner required by 
                subparagraph (C), or fails--
                          (i) to provide, without charge, such 
                        currently accurate information to the 
                        recipient of the advice no less than 
                        annually,
                          (ii) to make such currently accurate 
                        information available, upon request and 
                        without charge, to the recipient of the 
                        advice, or
                          (iii) in the event of a material 
                        change to the information described in 
                        subclauses (I) through (IV) of 
                        subparagraph (B)(i), to provide, 
                        without charge, such currently accurate 
                        information to the recipient of the 
                        advice at a time reasonably 
                        contemporaneous to the material change 
                        in information.
                  (E) Maintenance for 6 years of evidence of 
                compliance.--A fiduciary adviser referred to in 
                subparagraph (B) who has provided advice 
                referred to in such subparagraph shall, for a 
                period of not less than 6 years after the 
                provision of the advice, maintain any records 
                necessary for determining whether the 
                requirements of the preceding provisions of 
                this paragraph and of subsection (d)(16) have 
                been met. A transaction prohibited under 
                subsection (c)(1) shall not be considered to 
                have occurred solely because the records are 
                lost or destroyed prior to the end of the 6-
                year period due to circumstances beyond the 
                control of the fiduciary adviser.
                  (F) Exemption for plan sponsor and certain 
                other fiduciaries.--A plan sponsor or other 
                person who is a fiduciary (other than a 
                fiduciary adviser) shall not be treated as 
                failing to meet the requirements of this 
                section solely by reason of the provision of 
                investment advice referred to in subsection 
                (e)(3)(B) (or solely by reason of contracting 
                for or otherwise arranging for the provision of 
                the advice), if--
                          (i) the advice is provided by a 
                        fiduciary adviser pursuant to an 
                        arrangement between the plan sponsor or 
                        other fiduciary and the fiduciary 
                        adviser for the provision by the 
                        fiduciary adviser of investment advice 
                        referred to in such section,
                          (ii) the terms of the arrangement 
                        require compliance by the fiduciary 
                        adviser with the requirements of this 
                        paragraph,
                          (iii) the terms of the arrangement 
                        include a written acknowledgment by the 
                        fiduciary adviser that the fiduciary 
                        adviser is a fiduciary of the plan with 
                        respect to the provision of the advice, 
                        and
                          (iv) the requirements of part 4 of 
                        subtitle B of title I of the Employee 
                        Retirement Income Security Act of 1974 
                        are met in connection with the 
                        provision of such advice.
                  (G) Definitions.--For purposes of this 
                paragraph and subsection (d)(16)--
                          (i) Fiduciary adviser.--The term 
                        ``fiduciary adviser'' means, with 
                        respect to a plan, a person who is a 
                        fiduciary of the plan by reason of the 
                        provision of investment advice by the 
                        person to the plan or to a participant 
                        or beneficiary and who is--
                                  (I) registered as an 
                                investment adviser under the 
                                Investment Advisers Act of 1940 
                                (15 U.S.C. 80b-1 et seq.) or 
                                under the laws of the State in 
                                which the fiduciary maintains 
                                its principal office and place 
                                of business,
                                  (II) a bank or similar 
                                financial institution referred 
                                to in subsection (d)(4) or a 
                                savings association (as defined 
                                in section 3(b)(1) of the 
                                Federal Deposit Insurance Act 
                                (12 U.S.C. 1813(b)(1))), but 
                                only if the advice is provided 
                                through a trust department of 
                                the bank or similar financial 
                                institution or savings 
                                association which is subject to 
                                periodic examination and review 
                                by Federal or State banking 
                                authorities,
                                  (III) an insurance company 
                                qualified to do business under 
                                the laws of a State,
                                  (IV) a person registered as a 
                                broker or dealer under the 
                                Securities Exchange Act of 1934 
                                (15 U.S.C. 78a et seq.),
                                  (V) an affiliate of a person 
                                described in any of subclauses 
                                (I) through (IV), or
                                  (VI) an employee, agent, or 
                                registered representative of a 
                                person described in any of 
                                subclauses (I) through (V) who 
                                satisfies the requirements of 
                                applicable insurance, banking, 
                                and securities laws relating to 
                                the provision of the advice.
                          (ii) Affiliate.--The term 
                        ``affiliate'' of another entity means 
                        an affiliated person of the entity (as 
                        defined in section 2(a)(3) of the 
                        Investment Company Act of 1940 (15 
                        U.S.C. 80a-2(a)(3))).
                          (iii) Registered representative.--The 
                        term ``registered representative'' of 
                        another entity means a person described 
                        in section 3(a)(18) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 
                        78c(a)(18)) (substituting the entity 
                        for the broker or dealer referred to in 
                        such section) or a person described in 
                        section 202(a)(17) of the Investment 
                        Advisers Act of 1940 (15 U.S.C. 80b-
                        2(a)(17)) (substituting the entity for 
                        the investment adviser referred to in 
                        such section).

