HR 5337 — Retirement Proxy Protection Act

changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italics and existing law in which no change is 
proposed is shown in roman):

 EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

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TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

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Subtitle B--Regulatory Provisions

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Part 4--Fiduciary Responsibility

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 FIDUCIARY DUTIES

 Sec. 404. (a)(1) Subject to sections 403(c) and (d), 4042, 
and 4044, a fiduciary shall discharge his duties with respect 
to a plan solely in the interest of the participants and 
beneficiaries and--
 (A) for the exclusive purpose of:
 (i) providing benefits to participants and 
 their beneficiaries; and
 (ii) defraying reasonable expenses of 
 administering the plan;
 (B) with the care, skill, prudence, and diligence 
 under the circumstances then prevailing that a prudent 
 man acting in a like capacity and familiar with such 
 matters would use in the conduct of an enterprise of a 
 like character and with like aims;
 (C) by diversifying the investments of the plan so as 
 to minimize the risk of large losses, unless under the 
 circumstances it is clearly prudent not to do so; and
 (D) in accordance with the documents and instruments 
 governing the plan insofar as such documents and 
 instruments are consistent with the provisions of this 
 title and title IV.
 (2) In the case of an eligible individual account plan (as 
defined in section 407(d)(3)), the diversification requirement 
of paragraph (1)(C) and the prudence requirement (only to the 
extent that it requires diversification) of paragraph (1)(B) is 
not violated by acquisition or holding of qualifying employer 
real property or qualifying employer securities (as defined in 
section 407(d)(4) and (5)).
 (b) Except as authorized by the Secretary by regulation, no 
fiduciary may maintain the indicia of ownership of any assets 
of a plan outside the jurisdiction of the district courts of 
the United States.
 (c)(1)(A) In the case of a pension plan which provides for 
individual accounts and permits a participant or beneficiary to 
exercise control over assets in his account, if a participant 
or beneficiary exercises control over the assets in his account 
(as determined under regulations of the Secretary)--
 (i) such participant or beneficiary shall not be 
 deemed to be a fiduciary by reason of such exercise, 
 and
 (ii) no person who is otherwise a fiduciary shall be 
 liable under this part for any loss, or by reason of 
 any breach, which results from such participant's or 
 beneficiary's exercise of control, except that this 
 clause shall not apply in connection with such 
 participant or beneficiary for any blackout period 
 during which the ability of such participant or 
 beneficiary to direct the investment of the assets in 
 his or her account is suspended by a plan sponsor or 
 fiduciary.
 (B) If a person referred to in subparagraph (A)(ii) meets the 
requirements of this title in connection with authorizing and 
implementing the blackout period, any person who is otherwise a 
fiduciary shall not be liable under this title for any loss 
occurring during such period.
 (C) For purposes of this paragraph, the term ``blackout 
period'' has the meaning given such term by section 101(i)(7).
 (2) In the case of a simple retirement account 
 established pursuant to a qualified salary reduction 
 arrangement under section 408(p) of the Internal 
 Revenue Code of 1986, a participant or beneficiary 
 shall, for purposes of paragraph (1), be treated as 
 exercising control over the assets in the account upon 
 the earliest of--
 (A) an affirmative election among investment 
 options with respect to the initial investment 
 of any contribution,
 (B) a rollover to any other simple retirement 
 account or individual retirement plan, or
 (C) one year after the simple retirement 
 account is established.
 No reports, other than those required under section 
 101(g), shall be required with respect to a simple 
 retirement account established pursuant to such a 
 qualified salary reduction arrangement.
 (3) In the case of a pension plan which makes a 
 transfer to an individual retirement account or annuity 
 of a designated trustee or issuer under section 
 401(a)(31)(B) of the Internal Revenue Code of 1986, the 
 participant or beneficiary shall, for purposes of 
 paragraph (1), be treated as exercising control over 
 the assets in the account or annuity upon--
 (A) the earlier of--
 (i) a rollover of all or a portion of 
 the amount to another individual 
 retirement account or annuity; or
 (ii) one year after the transfer is 
 made; or
 (B) a transfer that is made in a manner 
 consistent with guidance provided by the 
 Secretary.
