House Report 107-383 - PENSION SECURITY ACT OF 2002

[House Report 107-383]
[From the U.S. Government Publishing Office]

107th Congress Rept. 107-383
HOUSE OF REPRESENTATIVES
2d Session Part 1

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PENSION SECURITY ACT OF 2002

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April 4, 2002.--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. 3762]

[Including cost estimate of the Congressional Budget Office]

The Committee on Education and the Workforce, to whom was
referred the bill (H.R. 3762) 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, and to amend the Securities Exchange
Act of 1934 to prohibit insider trades during any suspension of
the ability of plan participants or beneficiaries to direct
investment away from equity securities of the plan sponsor,
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 2002''.
(b) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title.

TITLE I--IMPROVEMENTS IN PENSION SECURITY

Sec. 101. Periodic pension benefits statements.
Sec. 102. Protection from suspensions, limitations, or restrictions on
ability of participant or beneficiary to direct or diversify plan
assets.
Sec. 103. Informational and educational support for pension plan
fiduciaries.
Sec. 104. Limitations on restrictions of investments in 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 fiduciary consultants for individual
account plans.
Sec. 107. Insider trades during pension plan suspension periods
prohibited.
Sec. 108. Effective dates of title and related rules.

TITLE II--ADDITIONAL PROVISIONS

Sec. 201. Amendments to Retirement Protection Act of 1994.
Sec. 202. Notice and consent period regarding distributions.
Sec. 203. Annual report dissemination.
Sec. 204. Technical corrections to Saver Act.
Sec. 205. Missing participants.
Sec. 206. Reduced pbgc premium for new plans of small employers.
Sec. 207. Reduction of additional pbgc premium for new and small plans.
Sec. 208. Authorization for PBGC to pay interest on premium overpayment
refunds.
Sec. 209. Substantial owner benefits in terminated plans.
Sec. 210. Benefit suspension notice.
Sec. 211. Studies.
Sec. 212. Interest rate range for additional funding requirements.
Sec. 213. Provisions relating to plan amendments.

TITLE I--IMPROVEMENTS IN PENSION SECURITY

SEC. 101. PERIODIC PENSION BENEFITS STATEMENTS.

(a) Requirements.--
(1) 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 plan participant (and to each beneficiary with 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.
``(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 provides the participant at least once
each year with notice 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).''.
(2) Conforming amendments.--
(A) Section 105 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1025) is amended by
striking subsection (d).
(B) 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.''.
(3) Effective date of subsection.--The amendments made by
this subsection shall take effect for plan years beginning on
or after January 1, 2003.
(b) Information Required From Applicable Individual Account Plans.--
Section 105 of such Act (as amended by subsection (a)) 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) shall include (together with the information
required in subsection (a)) the following:
``(A) the value of investments allocated to the individual
account, 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, and
an explanation of any limitations or restrictions on the right
of the participant or beneficiary to direct an investment; and
``(B) 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
substantial portions of a portfolio in the security of any one
entity, such as employer securities.
``(2) The value of any employer securities that are not readily
tradable on an established securities market that is required to be
reported under paragraph (1)(A) may be determined by using the most
recent valuation of the employer securities.
``(3) The Secretary shall issue guidance and model notices which meet
the requirements of this subsection.''.
(c) 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 subsection:
``(42) 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.''.
(d) Civil Penalties for Failure To Provide Quarterly Benefit
Statements.--Section 502 of such Act (29 U.S.C. 1132) is amended--
(1) in subsection (a)(6), by striking ``(5), or (6)'' and
inserting ``(5), (6), or (7)'';
(2) by redesignating paragraph (7) of subsection (c) as
paragraph (8); and
(3) by inserting after paragraph (6) of subsection (c) the
following new paragraph:
``(7) The Secretary may assess a civil penalty against any plan
administrator of up to $1,000 a day from the date of such plan
administrator's failure or refusal to provide participants or
beneficiaries with a benefit statement on at least a quarterly basis in
accordance with section 105(a)(1)(A)(iii).''.
(e) Model Statements.--The Secretary of Labor shall, not later than
January 1, 2003, 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. The Secretary may promulgate such interim final
rules as the Secretary determines are appropriate to carry out the
amendments made by this section.

SEC. 102. PROTECTION FROM SUSPENSIONS, LIMITATIONS, OR RESTRICTIONS ON
ABILITY OF PARTICIPANT OR BENEFICIARY TO DIRECT OR
DIVERSIFY PLAN ASSETS.

(a) Notice Requirements.--
(1) In general.--Section 101 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1021) is amended--
(A) by redesignating the second subsection (h) as
subsection (j); and
(B) by inserting after the first subsection (h) the
following new subsection:
``(i) Notice of Suspension, Limitation, or Restriction on Ability of
Participant or Beneficiary To Direct Investments in Individual Account
Plan.--
``(1) In general.--In the case of any action having the
effect of temporarily suspending, limiting, or restricting any
ability of participants or beneficiaries under an applicable
individual account plan, which is otherwise available under the
terms of such plan, to direct or diversify assets credited to
their accounts, if such suspension, limitation, or restriction
is for any period of more than 3 consecutive calendar days, the
plan administrator shall--
``(A) in advance of taking such action, determine, in
accordance with the requirements of part 4, that the
expected period of suspension, limitation, or
restriction is reasonable, and
``(B) after making the determination under
subparagraph (A) and in advance of taking such action,
notify the plan participants and beneficiaries of such
action in accordance with this subsection.
``(2) Notice requirements.--
``(A) In general.--The notices described in paragraph
(1) shall be written in a manner calculated to be
understood by the average plan participant and shall
include--
``(i) the reasons for the suspension,
limitation, or restriction,
``(ii) an identification of the investments
affected,
``(iii) the expected period of the
suspension, limitation, or restriction,
``(iv) a statement that the plan
administrator has evaluated the reasonableness
of the expected period of suspension,
limitation, or restriction,
``(v) a statement that the participant or
beneficiary should evaluate the appropriateness
of their current investment decisions in light
of their inability to direct or diversify
assets credited to their accounts during the
expected period of suspension, limitation, or
restriction, and
``(vi) such other matters as the Secretary
may include in the model notices issued under
subparagraph (E).
``(B) Provision of notice.--Except as otherwise
provided in this subsection, notices described in
paragraph (1) shall be furnished to all participants
and beneficiaries under the plan at least 30 days in
advance of the action suspending, limiting, or
restricting the ability of the participants or
beneficiaries to direct or diversify assets.
``(C) Exception to 30-day notice requirement.--In any
case in which--
``(i) a fiduciary of the plan determines, in
writing, that a deferral of the suspension,
limitation, or restriction would violate the
requirements of subparagraph (A) or (B) of
section 404(a)(1), or
``(ii) the inability to provide the 30-day
advance notice is due to events that were
unforeseeable or circumstances beyond the
reasonable control of the plan administrator,
subparagraph (B) shall not apply, and the notice shall
be furnished to all participants and beneficiaries
under the plan as soon as reasonably possible under the
circumstances.
``(D) Written notice.--The notice required to be
provided under this subsection shall be in writing,
except that such notice may be in electronic or other
form to the extent that such form is reasonably
accessible to the recipient.
``(E) Model notices.--The Secretary shall issue model
notices which meet the requirements of this paragraph.
``(3) Exception for suspensions, limitations, or restrictions
with limited applicability.--In any case in which the
suspension, limitation, or restriction described in paragraph
(1)--
``(A) applies only to 1 or more individuals, each of
whom is the participant, an alternate payee (as defined
in section 206(d)(3)(K)), or any other beneficiary
pursuant to a qualified domestic relations order (as
defined in section 206(d)(3)(B)(i)), or
``(B) applies only to 1 or more participants or
beneficiaries in connection with a merger, acquisition,
divestiture, or similar transaction involving the plan
or plan sponsor and occurs solely in connection with
becoming or ceasing to be a participant or beneficiary
under the plan by reason of such merger, acquisition,
divestiture, or transaction,
the requirement of this subsection that the notice be provided
to all participants and beneficiaries shall be treated as met
if the notice required under paragraph (1) is provided to all
the individuals referred to in subparagraph (A) or (B) to whom
the suspension, limitation, or restriction applies as soon as
reasonably practicable in advance of the suspension,
limitation, or restriction.
``(4) Changes in expected period of suspension, limitation,
or restriction.--If, following the furnishing of the notice
pursuant to this subsection, there is a change in the expected
period of the suspension, limitation, or restriction on the
right of a participant or beneficiary to direct or diversify
assets, the administrator shall provide affected participants
and beneficiaries notice of the change as soon as reasonably
practicable in advance of the change. Such notice shall meet
the requirements of subparagraphs (A) and (D) of paragraph (2)
in relation to the extended suspension, limitation, or
restriction.
``(5) Regulatory exceptions.--The Secretary may provide by
regulation for additional exceptions to the requirements of
this subsection which the Secretary determines are in the
interests of participants and beneficiaries.
``(6) Guidance and model notices.--The Secretary shall issue
guidance and model notices which meet the requirements of this
subsection.''.
(2) Issuance of initial guidance and model notice.--The
Secretary of Labor shall issue initial guidance and a model
notice pursuant to section 101(i)(6) of the Employee Retirement
Income Security Act of 1974 (as added by this subsection) not
later than January 1, 2003. The Secretary may promulgate such
interim final rules as the Secretary determines are appropriate
to carry out the amendments made by this section.
(b) Civil Penalties for Failure To Provide Notice.--Section 502 of
such Act (as amended by section 2(b)) is amended further--
(1) in subsection (a)(6), by striking ``(6), or (7)'' and
inserting ``(6), (7), or (8)'';
(2) by redesignating paragraph (8) of subsection (c) as
paragraph (9); and
(3) by inserting after paragraph (7) of subsection (c) the
following new paragraph:
``(8) The Secretary may assess a civil penalty against a plan
administrator of up to $100 a day from the date of the plan
administrator's failure or refusal to provide notice to participants
and beneficiaries in accordance with section 101(i). For purposes of
this paragraph, each violation with respect to any single participant
or beneficiary, shall be treated as a separate violation.''.
(c) Inapplicability of Relief From Fiduciary Liability During
Suspension of Ability of Participant or Beneficiary To Direct
Investments.--Section 404(c)(1) of such Act (29 U.S.C. 1104(c)(1)) is
amended--
(1) by redesignating subparagraphs (A) and (B) as clauses (i)
and (ii), respectively, and by inserting ``(A)'' after
``(c)(1)'';
(2) in subparagraph (A)(ii) (as redesignated by paragraph
(1)), by inserting before the period the following: ``, except
that this clause shall not apply in connection with such
participant or beneficiary for any period during which the
ability of such participant or beneficiary to direct the
investment of the assets in his or her account is suspended by
a plan sponsor or fiduciary''; and
(3) by adding at the end the following new subparagraphs:
``(B) If the person referred to in subparagraph (A)(ii) authorizing a
suspension meets the requirements of this title in connection with
authorizing the suspension, such person shall not be liable under this
title for any loss occurring during the suspension as a result of any
exercise by the participant or beneficiary of control over assets in
his or her account prior to the suspension. Matters to be considered in
determining whether such person has satisfied the requirements of this
title include whether such person--
``(i) has considered the reasonableness of the expected
period of the suspension as required under section
101(i)(1)(A),
``(ii) has provided the notice required under section
101(i)(1)(B), and
``(iii) has acted solely in the interests of plan
participants and beneficiaries in determining to enter into the
suspension.
``(C) Any limitation or restriction that may govern the frequency of
transfers between investment vehicles shall not be treated as a
suspension referred to in subparagraph (A)(ii) to the extent such
limitation or restriction is disclosed to participants or beneficiaries
through the summary plan description or materials describing specific
investment alternatives under the plan.''.

SEC. 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.''.

SEC. 104. LIMITATIONS ON RESTRICTIONS OF INVESTMENTS IN EMPLOYER
SECURITIES.

(a) Amendments to the Employee Retirement Income Security Act of
1974.--
(1) In general.--Section 407 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1107) is amended by
adding at the end the following new subsection:
``(g)(1) An applicable individual account plan which holds employer
securities that are readily tradable on an established securities
market may not acquire or hold any employer securities with respect to
which there is any restriction on divestment by a participant or
beneficiary, unless the plan provides that the restriction--
``(A) is not applicable on or after a date which is not later
than the date on which the participant has completed 3 years of
service (as defined in section 203(b)(2)) with the employer or
(if the plan so provides) 3 years of participation (as defined
in section 204(b)(4)) in the plan, or
``(B) is not applicable, with respect to any employer
security allocated to the individual account during any
calendar quarter, after a date which is not later than 3 years
after the end of such quarter.
``(2)(A) For purposes of paragraph (1), the term `restriction on
divestment' includes--
``(i) any failure to offer a broad range of investment
alternatives (as may be determined by the Secretary) to which a
participant or beneficiary may direct the proceeds from the
divestment of employer securities, and
``(ii) any restriction on the ability of a participant or
beneficiary to choose from a broad range of otherwise available
investment options (as may be determined by the Secretary) to
which such proceeds may be so directed, other than a
restriction limiting such ability to so choose to a periodic,
reasonable opportunity to so choose occurring no less
frequently than on a quarterly basis.''.
(2) Clerical amendments.--The heading for section 407 of such
Act is amended by striking ``10 percent'' and the item relating
to such section in the table of contents in section 1 of such
Act is amended by striking ``10 percent''.
(3) Transition rule.--
(A) In general.--The amendments made by this
subsection shall apply only with respect to assets
acquired on or after the effective date of such
amendments. In the case of any applicable individual
account plan which, on such effective date, holds
assets acquired before such date on which there is any
restriction on divestment by a participant or
beneficiary, such plan shall, before the applicable
effective date, provide for the removal of all such
restrictions on the applicable percentage of such
assets held on such date.
(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage shall be as
follows:

Plan years beginning in: Applicable percentage:
2003
20 percent.
2004
40 percent.
2005
60 percent.
2006
80 percent.
2007 or thereafter
100 percent.

