Details of the Retirement Security Advice Bill Released, June 2001

Washington, DC, June 25, 2001 - On June 21, 2001, Rep. John Boehner (R-OH), Chairman of the House Committee on Education and the Workforce, introduced H.R. 2269, the "Retirement Security Advice Act of 2001." The bill was introduced with 18 cosponsors and is substantively identical to H.R. 4747, the investment advice bill introduced by Boehner last year and approved by the House Subcommittee on Employer-Employee Relations in July 2000. According to a committee press release, the bill would "close the emerging `advice gap' that many workers face in deciding how to invest their vital retirement savings."

The bill would provide a statutory exemption from ERISA's prohibited transaction rules for the provision of investment advice and related transactions. Under the exemption, "fiduciary advisers," who by definition would be ERISA fiduciaries, would be permitted to provide investment advice to employee benefit plans and participants and beneficiaries of such plans.

The Institute submitted testimony in support of last year's bill and released a statement on this year's bill.

the provision of investment advice by a fiduciary adviser to an employee benefit plan or to a participant or beneficiary of an employee benefit plan;
the sale, acquisition, or holding of securities or other property pursuant to such investment advice; and
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 such investment advice.

The bill includes a parallel exemption under the Internal Revenue Code from the code's prohibited transaction rules.

Definition of "Fiduciary Adviser"
The bill would define "fiduciary adviser" as "a person who is a fiduciary of the plan by reason of the provision of investment advice" and who qualifies as: a registered investment adviser under the Investment Advisers Act of 1940 or applicable state law; a bank or similar financial institution; a qualified insurance company; a broker or dealer registered under the Securities Exchange Act of 1934; an affiliate of these qualifying institutions; or an employee, agent, or registered representative of the qualifying institutions.

Exemption Conditions
To qualify under the statutory exemption, the fiduciary adviser would be required to satisfy the following conditions:

Disclosure Requirements - At the time of or before the initial provision of investment advice, the fiduciary adviser must provide to the recipient of the advice "a clear and conspicuous description" of:
all fees or other compensation relating to such 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 such advice or the acquisition or sale of securities or other property;
any material affiliated or contractual relationship of the adviser or its affiliates in such security or other property;
any limitation on the scope of the investment advice to be provided by the fiduciary adviser with respect to any such sale or acquisition; and
the types of services offered by the fiduciary adviser in connection with the provision of investment advice.

This description may be provided in writing, including by means of electronic communication. The fiduciary adviser would be required to maintain the information and to furnish the information, upon request and without charge, to the recipient of such advice. The fiduciary adviser would continue to be subject to appropriate disclosure requirements in accordance with all applicable securities laws.

Direction of Advice Recipient - Any sale or acquisition of a security or other property relating to the advice must occur solely at the direction of the recipient of such advice.
Reasonable Compensation - The compensation received by the fiduciary adviser and its affiliates in connection with such acquisition or sale must be reasonable.
Arm's Length Transaction - The terms of the acquisition or sale must be at least as favorable to such plan as an arm's length transaction would be.
Recordkeeping Requirement - The fiduciary adviser must maintain for a period of at least six years after the provision of advice any records necessary for determining whether the requirements of the statutory exemption were met.

Clarification of Employer Role
The bill would clarify the extent of a plan sponsor's responsibilities under ERISA if it engages a fiduciary adviser to provide advice under this exemption. Specifically, under the bill, a plan sponsor or other person who is a fiduciary would not be treated as failing to meet the fiduciary duty requirements of ERISA by arranging for the provision of investment advice if: (a) the advice is provided by a fiduciary adviser and (b) the terms of the arrangement require the fiduciary adviser to comply with the requirements of the statutory exemption. Furthermore, the plan sponsor or other fiduciary would have no duty to monitor the specific investment advice given by the fiduciary adviser to any particular recipient of such advice.

The plan sponsor or other person who is a fiduciary, however, would be responsible for the prudent selection and periodic review of a fiduciary adviser that it has engaged.

Use of Plan Assets
The bill would clarify that plan assets may be used to pay for reasonable expenses in providing investment advice referred to in ERISA.