           *       *       *       *       *       *       *


SEC. 4980. TAX ON REVERSION OF QUALIFIED PLAN ASSETS TO EMPLOYER.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Exception for employee stock ownership plans.--
                  (A) In general.--If, upon an employer 
                reversion from a qualified plan, any applicable 
                amount is transferred from such plan to an 
                employee stock ownership plan described in 
                section 4975(e)(7) or a tax credit employee 
                stock ownership plan (as described in section 
                409), such amount shall not be treated as an 
                employer reversion for purposes of this section 
                (or includible in the gross income of the 
                employer) [if--
                          [(i) the requirements of 
                        subparagraphs (B), (C), and (D) are 
                        met, and
                          [(ii) under the plan, employer 
                        securities to which subparagraph (B) 
                        applies must, except to the extent 
                        necessary to meet the requirements of 
                        section 401(a)(28), remain in the plan 
                        until distribution to participants in 
                        accordance with the provisions of such 
                        plan.] if the requirements of 
                        subparagraphs (B), (C), and (D) are 
                        met.

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *


Subchapter A--Additions to the Tax and Additional Amounts

           *       *       *       *       *       *       *


PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION 
                    STATEMENTS, ETC.

  (a) * * *

           *       *       *       *       *       *       *

  (m) Failure to Provide Investment Education Notices to 
Participants in Certain Plans.--In the case of each failure to 
provide a written explanation as required by section 414(w) 
with respect to an applicable individual (as defined in such 
section), at the time prescribed therefor, unless it is shown 
that such failure is due to reasonable cause and not to willful 
neglect, there shall be paid, on notice and demand of the 
Secretary and in the same manner as tax, by the person failing 
to provide such notice, an amount equal to $100 for each such 
failure, but the total amount imposed on such person for all 
such failures during any calendar year shall not exceed 
$50,000.
  [(m)] (n) Alcohol and Tobacco Taxes.--For penalties for 
failure to file certain information returns with respect to 
alcohol and tobacco taxes, see, generally, subtitle E.

           *       *       *       *       *       *       *

                              ----------                              


          SECTION 769 OF THE RETIREMENT PROTECTION ACT OF 1994

SEC. 769. SPECIAL FUNDING RULES FOR CERTAIN PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) [Transition] Rules for Certain Plans.--
          (1) In general.--In the case of a plan that--
                  (A) * * *

           *       *       *       *       *       *       *

        the [transition] rules described in paragraph (2) shall 
        apply [for any plan year beginning after 1996 and 
        before 2010].
          [(2) Transition rules.--The transition rules 
        described in this paragraph are as follows:
                  [(A) For purposes of section 412(l)(9)(A) of 
                the Internal Revenue Code of 1986 and section 
                302(d)(9)(A) of the Employee Retirement Income 
                Security Act of 1974--
                          [(i) the funded current liability 
                        percentage for any plan year beginning 
                        after 1996 and before 2005 shall be 
                        treated as not less than 90 percent if 
                        for such plan year the funded current 
                        liability percentage is at least 85 
                        percent, and
                          [(ii) the funded current liability 
                        percentage for any plan year beginning 
                        after 2004 and before 2010 shall be 
                        treated as not less than 90 percent if 
                        for such plan year the funded current 
                        liability percentage satisfies the 
                        minimum percentage determined according 
                        to the following table:

      

                  [In the case of a     The minimum percentage is:
                   plan year beginning
                   in:
                    2005..............     86 percent
                    2006..............     87 percent
                    2007..............     88 percent
                    2008..............     89 percent
                    2009 and               90 percent.
                   thereafter.



                  [(B) Sections 412(c)(7)(E)(i)(I) of such Code 
                and 302(c)(7)(E)(i)(I) of such Act shall be 
                applied--
                          [(i) by substituting ``85 percent'' 
                        for ``90 percent'' for plan years 
                        beginning after 1996 and before 2005, 
                        and
                          [(ii) by substituting the minimum 
                        percentage specified in the table 
                        contained in subparagraph (A)(ii) for 
                        ``90 percent'' for plan years beginning 
                        after 2004 and before 2010.
                  [(C) In the event the funded current 
                liability percentage of a plan is less than 85 
                percent for any plan year beginning after 1996 
                and before 2005, the transition rules under 
                subparagraphs (A) and (B) shall continue to 
                apply to the plan if contributions for such a 
                plan year are made to the plan in an amount 
                equal to the lesser of--
                          [(i) the amount necessary to result 
                        in a funded current liability 
                        percentage of 85 percent, or
                          [(ii) the greater of--
                                  [(I) 2 percent of the plan's 
                                current liability as of the 
                                beginning of such plan year, or
                                  [(II) the amount necessary to 
                                result in a funded current 
                                liability percentage of 80 
                                percent as of the end of such 
                                plan year.
                For the plan year beginning in 2005 and for 
                each of the 3 succeeding plan years, the 
                transition rules under subparagraphs (A) and 
                (B) shall continue to apply to the plan for 
                such plan year only if contributions to the 
                plan for such plan year equal at least the 
                expected increase in current liability due to 
                benefits accruing during such plan year.]
          (2) Special rules.--The rules described in this 
        paragraph are as follows:
                  (A) For purposes of section 412(l)(9)(A) of 
                the Internal Revenue Code of 1986 and section 
                302(d)(9)(A) of the Employee Retirement Income 
                Security Act of 1974, the funded current 
                liability percentage for any plan year shall be 
                treated as not less than 90 percent.
                  (B) For purposes of section 412(m) of the 
                Internal Revenue Code of 1986 and section 
                302(e) of the Employee Retirement Income 
                Security Act of 1974, the funded current 
                liability percentage for any plan year shall be 
                treated as not less than 100 percent.
                  (C) For purposes of determining unfunded 
                vested benefits under section 
                4006(a)(3)(E)(iii) of the Employee Retirement 
                Income Security Act of 1974, the mortality 
                table shall be the mortality table used by the 
                plan.
                              ----------                              