(b) Amendments to the Internal Revenue Code of 1986.--
(1) In general.--Subsection (a) of section 401 of the
Internal Revenue Code of 1986 (relating to requirements for
qualification) is amended by inserting after paragraph (34) the
following new paragraph:
``(35) Limitations on restrictions under applicable defined
contribution plans on investments in employer securities.--
``(A) In general.--A trust forming a part of an
applicable defined contribution plan shall not
constitute a qualified trust under this subsection if
the plan acquires or holds any employer securities with
respect to which there is any restriction on divestment
by a participant or beneficiary on or after the date on
which the participant has completed 3 years of
participation (as defined in section 411(b)(4)) under
the plan or (if the plan so provides) 3 years of
service (as defined in section 411(a)(5)) with the
employer.
``(B) Definitions.--For purposes of subparagraph
(A)--
``(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 (as defined in section
4975(e)(7)) unless there are any contributions
to such plan (or earnings thereunder) held
within such plan that are subject to
subsections (k)(3) or (m)(2).
``(ii) Restriction on divestment.--The term
`restriction on divestment' includes--
``(I) any failure to offer at least 3
diversified investment options in which
a participant or beneficiary may direct
the proceeds from the divestment of
employer securities, and
``(II) any restriction on the ability
of a participant or beneficiary to
choose from all otherwise available
investment options in which such
proceeds may be so directed.''.
(2) Conforming amendment.--Section 401(a)(28)(B) of such Code
(relating to diversification of investments) is amended by
adding at the end the following new clause:
``(v) Exception.--This subparagraph shall not
apply to an applicable defined contribution
plan (as defined in paragraph (35)(B)(i)).''.

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 continued availability of
required information on request for 1 year.--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),
but only if the advice is provided through a
trust department of the bank or similar
financial institution 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), 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 advisor in
connection with the provision of
investment advice by the fiduciary
adviser, and
``(V) that the adviser is acting as a
fiduciary of the plan in connection
with the provision of the advice,
``(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),
``(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 FIDUCIARY
CONSULTANTS FOR 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
fiduciary 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 fiduciary advisers to provide investment
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 fiduciary
consultants to serve the needs of individual account plans 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 fiduciary
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. INSIDER TRADES DURING PENSION PLAN SUSPENSION PERIODS
PROHIBITED.

Section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p) is
amended by adding at the end the following new subsection:
``(h) Insider Trades During Pension Plan Suspension Periods
Prohibited.--
``(1) Prohibition.--It shall be unlawful for any such
beneficial owner, director, or officer of an issuer, directly
or indirectly, to purchase (or otherwise acquire) or sell (or
otherwise transfer) any equity security of such issuer (other
than an exempted security), during any pension plan suspension
period with respect to such equity security.
``(2) Remedy.--Any profit realized by such beneficial owner,
director, or officer from any purchase (or other acquisition)
or sale (or other transfer) in violation of this subsection
shall inure to and be recoverable by the issuer irrespective of
any intention on the part of such beneficial owner, director,
or officer in entering into the transaction.
``(3) Rulemaking permitted.--The Commission may issue rules
to clarify the application of this subsection, to ensure
adequate notice to all persons affected by this subsection, and
to prevent evasion thereof.
``(4) Definitions.--For purposes of this subsection--
``(A) Pension plan suspension period.--The term
`pension plan suspension period' means, with respect to
an equity security, any period during which the ability
of a participant or beneficiary under an applicable
individual account plan maintained by the issuer to
direct the investment of assets in his or her
individual account away from such equity security is
suspended by the issuer or a fiduciary of the plan.
Such term does not include any limitation or
restriction that may govern the frequency of transfers
between investment vehicles to the extent such
limitation and restriction is disclosed to participants
and beneficiaries through the summary plan description
or materials describing specific investment
alternatives under the plan.
``(B) Applicable individual account plan.--The term
`applicable individual account plan' has the meaning
provided such term in section 3(42) of the Employee
Retirement Income Security Act of 1974.''.

SEC. 108. EFFECTIVE DATES OF TITLE AND RELATED RULES.

(a) In General.--Except as provided in subsection (b), the amendments
made by sections 101, 102, 103, 104, and 107 shall apply with respect
to plan years beginning on or after January 1, 2003.
(b) 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 ``January 1, 2003'' the date of the
commencement of the first plan year beginning on or after the earlier
of--
(1) the later of--
(A) January 1, 2004, 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) January 1, 2005.
(c) Plan Amendments.--If the amendments made by sections 101, 102,
103, and 104 of this Act require an amendment to any plan, such plan
amendment shall not be required to be made before the first plan year
beginning on or after January 1, 2005, if--
(1) during the period after such amendments made by such
sections take effect and before such first plan year, the plan
is operated in accordance with the requirements of such
amendments made by such sections, and
(2) such plan amendment applies retroactively to the period
after such amendments made by such sections take effect and
before such first plan year.
(d) Amendments Relating to Investment Advice.--The amendments made by
section 104 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, 2003.

TITLE II--ADDITIONAL PROVISIONS

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

(a) Transition Rule Made Permanent.--Paragraph (1) of section 769(c)
of the Retirement Protection Act of 1994 is amended--
(1) by striking ``transition'' each place it appears in the
heading and the text, and
(2) 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 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 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, 2001.

SEC. 202. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

(a) Expansion of Period.--
(1) 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.
(2) Effective date.--The amendment made by paragraph (1)(A)
and the modification required by paragraph (1)(B) shall apply
to years beginning after December 31, 2002.
(b) Consent Regulation Inapplicable to Certain Distributions.--
(1) In general.--The Secretary of the Treasury shall modify
the regulations 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, 2002.
(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 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. 203. 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, 2002.

SEC. 204. 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 ``2002,
2006, and 2010'';
(2) in subsection (b), by adding at the end the following new
sentence: ``To effectuate the purposes of this paragraph, the
Secretary may enter into a cooperative agreement, pursuant to
the Federal Grant and Cooperative Agreement Act of 1977 (31
U.S.C. 6301 et seq.), with any appropriate, qualified
entity.'';
(3) 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'';
(4) in subsection (e)(3)--
(A) by striking ``There shall be not more than 200
additional participants.'' in subparagraph (A) and
inserting ``The participants in the National Summit
shall also include additional participants appointed
under this subparagraph.'';
(B) by striking ``one-half shall be appointed by the
President,'' in subparagraph (A)(i) and inserting ``not
more than 100 participants shall be appointed under
this clause by the President,'';
(C) by striking ``one-half shall be appointed by the
elected leaders of Congress'' in subparagraph (A)(ii)
and inserting ``not more than 100 participants shall be
appointed under this clause by the elected leaders of
Congress'';
(D) by redesignating subparagraph (B) as subparagraph
(C); and
(E) by inserting after subparagraph (A) the following
new subparagraph:
``(B) Presidential authority for additional
appointments.--The President, in consultation with the
elected leaders of Congress referred to in subsection
(a), may appoint under this subparagraph additional
participants to the National Summit. The number of such
additional participants appointed under this
subparagraph may not exceed the lesser of 3 percent of
the total number of all additional participants
appointed under this paragraph, or 10. Such additional
participants shall be appointed from persons nominated
by the organization referred to in subsection (b)(2)
which is made up of private sector businesses and
associations partnered with Government entities to
promote long term financial security in retirement
through savings and with which the Secretary is
required thereunder to consult and cooperate and shall
not be Federal, State, or local government
employees.'';
(5) in subsection (e)(3)(C) (as redesignated), by striking
``January 31, 1998'' and inserting ``3 months before the
convening of each summit''
(6) in subsection (f)(1)(C), by inserting ``, no later than
90 days prior to the date of the commencement of the National
Summit,'' after ``comment'';
(7) in subsection (g), by inserting ``, in consultation with
the congressional leaders specified in subsection (e)(2),''
after ``report'' the first place it appears;
(8) 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
(9) 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. 205. MISSING PARTICIPANTS.

(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 a missing
participant's benefits 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 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 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 missing participants, and
``(ii) has not provided for the transfer of
assets to pay the benefits of all missing
participants 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 amendment 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. 206. 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 established after December 31, 2001.

SEC. 207. 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 206(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 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 established after December 31, 2001.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to plan years beginning after December 31, 2002.

SEC. 208. 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. 209. 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, 2002, 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, 2003.

SEC. 210. 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, 2002.

SEC. 211. 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. 212. INTEREST RATE RANGE FOR ADDITIONAL FUNDING REQUIREMENTS.

(a) 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, OR 2003''.
(b) 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.''.
(c) Effective Date.--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.

SEC. 213. PROVISIONS RELATING TO PLAN AMENDMENTS.

(a) In General.--If this section applies to any plan or contract
amendment--
(1) such plan or contract shall be treated as being operated
in accordance with the terms of the plan for purposes of the
Employee Retirement Income Security Act of 1974 during the
period described in subsection (b)(2)(A); and
(2) except as provided by the Secretary of the Treasury, such
plan shall not fail to meet the requirements of 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 plan or annuity contract which is made--
(A) pursuant to any amendment made by this Act or
title VI of the Economic Growth and Tax Relief
Reconciliation Act of 2001, or pursuant to any
regulation issued by 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, 2005.
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 ``2007'' for ``2005''.
(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. 3762 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. 3762 gives workers new freedom
to diversify their investments, much greater access to quality
investment advice, advance notice before blackout periods, 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, Subcommittee Vice-
Chairman Ernie Fletcher and 31 other co-sponsors introduced
H.R. 3762 on February 14, 2002. The bill is the culmination of
legislative activity, including hearings, bill introduction,
mark-up, floor consideration started in the 106th Congress and
continuing in the 107th, 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 Representative John Boehner.
On March 11, 1999, Representative Rob Portman and
Representative 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 discharged the Subcommittee on Employer-Employee
Relations from consideration of the bill and then marked it up
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.
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 the President. The tax bill
passed by Congress, but vetoed by the President, included
provisions either identical or similar to sections 601-606,
611-612, 615-616, 618, 621-622, and 627-628 of H.R. 1102, as
reported.
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'' passed by the House on October 26, 2000 (but not acted
upon by the Senate).
The Employer-Employee Relations Subcommittee also laid the
framework for introducing H.R. 4747, the Retirement Security
Advice Act of 2000 by holding a hearing in the second session
of the 106th Congress 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 March 9 and 10, 2000 regarding H.R.
4747. 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
H.R. 4747 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 yeas--154 nays and the President 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
Present 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 6th and 7th, 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 witness 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
Senate to pass 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, adopting three of them, and ordered the
bill favorably reported to the House of Representatives by a
roll call vote of 28 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 107th Congress, 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 (to be published).

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 (to be published).

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
largest bankruptcy petition in U.S. history. 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 \6\ that diminished the
retirement funds of many Enron employees.
---------------------------------------------------------------------------
\6\ 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.\7\ 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.\8\
A further complicating factor in the Enron situation was that
prior to Enron announcing bankruptcy, Enron's 401(k) plan
changed plan record keepers.\9\ 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.
---------------------------------------------------------------------------
\7\ Hearing on ``Enron and Beyond: Legislative Solutions'' before
the Subcommittee on Employer Employee Relations, U.S. House of
Representatives, 107th Congress, Second Session, February 13, 2002 (to
be published).
\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 (to be published).
\9\ 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.\10\
---------------------------------------------------------------------------
\10\ 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 (to be published).

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.\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 (to be published).

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.\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 (to be published).

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.\13\
---------------------------------------------------------------------------
\13\ 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 (to be published).

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.\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 6, 2002 (to be published).

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.'' \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 (to be published).
---------------------------------------------------------------------------
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.'' \16\
---------------------------------------------------------------------------
\16\ 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).
---------------------------------------------------------------------------
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.''
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.\17\
---------------------------------------------------------------------------
\17\ 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).

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.\18\ 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.''
---------------------------------------------------------------------------
\18\ 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).
---------------------------------------------------------------------------
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.\19\ Following introduction of the bill, the
Subcommittee on Employer-Employee Relations held a hearing on
February 27, 2002 on the legislative solutions to Enron.\20\
Interest groups expressed support for H.R. 3762, but also
cautioned the Subcommittee to tread carefully in creating
additional regulations for employers.
---------------------------------------------------------------------------
\19\ The substance of H.R. 3762 is explained more thoroughly infra
n. ________.
\20\ 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.\21\
---------------------------------------------------------------------------
\21\ 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 (to be published).

