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Full Text of this Amendment

SA 1967. Mr. CRAPO submitted an amendment intended to be proposed by him to the bill S. 1783, to amend the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 to reform the pension funding rules, and for other purposes; which was ordered to lie on the table; as follows:


At the appropriate place, insert the following:
SEC. __. AMENDMENTS RELATING TO PROHIBITED TRANSACTIONS.
(a) Exemption for Block Trading.--
(1) IN GENERAL.--Section 408(b) of the Employee Retirement Income Security Act (29 U.S.C. 1108(b)) is amended by adding at the end the following new paragraph:
``(14) BLOCK TRADING.--
``(A) IN GENERAL.--Any transaction involving the purchase or sale of securities or other property between a plan and a party in interest (other than a fiduciary who has investment discretion or control over the transaction or is providing investment advice as a fiduciary for purposes of this title to enter into the transaction) with respect to a plan if--
``(i) the transaction involves a block trade,
``(ii) at the time of the transaction, the interest of the plan (together with the interests of any other plans maintained by the same plan sponsor) does not exceed 10 percent of the aggregate size of the block trade, and
``(iii) the terms of the transaction, including the price, are at least as favorable to the plan as an arm's length transaction.
``(B) BLOCK TRADE DEFINED.--For purposes of this paragraph, the term `block trade' includes any trade which will be allocated across two or more client accounts of a fiduciary.''.
(2) CONFORMING AMENDMENTS.--
(A) Section 4975(d) of such Code is amended--
(i) by striking ``or'' at the end of paragraph (15),
(ii) by striking the period at the end of paragraph (16) and inserting ``; or'', and
(iii) by adding at the end the following:
``(17) any transaction involving the purchase or sale of securities or other property between a plan and a disqualified person (other than a fiduciary who has investment discretion or control over the transaction or is providing investment advice as a fiduciary for purposes of title I of the Employee Retirement Income Security Act to enter into the transaction) with respect to a plan if--
``(A) the transaction involves a block trade,
``(B) at the time of the transaction, the interest of the plan (together with the interests of any other plans maintained by the same plan sponsor) does not exceed 10 percent of the aggregate size of the block trade, and
``(C) the terms of the transaction, including the price, are at least as favorable to the plan as an arm's length transaction.''.
(B) Section 4975(e) of such Code is amended by adding at the end the following new paragraph:
``(11) BLOCK TRADE.--The term `block trade' includes any trade which will be allocated across two or more client accounts of a fiduciary.''.
(b) Bonding Relief.--Section 412(a) of such Act (29 U.S.C. 1112(a)) is amended--
(1) by redesignating paragraph (2) as paragraph (3),
(2) by striking ``and'' at the end of paragraph (1), and
(3) by inserting after paragraph (1) the following new paragraph:
``(2) no bond shall be required of an entity which is subject to regulation as a broker or a dealer under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) or an entity registered under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.), including requirements imposed by a self-regulatory organization (within the meaning of section 3(a)(26) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(26)), or any affiliate with respect to which the broker or dealer agrees
to be liable to the same extent as if such broker or dealer held the assets directly.''.
(c) Exemption for Electronic Communication Network.--
(1) IN GENERAL.--Section 408(b) of such Act (29 U.S.C. 1108(b)), as amended by subsection (a)(1), is amended by adding at the end the following:
``(15) ELECTRONIC COMMUNICATION NETWORK.--Any transaction involving the purchase and sale of securities or other property between a plan and a fiduciary or a party in interest if--
``(A) the transaction is executed through an exchange, electronic communication network, alternative trading system, or similar execution system or trading venue subject to regulation and oversight by a United States regulatory entity regardless of whether such fiduciary or party in interest, or an affiliate of either, has an interest in such exchange, network, trading system, or similar system or trading venue,
``(B) the price and compensation associated with the purchase and sale are not greater than an arm's length transaction with an unrelated party,
``(C) the fiduciary or party in interest directing the transaction, or an affiliate of either, has an ownership interest in the execution system or trading venue (other than a national securities exchange or national securities association registered with the Securities and Exchange Commission or a designated contract market, derivatives clearing organization, or derivatives transaction execution facility registered with the Commodity Futures Trading Commission) the execution of transactions
on such system or venue is annually authorized by a plan fiduciary,
``(D) the transaction is executed in accordance with the nondiscretionary rules and procedures adopted by an execution system or trading venue to match offsetting orders, and
``(E)(i) neither the execution system nor the parties to the transaction take into account the identity of the parties in the execution of trades, and the parties to the transaction do not actually know the identity of the other at the time that the terms and price of the transaction are agreed to, or
``(ii) the transaction is effected pursuant to rules designed to match purchases and sales at the best price available through the execution system or trading venue.''.