            SECTION 1505 OF THE TAXPAYER RELIEF ACT OF 1997

SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN 
                    NONDISCRIMINATION RULES TO STATE AND LOCAL 
                    GOVERNMENTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Effective Dates.--
          (1) * * *
          (2) Treatment for years beginning before date of 
        enactment.--A governmental plan (within the meaning of 
        section 414(d) of the Internal Revenue Code of 1986) 
        [maintained by a State or local government or political 
        subdivision thereof (or agency or instrumentality 
        thereof)] shall be treated as satisfying the 
        requirements of sections 401(a)(3), 401(a)(4), 
        401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and 
        (b)(12)(A)(i), and 410 of such Code for all taxable 
        years beginning before the date of enactment of this 
        Act.

                             MINORITY VIEWS

                              INTRODUCTION

    Over a year after the collapse of Enron, Global Crossing 
and other giant corporations, millions of Americans remain 
deeply concerned about their retirement security. But H.R. 1000 
pretends that Enron never happened. It not only fails to 
correct abuses in the pension system, but through its 
conflicted investment advice provision, it makes things even 
worse. This bill is a huge missed opportunity to respond to the 
severe pension abuses that have cost millions of rank and file 
employees billions of retirement dollars.
    The nation's pension system is in crisis. The first blow 
occurred when employees at Enron and Global Crossing lost their 
life savings due to the misconduct and excesses of company 
officials, and by pension trustees who knew the company was in 
peril, but failed to act. The Enron scandal exposed weaknesses 
in our pension laws that allow runaway executive pensions, 
locked employees out of decisions affecting their retirement 
nest eggs, and failed to hold pension plan officials 
accountable when there is wrongdoing. Enron workers and 
retirees are still waiting over a year later for the Department 
of Labor to even file suit on their behalf.
    The failed economic policies and the failure to address a 
growing crisis in pension plan funding, by the Bush 
Administration has added to Americans' anxiety over their 
retirement security. The Pension Benefit Guaranty Corporation, 
the federally sponsored agency that insures workers' pensions, 
lost over $11 billion in only one year, and is now in the red 
by billions of dollars. Private pensions underfunding has 
skyrocketed to over $300 billion, almost ten times that 
reported in the last two decades. And workers have lost 
billions in their 401(k) plans due to falling stocks and 
corporate fraud and abuse.
    Rather than taking decisive action on behalf of workers to 
address the growing crisis, the Bush Administration and 
Republicans are further weakening retirement security by giving 
companies the green light to slash older workers' pensions. 
What's more, the Bush Administration has failed to recover 
hundreds of millions of dollars owed hundreds of thousands of 
workers from companies such as Enron, WorldCom, Global 
Crossing, Dynegy, Lucent, Xerox, and other companies where 
employees lost their nest egg due to the fraud, abuse, or 
neglect of corporate executives.