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 Representatives
Portman and Cardin, that will allow workers to purchase
financial advice with pre-tax dollars.\22\
---------------------------------------------------------------------------
\22\ 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 (to be published).

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 Representative 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.\23\
---------------------------------------------------------------------------
\23\ 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 (to be published).

John M. Vine, Esq., representing the ERISA Industry
Committee (ERIC), testified that the proposal to mandate joint
trusteeship in H.R. 3657, Representative Miller's proposal, on
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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.\24\
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\24\ 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 (to be published).

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.'' \25\
---------------------------------------------------------------------------
\25\ 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 (to be published).
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B. Legislation

As described supra, improving the retirement security of
American workers has been the subject of considerable Committee
attention during the current, and past Congress. The Enron
bankruptcy and the tragic losses to retirement savings faced by
Enron employees 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.\26\
---------------------------------------------------------------------------
\26\ 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 hold them 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 the Senate to pass the Retirement Security Advice Act, H.R.
2269, which encouraged employers to make investment advice
available to their workers.\27\
---------------------------------------------------------------------------
\27\ Ibid; see also discussion of H.R. 2269, Committee Action,
infra n. 31-32.
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H.R. 3762, the Pension Security Act, embodies the
principles set out by the President. Committee Chairman John
Boehner and Subcommittee Chairman Sam Johnson introduced it
Feb. 14, 2002 with bipartisan support.
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) \28\ of ERISA sets forth this
Congressional Finding and Declaration of Policy:
---------------------------------------------------------------------------
\28\ 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.\29\
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\29\ Ibid.

Title I of ERISA contains these fundamental protections for
participants and beneficiaries of employee benefit plans. Part
1 of Title I \30\ 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.
---------------------------------------------------------------------------
\30\ 29 U.S.C. Sec. 1021, 1022, 1024, 1025.
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Equally important, Part 4 of Title I of ERISA \31\ 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.\32\
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\31\29 U.S.C. Sec. 1104.
\32\ ERISA has included an 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.\33\ 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.\34\
---------------------------------------------------------------------------
\33\ 29 U.S.C. Sec. 1001(a).
\34\ 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.\35\
---------------------------------------------------------------------------
\35\ 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. 3762 represent a logical upgrade to the
provisions of Title I of ERISA to ensure adequate retirement
protection for today's workforce.

H.R. 3762's investment education and benefit statement

H.R. 3762 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,\36\
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. 3762 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.
---------------------------------------------------------------------------
\36\ 29 U.S.C. Sec. 1025(a).
---------------------------------------------------------------------------
H.R. 3762 defines ``applicable individual account plan'' by
limiting the existing definition of individual account plan in
ERISA \37\ to exclude employee stock ownership plans (ESOP)
\38\ 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. The Committee considered limiting the definition of
applicable individual account plan only to those accounts that
hold employer securities that are readily tradable on an
established securities market because the value assigned to
employer securities that are not traded on an established
securities market depend upon valuations or appraisals obtained
from third party experts that are generally made on an annual
basis. The Committee rejected limiting the quarterly statement
only to publicly traded companies because it believes that all
participants and beneficiaries should receive more regular
information about their accounts. The Committee, however, does
not intend to regulate corporate accounting practices through
this legislation. Thus, 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 employer
securities that are not readily tradable on an established
securities market based upon the most recent valuation of such
employer securities.
---------------------------------------------------------------------------
\37\ 29 U.S.C. Sec. 1102 (34).
\38\ 26 U.S.C. Sec. 4975 (e)(7).
---------------------------------------------------------------------------
Additional provisions from H.R. 10 which were added to H.R.
3762 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. 3762 specifies 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. 3762 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.\39\
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.
---------------------------------------------------------------------------
\39\ 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).
---------------------------------------------------------------------------
During Committee consideration of H.R. 3762, Representive
Tim Roemer offered and withdrew an amendment that would have
required plan administrators to issue a warning to participants
and beneficiaries if 25 percent of their individual account was
concentrated in any one security. The Committee believes that
such a requirement would be extremely difficult to administer
given the daily fluctuation of securities and is concerned that
even if such provision were enacted, it could result in
participants receiving potentially confusing information that
could be outdated in a matter of days. H.R. 3762 already
requires a quarterly reminder about the importance of
diversification, which would also provide appropriate
information about the participant's account without reducing
its overall efficacy. However, the Committee views the
principle of diversification very seriously and will work to
strengthen the diversification education principles contained
in the notice in the spirit of Representative Roemer's
amendment.
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 January 1, 2003. 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,\40\ H.R.
3762 amends Section 502 of ERISA \41\ 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.
---------------------------------------------------------------------------
\40\ 29 U.S.C. Sec. 1132 (c)(2).
\41\ 29 U.S.C. Sec. 1132.
---------------------------------------------------------------------------

H.R. 3762's protection from restrictions on participants' ability to
diversify plan assets

In order to protect against large losses, ERISA places a
duty on plan fiduciaries to diversify assets.\42\ 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.\43\ 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'' or ``lockdown'' 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 duties for plan
administrators, and additional information to plan
beneficiaries and participants are needed.
---------------------------------------------------------------------------
\42\ 29 U.S.C. Sec. 1104(a)(1)(C).
\43\ 29 U.S.C. Sec. 1104(c)(1)(B).
---------------------------------------------------------------------------
In any case in which the plan administrator temporarily
suspends, limits, or restricts the ability of participants or
beneficiaries to direct or diversify assets, H.R. 3762 requires
that the administrator must first make a determination that the
expected period of the suspension is reasonable. 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 \44\
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.\45\ 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.
---------------------------------------------------------------------------
\44\ 29 U.S.C. Sec. 1104(a)(1).
\45\ See, e.g., Donovan v. Bierwith, 680 F.2d 263, 272 n.8 (2d
Cir.1982).
---------------------------------------------------------------------------
Rather than defining a term such as ``blackout,'' H.R. 3762
requires plan administrators to make a determination of
reasonableness for any action that would have the effect of
temporarily suspending, limiting, or restricting any ability of
participants or beneficiaries of individual account plans to
direct or diversify assets credited to their accounts. In order
to trigger the notice requirement and determination of
reasonableness, the suspension must be more than three
consecutive calendar days on which the ability to diversify is
otherwise available under the terms of the plan.
Once a plan administrator has made a determination of
reasonableness, H.R. 3762 requires plan administrators to
notify plan participants and beneficiaries of the upcoming
suspension, limitation or restriction on the ability of
participants to trade. The new notice shall be issued 30 days
prior to any suspension of participants' and beneficiaries'
ability to direct or diversify assets. H.R. 3762 specifies that
the notice must contain the reasons for the suspension, an
identification of the investments affected, the expected period
of the suspension, a statement that the administrator has
evaluated the reasonableness of the expected period, and a
statement that the participant should evaluate the
appropriateness of their current investment decisions in light
of their inability to direct or diversify assets during the
expected period of suspension. Based on this notice, if they
deem it appropriate participants may reallocate their
investments away from more volatile investments, including
employer securities, during the suspension period.
As was clearly the case in the Enron situation, employees
did not take appropriate action to diversify their accounts in
advance of the ``blackout.'' \46\ 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.
---------------------------------------------------------------------------
\46\ 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 (to be published).
---------------------------------------------------------------------------
The Committee believes that the determination 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.\47\
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. 3762
balances this shared responsibility by requiring plan
administrators to make a determination of reasonableness and to
provide information to participants and beneficiaries, and by
educating participants and beneficiaries so that they can
adequately evaluate the appropriateness of their investment
decisions in light of their inability to direct or diversify
during a suspension. As H.R. 3762 indicates, it is only then
that fiduciaries are relieved of their own liability and
granted the 404(c) \48\ liability protection.
---------------------------------------------------------------------------
\47\ 29 U.S.C. Sec. 1104(c)(1)(B).
\48\ Ibid.
---------------------------------------------------------------------------
H.R. 3762 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.\49\ 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. 3762 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).
---------------------------------------------------------------------------
\49\ 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, it is the Committee's view 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 suspension, limit or restriction on trading. 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.\50\
---------------------------------------------------------------------------
\50\ 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).
---------------------------------------------------------------------------
H.R. 3762 provides for specific exceptions from the duty to
notice all participants and beneficiaries under the plan. In
the event of a qualified domestic relations order, or a
blackout period caused by a merger, acquisition, divestiture or
other such action by the plan sponsor or plan, only those
employees who are impacted by the event will receive the
notice. The Committee intends this exception to cover instances
where a single employer plan is merged with a multi-employer
plan. In these instances, as in the case with many mergers and
acquisitions, the new participants and beneficiaries will not
have been a part of the plan 30 days prior to the suspension of
their ability to direct assets. Rather, the suspension will
occur as they are joining the plan. For this reason, H.R. 3762
specifies that such notice shall be given as soon as reasonably
practicable in advance of the change. The bill provides that
the Secretary of Labor may provide for additional exceptions to
the requirements that are in the interest of participants and
beneficiaries.
In any case where the inability to provide the notice is
due to events that were unforeseeable or circumstances beyond
the reasonable control of the plan administrator, the notice
shall be furnished to all participants and beneficiaries under
the plan as soon as reasonably possible under the
circumstances. Among other cases, the Committee intends this
exception to apply in the case of participants and
beneficiaries who have moved and left no forwarding address. In
such cases, a plan administrator's notification to the last
known address shall meet the notice requirements of this
section.
Should there be a change in the expected period of the
suspension, H.R. 3762 requires the plan administrator to
provide notice to affected participants and beneficiaries as
soon as reasonably practicable in advance of the change.
H.R. 3762 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 January 1, 2003. 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. 3762 amends Section 502 of ERISA \51\ to allow the
Secretary to assess a civil penalty against a plan
administrator of up to $100 a day from the date of the plan
administrator's failure or refusal to provide notice to
participants and beneficiaries in accordance with the new
notice requirements.
---------------------------------------------------------------------------
\51\ 29 U.S.C. Sec. 1132.
---------------------------------------------------------------------------

H.R. 3762's provision for fiduciary education

During Committee consideration of H.R. 3762, the Committee
adopted an amendment offered by Representative Marge Roukema
that directed 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.
The fiduciary duty of loyalty--the highest duty of loyalty
known to the law,\52\ 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.
---------------------------------------------------------------------------
\52\ See, e.g., Donovan v. Bierwith, 680 F.2d 263, 272 n.8 (2d Cir.
1982).
---------------------------------------------------------------------------

H.R. 3762's right to diversify

H.R. 3762 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.\53\ 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.\54\
---------------------------------------------------------------------------
\53\ See 29 U.S.C. Sec. 1107, 1114.
\54\ 26 U.S.C. Sec. 401(a)(28).
---------------------------------------------------------------------------
H.R. 3762 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.\55\ 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.\56\ 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.
---------------------------------------------------------------------------
\55\ 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 (to be published).
\56\ See 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); 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 (to be published).
---------------------------------------------------------------------------
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.'' \57\
---------------------------------------------------------------------------
\57\ 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 they begin to
participate in the plan 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 last year. 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.\58\ 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. 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.
---------------------------------------------------------------------------
\58\ A ``stand-alone'' ESOP does not contain employer matching or
employee pre-tax or after-tax contributions.
---------------------------------------------------------------------------
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.\59\ If necessary, the Department of Labor may
issue clarifications on how the investment alternatives of
404(c) relate to this provision.
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\59\ 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.
Among the amendments the Committee made at the mark-up, is
the 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. The rolling option will
apply only to those contributions made after the effective date
of the amendment, i.e., plan years beginning on or after
January 1, 2003. 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.
The Committee has provided 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. 3762's Department of Labor study on requiring fiduciary
consultants to plans

During Committee Consideration of H.R. 3762, the Committee
considered and adopted an amendment by Representative Marge
Roukema that required 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 help
protect plan participants' assets because plan managers would
receive advice and guidance from an independent source
regarding the management or disposition of plan assets.
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.

Other proposals offered

The Committee also considered other substantive changes to
the administration of pension plans. During consideration of
H.R. 3762 the Committee considered and rejected two amendments
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.

H.R. 3762'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. 3762 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 \60\--and through rigorous but
practical disclosures of any potential conflicts of interest.
---------------------------------------------------------------------------
\60\ See, e.g., Donovan v. Bierwith, 680 F.2d 263, 272 n.8 (2d Cir.
1982).
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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.\61\
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\61\ 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. 3762 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. 3762 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. 3762 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.