 (4)(A) In any case in which a qualified change in 
 investment options occurs in connection with an 
 individual account plan, a participant or beneficiary 
 shall not be treated for purposes of paragraph (1) as 
 not exercising control over the assets in his account 
 in connection with such change if the requirements of 
 subparagraph (C) are met in connection with such 
 change.
 (B) For purposes of subparagraph (A), the term 
 ``qualified change in investment options'' means, in 
 connection with an individual account plan, a change in 
 the investment options offered to the participant or 
 beneficiary under the terms of the plan, under which--
 (i) the account of the participant or 
 beneficiary is reallocated among one or more 
 remaining or new investment options which are 
 offered in lieu of one or more investment 
 options offered immediately prior to the 
 effective date of the change, and
 (ii) the stated characteristics of the 
 remaining or new investment options provided 
 under clause (i), including characteristics 
 relating to risk and rate of return, are, as of 
 immediately after the change, reasonably 
 similar to those of the existing investment 
 options as of immediately before the change.
 (C) The requirements of this subparagraph are met in 
 connection with a qualified change in investment 
 options if--
 (i) at least 30 days and no more than 60 days 
 prior to the effective date of the change, the 
 plan administrator furnishes written notice of 
 the change to the participants and 
 beneficiaries, including information comparing 
 the existing and new investment options and an 
 explanation that, in the absence of affirmative 
 investment instructions from the participant or 
 beneficiary to the contrary, the account of the 
 participant or beneficiary will be invested in 
 the manner described in subparagraph (B),
 (ii) the participant or beneficiary has not 
 provided to the plan administrator, in advance 
 of the effective date of the change, 
 affirmative investment instructions contrary to 
 the change, and
 (iii) the investments under the plan of the 
 participant or beneficiary as in effect 
 immediately prior to the effective date of the 
 change were the product of the exercise by such 
 participant or beneficiary of control over the 
 assets of the account within the meaning of 
 paragraph (1).
 (5) Default investment arrangements.--
 (A) In general.--For purposes of paragraph 
 (1), a participant or beneficiary in an 
 individual account plan meeting the notice 
 requirements of subparagraph (B) shall be 
 treated as exercising control over the assets 
 in the account with respect to the amount of 
 contributions and earnings which, in the 
 absence of an investment election by the 
 participant or beneficiary, are invested by the 
 plan in accordance with regulations prescribed 
 by the Secretary. The regulations under this 
 subparagraph shall provide guidance on the 
 appropriateness of designating default 
 investments that include a mix of asset classes 
 consistent with capital preservation or long-
 term capital appreciation, or a blend of both.
 (B) Notice requirements.--
 (i) In general.--The requirements of 
 this subparagraph are met if each 
 participant or beneficiary--
 (I) receives, within a 
 reasonable period of time 
 before each plan year, a notice 
 explaining the employee's right 
 under the plan to designate how 
 contributions and earnings will 
 be invested and explaining how, 
 in the absence of any 
 investment election by the 
 participant or beneficiary, 
 such contributions and earnings 
 will be invested, and
 (II) has a reasonable period 
 of time after receipt of such 
 notice and before the beginning 
 of the plan year to make such 
 designation.
 (ii) Form of notice.--The 
 requirements of clauses (i) and (ii) of 
 section 401(k)(12)(D) of the Internal 
 Revenue Code of 1986 shall apply with 
 respect to the notices described in 
 this subparagraph.
 (6) Default investment arrangements for a pension-
 linked emergency savings account.--For purposes of 
 paragraph (1), a participant in a pension-linked 
 emergency savings account shall be treated as 
 exercising control over the assets in the account with 
 respect to the amount of contributions and earnings 
 which are invested in accordance with section 
 801(c)(1)(A)(iii).