                       THE COMMITTEE PASSED BILL

    H.R. 1000 fails to include basic reforms that are necessary 
to ensure that there are no more Enrons or to more broadly 
shore up workers' pensions, despite repeated efforts by 
Democratic members to strengthen employee protections. In fact, 
the Majority's bill would take our pension system backwards by 
exposing workers to marketing and sales pressure from self-
interested investment advisors and creating exemptions to the 
coverage and non-discrimination rules to permit employers to 
drop millions of workers from company pension plans. Below we 
have highlighted H.R. 1000's many shortcomings.
The Bill Fails To Protect the Pensions of Older Workers
    In December 2002, the Bush Administration proposed to lift 
a pending moratorium and issue new pension rules that will give 
companies the green light to convert the traditional defined 
benefit pension plans of long-standing employees to less 
generous cash balance plans. Companies will save hundreds of 
millions of dollars a year by converting to cash balance plans. 
But without adequate protections, converting is devastating for 
older employees and the Bush Administration's rules offer those 
long-time employees no protection whatsoever.
    Cash balance pension plan conversions have been 
controversial from their inception. For a long time workers and 
the policymakers did not fully appreciate the dire effect on 
workers' pensions. However, in 2000, the non-partisan General 
Accounting Office reported that the pensions of older workers 
could be cut by conversions by a third or even a half, with no 
possibility to recover the lost retirement income on which they 
had depended.
    The new rules would specifically protect companies from age 
discrimination lawsuits by employees affected by cash balance 
conversions. There are currently over 1000 age discrimination 
lawsuits pending before the EEOC resulting from cash balance 
conversions.
    Recently, 218 members of Congress, from both parties and 
from both sides of the Capitol, called on President Bush to 
withdraw this ill-conceived regulatory change. The President's 
plan does nothing more than allow companies to steal the hard 
earned pension benefits of American workers. Large profitable 
companies, like AT&T;, IBM, Verizon, and others, converted their 
employees' traditional pension plans to cash balance plans in 
the hope of saving hundreds of millions of dollars a year. But 
those savings do not come from increased productivity, higher 
prices, or greater sales--they come right out of the retirement 
pockets of managers and rank and file employees. The new rules 
will undermine pension security.
    The Minority offered an amendment to require companies that 
convert to cash balance plans to give their vested workers a 
choice of which pension benefit to receive. Under the 
amendment, workers would be held harmless. No worker would lose 
the retirement benefits he or she was promised and worked a 
lifetime to earn.
    If the cash balance plan offers a better benefit for them, 
then workers would have the ability to choose that benefit. The 
Democratic amendment does exactly what Treasury Secretary John 
Snow did when he was at CSX and Verizon and what he told the 
U.S. Senate he thought was fair--give workers a choice.
    This is exactly what large responsible employers have done, 
sometimes after employee complaints, but often out of simple 
fairness. AT&T;, IBM, Verizon, Fed Ex, Motorola, Kodak, Wells 
Fargo, 3-M, Honeywell and CSX all gave their workers a choice. 
If these companies can do it, then all companies can do it.
    The Majority defeated the Democratic amendment. H.R. 1000 
does not respond to the real threats facing workers' pensions. 
If the Administration's cash balance regulations are not 
withdrawn, the retirement security of millions of workers and 
our Nation will be put in jeopardy.
Bad Investment Advice for Employees
    The bill reported out of Committee opens up a new, 
dangerous loophole that allows for self-interested investment 
advice to be provided to employees without assuring an 
independent alternative. For the first time since ERISA was 
enacted almost three decades ago, investment firms would be 
permitted to serve both as principal financial advisor and 
investment managers to employees.
    Authur Levitt, the former Chairman of the Securities and 
Exchange Commission has also expressed concerns about 
conflicted investment advice:

          * * * I have reservations when [investment advice] 
        comes from the very same mutual fund company whose 
        products are for sale to a plan's participants. One of 
        my bedrock principles of investing is that advice 
        should come from neutral parties with no ax to grind. 
        \1\

    \1\ Take on the Street: What Wall Street and Corporate America 
Don't Want You to Know, page 251-252.