H.R. 3762's prohibition of insider trades during pension plan
suspension periods

H.R. 3762 amends Section 16 of the Securities and Exchange
Act of 1934 \62\ to prohibit beneficial owners, directors or
officers of an issuer of an equity from purchasing or selling
any equity security of such issuer while plan participants and
beneficiaries are precluded from directing or diversifying
their accounts during a ``blackout'' period. The bill also
directs that any profit from a prohibited sale shall be
recoverable by the issuer.
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\62\ 15 U.S.C. Sec. 78p.
---------------------------------------------------------------------------
The Committee believes that this provision institutes true
parity between the top floor and the shop floor. In the case of
the Enron blackout period, while employees were prohibited from
directing their own assets, company executives profited from
sales of company stock. The Committee believes such actions to
be fundamentally unfair and has drafted H.R. 3762 in order to
prevent events like this in the future.
Because the amendment to Section 16 of the Securities
Exchange Act is not within the jurisdiction of the Education
and the Workforce Committee, the Committee was not able to
modify the introduced language in any way. The Committee would
note its intention to remedy concerns about the difficulty of
administering a prohibition on insider trades with regard to
beneficial owners. The Committee also intends to clarify that
the prohibition on insider trades would only be triggered by a
suspension of the ability of a majority of plan participants
and beneficiaries to direct or diversify assets. The Committee
does not intend for the prohibition to be triggered by mergers
or acquisitions of the plan sponsor unless they are of such
magnitude as to impact the majority of plan participants and
beneficiaries.
During Committee consideration of H.R. 3762, the Committee
considered and rejected an amendment offered by Representative
George Miller that would have required senior executives and
named fiduciaries to report insider sales of $10,000 to $1
million to their pension plan administrator within one day of
the sale. Following such reports, the plan administrator would
have been required to notify each participant and beneficiary
within three business days of any insider trades that were
either greater than $100,000 or reached that level in a series
of transactions over a one year period. These provisions were
to be enforced by a civil penalty of $1,000 per day, imposed on
any person who fails to provide the notice.
The Committee notes that the Securities and Exchange
Commission (SEC) governs the corporate disclosure requirements
of company insiders. As a part of an effort to improve the
financial reporting system, the SEC is considering a variety of
ways to improve public disclosure of trading activities and
plans to propose rules that require insiders to notify the SEC
of any sale within 7-8 business days. As a part of this
initiative, the SEC intends to provide for electronic filing of
these insider transaction reports.\63\
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\63\ February 13, 2002 Press Release, U.S. Securities and Exchange
Commission.
---------------------------------------------------------------------------
The Committee was greatly concerned by the new reporting
regime that would have been imposed by the Miller amendment.
The Committee fears that such additional reporting requirements
for plan administrators as proposed by the Miller amendment,
would result in greater confusion for participants as well as
being complicated and burdensome to implement. The Committee
notes that the transactions to be reported, although of
definite interest to plans and plan participants, are not,
strictly speaking, transactions involving plan assets. Rather,
they are transactions that affect all investors and the entire
marketplace. Because of this, the Committee views the
Securities and Exchange Commission, rather than the Department
of Labor, as the appropriate agency to deal with such
transactions.

H.R. 3762'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. 3762 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,\64\ and
requiring 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, 2001.
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\64\ 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. 3762'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. 3762 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,
2002.
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. 3762'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 benefits. 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, 2002.
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. 3762'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 \65\ convenes a National Summit on
Retirement Savings at the White House, co hosted by the
President and the bipartisan Congressional leadership.\66\
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.
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\65\ P.L. 105-92, sec. 516
\66\ Ibid. sec. 517.
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This section of H.R. 3762 makes technical amendments to the
SAVER Act regarding the administration of future statutorily
created National Summits on Retirement Savings. It clarifies
that National Summits shall be held in 2002 and 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. Further, the President, in
consultation with the Congressional leadership, may appoint up
to 3% of the delegates (not to exceed 10) from a list of
nominees provided by the private sector partner in Summit
administration. The section also clarifies that new delegates
are to be appointed for each future National Summit (as was the
intent of the original legislation) and sets deadlines for
their appointment.
H.R. 3762 also sets deadlines for DOL to publish the Summit
agenda, gives DOL limited reception and representation
authority, and mandates that DOL consult with the Congressional
leadership in drafting the post-Summit report. The section is
effective upon date of enactment.
H.R. 3762 clarifies the administration of future National
Summits and is designed to assist in their planning and
execution. It is also intended to clarify issues regarding the
selection of delegates to future National Summits.

H.R. 3762's missing participants

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. 3762 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. 3762'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. 3762, 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 are effective for plans established after December
31, 2001.
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 proposal is intended to remove the PBGC premium as a
disincentive to the establishment of a defined benefit plan by
a small employer.

H.R. 3762'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. 3762 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, 2001. The
provision reducing the PBGC variable premium for small plans is
effective for years beginning after December 31, 2002.
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. 3762'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. 3762 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. 3762'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. 3762 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, 2002.
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. 3762'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. 3762 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, 2002.
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. 3762's studies

Study on small employer group plans: H.R. 3762 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. 3762 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. 3762'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. 3762, 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. 3762'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. 3762 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, 2004.
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
1 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. 3762 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 the
value of investments allocated to their individual account,
including their rights to diversify any assets held in employer
securities. The notice will also include an explanation of the
importance of a diversified investment portfolio including a
risk of holding substantial portions of a portfolio in any one
security, such as employer securities.
In the event of a suspension of participant and
beneficiary's ability to direct or diversify assets, H.R. 3762
requires that plan administrators shall determine that any
suspension, limitation or restriction is reasonable. Once this
determination has been made, the bill requires plan
administrators to notify participants and beneficiaries 30 days
prior to the suspension. The notice must contain the reasons
for the suspension, the investments that will be affected, the
likely period of the suspension, a statement that the
administrator has evaluated the reasonableness of the expected
period, and a statement that the participant should evaluate
the appropriateness of their current investment decisions in
light of their inability to direct or diversify assets during
the expected period of suspension.
The bill clarifies that fiduciaries are not liable for
losses during a period of suspension provided that fiduciaries
satisfy their fiduciary duty with regard to the interruption of
participant and beneficiary's ability to direct or diversify
assets. H.R. 3762 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 education of fiduciaries as to their
fiduciary duty, 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. 3762 mandates that employees 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. 3762 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.
H.R. 3762 amends Section 16 of the Securities and Exchange
Act of 1934 to prohibit beneficial owners, directors or
officers of an issuer of an equity from purchasing or selling
any equity security of such issuer while plan participants and
beneficiaries are precluded from directing or diversifying
their accounts during a ``blackout'' period. The bill also
directs that any profit from a prohibited sale shall be
recoverable by the issuer.
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. 3762 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. 3762 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 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 2002.''

Title I--IMPROVEMENTS IN PENSION SECURITY

Section 101. Periodic pension benefits statements

H.R. 3762 amends ERISA to require plan administrators to
provide a quarterly notice to plan participants and
beneficiaries of the value of investments allocated to their
applicable individual account. Provisions from H.R. 10 were
also incorporated into H.R. 3762 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 of the employer
securities.
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.
H.R. 3762 specifies that the new notices may be provided in
electronic or other appropriate form provided that such form is
reasonably accessible to the recipient.
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 by January 1,
2003. 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. Protection from suspensions, limitations, or restrictions
on ability of participant or beneficiary to direct or diversify
plan assets

H.R. 3762 amends Section 101 of ERISA to add a requirement
that in the case of any action that would have the effect of
temporarily suspending, limiting, or restricting any ability of
participants or beneficiaries of individual account plans to
direct or diversify assets credited to their accounts. The
suspension must be more than three consecutive calendar days on
which the ability to diversify is otherwise available under the
terms of the plan.
Once a plan administrator has made a determination of
reasonableness, H.R. 3762 requires plan administrators to
notify plan participants and beneficiaries of such action. The
new notice shall be issued 30 days prior to any suspension of
participants and beneficiaries ability to direct or diversify
assets. H.R. 3762 specifies that the notice must contain the
reasons for the suspension, an identification of the
investments affected, the expected period of the suspension, a
statement that the administrator has evaluated the
reasonableness of the expected period, and a statement that the
participant should evaluate the appropriateness of their
current investment decisions in light of their inability to
direct or diversify assets during the expected period of
suspension.
H.R. 3762 provides for specific exceptions from the duty to
notice all participants and beneficiaries under the plan. In
the event of a qualified domestic relations order, or a
blackout period caused by a merger, acquisition, divestiture or
other such action by the plan sponsor or plan, only those
employees who are impacted by the event will receive the
notice. The bill provides that the Secretary may provide for
additional exceptions to the requirements that are in the
interest of participants and beneficiaries.
In any case where the inability to provide the notice is
due to events that were unforeseeable or circumstances beyond
the reasonable control of the plan administrator, the notice
shall be furnished to all participants and beneficiaries under
the plan as soon as reasonably possible under the
circumstances.
Should there be a change in the expected period of the
suspension, H.R. 3762 requires the plan administrator to
provide notice to affected participants and beneficiaries as
soon as reasonably practicable in advance of the change.
H.R. 3762 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 January 1, 2003. The Secretary may
also issue interim model guidance.
H.R. 3762 amends Section 502 of ERISA to allow the
Secretary to assess a civil penalty against a plan
administrator of up to $100 a day from the date of the plan
administrator's failure or refusal to provide notice to
participants and beneficiaries in accordance with the new
notice requirements.
H.R. 3762 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. 3762 indicates, it is only then that fiduciaries are
relieved of their own liability and granted the 404(c)
liability protection.

Section 103. Information and educational support for pension plan
fiduciaries

As modified by the adoption of an amendment offered by
Representative Marge Roukema, H.R. 3762 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 in such a
plan has completed three years of participation as defined by
ERISA section 204(a)(4), 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 2007.

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. 3762
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. Insider trades during pension plan suspension periods
prohibited

H.R. 3762 amends Section 16 of the Securities and Exchange
Act of 1934 to prohibit beneficial owners, directors or
officers of an issuer of an equity from purchasing or selling
any equity security of such issuer while plan participants and
beneficiaries are precluded from directing or diversifying
their accounts during a ``blackout'' period. The bill also
directs that any profit from a prohibited sale shall be
recoverable by the issuer.

Section 108. Effective dates of title and related rules

The effective dates of these titles are on or after January
1, 2003.

TITLE II--ADDITIONAL PROVISIONS

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. 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 203. 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 204. 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 205. Expansion of missing participants program

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 206. Reduced PBGC premiums for new plans

Section 207. 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 208. 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 209. 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 210. 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 211. 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 212. 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.

Section 213. Provisions relating to plan amendments

Generally, there is a short time within which to make plan
amendments to reflect amendments to the law. In addition, the
anti-cutback rules can have the unintended consequence of
preventing an employer from amending its plan to reflect a
change in the law. Under this section, amendments to a plan or
annuity contract made pursuant to any amendment made by the Act
would not be required to be made before the last day of the
first plan year beginning on or after January 1, 2003.
Operational compliance would, of course, be required with
respect to all plans as of the applicable effective date of any
amendment made by the Act. In addition, timely amendments to a
plan or annuity contract made pursuant to any amendment made by
the Act would be deemed to satisfy the anti-cutback rules.

Explanation of Amendments

The provisions of the substitute are explained in this
report.

Correspondence

Congress of the United States,
House of Representatives,
Washington, DC, April 4, 2002.
Hon. John Boehner,
Chairman, Committee on Education and the Workforce,
Rayburn House Office Building, Washington, DC.
Dear Mr. Chairman: Due to legislative duties, I was
unavoidably detained during Committee Consideration of H.R.
3762, the Pension Security Act of 2002. Consequently, I missed
roll call number 1 on the substitute amendment offered by
Representative Miller. Had I been present, I would have voted
no on the amendment.
I would appreciate your including this letter in the
Committee Report to accompany H.R. 3762. Thank you for your
attention to this matter.
Sincerely,
Marge Roukema,
Member of Congress.

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,
advance notice before blackout periods, 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) 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.

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.

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, advance notice before blackout periods, 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.

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. 3762 from the Director of the Congressional Budget
Office:

U.S. Congress,
Congressional Budget Office,
Washington, DC, April 4, 2002.
Hon. John A. Boehner,
Chairman, Committee on Education and the Workforce,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed estimate for H.R. 3762, the Pension
Security Act of 2002.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Geoffrey
Gerhardt.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.

H.R. 3762--Pension Security Act of 2002

Summary: H.R. 3762 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 Corporation (PBGC), and other changes.
CBO estimates that the bill would increase direct spending
by $36 million in 2003, by $127 million over the 2003-2007
period, and by $185 million over the 2003-2012 period.
Discretionary spending would also increase by $24 million over
the 2003-2007 period, assuming appropriation of the necessary
amounts. CBO and the Joint Committee on Taxation (JCT) estimate
that the bill would have a negligible effect on revenues. Since
this bill would affect direct spending and revenues, pay-as-
you-go procedures would apply.
State, local, and tribal governments are exempt from the
requirements of ERISA that H.R. 3762 would amend, and other
provisions of the bill would impose no requirements on those
governments. Consequently, the bill contains no
intergovernmental mandates as defined in the Unfunded Mandates
Reform Act (UMRA) and would impose no costs on state, local, or
tribal governments.
The bill contains several private-sector mandates on
sponsors, administrators, and fiduciaries of private pension
plans. CBO estimates that the direct cost of those new
requirements would exceed the annual threshold specified in
UMRA ($115 million in 2002, adjusted annually for inflation),
but we do not have sufficient information to provide a precise
estimate of the aggregate cost.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 3762 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--
---------------------------------------------------
2002 2003 2004 2005 2006 2007
----------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
Reduced PBGC Flat-Rate Premiums............................. 0 1 1 2 2 2
Changes in PBGC Variable Premiums........................... 0 32 -7 76 ....... 3
Payments of Interest on Overpayments of PBGC Premiums....... 0 3 3 3 3 3
Benefits Paid to Substantial Owners......................... 0 * * * * *
---------------------------------------------------
Total Additional Outlays.............................. 0 36 -3 81 5 8
SPENDING SUBJECT TO APPROPRIATION

Studies by the Department of Labor:
Estimated Authorizations................................ 0 2 0 0 0 0
Estimated Outlays....................................... 0 * 1 * * *
Information and Educational Support for Pension Plan
Fiduciaries:
Estimated Authorizations................................ 0 5 5 5 5 6
Estimated Outlays....................................... 0 3 5 5 5 5
Total Spending Subject to Appropriation:
Estimated Authorizations................................ 0 7 5 5 5 5
Estimated Outlays....................................... 0 3 6 5 5 5
Memorandum:
Changes in Revenues Resulting from Enactment of Both H.R. 994 994 -270 -593 -485 -327
3762 and H.R. 3669 \1\.....................................
----------------------------------------------------------------------------------------------------------------
\1\ These revenue effects reflect changes in pension plan funding and were included in CBO's estimate for H.R.
3669, the Employee Retirement Saving Bill of Rights. Enactment of H.R. 3762 alone would not affect revenues.