(2) CONFORMING AMENDMENTS.--Section 4975(d) of such Code, as amended by subsection (a)(2), is amended--
(A) by striking ``or'' at the end of paragraph (16),
(B) by striking the period at the end of paragraph (17)(C) and inserting ``; or'', and
(C) by adding at the end the following new paragraph:
``(18) any transaction involving the purchase and sale of securities or other property between a plan and a fiduciary or a disqualified person if--
``(A) the transaction is executed through an exchange, electronic communication network, alternative trading system, or similar execution system or trading venue subject to regulation and oversight by a United States regulatory entity regardless of whether such fiduciary or disqualified person, or an affiliate of either, has an interest in such exchange, network, trading system, or similar system or trading venue,
``(B) the price and compensation associated with the purchase and sale are not greater than an arm's length transaction with an unrelated party,
``(C) the fiduciary or disqualified person directing the transaction, or an affiliate of either, has an ownership interest in the execution system or trading venue (other than a national securities exchange or national securities association registered with the Securities and Exchange Commission or a designated contract market, derivatives clearing organization, or derivatives transaction execution facility registered with the Commodity Futures Trading Commission) the execution of transactions
on such system or venue is annually authorized by a plan fiduciary,
``(D) the transaction is executed in accordance with the nondiscretionary rules and procedures adopted by an execution system or trading venue to match offsetting orders, and
``(E)(i) neither the execution system nor the parties to the transaction take into account the identity of the parties in the execution of trades, and the parties to the transaction do not actually know the identity of the other at the time that the terms and price of the transaction are agreed to, or
``(ii) the transaction is effected pursuant to rules designed to match purchases and sales at the best price available through the execution system or trading venue.''.
(d) Exemption for Service Providers.--
(1) IN GENERAL.--Section 408(b) of such Act (29 U.S.C. 1108(b)), as amended by subsection (c)(1), is amended by adding at the end the following new paragraph:
``(16) EXEMPTION FOR SERVICE PROVIDERS.--
``(A) IN GENERAL.--Transactions described in subparagraphs (A), (B), and (D) of section 406(a)(1) between a plan and a party that is a party in interest (including a fiduciary but other than a fiduciary who has investment discretion or control over the transaction or is providing investment advice as a fiduciary for purposes of this title to enter into the transaction) solely by reason of providing services to the plan or solely by reason of a relationship to a service provider described
in subparagraph (F), (G), (H), or (I) of section 3(14), or both, but only if in connection with such transaction the plan receives no less than adequate consideration.
``(B) ADEQUATE CONSIDERATION.--For purposes of this paragraph, the term `adequate consideration' means--
``(i) in the case of a security for which there is a generally recognized market--
``(I) the price of the security prevailing on a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934, taking into account factors such as the size of the transaction and marketability of the security, or
``(II) if the security is not traded on such a national securities exchange, a price not less favorable to the plan than the offering price for the security as established by the current bid and asked prices quoted by persons independent of the issuer and of the party in interest, taking into account factors such as the size of the transaction and marketability of the security, and
``(ii) in the case of an asset other than a security for which there is a generally recognized market, the fair market value of the asset as determined in good faith by a fiduciary or fiduciaries in accordance with regulations prescribed by the Secretary.''.