    The Committee bill eliminates current ERISA rules that 
prohibit conflicts of interests that protect plan participants 
from self-interested investment advisors. The bill would permit 
investment advisers to recommend their firms's products and 
earn additional fees on recommended products, upon disclosure 
of their financial conflict. It does not require access to 
independent advice or assure any independent oversight. The 
proposal would actually take ERISA backward and jeopardize the 
retirement savings of millions of workers and their families if 
financial service salespersons market investment products that 
may be good for their bottom line, but not necessarily the 
retirement savings of working families.
    During our hearings, no Enron employees or representatives 
in any way suggested that if only they had access to any form 
of investment advice would their retirement security have been 
protected. Rather, the testimony of Enron employees and others 
demonstrated how employees were provided misleading advice by 
company officials to continue to hold and buy additional 
employer stock; advice which they ultimately relied upon to 
their detriment. The lesson of Enron is not to open the door to 
self-interested players, but rather to tighten the rules to 
ensure that employees are not misinformed or misled by 
individuals with financial conflicts of interest and offer them 
independent advice. The Enron debacle painfully demonstrates 
how accountants were unable to offer unvarnished advice to one 
of their largest clients for their other financial services and 
how Enron management officials were unable to protect the 
interests of pension plan participants because it conflicted 
with their corporate interests. Further, during the past years, 
dozens of large Wall Street investment firms, their analysts 
and advisors have been charged or fined for investment advice 
related to abuses, such as Citigroup Inc.'s Salomon Smith 
Barney, Merrill Lynch, Credit Suisse First Boston, and the 
Strategic Income Fund.
    The issue of investment advice is subject to a variety of 
misnomers. First, there is a subtle difference between what is 
investment education and investment advice. Employers are free 
to provide investment education with few restrictions and over 
90% do so. Investment advice, which more strongly involves 
specific investment recommendations, is also readily provided 
by a growing number of employers.
    The financial services industry has, by and large, been 
providing either investment education and/or advice to pension 
plans and participants. There is a fairly well developed market 
of independent advisors and most of the large financial 
investment firms have contracted with independent firms to 
provide advice. The only group that remains restricted are 
those companies wishing to provide specific investment advice 
on their own products in which they receive varying financial 
benefit depending on the investment selected.
    According to a 2001 study of plan sponsors conducted by 
Mercer 33% of firms offers investment advice to plan 
participants. The study also found that 93% of employers held 
meetings to educate and communicate with employees on 
retirement issues.
    Those employers that have declined to make investment 
education or advice available have stated two reasons for their 
decision: either excessive cost or fear of liability if 
imprudent advice is provided. An Institute of Management & 
Administration (IOMA) study of 401(k) plan sponsors found that 
89% of employers/sponsors did not provide advice because they 
were concerned with fiduciary liability.
    Additional concerns have been raised about the 
qualification of investment advisors under the Committee 
reported bill. Currently, ERISA limits investment advisors to 
federally or state regulated investment advisors or broker/
dealers. The Committee reported bill would weaken investment 
advisor qualification requirements and permit non-licensed 
individuals to provide investment advice. The Inspector General 
(IG) to the Department of Labor, in a letter dated March 18, 
2002, to Congressman George Miller, stated that, ``HR 3762 does 
not contain provisions relative to fiduciary adviser 
qualifications.'' The IG further stated, ``* * * DOL and plan 
participants would be in a better position to monitor and 
oversee the advice given, if minimum standards for 
qualifications and disclosure were established * * *'' \2\
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    \2\ March 18, 2002, Letter from Office of Inspector General, U.S. 
Department of Labor to Representative George Miller.
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    Since last year's debate on legislation to expand 
investment advice, the Department of Labor has issued an 
advisory opinion (known as Sun America) which would allow 
employers to provide full-service investment management within 
their 401(k) plans, as long as there is an independent 
safeguard to protect participants from self-dealing by 
financial advisors.
    Under the Sun America opinion, companies can contract with 
financial service firms to provide two different types of 
investment advice services--either automatic enrollment in a 
professionally managed investment account that is invested 
according to a participant's needs and preferences or 
discretionary investment advice on investment options.
    Under both types of services, if the advice provider 
provides advice on its proprietary funds, it would then be 
required to contract with an independent investment firm to 
program its investment recommendations. Sun America provides a 
new avenue for firms that would otherwise be subject to 
conflicts of interest to provide investment advice. It has been 
publicly reported that a number of large financial service 
firms are considering using the DOL opinion to provide 
investment advice.
    We have long been concerned about opening ERISA to 
conflicts without guarantees of independence, and post-Enron, 
there is greater reason for caution. Conflicted investment 
advice would not have protected Enron's employees and their 
retirement savings. Most investment advisors do not provide 
advice on employer stock and the Committee bill specifically 
permits them to limit the scope of their advice. Post-Enron we 
should do everything possible to ensure that workers' 401(k) 
money is subject to the highest standards of care, not the 
lowest.