Notes.--* =Less than $500,000.

Basis of estimate

Revenues
All estimates of the provisions in the bill that affect
revenues, except the civil penalties under section 102, were
provided by JCT. JCT estimates that none of those provisions
would have significant effects on revenue collections. Based on
information from the Department of Labor, CBO expects that
additional civil penalties resulting from section 102 would be
less than $500,000 annually.
If the bill were enacted in combination with H.R. 3669, the
Employee Retirement Savings Bill of Rights, which was reported
by the Committee on Ways and means on march 20, 2002, JCT
estimates that federal revenues would be increased by $994
million in 2002, but would be reduced by $991 million over the
2002-2012 period. These revenue effects were included in CBO's
estimate for H.R. 3669. According to JCT, the revenue effects
depend on conforming changes to both the Internal Revenue Code
and ERISA, and JCT's estimates for H.R. 3669 assumed that the
conforming changes would be enacted.
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 premiums 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 7,500 plans would eventually qualify for this
reduction. Those plans cover an average of about 10
participants each. CBO estimates that the change would reduced
the PBGC's premium income by about $1 million in 2003, $8
million over the 2003-2007 period, and $18 million from 2003
through 2012. Since 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. 3762
would make several changes affecting the variable-rate premium
paid by underfunded plans. CBO estimates, in total, this
section will decrease receipts from those premiums by $32
million in 2003, $104 million over the 2003-2007 period, and
$137 million during the 2003-2012 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. On the basis of 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 $19 million over the
2003-2007 period and $46 million over the 2003-2012 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 2003. As a result, premium receipts would decline
by $1 million in 2004, $4 million during the 2004-2007 period,
and $10 million over the 2003-2012 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 these contributions until funding returns to
baseline levels. Some plans would have to pay higher premiums
because their level of underfunding would increase. Other
plans, however, would qualify for a special exemption and not
be required to pay the variable premium for plan-year 2001.
Based on information from the PBGC, CBO estimates that the net
effect would be a decrease of $30 million in premium receipts
in 2003. CBO estimates H.R. 3762 would increase plan
underfunding by about $1.2 billion in 2002, leading to an
increase in premium receipts of $11 million in 2004. Over the
2003-2007 period, CBO estimates this provision would cause
receipts to decrease by a net of $1 million.
Finally, H.R. 3762 would amend the underlying formula used
to determine variable-rate premiums. Changes to ERISA made by
the Job Creation and Worker Assistance Act (P.L. 107-147)
require that, during plan-years 2002 and 2003, the interest
rate used to calculate plans' liabilities be 100 percent of the
interest rate on 30-year Treasury securities in the month
preceding the month in which the plan year begins. This
interest rate will return to 85 percent of the Treasury rate
unless and until the Department of the Treasury issues new
mortality tables for pension beneficiaries, at which time the
liability calculation will be set at 100 percent. Instead,
section 212 would set the interest rate at 115 percent of the
30-year bond rate once the new mortality tables are issued, but
only through the remainder of plan-years 2002 and 2003, at
which time the interest rate would return to 100 percent. As
part of its latest baseline projections CBO anticipates that
the new mortality tables will be issued immediately before the
start of plan-year 2003. Therefore, under CBO's assumptions
about when the new mortality tables will be issue, the bill
would allow plans to use 115 percent of the 30-year bond rate
to determine liabilities in plan-year 2003 before being set at
100 percent of the bond rate thereafter.
Increasing the interest rate effectively lowers the
measured amount of underfunding among plans because using
higher interest rates reduces projected liabilities, which are
calculated on a present-value basis. By reducing the measured
level of underfunding, CBO estimates that this provision of
section 212 would reduce premium collections by $80 million in
2005.
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. 3762
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. 3762
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
Studies by the Department of Labor. H.R. 3762 would direct
the Department of Labor (DOL) to undertake three studies: one
to determine the most appropriate forms of private pension
plans, one on the impact of H.R. 3762 on various aspects of
pension coverage, and one on the impact of requiring fiduciary
consultants for individual account plans. Based on the costs of
studies with comparable requirements, CBO estimates these
studies would cost about $2 million over the 2003-2007 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. 3762
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 appropriation of such
sums as may be necessary is authorized for that purpose. The
Secretary of Labor is also 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.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in outlays and governmental receipts that are subject
to pay-as-you-go procedures are shown in the following table.
For the purposes of enforcing pay-as-you-go procedures, only
the effects through 2006 are counted.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
----------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
----------------------------------------------------------------------------------------------------------------
Changes in receipts \1\............ 0 0 0 0 0 0 0 0 0 0 0
Changes in outlays................. 0 36 -3 81 5 8 11 11 12 12 12
----------------------------------------------------------------------------------------------------------------
\1\ Enactment of H.R. 3762 alone would not affect revenues, though there would be a revenue effect if the bill
were enacted in conjunction with H.R. 3669.

Estimated impact on state, local, and tribal governments:
State, local, and tribal governments are exempt from the
requirements of ERISA that H.R. 3762 would mend, and other
provisions of the bill would impose no requirements on those
governments. Consequently, the bill contains no
intergovernmental mandates as defined in UMRA and would impose
no costs on state, local, or tribal governments.
Estimated impact on the private sector: With only limited
exceptions, private employers who provide pension plans for
their workers must follow rules specified in ERISA. Therefore,
CBO considers changes in ERISA that expand those rules to be
private-sector mandates under UMRA. H.R. 3762 would make
several such changes to ERISA that would affect sponsors,
administrators, and fiduciaries of pension plans. CBO estimates
that the direct cost to affected entities of the new
requirements in H.R. 3762 would exceed the annual threshold
specified in UMRA ($115 million in 2002, adjusted annually for
inflation), but does not have sufficient information to provide
a precise estimate of the aggregate cost.
Benefit Statements. Section 101 of the bill would require
administrators of private, individual-account (defined
contribution) pension plans to provide quarterly statements to
participants and beneficiaries. 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 $100 million annually. An
estimated 70 million people will participate in private,
individual-account pension plans in 2003. According to industry
sources, the majority of plans sponsored by large employers
already provide pension statements on a quarterly basis, and it
is becoming increasingly common for plans sponsored by smaller
employers to do so as well. Thus, CBO estimates that about 30
million participants would newly receive statements four times
per year under the bill. The average cost of providing each
statement would be small because plans are now required to
provide benefit statements on request. Thus, the bill would
result in added costs largely for producing and delivering the
new statements. Written statements would have to be provided to
most participants, but the bill would allow statements to be
provided electronically to participants with access to the
Internet. (Census Bureau information indicates that in 1997
about 15 percent of workers had access to the Internet at their
workplace.)
Section 101 of the bill 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 than $5 million per year.
Notice of Restriction Periods. Currently, participants in
individual-account plans occasionally experience time periods
(called ``blackout'' periods) when they are unable to direct
the investment of assets in their accounts. Such periods may
occur for administrative reasons--for example, when a plan
changes recordkeepers. Section 102 of the bill generally would
require plan administrators to provide affected participants
with 30 days notice before an anticipated suspension,
limitation, or restriction on the ability of participants to
direct investments in their accounts. Notice would have to be
in writing unless participants had access to the Internet.
CBO estimates that the direct cost to private plans of
providing advance notice of upcoming blackout periods would be
about $15 million annually. According to a survey conducted by
the American Society for Pension Actuaries, blackout periods
typically occur for a plan about once every three to four
years. Data for the Bureau of Labor Statistics indicate that
most participants in individual-account plans are in plans that
allow at least some direction of assets and, thus, would be
affected by those periods.
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
reasonableness 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. This provision would
impost a direct cost on the affected entities by increasing
their financial exposure during blackouts. CBO does not have
sufficient information to estimate that added cost, however,
but expects that abiding by the new requirements to avoid
liability would add little to their costs.
Investment in Employers' Securities. Section 103 of the
bill would require individual-account plans to allow
participants to sell securities issued by their employer and
acquired through elective deferrals after three years of
participation in the plan (or, if the plan so provides, after
three years of service with the employer). Participants would
also be allowed to sell securities issued by their employers
and allocated to their accounts three years after they are
allocated to them. (The bill would phase in the requirement in
20 percent annual increments for assets acquired before the
effective date of the bill.) Section 103 would also require
plans that offer participants securities issued by employers to
offer a broad 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. According to a small survey sponsored
by the Employee Benefit Research Institute, 48 percent of
surveyed 401(k) plans had company stock as an investment option
for participants, and 43 percent of plans with such an option
required the employer's contributions to be invested in company
stock. CBO estimates that the added administrative costs
attributable to these provisions could easily be $20 million
annually, with larger amounts in the first year. In addition,
the potential sale of the employer's stock by plan participants
as a result of these new requirements could temporarily reduce
the stock's price, especially for companies whose stock is
thinly traded. Finally, 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.
Insider Trades. Section 105 of the bill would prohibit
certain owners and officers of a company from trading
securities issued by that company during a period when
participants in the retirement plan are restricted in their
ability to direct investments. This restriction would increase
the financial exposure of affected owners and officers and,
thus, impose a cost on them. CBO does not have sufficient
information to estimate the amount of that cost.
Previous CBO estimate: On March 20, 2002, CBO provided the
Committee on Ways and Means with a cost estimate for H.R. 3669,
the Employee Retirement Savings Bill of Rights. That bill
contained a number of changes affecting ERISA's treatment of
private pension plans, including some adjustments to the PBGC's
premium formulas, that are similar those contained in H.R.
3762. Although many of the budgetary effects are similar, the
estimated change in variable-rate premiums is different. For
H.R. 3762, the estimated decrease in receipts from variable-
rate premiums is $137 million during the 2003-2012 period,
while for H.R. 3669 the estimated decrease is $56 million over
the same period. The estimate for H.R. 3669 also reflected
changes in pension plan funding that would increase revenues by
$994 million in 2002 but reduce them by $991 million over the
2002-2012 period. The JCT revenue estimate for the pension
funding effects of H.R. 3669 assumed the conforming changes to
ERISA's that are included in H.R. 3762. H.R. 3669 also included
changes to the Internal Revenue Code, the Federal Insurance
Contribution Act, and the Federal Unemployment Tax Act that
would reduce revenues by $23.4 billion over the 2003-2012
period.
Estimate prepared by: Federal Revenues: Erin Whitake;
Outlays of the Pension Benefit Guaranty Corporation: Geoff
Gerhardt; Other Spending by the Department of Labor: Christina
Hawley Sadoti; Impact on State, Local, and Tribal Governments:
Leo Lex; and Impact on the Private Sector: Bruce Vavrichek.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget analysis and 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. 3762 to give workers new freedom to diversify
their investments, much greater access to quality investment
advice, advance notice before blackout periods, 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. 3762. 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. 3762 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. 3762. 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

SHORT TITLE AND TABLE OF CONTENTS

Section 1. This Act may be cited as the ``Employee Retirement
Income Security Act of 1974''.

TABLE OF CONTENTS

Sec. 1. Short title and table of contents.

TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

Subtitle A--General Provisions

* * * * * * *

Part 4--Fiduciary Responsibility

Sec. 401. Coverage.
* * * * * * *
Sec. 407. [10 percent] limitation with respect to acquisition and
holding of employer securities and employer real property by
certain plans.
* * * * * * *

TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

Subtitle A--General Provisions

* * * * * * *

DEFINITIONS

Sec. 3. For purposes of this title:
(1) * * *

* * * * * * *

(42) 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.