 (d)(1) If, in connection with the termination of a pension 
plan which is a single-employer plan, there is an election to 
establish or maintain a qualified replacement plan, or to 
increase benefits, as provided under section 4980(d) of the 
Internal Revenue Code of 1986, a fiduciary shall discharge the 
fiduciary's duties under this title and title IV in accordance 
with the following requirements:
 (A) In the case of a fiduciary of the terminated 
 plan, any requirement--
 (i) under section 4980(d)(2)(B) of such Code 
 with respect to the transfer of assets from the 
 terminated plan to a qualified replacement 
 plan, and
 (ii) under section 4980(d)(2)(B)(ii) or 
 4980(d)(3) of such Code with respect to any 
 increase in benefits under the terminated plan.
 (B) In the case of a fiduciary of a qualified 
 replacement plan, any requirement--
 (i) under section 4980(d)(2)(A) of such Code 
 with respect to participation in the qualified 
 replacement plan of active participants in the 
 terminated plan,
 (ii) under section 4980(d)(2)(B) of such Code 
 with respect to the receipt of assets from the 
 terminated plan, and
 (iii) under section 4980(d)(2)(C) of such 
 Code with respect to the allocation of assets 
 to participants of the qualified replacement 
 plan.
 (2) For purposes of this subsection--
 (A) any term used in this subsection which is also 
 used in section 4980(d) of the Internal Revenue Code of 
 1986 shall have the same meaning as when used in such 
 section, and
 (B) any reference in this subsection to the Internal 
 Revenue Code of 1986 shall be a reference to such Code 
 as in effect immediately after the enactment of the 
 Omnibus Budget Reconciliation Act of 1990.
 (e) Safe Harbor for Annuity Selection.--
 (1) In general.--With respect to the selection of an 
 insurer for a guaranteed retirement income contract, 
 the requirements of subsection (a)(1)(B) will be deemed 
 to be satisfied if a fiduciary--
 (A) engages in an objective, thorough, and 
 analytical search for the purpose of 
 identifying insurers from which to purchase 
 such contracts;
 (B) with respect to each insurer identified 
 under subparagraph (A)--
 (i) considers the financial 
 capability of such insurer to satisfy 
 its obligations under the guaranteed 
 retirement income contract; and
 (ii) considers the cost (including 
 fees and commissions) of the guaranteed 
 retirement income contract offered by 
 the insurer in relation to the benefits 
 and product features of the contract 
 and administrative services to be 
 provided under such contract; and
 (C) on the basis of such consideration, 
 concludes that--
 (i) at the time of the selection, the 
 insurer is financially capable of 
 satisfying its obligations under the 
 guaranteed retirement income contract; 
 and
 (ii) the relative cost of the 
 selected guaranteed retirement income 
 contract as described in subparagraph 
 (B)(ii) is reasonable.
 (2) Financial capability of the insurer.--A fiduciary 
 will be deemed to satisfy the requirements of 
 paragraphs (1)(B)(i) and (1)(C)(i) if--
 (A) the fiduciary obtains written 
 representations from the insurer that--
 (i) the insurer is licensed to offer 
 guaranteed retirement income contracts;
 (ii) the insurer, at the time of 
 selection and for each of the 
 immediately preceding 7 plan years--
 (I) operates under a 
 certificate of authority from 
 the insurance commissioner of 
 its domiciliary State which has 
 not been revoked or suspended;
 (II) has filed audited 
 financial statements in 
 accordance with the laws of its 
 domiciliary State under 
 applicable statutory accounting 
 principles;
 (III) maintains (and has 
 maintained) reserves which 
 satisfies all the statutory 
 requirements of all States 
 where the insurer does 
 business; and
 (IV) is not operating under 
 an order of supervision, 
 rehabilitation, or liquidation;
 (iii) the insurer undergoes, at least 
 every 5 years, a financial examination 
 (within the meaning of the law of its 
 domiciliary State) by the insurance 
 commissioner of the domiciliary State 
 (or representative, designee, or other 
 party approved by such commissioner); 
 and
 (iv) the insurer will notify the 
 fiduciary of any change in 
 circumstances occurring after the 
 provision of the representations in 
 clauses (i), (ii), and (iii) which 
 would preclude the insurer from making 
 such representations at the time of 
 issuance of the guaranteed retirement 
 income contract; and
 (B) after receiving such representations and 
 as of the time of selection, the fiduciary has 
 not received any notice described in 
 subparagraph (A)(iv) and is in possession of no 
 other information which would cause the 
 fiduciary to question the representations 
 provided.