(2) CONFORMING AMENDMENTS.--
(A) Section 4975(d) of such Code, as amended by subsection (c)(2), is amended--
(i) by striking ``or'' at the end of paragraph (17),
(ii) by striking the period at the end of paragraph (18), and inserting ``; or'', and
(iii) by adding at the end the following new paragraph:
``(19) transactions described in subparagraphs (A), (B), and (D) of subsection (c)(1) between a plan and a party that is a disqualified person (including a fiduciary but other than a fiduciary who has investment discretion or control over the transaction or is providing investment advice as a fiduciary for purposes of title I of the Employee Retirement Income Security Act to enter into the transaction) solely by reason of providing services to the plan or solely by reason of a relationship to
a service provider described in subparagraph (F), (G), (H), or (I) of subsection (e)(2), or both, but only if in connection with such transaction the plan receives no less than adequate consideration.''.
(B) Section 4975(e) of such Code, as amended by subsection (a)(2)(B), is amended by adding at the end the following new paragraph:
``(12) ADEQUATE CONSIDERATION.--For purposes of subsection (d)(19), the term `adequate consideration' means--
``(A) in the case of a security for which there is a generally recognized market--
``(i) the price of the security prevailing on a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934, taking into account factors such as the size of the transaction and marketability of the security, or
``(ii) if the security is not traded on such a national securities exchange, a price not less favorable to the plan than the offering price for the security as established by the current bid and asked prices quoted by persons independent of the issuer and of the disqualified person, taking into account factors such as the size of the transaction and marketability of the security, and
``(B) in the case of an asset other than a security for which there is a generally recognized market, the fair market value of the asset as determined in good faith by a fiduciary or fiduciaries in accordance with regulations prescribed by the Secretary of Labor.''.
(e) Relief for Foreign Exchange Transactions.--
(1) IN GENERAL.--Section 408(b) of such Act (29 U.S.C. 1108(b), as amended by subsection (d)(1), is amended by adding at the end the following new paragraph:
``(17) FOREIGN EXCHANGE TRANSACTIONS.--Any foreign exchange transactions, between a bank or broker-dealer, or any affiliate of either thereof, and a plan or an individual retirement account (within the meaning of section 408 of the Internal Revenue Code of 1986) with respect to which the bank or broker-dealer, or any affiliate, is a trustee, custodian, fiduciary, or other party in interest, if--
``(A) the transaction is in connection with the purchase, holding, or sale of securities or other property (other than a currency transaction unrelated to any other investment in securities or other property),
``(B) at the time the foreign exchange transaction is entered into, the terms of the transaction are not less favorable to the plan than the terms generally available in comparable arm's length foreign exchange transactions between unrelated parties, or the terms afforded by the bank or the broker-dealer (or any affiliate thereof) in comparable arm's-length foreign exchange transactions involving unrelated parties, and
``(C) the exchange rate used by the bank or broker-dealer for a particular foreign exchange transaction does not deviate by more or less than 3 percent from the interbank bid and asked rates at the time of the transaction as displayed on an independent service that reports rates of exchange in the foreign currency market for such currency.''.
(2) CONFORMING AMENDMENT.--Section 4975(d) of such Code, as amended by subsection (d)(2)(A), is amended--
(A) by striking ``or'' at the end of paragraph (18),
(B) by striking the period at the end of paragraph (19) and inserting ``; or'', and
(C) by adding at the end the following new paragraph:
``(20) any foreign exchange transactions, between a bank or broker-dealer, or any affiliate of either thereof, and a plan or an individual retirement account (within the meaning of section 408) with respect to which the bank or broker-dealer, or any affiliate, is a trustee, custodian, fiduciary, or disqualified person, if--
``(A) the transaction is in connection with the purchase, holding, or sale of securities or other property (other than a currency transaction unrelated to any other investment in securities or other property),
``(B) at the time the foreign exchange transaction is entered into, the terms of the transaction are not less favorable to the plan than the terms generally available in comparable arm's length foreign exchange transactions between unrelated parties, or the terms afforded by the bank or the broker-dealer (or any affiliate thereof) in comparable arm's-length foreign exchange transactions involving unrelated parties, and
``(C) the exchange rate used by the bank or broker-dealer for a particular foreign exchange transaction does not deviate by more or less than 3 percent from the interbank bid and asked rates at the time of the transaction as displayed on an independent service that reports rates of exchange in the foreign currency market for such currency.''.