* * * * * * *

Subtitle B--Regulatory Provisions

Part 1--Reporting and Disclosure

duty of disclosure and reporting

Sec. 101. (a) * * *

* * * * * * *

(i) Notice of Suspension, Limitation, or Restriction on
Ability of Participant or Beneficiary To Direct Investments in
Individual Account Plan.--
(1) In general.--In the case of any action having the
effect of temporarily suspending, limiting, or
restricting any ability of participants or
beneficiaries under an applicable individual account
plan, which is otherwise available under the terms of
such plan, to direct or diversify assets credited to
their accounts, if such suspension, limitation, or
restriction is for any period of more than 3
consecutive calendar days, the plan administrator
shall--
(A) in advance of taking such action,
determine, in accordance with the requirements
of part 4, that the expected period of
suspension, limitation, or restriction is
reasonable, and
(B) after making the determination under
subparagraph (A) and in advance of taking such
action, notify the plan participants and
beneficiaries of such action in accordance with
this subsection.
(2) Notice requirements.--
(A) In general.--The notices described in
paragraph (1) shall be written in a manner
calculated to be understood by the average plan
participant and shall include--
(i) the reasons for the suspension,
limitation, or restriction,
(ii) an identification of the
investments affected,
(iii) the expected period of the
suspension, limitation, or restriction,
(iv) a statement that the plan
administrator has evaluated the
reasonableness of the expected period
of suspension, limitation, or
restriction,
(v) a statement that the participant
or beneficiary should evaluate the
appropriateness of their current
investment decisions in light of their
inability to direct or diversify assets
credited to their accounts during the
expected period of suspension,
limitation, or restriction, and
(vi) such other matters as the
Secretary may include in the model
notices issued under subparagraph (E).
(B) Provision of notice.--Except as otherwise
provided in this subsection, notices described
in paragraph (1) shall be furnished to all
participants and beneficiaries under the plan
at least 30 days in advance of the action
suspending, limiting, or restricting the
ability of the participants or beneficiaries to
direct or diversify assets.
(C) Exception to 30-day notice requirement.--
In any case in which--
(i) a fiduciary of the plan
determines, in writing, that a deferral
of the suspension, limitation, or
restriction would violate the
requirements of subparagraph (A) or (B)
of section 404(a)(1), or
(ii) the inability to provide the 30-
day advance notice is due to events
that were unforeseeable or
circumstances beyond the reasonable
control of the plan administrator,
subparagraph (B) shall not apply, and the
notice shall be furnished to all participants
and beneficiaries under the plan as soon as
reasonably possible under the circumstances.
(D) Written notice.--The notice required to
be provided under this subsection shall be in
writing, except that such notice may be in
electronic or other form to the extent that
such form is reasonably accessible to the
recipient.
(E) Model notices.--The Secretary shall issue
model notices which meet the requirements of
this paragraph.
(3) Exception for suspensions, limitations, or
restrictions with limited applicability.--In any case
in which the suspension, limitation, or restriction
described in paragraph (1)--
(A) applies only to 1 or more individuals,
each of whom is the participant, an alternate
payee (as defined in section 206(d)(3)(K)), or
any other beneficiary pursuant to a qualified
domestic relations order (as defined in section
206(d)(3)(B)(i)), or
(B) applies only to 1 or more participants or
beneficiaries in connection with a merger,
acquisition, divestiture, or similar
transaction involving the plan or plan sponsor
and occurs solely in connection with becoming
or ceasing to be a participant or beneficiary
under the plan by reason of such merger,
acquisition, divestiture, or transaction,
the requirement of this subsection that the notice be
provided to all participants and beneficiaries shall be
treated as met if the notice required under paragraph
(1) is provided to all the individuals referred to in
subparagraph (A) or (B) to whom the suspension,
limitation, or restriction applies as soon as
reasonably practicable in advance of the suspension,
limitation, or restriction.
(4) Changes in expected period of suspension,
limitation, or restriction.--If, following the
furnishing of the notice pursuant to this subsection,
there is a change in the expected period of the
suspension, limitation, or restriction on the right of
a participant or beneficiary to direct or diversify
assets, the administrator shall provide affected
participants and beneficiaries notice of the change as
soon as reasonably practicable in advance of the
change. Such notice shall meet the requirements of
subparagraphs (A) and (D) of paragraph (2) in relation
to the extended suspension, limitation, or restriction.
(5) Regulatory exceptions.--The Secretary may provide
by regulation for additional exceptions to the
requirements of this subsection which the Secretary
determines are in the interests of participants and
beneficiaries.
(6) Guidance and model notices.--The Secretary shall
issue guidance and model notices which meet the
requirements of this subsection.
[(h)] (j) Cross Reference.--

For regulations relating to coordination of reports to the
Secretaries of Labor and the Treasury, see section 3004.

* * * * * * *

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 plan participant (and to each beneficiary
with 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.
(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 provides the
participant at least once each year with notice 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) shall include (together with the
information required in subsection (a)) the following:
(A) the value of investments allocated to the
individual account, 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, and an explanation of
any limitations or restrictions on the right of the
participant or beneficiary to direct an investment; and
(B) 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 substantial portions
of a portfolio in the security of any one entity, such
as employer securities.
(2) The value of any employer securities that are not readily
tradable on an established securities market that is required
to be reported under paragraph (1)(A) may be determined by
using the most recent valuation of the employer securities.
(3) The Secretary shall issue guidance and model notices
which meet the requirements of this subsection.

* * * * * * *

Part 2--Participation and Vesting

* * * * * * *

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, or
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)(A) In the case of a pension plan which provides for
individual accounts and permits a participant or beneficiary to
exercise control over assets in his account, if a participant
or beneficiary exercises control over the assets in his account
(as determined under regulations of the Secretary)--
[(A)] (i) such participant or beneficiary shall not
be deemed to be a fiduciary by reason of such exercise,
and
[(B)] (ii) no person who is otherwise a fiduciary
shall be liable under this part for any loss, or by
reason of any breach, which results from such
participant's or beneficiary's exercise of control,
except that this clause shall not apply in connection
with such participant or beneficiary for any period
during which the ability of such participant or
beneficiary to direct the investment of the assets in
his or her account is suspended by a plan sponsor or
fiduciary.
(B) If the person referred to in subparagraph (A)(ii)
authorizing a suspension meets the requirements of this title
in connection with authorizing the suspension, such person
shall not be liable under this title for any loss occurring
during the suspension as a result of any exercise by the
participant or beneficiary of control over assets in his or her
account prior to the suspension. Matters to be considered in
determining whether such person has satisfied the requirements
of this title include whether such person--
(i) has considered the reasonableness of the expected
period of the suspension as required under section
101(i)(1)(A),
(ii) has provided the notice required under section
101(i)(1)(B), and
(iii) has acted solely in the interests of plan
participants and beneficiaries in determining to enter
into the suspension.
(C) Any limitation or restriction that may govern the
frequency of transfers between investment vehicles shall not be
treated as a suspension referred to in subparagraph (A)(ii) 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) 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.

* * * * * * *

[10 percent] limitation with respect to acquisition and holding of
employer securities and employer real property by certain plans

Sec. 407. (a) * * *

* * * * * * *

(g)(1) An applicable individual account plan which holds
employer securities that are readily tradable on an established
securities market may not acquire or hold any employer
securities with respect to which there is any restriction on
divestment by a participant or beneficiary, unless the plan
provides that the restriction--
(A) is not applicable on or after a date which is not
later than the date on which the participant has
completed 3 years of service (as defined in section
203(b)(2)) with the employer or (if the plan so
provides) 3 years of participation (as defined in
section 204(b)(4)) in the plan, or
(B) is not applicable, with respect to any employer
security allocated to the individual account during any
calendar quarter, after a date which is not later than
3 years after the end of such quarter.
(2)(A) For purposes of paragraph (1), the term ``restriction
on divestment'' includes--
(i) any failure to offer a broad range of investment
alternatives (as may be determined by the Secretary) to
which a participant or beneficiary may direct the
proceeds from the divestment of employer securities,
and
(ii) any restriction on the ability of a participant
or beneficiary to choose from a broad range of
otherwise available investment options (as may be
determined by the Secretary) to which such proceeds may
be so directed, other than a restriction limiting such
ability to so choose to a periodic, reasonable
opportunity to so choose occurring no less frequently
than on a quarterly basis.

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 continued availability
of required information on request for 1 year.--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), but only if the advice is
provided through a trust department of
the bank or similar financial
institution 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), or (6)] (5), (6), (7),
or (8) of subsection (c) or under subsection (i) or
(l);

* * * * * * *

(c)(1) * * *

* * * * * * *

(7) The Secretary may assess a civil penalty against any plan
administrator of up to $1,000 a day from the date of such plan
administrator's failure or refusal to provide participants or
beneficiaries with a benefit statement on at least a quarterly
basis in accordance with section 105(a)(1)(A)(iii).
(8) The Secretary may assess a civil penalty against a plan
administrator of up to $100 a day from the date of the plan
administrator's failure or refusal to provide notice to
participants and beneficiaries in accordance with section
101(i). For purposes of this paragraph, each violation with
respect to any single participant or beneficiary, shall be
treated as a separate violation.
[(7)] (9) The Secretary and the Secretary of Health and Human
Services shall maintain such ongoing consultation as may be
necessary and appropriate to coordinate enforcement under this
subsection with enforcement under section 1144(c)(8) of the
Social Security Act.

* * * * * * *

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] 2002, 2006, and 2010. Such a National Summit
shall--
(1) * * *
(b) Planning and Direction.--The National Summit shall be
planned and conducted under the direction of the Secretary, in
consultation with, and with the assistance of, the heads of
such other Federal departments and agencies as the President
may designate. Such assistance may include the assignment of
personnel. The Secretary shall, in planning and conducting the
National Summit, consult with the congressional leaders
specified in subsection (e)(2). The Secretary shall also, in
carrying out the Secretary's duties under this subsection,
consult and coordinate with at least one organization made up
of private sector businesses and associations partnered with
Government entities to promote long-term financial security in
retirement through savings. To effectuate the purposes of this
paragraph, the Secretary may enter into a cooperative
agreement, pursuant to the Federal Grant and Cooperative
Agreement Act of 1977 (31 U.S.C. 6301 et seq.), with any
appropriate, qualified entity.

* * * * * * *

(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) In general.--[There shall be not more
than 200 additional participants.] The
participants in the National Summit shall also
include additional participants appointed under
this subparagraph. Of such additional
participants--
(i) [one-half shall be appointed by
the President,] not more than 100
participants shall be appointed under
this clause by the President, in
consultation with the elected leaders
of the President's party in Congress
(either the Speaker of the House of
Representatives or the Minority Leader
of the House of Representatives, and
either the Majority Leader or the
Minority Leader of the Senate; and
(ii) [one-half shall be appointed by
the elected leaders of Congress] not
more than 100 participants shall be
appointed under this clause by the
elected leaders of Congress of the
party to which the President does not
belong (one-half of that allotment to
be appointed by either the Speaker of
the House of Representatives or the
Minority Leader of the House of
Representatives, and one-half of that
allotment to be appointed by either the
Majority Leader or the Minority Leader
of the Senate).
(B) Presidential authority for additional
appointments.--The President, in consultation
with the elected leaders of Congress referred
to in subsection (a), may appoint under this
subparagraph additional participants to the
National Summit. The number of such additional
participants appointed under this subparagraph
may not exceed the lesser of 3 percent of the
total number of all additional participants
appointed under this paragraph, or 10. Such
additional participants shall be appointed from
persons nominated by the organization referred
to in subsection (b)(2) which is made up of
private sector businesses and associations
partnered with Government entities to promote
long term financial security in retirement
through savings and with which the Secretary is
required thereunder to consult and cooperate
and shall not be Federal, State, or local
government employees.
[(B)] (C) Appointment requirements.--The
additional participants described in
subparagraph (A) shall be--
(i) appointed not later than [January
31, 1998] 3 months before the convening
of each summit;
(ii) selected without regard to
political affiliation or past partisan
activity; and
(iii) representative of the diversity
of thought in the fields of employee
benefits and retirement income savings.

* * * * * * *

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

* * * * * * *

(C) make available for public comment, no
later than 90 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;

* * * * * * *

(g) Report.--The Secretary shall prepare a report, in
consultation with the congressional leaders specified in
subsection (e)(2), describing the activities of the National
Summit and shall submit the report to the President, the
Speaker and Minority Leader of the House of Representatives,
the Majority and Minority Leaders of the Senate, and the chief
executive officers of the States not later than 90 days after
the date on which the National Summit is adjourned.

* * * * * * *

(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, 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 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)(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) * * *

* * * * * * *

(7) when there is a distribution under the plan to a
participant who is a substantial owner as defined in
section [4022(b)(6)] 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)] 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 a missing participant's benefits 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 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 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 missing participants, and
(ii) has not provided for the
transfer of assets to pay the benefits
of all missing participants 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 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) * * *

* * * * * * *

(28) Additional Requirements Relating to Employee
Stock Ownership Plans.--
(A) * * *
(B) Diversification of Investments.--
(i) * * *
(v) Exception.--This subparagraph
shall not apply to an applicable
defined contribution plan (as defined
in paragraph (35)(B)(i)).

* * * * * * *

(35) Limitations on restrictions under applicable
defined contribution plans on investments in employer
securities.--
(A) In general.--A trust forming a part of an
applicable defined contribution plan shall not
constitute a qualified trust under this
subsection if the plan acquires or holds any
employer securities with respect to which there
is any restriction on divestment by a
participant or beneficiary on or after the date
on which the participant has completed 3 years
of participation (as defined in section
411(b)(4)) under the plan or (if the plan so
provides) 3 years of service (as defined in
section 411(a)(5)) with the employer.
(B) Definitions.--For purposes of
subparagraph (A)--
(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 (as defined in section
4975(e)(7)) unless there are any
contributions to such plan (or earnings
thereunder) held within such plan that
are subject to subsections (k)(3) or
(m)(2).
(ii) Restriction on divestment.--The
term ``restriction on divestment''
includes--
(I) any failure to offer at
least 3 diversified investment
options in which a participant
or beneficiary may direct the
proceeds from the divestment of
employer securities, and
(II) any restriction on the
ability of a participant or
beneficiary to choose from all
otherwise available investment
options in which such proceeds
may be so directed.