The Committee Bill Fails To Give Employees Control of Their Nest Egg

    The Committee bill continues to lock employees into company 
matched stock for 3 years after the contributions have been 
made, and does not permit billions of dollars in existing 
company stock currently owned by employees to be fully divested 
until 2007. At a time when markets move at lightning speed, and 
company fortunes--like Enron, Global Crossing, and myriad other 
companies--can spiral downward in months, such a limitation is 
unconscionable and continues to leave employees at risk of 
losing all of their retirement savings.
    The Republican proposal creates an unworkable morass of 
inadequate employee protections. The Committee bill would 
permit companies to restrict employee diversification of 
existing contributions for 5 years, and limit diversification 
of future contributions to an annual 3-year diversification 
rule (new contributions made in 2002 would not eligible for 
diversification until 2005, contributions made in 2003 would be 
eligible in 2006, and so on). Companies will continue to be 
able to tie the hands of employees by subjecting them to 
different and administratively complex rules depending on when 
contributions are made. According to the most recent Bureau of 
Labor Statistics data on employee tenure, average job tenure 
for all employees 16 and over is 3.5 years, and for employees 
ages 25-34 is 2.6 years. For millions of employees, the 
Republican proposal will not change their ability to protect 
their individual savings. By comparison, the Democratic 
Substitute would allow all company-matched stock to be 
diversified after only one year of employment.
    The Democratic Substitute would significantly revamp ERISA. 
The goal of ERISA is to protect the interests of participants 
and their beneficiaries in employee benefit plans. However, 
when ERISA was enacted, 401(k) plans did not exist, and changes 
to ERISA have not kept pace with trends in retirement plans. 
Under current law, plan sponsors can require participants to 
hold on to employer stock contributed by the employer until 
retirement age. The Democratic Substitute allows employees to 
have immediate control over their own contributions to their 
401(k) plans and requires that employees be able to control 
their employer contribution after one year of service in the 
plan.
    Enron, like many companies, matched employee contributions 
with company stock. Despite the rapid decline in the value of 
Enron stock, employees were prohibited from protecting their 
own retirement security by an outright prohibition on selling 
company contributions until reaching age 50. Enron is not the 
only company compelling employees to invest pension savings in 
their own company--or barring them from transferring shares 
out, or punishing them if they do. At K-Mart and other 
companies, if you sell company stock in your 401(k) plan before 
a certain age, the company withholds its employer contribution 
to your plan for six months. There should be no such 
restriction or penalty.
    As previously stated, a recent Hewitt Associates survey 
shows that 56% of 401(k) plans that match employee 
contributions with employer stock require participants to reach 
a certain age--typically 50 or 55, or according to ESOP rules--
before they can sell. Of the firms that match employee 
contributions with employer stock, only 15% allow their 
employees to sell the stock immediately, while 19% do not 
permit diversification at any time. Employees' retirement nest 
eggs should not be threatened by arbitrary restrictions on 
their ability to sell company stock contributed by the 
employer. Employees must be given the opportunity to diversify 
their investments--and where necessary--rescue their savings 
when the company's fortunes turn bad.
    According to Department of Labor data reported in 1997, 29% 
of all employees currently have immediate full vesting. A 
recent survey conducted by Hewitt Associates of 25% of Fortune 
500 companies regarding the vesting requirements for employer 
contributions in 401(k) plans, found that 33% of plans had 
immediate vesting. Further, only 3% of plans tied 
diversification rights to vesting periods. A number of notable 
companies state that they do not restrict employee ability to 
diversify, including Abbott Laboratories, Chevron, Coca Cola, 
McDonald's, Pfizer and Proctor and Gamble.
    Professor Shlomo Benartzi of UCLA, who has done extensive 
research on the issue of company stock as a 401(k) investment, 
has stated, ``Since you already have all your human capital 
invested in the company, my rule of thumb is, don't invest any 
of your plan assets in the company.''
    The Democratic Substitute would provide employees total 
control over the investment of money that they earned and 
contributed to their retirement plans, and that their employer 
contributed to their plans as part of their compensation, after 
one year of service. This change is critical to help avoid the 
problem we just witnessed with Enron. It will provide employees 
the ability to rescue their nest eggs, as well as diversify and 
manage their investments consistent with the advice of 
financial professionals and the goals of their families. These 
investments are the employee's money. They should be the ones 
who decide where and how to invest them.

The Committee Bill Fails To Require Companies to Provide Notice to 
        Employees Who Are Dumping Company Stock

    The Committee's hearings confirmed that Enron company 
executives--with inside information about the real financial 
condition of the company--were dumping millions of dollars in 
company stock while employees were left in the dark and locked 
out of their savings. Similarly, it appears that executives at 
Global Crossing were also acting on insider knowledge for their 
exclusive benefit--and to the detriment of rank-and-file 
employees--when they sold company stock valued at $1.3 billion 
and cashed out executive pension plans. Such information should 
be provided directly to employees. Ken Lay, Enron's CEO, 
trading almost daily, sold Enron stock 350 times and received 
$101.3 million. Between early 1999 and July 2001, Lay sold 1.8 
million Enron shares back to the company. Employees were 
totally unaware their boss was dumping company stock.
    The Committee bill fails to address this issue, and it 
defeated the Democratic substitute that requires insiders to 
immediately report stock sales to the pension trustees and 
employees. The amendment was designed to complement new SEC 
rules that would require immediate disclosure to investors.

The Committee Bill Fails To Provide Employees a Voice in Their Own 
        Retirement Savings