 (3) No requirement to select lowest cost.--Nothing in 
 this subsection shall be construed to require a 
 fiduciary to select the lowest cost contract. A 
 fiduciary may consider the value of a contract, 
 including features and benefits of the contract and 
 attributes of the insurer (including, without 
 limitation, the insurer's financial strength) in 
 conjunction with the cost of the contract.
 (4) Time of selection.--
 (A) In general.--For purposes of this 
 subsection, the time of selection is--
 (i) the time that the insurer and the 
 contract are selected for distribution 
 of benefits to a specific participant 
 or beneficiary; or
 (ii) if the fiduciary periodically 
 reviews the continuing appropriateness 
 of the conclusion described in 
 paragraph (1)(C) with respect to a 
 selected insurer, taking into account 
 the considerations described in such 
 paragraph, the time that the insurer 
 and the contract are selected to 
 provide benefits at future dates to 
 participants or beneficiaries under the 
 plan.
 Nothing in the preceding sentence shall be 
 construed to require the fiduciary to review 
 the appropriateness of a selection after the 
 purchase of a contract for a participant or 
 beneficiary.
 (B) Periodic review.--A fiduciary will be 
 deemed to have conducted the periodic review 
 described in subparagraph (A)(ii) if the 
 fiduciary obtains the written representations 
 described in clauses (i), (ii), and (iii) of 
 paragraph (2)(A) from the insurer on an annual 
 basis, unless the fiduciary receives any notice 
 described in paragraph (2)(A)(iv) or otherwise 
 becomes aware of facts that would cause the 
 fiduciary to question such representations.
 (5) Limited liability.--A fiduciary which satisfies 
 the requirements of this subsection shall not be liable 
 following the distribution of any benefit, or the 
 investment by or on behalf of a participant or 
 beneficiary pursuant to the selected guaranteed 
 retirement income contract, for any losses that may 
 result to the participant or beneficiary due to an 
 insurer's inability to satisfy its financial 
 obligations under the terms of such contract.
 (6) Definitions.--For purposes of this subsection--
 (A) Insurer.--The term ``insurer'' means an 
 insurance company, insurance service, or 
 insurance organization, including affiliates of 
 such companies.
 (B) Guaranteed retirement income contract.--
 The term ``guaranteed retirement income 
 contract'' means an annuity contract for a 
 fixed term or a contract (or provision or 
 feature thereof) which provides guaranteed 
 benefits annually (or more frequently) for at 
 least the remainder of the life of the 
 participant or the joint lives of the 
 participant and the participant's designated 
 beneficiary as part of an individual account 
 plan.
 (f) Exercise of Shareholder Rights.--
 (1) Authority to exercise shareholder rights.--
 (A) In general.--The fiduciary duty to manage 
 plan assets that are shares of stock includes 
 the management of shareholder rights 
 appurtenant to those shares, including the 
 right to vote proxies. When deciding whether to 
 exercise a shareholder right and in exercising 
 such right, including the voting of proxies, a 
 fiduciary must act prudently and solely in the 
 interests of participants and beneficiaries and 
 for the exclusive purpose of providing benefits 
 to participants and beneficiaries and defraying 
 the reasonable expenses of administering the 
 plan. The fiduciary duty to manage shareholder 
 rights appurtenant to shares of stock does not 
 require the voting of every proxy or the 
 exercise of every shareholder right.