* * * * * * *

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), 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
advisor in connection with the
provision of investment advice
by the fiduciary adviser, and
(V) that the adviser is
acting as a fiduciary of the
plan in connection with the
provision of the advice,
(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),
(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).

* * * * * * *

----------

SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934

DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS

Sec. 16. (a) * * *

* * * * * * *

(h) Insider Trades During Pension Plan Suspension Periods
Prohibited.--
(1) Prohibition.--It shall be unlawful for any such
beneficial owner, director, or officer of an issuer,
directly or indirectly, to purchase (or otherwise
acquire) or sell (or otherwise transfer) any equity
security of such issuer (other than an exempted
security), during any pension plan suspension period
with respect to such equity security.
(2) Remedy.--Any profit realized by such beneficial
owner, director, or officer from any purchase (or other
acquisition) or sale (or other transfer) in violation
of this subsection shall inure to and be recoverable by
the issuer irrespective of any intention on the part of
such beneficial owner, director, or officer in entering
into the transaction.
(3) Rulemaking permitted.--The Commission may issue
rules to clarify the application of this subsection, to
ensure adequate notice to all persons affected by this
subsection, and to prevent evasion thereof.
(4) Definitions.--For purposes of this subsection--
(A) Pension plan suspension period.--The term
``pension plan suspension period'' means, with
respect to an equity security, any period
during which the ability of a participant or
beneficiary under an applicable individual
account plan maintained by the issuer to direct
the investment of assets in his or her
individual account away from such equity
security is suspended by the issuer or a
fiduciary of the plan. Such term does not
include any limitation or restriction that may
govern the frequency of transfers between
investment vehicles to the extent such
limitation and restriction is disclosed to
participants and beneficiaries through the
summary plan description or materials
describing specific investment alternatives
under the plan.
(B) Applicable individual account plan.--The
term ``applicable individual account plan'' has
the meaning provided such term in section 3(42)
of the Employee Retirement Income Security Act
of 1974.
----------

SECTION 769 OF THE RETIREMENT PROTECTION ACT OF 1994

SEC. 769. SPECIAL FUNDING RULES FOR CERTAIN PLANS.

(a) * * *

* * * * * * *

(C) is sponsored by a company that is engaged
primarily in the interurban or interstate
passenger bus service,
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 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 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.

* * * * * * *

MINORITY VIEWS

introduction

Employees at Enron and Global Crossing suffered a
devastating blow when their life savings were decimated by the
misconduct and excess of company officials, and by pension
trustees who knew the company was in peril, but failed to act.
The Enron scandal has exposed weaknesses in our pension
laws that allow runaway executive pensions, lock employees out
of decisions affecting their retirement nest eggs, and fail to
hold pension plan officials accountable when there is
wrongdoing. We believe Congress must take urgent steps to
restore confidence in the pension system for millions of
Americans who are asking themselves, can this happen again?
Unfortunately, the Majority's bill fails to include basic
reforms that are necessary to ensure that there are no more
Enrons, despite repeated efforts by Democratic members to
strengthen employee protections. The Wall Street Journal aptly
summarized the committee markup:

The Republican-led panel rejected a dozen Democratic
amendments that would have offered workers greater
protections and imposed stricter rules on employer-
sponsors of 401(k) and other defined-contribution
plans.\1\
---------------------------------------------------------------------------
\1\ ``House Committee Approves Plan Aimed at Safeguarding
Pensions,'' Wall Street Journal; March 21, 2002.

Enron employees lost over $1 billion dollars of their
retirement nest eggs through a quagmire of conflicts of
interest and self-dealing by company officials. Rather than
slamming the door on rules that allow executives to dump
company stock and gain excessive corporate perks, this bill:
(1) fails to give employees a choice between
investment advice offered by an independent advisor or
advice offered by an advisor with potential conflicts
of interest that could further jeopardize employee
retirement savings;
(2) fails to allow employees to fully and timely
diversify their company matched stock contributions;
(3) fails to allow employees to participate in
safeguarding their pensions through participation on
pension trustee boards;
(4) fails to alert employees when company officials
are dumping stock; and
(5) fails to hold plan officials accountable if they
violate the law.

BACKGROUND

Enron Corporation (Enron), a Houston based company was
formed in 1985. Initially, Enron profited by buying electricity
from generators and selling it to the public utilities.
However, with the deregulation of electrical power markets,
Enron expanded into an energy broker, trading electricity and
other commodities. By the early 1990s, Enron became a major
energy trading company. Enron entered contracts with both the
buyer and the seller and made money on the undisclosed
difference between the selling price and the buying price of
various commodities.
In addition to its commodities business, Enron has another
division called Assets and Investments that involves building
power plants around the world, operating them, selling off
pieces of them, investing in debt and equity securities of
energy and communications-related businesses, and similar
transactions. As its services became more complex and its stock
soared, Enron created various partnerships. It appears that
Enron used these partnerships to routinely shift debts off its
books, resulting in gross over-valuing of Enron stock.
By mid-2001, Enron's complex partnerships were beginning to
unravel. On October 16, 2001, Enron announced a $618 million
loss for the third quarter and the value of its stock plunged.
On October 31, 2001, Enron announced an SEC investigation of
the company. Just a few days later on November 8, 2001, Enron
announced that it had overstated earnings over the past four
years by $586 million and that it was responsible for up to $3
billion in obligations to various partnerships. With this
announcement, the bottom fell out of the value of Enron's
stock. On December 2, 2001, Enron filed Chapter 11 bankruptcy
in federal court in New York.
Enron encouraged employees to invest in the company, both
generally and through their pension plans, and matched their
401(k) savings plan contributions with company stock. The
savings plan was the employee's primary retirement plan as
Enron had previously converted its once sound defined benefit
plan, first to a floor-offset plan tied to employer stock, and
then to a cash balanced plan. As of December 31, 2001,
approximately 60% of the assets in Enron's 401(k) plan were
invested in Enron stock. Nearly 90% of the Enron stock in the
savings plan resulted from employee contributions. The fact
that Enron's stock represented a majority of total plan assets
is not unusual. A recent survey found that the concentration of
employer stock in a large number of 401(k) plans is greater
than 60% of total plan assets (appendix attachment 1). Many
prominent economist and academics contend that where the
company matches employee contributions with employer stock,
employees are implicitly encouraged to, and tend to, invest
more of their own contributions in company stock.
Enron matched 50% of employee's contributions with Enron
stock. Employees were required to hold those matched
contributions in the form of company stock until age 50. Under
Enron's plan, only upon reaching age 50 could employees
diversify their shares and invest in one or more of the other
investment options. Once again, Enron's policy was similar to
policies in other companies. A recent Hewitt Associates survey
shows that 56% of the 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 with employer
stock, only 15% allow their employees to sell the stock
immediately, while 19% do not permit diversification at any
time.
In addition, Enron, through pension plan materials, emails,
and employee meetings, encouraged employees to invest as much
of their pension monies as possible in company stock. At a
December 1999, all-employee meeting, Cindy Olson, vice
president for human resources and a pension plan fiduciary, was
asked by an employee if 100% of employee contributions should
be invested in employer stock. Ms. Olson's answer was
``absolutely.'' Furthermore, in emails dated August 14 and
August 21, 2001, Enron CEO Key Lay wrote to employees,

* * * I want to assure you that I have never felt
better about the prospects for the company * * * One of
my top priorities will be to restore a significant
amount of the stock value we have lost as soon as
possible. Our performance has never been stronger * *
*'' and ``* * *one of my highest priorities is to
restore investor confidence in Enron. This should
result in a significantly higher stock price * * * I
ask your continued help and support as we work together
to achieve this goal.

From October 26 to November 13, 2001, Enron barred any
retirement plan transactions by employees; effectively
requiring employees to hold on to Enron stock while it was
losing value. Enron stock fell from $15.40 at the start of the
lockdown to $9.98 at the end. Envon contends that it was simply
changing plan administrators and the restrictions had nothing
to do with the fact that Enron stock was falling. However,
Enron materials and emails about the lockdown were unclear as
to exactly when the lockdown would begin and end. Employees
asked Enron pension plan administrators to delay the lockdown,
but the company declined to do so.

Lessons Learned From Enron

The Enron Scandal has brought to light practices common
among pension plans that must be addressed as part of any real
reform. Some of these issues include:
Failure of Savings Plans to Permit Diversification.--Many
companies that make their pension contributions in employer
stock place onerous restrictions on the ability of employees to
rescue their savings if the company is failing, or diversify
these contributions, once vested, into other plan investment
options. According to the Employee Benefit Research Institute
(EBRI), less than 3% of all 401(k) pension plans hold employer
stock, but they are many of the largest U.S. companies;
covering 6% of all pension plan participants and 10% of all
pension plan assets. According to Hewitt Associates, a survey
of Fortune 500 companies revealed that approximately 85% of
employers with employer stock in their pension plans restrict
employee ability to invest freely. A survey reported by the
Congressional Research Service shows many 401(k) plans
dangerously over loaded with investments in company stock; such
as Proctor and Gamble, Home Depot, and Pfizer, whose company
stock accounts for over 80% of their 401(k) plan. Several of
these companies do not provide a guarantee defined benefit
pension plan to their employees, leaving them completely
vulnerable to the company's solvency and profitability.
Failure of Pension Plans to Give Employees a Voice in Their
Financial Future.--Enron stacked its pension board with
management executives to act as fiduciaries to the pension
plan. These top-level executives--who has no training or
experience as pension fiduciaries--took no action to act
prudently or in the interests of the pension plan participants.
Key fiduciaries often missed pension plan administrative
committee meetings, never considered the prudence of employer
stock as a plan investment, ignored warnings of company
financial problems, and never obtained timely legal advice to
protect the pension plan participants. These trustees
consistently failed to take actions necessary to protect the
irreplaceable life savings of Enron participants.
Failure of Plans to Provide Honest Information and
Advice.--Research shows that generally, companies: fail to
provide employees with access to meaningful and understandable
independent financial advice; fail to warn employees of the
risks of holding excessive employer stock; fail to clearly
notify employee's of periods in which they are limited from
changing investment options; and fail to inform employees of
the employer's financial status and that of its stock.
Failure to Alert Employees When Executives are Dumping
Company Stock.--Companies do not alert employees when top
company officials are dumping company stock. Company executives
at Enron and Global Crossing were dumping hundreds of millions
of dollars of company stock as their companies were spiraling
into financial disaster. Additionally, company executives were
advising and recommending that employees continue to hold and
buy additional company stock in their pension plan, while those
same executives were selling their own stock. (appendix
attachment 2)
Failure of Current Pension Rules to Provide Fairness
Between Executives and Rank-and-File Employees.--While
thousands of Enron and Global Crossing employees were laid
off--and in the case of Enron, locked out of their savings
plans as the company was failing--company executives were
protected by a variety of corporate perks and company funded
executive pension compensation arrangements. Loopholes in the
Employee Retirement Income Security Act (ERISA) and the
Internal Revenue Code have permitted companies to maneuver to
safeguard executive pensions and perks, while regular employees
are left to fend for themselves if the company fails.
Failure of Current Pension Laws to Provide Relief for
Employees Who Lost Their Nest Egg.--As a result of likely
corporate misconduct by Enron executives and its auditors, over
5,000 hard-working employees have lost their jobs and many of
the approximately 20,000 employees, retirees, and their
families have lost the bulk of their retirement savings.
Because of ERISA's flawed remedy provisions and bankruptcy law
weaknesses, Enron pension plan participants stand last in line
to recover $1 billion in plan losses--and are left with a
bankrupt company that has only $85 million in fiduciary
insurance.