    At Enron there was a catastrophic failure by its pension 
plan trustees to protect the irreplaceable life savings of 
thousands of Enron employees, despite conclusive evidence that 
a number of the trustees were aware or should have been aware 
that the company was covering up serious financial problems. 
The actions of Cindy Olson, an Enron executive appointed to sit 
on the pension plan administrative committee, is a clear case 
of the inherent conflict of interest where the executive is 
charged with presiding as a pension trustee--with legal 
responsibility to act solely in the plan interests--while at 
the same time serving the company with the sole focus of 
promoting the company in the most favorable light and 
maximizing the corporate bottom line.
    Ms. Olson testified before this Committee that she had 
personal knowledge that there was significant risk and trouble 
in holding Enron stock through the receipt of Sherron Watkins' 
memorandum in August of 2001. \3\ She also knew that there was 
a huge concentration of investment of Enron stock, both in the 
voluntary contributions from the employees and obviously in the 
employer match, in the pension plan. Ms. Olson, acting as both 
a fiduciary and an executive, made a decision not to inform 
other plan fiduciaries so that they might consider warning the 
employees or otherwise educating them. Ms. Olson further 
testified that while she chose not to educate employees, she 
was divesting herself of shares that she held in her own 
personal account. Ms. Olson also missed four trustee meetings 
during the critical period in which Enron stock was in 
freefall.
---------------------------------------------------------------------------
    \3\ Sherron Watkins memo, distributed anonymously to employees at 
Enron in August of 2001, warned that Enron ``will implode in a wave of 
accounting scandals.''
---------------------------------------------------------------------------
    Another trustee, Tod Lindholm, missed at least eight 
trustee meetings in 2001. Mr. Lindholm signed the approval 
sheets for Enron's LJM1 partnership, one of a number of 
investment schemes to hide Enron debts. \4\
---------------------------------------------------------------------------
    \4\ From minutes of Enron Administrative Committee Meetings 
conducted in 2001.
---------------------------------------------------------------------------
    Another trustee, Paula H. Reicker, worked in investment 
relations where she regularly fielded concerns by investors 
over Enron's tangled financial statements, as well as concerns 
about Andrew Fastow's conflicted relationships as an Enron 
employee and investor in Enron partnerships. \5\
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    \5\ Vinson and Elkins Interviews; confidential interviews with 
selected Enron officials, 2001.
---------------------------------------------------------------------------
    Pensions have changed dramatically in recent years. We are 
no longer operating in a defined benefit pension plan world 
where employers make all or most of the contributions to a 
pooled fund of monies. Now, most workers are in defined 
contribution plans, such as 401(k) plans, where they contribute 
their own salaries to their pension plans. It is simply 
unconscionable that we permit employers 100% control over 
monies that are generally 67% or more of employee salary 
deferrals. The Committee bill does nothing to let employees 
decide what to do with their monies or protect themselves if 
financial circumstances change. In the case of Enron, we saw 
that company executives were unable to separate the workers' 
interests from those of the company. It is common practice 
among state and local pensions, multi-employer union pensions, 
non-profit organization pensions, and international pensions 
for employees to be involved in their own funds. For example, 6 
out of 9 members on the board of Ohio's Public Employees 
Retirement System, 3 out of 6 members on the board of Texas' 
Employee Retirement System, and 6 out of 13 members on the 
board of California's Public Employee Retirement System are 
elected by active and retired employees/participants in the 
respective plans. It is time to bring ERISA into the 21st 
Century. If 401(k)'s put the risk of retirement saving on 
employees, then employees should have the ability to manage and 
make decisions about their own investments.
    The Republican bill keeps the status quo on pension boards 
by denying employees a voice on pension boards. By contrast, 
the Democratic Substitute would require employee 
representatives on pension boards.
    Dr. Teresa Ghilarducci, an economics professor at the 
University of Notre Dame, testified before this Committee and 
urged Committee members to require that employees have 
representatives on boards that oversee retirement plans. Dr. 
Ghilarducci testified that, ``the United States is the only 
industrialized nation that does not require employee 
representation on a pension board.'' In pension plans that 
permit employees to direct control of their pension 
investments, the Democratic Substitute would require the plan 
to include an equal number of employer and employee trustees to 
oversee the plan. Despite research showing that plans with 
employee trustees experience a higher rate of savings and 
investment by employees, have more active involvement by 
employees in investment decisions, and that such representation 
helps solve inherent conflict of interests, many plans today 
have no employee trustees overseeing employees' pension funds.
    If equal representation of employee and employer trustees 
had been on the Enron board, it is likely that the board would 
have carried out ERISA requirements to manage the plans solely 
for the benefit of the employees and losses may have been 
mitigated. The Democratic Substitute is narrowly tailored to 
defined contribution plans that hold employee monies. It is 
patently unfair that these plans, which primarily contain 
deferred worker salaries, are 100% controlled by employers. 
It's the workers' money, they should have at least an equal say 
in how it is invested and managed.

The Committee Bill Continues Special Treatment for Company Executive 
        Pensions at the Expense of Rank-and-File Employees

    Enron and Global Crossing have brought attention to serious 
inequities in pension rules for executives and rank and file 
employees. As Enron began to implode in a wave of accounting 
scandals, company executives, such as CEO Ken Lay, were able 
not only to cash out millions in company stock, but also 
protected themselves through a number of executive type 401(k) 
plans that are not subject to attack by Enron's numerous 
general creditors. Enron agreed to pay Mr. Lay a total of $1.25 
million in life insurance premiums on a $12 million dollar 
policy. These agreements--commonly referred to as ``split-
dollar'' policies--are used to give executives tax-free pension 
benefits, and place such benefits beyond the reach of 
creditors. Mr. Lay also received a guaranteed return of 12% on 
a special deferred compensation plan, and a pension estimated 
at approximately $485,000 a year for life. By contrast, 
employees must stand in line behind even the company's general 
creditors to get any recovery of their hard earned savings--a 
prospect that is quite unlikely. Neither ERISA nor the Internal 
Revenue Code intended to permit executives to protect their 
financial security through questionably funded executive 
pension plan arrangements. As President Bush has frequently 
stated: ``what's good for the top floor should be good for the 
shop floor.'' The Committee bill does nothing to address this 
great inequity.