 (B) Exception.--This subsection shall not 
 apply to voting, tender, and similar rights 
 with respect to securities that are passed 
 through pursuant to the terms of an individual 
 account plan to participants and beneficiaries 
 with accounts holding such securities.
 (2) Requirements for exercise of shareholder 
 rights.--A fiduciary, when deciding whether to exercise 
 a shareholder right and when exercising a shareholder 
 right--
 (A) shall--
 (i) act solely in accordance with the 
 economic interest of the plan and its 
 participants and beneficiaries;
 (ii) consider any costs involved;
 (iii) evaluate material facts that 
 form the basis for any particular proxy 
 vote or exercise of shareholder rights; 
 and
 (iv) maintain a record of any proxy 
 vote, proxy voting activity, or other 
 exercise of a shareholder right, 
 including any attempt to influence 
 management; and
 (B) shall not subordinate the interests of 
 participants and beneficiaries in their 
 retirement income or financial benefits under 
 the plan to any non-pecuniary objective, or 
 promote non-pecuniary benefits or goals 
 unrelated to those financial interests of the 
 plan's participants and beneficiaries.
 (3) Monitoring.--A fiduciary shall exercise prudence 
 and diligence in the selection and monitoring of a 
 person, if any, selected to advise or otherwise assist 
 with the exercise of shareholder rights, including by 
 providing research and analysis, recommendations on 
 exercise of proxy voting or other shareholder rights, 
 administrative services with respect to voting proxies, 
 and recordkeeping and reporting services.
 (4) Investment managers and proxy advisory firms.--
 Where the authority to vote proxies or exercise other 
 shareholder rights has been delegated to an investment 
 manager pursuant to section 403(a), or a proxy voting 
 advisory firm or other person who performs advisory 
 services as to the voting of proxies or the exercise of 
 other shareholder rights, a responsible plan fiduciary 
 shall prudently monitor the proxy voting activities of 
 such investment manager or advisory firm and determine 
 whether such activities are in compliance with 
 paragraphs (1) and (2).
 (5) Voting policies.--
 (A) In general.--In deciding whether to vote 
 a proxy pursuant to this subsection, the plan 
 fiduciary may adopt a proxy voting policy, 
 including a safe harbor proxy voting policy 
 described in subparagraph (B), providing that 
 the authority to vote a proxy shall be 
 exercised pursuant to specific parameters 
 designed to serve the economic interest of the 
 plan.
 (B) Safe harbor voting policy.--With respect 
 to a decision not to vote a proxy, a fiduciary 
 shall satisfy the fiduciary responsibilities 
 under this subsection if such fiduciary adopts 
 and is following a safe harbor proxy voting 
 policy that--
 (i) limits voting resources to 
 particular types of proposals that the 
 fiduciary has prudently determined are 
 substantially related to the business 
 activities of the issuer or are 
 expected to have a material effect on 
 the value of the plan investment; or
 (ii) establishes that the fiduciary 
 will refrain from voting on proposals 
 or particular types of proposals when 
 the assets of a plan invested in the 
 issuer relative to the total assets of 
 such plan are below 5 percent (or, in 
 the event such assets are under 
 management, when the assets under 
 management invested in the issuer are 
 below 5 percent of the total assets 
 under management).
 (C) Exception.--No proxy voting policy 
 adopted pursuant to this paragraph shall 
 preclude a fiduciary from submitting a proxy 
 vote when the fiduciary determines that the 
 matter being voted on is expected to have a 
 material economic effect on the investment 
 performance of a plan's portfolio (or the 
 investment performance of assets under 
 management in the case of an investment 
 manager); provided, however, that in all cases 
 compliance with a safe harbor voting policy 
 shall be presumed to satisfy fiduciary 
 responsibilities with respect to decisions not 
 to vote.
 (6) Review.--A fiduciary shall periodically review 
 any policy adopted under this subsection.

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