THE COMMITTEE PASSED BILL

Bad Investment Advice for Employees

The bill reported out of Committee 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. As Jane Bryant
Quinn aptly stated in a March 4, 2002, Newseek column: ``Post-
Enron, how can anyone even think of creating such conflicts of
interest? You might as well turn the system over to an ice-
skating judge.'' (referring to the ice-skating judging
impartially scandal at the 2002 Winter Olympics.) (appendix
attachment 3)
The Committee bill eliminates current ERISA rules that
prohibit conflicts of interest that protect plan participants
from self-interested investment advisors. The bill would permit
investment advisers to recommend their firm'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 Enron
employer stock; which advice 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 individuals 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 their
interests of pension plan participants because if conflicted
with their corporate interests.
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 is those
companies who wish 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 conducted by Mercer of plan
sponsors found that 33% of firms offer 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 &
Administrative (IOMA) study of 401(k) plan sponsors found that
89% of employers/sponsors did not provide advice because they
were concerned with fidicuiary 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 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, ``H.R. 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
qualification and disclosure were established * * * ''\2\
---------------------------------------------------------------------------
\2\ March 18, 2002, Letter from Office of Inspector General, U.S.
Department of Labor to Representative George Miller.
---------------------------------------------------------------------------
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 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, then it would 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 guaranties 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 be 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 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 plan. 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 bar them for 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 done 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 Bernartzi 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. Current SEC rules
permit inside stock sale disclosures to lag anywhere from 40
days to a year, depending on the nature of the disclosure. Such
information is not readily available to the public. 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 and was
able to avoid prompt disclosure--none of the 350 transactions
required timely notice.
The Committee bill fails to address this issue.
Furthermore, the Majority defeated a Democratic Amendment that
requires insiders to immediately report stock sales to the
pension trustees. The trustees would then be required to notify
plan participants of any stock sale over $100,000 (or series of
sales over $100,000) within only 3 business days. The amendment
was designed to complement new SEC rules being developed 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, Todd Lindholm, missed at least eight
trustee meetings in 2001. Mr. Lindholm signed the approval
sheets for Enron's LJMI partnership, one of a number of
investment schemes to hid 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\
---------------------------------------------------------------------------
\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 Executives
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 to
not only cash out millions in company stock, but also protected
themselves through a number of executives 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 pensions
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 $482,000 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
states: ``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 employers 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 get 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 retirement 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 received their benefits. Furthermore, many courts will
not award them attorneys' 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 to 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:
Direct Reporting to the Department of Labor in Cases of
Fraud or Abuse.--For over a decade the Inspector General of the
Labor Department has recommended Urgent Legislative Action that
would require pension plan accountants to report suspected
pension fraud or abuse directly to the DOL. The current system
provides the Secretary of Labor with no information regarding
irregularities by pension plans and leads to after-the-fact
enforcement actions by the Secretary where only a fraction of
the money is recovered.\6\
---------------------------------------------------------------------------
\6\ March 18, 2002, Letter from Office of Inspector General, U.S.
Department of Labor to Representative George Miller.
---------------------------------------------------------------------------
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.
Strong Prohibitions Against Providing False and Misleading
Information to Plan Participants.--Employees should be
protected against false and misleading information provided by
pension plan officials. The Committee bill requires quarterly
statements, but does nothing to prevent executives from
misleading employees, nor does it require executives to notify
employees of critical decisions affecting the performance of
the company.
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
waiver their rights to file ERISA claims in order to receive
severance benefits. Recently, their have been a spate of court
cases in which companies attempted to deny workers their
statutory legal rights through boilerplant contract waiver
language. ERISA never intends 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.

appendix

Item #1

EMPLOYER STOCK IN SELECTED DEFINED CONTRIBUTION RETIREMENT PLANS
--------------------------------------------------------------------------------------------------------------------------------------------------------
Company Closing stock price at the end of
stock as a --------------------------------------------------
percentage Total
Company name of defined Does company have a defined percentage
contribution benefit plan? 1996 1997 1998 1999 2000 2001 change
plan's
assets
--------------------------------------------------------------------------------------------------------------------------------------------------------
Procter & Gamble............................... 91.5 No......................... 52.89 77.97 89.47 107.72 76.60 78.75 48.9
Anheuser-Busch................................. 81.6 Yes........................ 17.49 19.99 31.34 34.54 44.81 45.03 157.5
Coca-Cola...................................... 81.0 Yes........................ 49.60 64.23 65.14 57.03 60.40 47.15 -4.9
Abbott Laboratories............................ 80.0 Yes........................ 23.6 31.10 46.57 34.54 47.41 55.54 140.8
General Electric............................... 77.4 Yes........................ 16.29 24.08 33.62 51.20 46.94 39.72 143.8
William Wrigley, Jr............................ 75.0 Yes........................ 24.97 37.21 42.86 40.21 47.35 51.18 105.0
Pfizer......................................... 74.8 Yes........................ 13.28 24.09 41.16 31.51 45.43 39.72 199.1
Home Depot..................................... 72.0 No......................... 25.78 29.68 54.09 83.93 47.08 49.41 91.7
BB&T (Branch Banking & Trust).................. 69.6 Yes........................ 15.68 30.16 37.72 25.53 36.33 36.11 130.3
Texas Instruments.............................. 69.0 Yes........................ 7.77 11.03 21.27 48.19 47.27 27.98 260.1
Duke Energy.................................... 67.9 Yes........................ 18.06 23.70 29.14 23.28 41.94 38.98 115.8
Target......................................... 66.0 Yes........................ 9.29 16.51 26.63 36.42 31.97 40.99 341.2
Textron........................................ 65.0 Yes........................ 43.67 57.04 72.08 74.09 45.20 41.13 -5.8
Reliant Energy................................. 64.5 Yes........................ 14.75 20.38 27.19 19.50 41.44 26.15 77.3
Kroger......................................... 63.6 Yes........................ 11.09 17.94 27.28 16.00 24.63 24.60 121.8
Southern Company............................... 62.8 Yes........................ 1.83 6.38 10.91 6.69 17.78 25.02 1,267.2
ExxonMobil..................................... 62.0 Yes........................ 22.67 29.50 34.50 40.08 43.47 37.84 66.9
Household International........................ 61.4 Yes........................ 29.02 41.34 37.20 35.49 53.96 57.72 98.9
Sherwin-Williams............................... 59.1 Yes........................ 26.65 25.56 27.63 19.74 25.59 27.36 2.7
BellSouth...................................... 57.9 Yes........................ 19.11 27.02 23.80 45.10 39.99 37.96 98.6
Merck.......................................... 57.5 Yes........................ 35.70 49.96 71.70 64.20 91.56 58.10 62.7
Williams....................................... 57.0 Yes........................ 16.97 13.01 29.16 29.13 39.11 25.32 49.2
McDonald's..................................... 56.8 No......................... 22.47 23.66 38.19 39.87 33.78 26.47 17.8
TXU (Texas Utilities).......................... 56.3 Yes........................ 28.15 31.55 38.37 29.56 40.71 45.95 63.2
Dell Computer.................................. 53.4 No......................... 1.66 10.50 36.59 51.00 17.44 27.18 1,537.3
Ford Motor Company............................. 5.2 Yes........................ 30.78 47.09 57.24 51.86 22.29 15.62 -49.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Stock prices have been adjusted for stock splits and dividends. From 12/31/96 to 12/31/01, the total return on the S&P 500 was 65.7%.
Source: Company filings of S.E.C. Forms 10-K and 11-K and company spokespersons for retirement plans; finance.yahoo.com for stock prices.

Item #2

Selling High

J. Clifford Baxter was one of 13 Enron executives or
directors who sold shares worth more than $30 million between
October 1998 and November 2001.

------------------------------------------------------------------------
Stock
Eron official Title (most recent) proceeds
(millions)
------------------------------------------------------------------------
Lou Pai............................. Chairman, Enron $353.7
Accelerator.
Kenneth Lay......................... Chairman.............. 101.3
Rebecca Mark-Jusbasche.............. Director.............. 79.5
Ken Harrison........................ CEO, Portland General 75.2
Electric *.
Kenneth Rice........................ Chairman, Enron 72.8
Broadband.
Jeffrey Skilling.................... Director (former CEO). 66.9
Robert Belfer....................... Director.............. 51.1
Mark Frevert........................ Chairman, Enron 50.3
Wholesale.
Stanley Horton...................... Chairman, Enron 45.5
Transportation.
Joseph Sutton....................... Vice Chairman......... 40.1
J. Clifford Baxter.................. Vice Chairman......... 35.2
Joseph Hirko........................ ECO, Enron Broadband.. 35.2
Andrew Fastow....................... Chief financial 30.5
officer.
------------------------------------------------------------------------
* Subsidiary.
Source: Court documents.

Item #3

[From Newsweek, Mar. 4, 2002]

Help! I'm Scared For My 401(k)

Enron shows that employees need investment advice. It's
time for companies to step up.

(By Jane Bryant Quinn)

At the end of the day, what would really help employees
manage their 401(k)s? Good investment advice, that's what. Your
company may distribute an educational booklet that shows pretty
pie charts and defines words like ``diversification.'' But
after all the reading is done--after you decide whether you're
a conservative, moderate or aggressive investor--two questions
remain: How should you invest your money and should you own
company stock?
Post-Enron, a laser beam has been turned on America's
investing skills. What we see isn't pretty. By now the public
has read a ton of stories about diversification, yet most
people still don't get it. Even if you own mutual funds, you
aren't diversified if they focus on a single industry (remember
when we were all tech, all the time?).
Most corporations think that your 401(k) is entirely your
problem. If you make mistakes--well, better luck in the next
life. But this life is not a dress rehearsal. Most top
executives get company-paid advice to help them manage their
multimillions. Why shouldn't the grunts with just 401(k)s get a
few suggestions, too?
At some companies, they do. These include such well-known
names as Merck, Xerox, 3M, Hewlett-Packard, Continental
Airlines, Mattel and H&R Block. But plenty of CEOs won't even
consider offering advice because they're afraid you'll sue them
if it doesn't work out. Congress could end that worry by making
just one little change in the pension law. But when lawmakers
tinker, trouble starts. They're going for bigger changes that
help the industry, not you.
I'll get to that in a moment. First let me tell you about
the galloping movement by good guys to offer 401(k) advice.
Three online advisory firms dominate this business today:
Financial Engines in Palo Alto, Calif., offered directly by 600
employee plans; mPower in San Francisco, with 250 plans, and
Morningstar's ClearFuture in Chicago, with 400 plans. All three
serve many other corporate and public-sector plans through
financial institutions such as the Vanguard Group (Financial
Engines) and T. Rowe Price (ClearFuture).
Computerized online advisers work roughly--very roughly--
the same way. Employees log on to the Web site, supply some
personal and financial information, then enter the income
they're aiming for when they retire. The program advises them
on which specific funds in their 401(k) will serve them best.
Markets, of course, never work out the way we think.
Financial Engines was the first to explain this kind of risk to
investors. Its program looks at your savings rate, your
investments and the years you have left to work. Then it
calculates your odds of retiring with the income you want. You
might be startled to learn that your plan has only a 40 percent
chance of success--or, badly, a 60 percent chance of falling
short. To reduce that risk, you'd have to save more and invest
it less aggressively. Alternatively, you might decide to plan
on a lower income at 65.
mPower takes the same approach, although it's not as clear
about explaining risk. ClearFuture shows you 21 possible mixes
of stocks and bonds, aggressive to conservative. It picks funds
from your 401(k) to match the level of risk you choose.
I ran two simple all-stock portfolios through all three
systems. Each made different suggestions--no surprise there.
But all were diversified, which is the first step to wisdom.
Two added bonds. All showed that my sample employee wasn't
saving enough.
I also checked how the three programs treated a heavy
investment in your company's stock. mPower usually tells you to
sell the entire position, because a single stock is always
riskier than a diversified fund. ClearFuture suggests that you
put no more than 10 percent of your money there. Financial
Engines shows you how various positions in company stock raise
or lower your total amount of investment risk. In their
separate voices, they're all saying ``beware.''
By the way, you can also use these services independently.
Try financialengines.com ($39.95 per quarter for advice);
mPower on MSN Money ($20 a year), or ClearFuture at
morningstar.com--$30 today, but starting in early April sold
only as part of a $109 package.
By now, you're probably asking the same question I did:
with so many companies contracting for 401(k) advice, what's
with those CEOs who say they don't dare in case they're sued?
It comes down to how they read the pension law. The Department
of Labor, which administers the law, has issued advisory
opinions encouraging advice. ``It's perfectly legal,'' says
former DOL official Olena Berg Lacy. But Washington attorney
Richard McHugh says that most of his clients won't provide it
unless the Congress specifically says OK.
Fine--let's do it. But alas, the industry sees this as its
chance to chip away at some of the law's consumer-protection
rules. For example, the DOL has always insisted that companies
offer independent advice. But the House just passed a contrary
bill sponsored by Ohio Republican John Boehner. It lets the
financial-service firms that provide your 401(k)--such as
brokers, fund groups and insurers--advise you on whether to buy
their own funds and even which ones.
Post-Enron, how can anyone even think of creating such
conflicts of interest? You might as well turn the system over
to an ice-skating judge. Boehner helped his bill sweep through
by claiming, wrongly, that current law ``prohibits'' employers
from hiring 401(k) advisers. The president backs Boehner. Ann
Combs, DOL's assistant secretary for pension and welfare
benefits, says she's sure that the conflicts could be managed,
with disclosure. (Why don't I feel comforted?)
In the Senate, a bill from New Mexico Democrat Jeff
Bingaman would end the time-tested rule that employers be
liable for choosing advisers ``prudently'' and monitoring what
they do. To encourage more 401(k) advice, he'd create less
encompassing liability rules. But it's risky to be loosening
this standard now.
There's one last reason companies might not want to bother
with 401(k) advice, says Gerry O'Connor, of the Chicago-based
consultant Spectrem Group. Employees say they want it but may
not use it when it's there. Companies have to believe in it and
promote it to make it work. And you have to step up to the
plate yourself.

George Miller.
Major R. Owens.
Patsy T. Mink.
Lynn Woolsey.
Ruben Hinojosa.
John F. Tierney.
Loretta Sanchez.
Dennis J. Kucinich.
Rush Holt.
Susan Davis.
Dale E. Kildee.
Donald M. Payne.
Robert E. Andrews.
Bobby Scott.
Lynn N. Rivers.
Ron Kind.
Harold E. Ford, Jr.
Hilda L. Solis.
Betty McCollum.