The Committee Bill Fails To Hold Company Officials Responsible for 
        Misconduct and Fails To Enhance Plan Accountability

    The Majority bill fails to include a number of critical 
accountability provisions that are designed to prohibit future 
scandals and ensure that employees don't skirt responsibility 
for wrongdoing.
    Because of weak remedy provisions in current law, Enron 
employees who had their life savings decimated will likely 
never recover their funds in court. Employees who are cheated 
out of their retirement funds as a result of misconduct by 
company officials should be able to make them pay for their 
misdeeds.
    Over 50 million workers currently participate in 401(k) 
type and similar plans, representing almost $2 trillion worth 
of investments. However, current law does not provide adequate 
redress for the workers at Enron or Global Crossing, and 
millions of others like them who lose their retirment savings. 
Current pension law interpretations severely limit the ability 
of employees to collect damages resulting from the misconduct 
of company officials. Current law primarily limits liability to 
fiduciaries that fail to act solely in the interests of the 
plan participants. Fiduciaries are those persons formally named 
to oversee the plan, or any individual who has control over 
plan assets. Non-fiduciaries who participate in a violation of 
the law have limited liability.
    Additionally, liability is currently limited by the courts 
to equitable relief, which means employees can only receive the 
pension they were wrongfully denied. Many courts will not award 
aggrieved employees any interest for the years they did not 
timely receive their benefits.
    Furthermore, many courts will not award them attorney's 
fees and court costs. And no court will award them recovery for 
other monetary losses, such as the value of foreclosed homes or 
loans incurred to make ends meet.
    The Democratic Substitute clarifies ERISA remedies so that 
in cases of a breach of duty by a fiduciary, or breach by a 
knowing participant, the plan or employees may be made whole. 
Additionally, the Democratic Substitute requires that employers 
may not require participants to sign waivers of statutory 
pension rights as part of a termination or severance agreement. 
ERISA was enacted to protect workers and retirees. When 
workers' retirement funds are misused, Congress must ensure 
that workers will get timely and adequate redress.
    Additional critical accountability provisions offered by 
Democrats, but rejected by the Majority include:
    Assurance That Plan Fiduciaries Have Insurance or be 
Bonded.--Such coverage is critical to cover financial losses 
due to breach of fiduciary duty as determined by the Secretary 
of Labor. It is a significant weakness of ERISA that it does 
not require pension plan fiduciaries to obtain insurance.
    Prohibition on Waivers of Legal Rights.--Employers should 
not be permitted to skirt responsibility for wrongdoing by 
coercing employees to sign waivers giving away their federal 
pension rights. It is alleged that Enron required employees to 
waive their rights to file ERISA claims in order to receive 
severance benefits. Recently, there have been a spate of court 
cases in which companies attempted to deny workers their 
statutory legal rights through boilerplate contract waiver 
language. ERISA never intended these types of abrogation of 
statutory rights and they should be explicitly prohibited.
    Improved Labor Department Assistance.--The Department of 
Labor shall establish an Office of the Participant Advocate to 
monitor potential abuses of employee pension plan rights and 
assist pension plan participants in preventing loss of 
retirement savings. It has been a longstanding concern that the 
Department of Labor generally does not act proactively or 
prophylactically to assist employees in protecting their 
pensions and other employee benefits or to prevent pension plan 
abuses. Future Enrons could be averted if the Department were 
more active and zealous in protecting the interests of pension 
plan participants and their families.

                               CONCLUSION

    H.R. 1000 fails to provide pension reforms necessary to 
stop future Enrons, fails to stop companies from raiding the 
pensions of older workers, creates dangerous new legal 
loopholes that allow for conflicted investment advice, fails to 
restore fairness between the pension rights afforded executives 
versus those of average employees, and fails to give employees 
control over their own nest eggs. The Majority unfortunately 
rejected the Democratic Substitute that would have provided 
these protections--thus dashing a real opportunity to provide 
the kind of retirement security all Americans are urgently 
demanding.

                                   George Miller.
                                   Robert E. Andrews.
                                   Donald M. Payne.
                                   Raul M. Grijalva.
                                   Timothy Bishop.
                                   Ed Case.
                                   Dennis J. Kucinich.
                                   Denise L. Majette.
                                   Betty McCollum.
                                   Dale E. Kildee.
                                   Chris Van Hollen.
                                   Major R. Owens.
                                   Danny K. Davis.
                                   John F. Tierney.
                                   Lynn Woolsey.
                                   Tim Ryan.
                                   Susan Davis.