(f) Definition of Plan Asset Vehicle.--Section 3 of such Act (29 U.S.C. 1002) is amended by adding at the end the following new paragraph:
``(42) Plan assets.--The term `plan assets' means plan assets as defined by such regulations as the Secretary may prescribe, except that under such regulations the assets of any entity shall not be treated as plan assets if, immediately after the most recent acquisition of any equity interest in the entity, less than 25 percent of the total value of all equity interests in the entity are held by benefit plan investors. For purposes of determinations pursuant to this paragraph, the value
of any equity interest owned on a proprietary basis by a person (other than such a benefit plan investor) who has discretionary authority or control with respect to the assets of the entity or any person who provides investment advice for a fee (direct or indirect) with respect to such assets, or any affiliate of such a person, shall be disregarded for purposes of calculating the 25 percent
threshold. A benefit plan investor shall be considered to hold plan assets only to the extent of the percentage of the equity interest owned by benefit plan investors. For purposes of this paragraph, the term `benefit plan investor' means an employee benefit plan subject to part IV of subtitle B and any plan to which section 401(a) of the Internal Revenue Code of 1986 applies.''.
(g) Correction Period for Certain Transactions Involving Securities and Commodities.--
(1) IN GENERAL.--Section 408(b) of such Act (29 U.S.C. 1108(b)), as amended by subsection (e)(1), is amended by adding at the end the following new paragraph:
``(18) CORRECTION PERIOD FOR CERTAIN TRANSACTIONS INVOLVING SECURITIES AND COMMODITIES.--
``(A) IN GENERAL.--Except as provided in subparagraphs (B) and (C), a transaction described in section 406(a) in connection with the acquisition, holding, or disposition of any security or commodity, if the transaction is corrected before the end of the correction period.
``(B) EXCEPTION FOR EMPLOYER SECURITIES AND REAL PROPERTY.--Subparagraph (A) does not apply to any transaction between a plan and a plan sponsor or its affiliates that involves the acquisition or sale of an employer security (as defined in section 407(d)(1)) or the acquisition, sale, or lease of employer real property (as defined in section 407(d)(2)).
``(C) EXCEPTION FOR KNOWING VIOLATIONS.--In the case of any fiduciary or other party in interest (or any other person knowingly participating in such transaction), subparagraph (A) does not apply to any prohibited transaction if, at the time such transaction occurs, such fiduciary or party in interest (or other person) knew that the transaction would (without regard to this paragraph) constitute a violation of section 406(a).
``(D) CORRECTION PERIOD.--For purposes of this paragraph, the term `correction period' means the 14-day period beginning on the later of--
``(i) the date on which such transaction occurs, or
``(ii) the date such fiduciary or party in interest (or other person) knew, or reasonably should have known, the facts that would cause the transaction (without regard to this paragraph) to constitute a violation of section 406(a).
``(E) OTHER DEFINITIONS.--For purposes of this paragraph--
``(i) the term `security' has the meaning given such term by section 475(c)(2) of the Internal Revenue Code of 1986 (without regard to subparagraph (F)(iii) and the last sentence thereof),
``(ii) the term `commodity' has the meaning given such term by section 475(e)(2) of such Code (without regard to subparagraph (D)(iii) thereof), and
``(iii) the terms `correction' and `correct' mean, with respect to a transaction, undoing the transaction to the extent possible, but in any case, making good to the plan or affected account any losses resulting from the transaction and restoring to the plan or affected account any profits made through use of the plan.''.
(2) CONFORMING AMENDMENTS.--
(A) Section 4975(d) of such Code, as amended by subsection (e)(2), is amended--
(i) by striking ``or'' at the end of paragraph (19),
(ii) by striking the period at the end of paragraph (20) and inserting ``; or'', and
(iii) by adding at the end the following new paragraph:
``(21) except as provided in subparagraph (B) or (C) of subsection (f)(8), a transaction described in subparagraph (A), (B), (C), or (D) of subsection (c)(1) in connection with the acquisition, holding, or disposition of any security or commodity, if the transaction is corrected before the end of the correction period.''.
(B) Section 4975(f) of such Code is amended by adding at the end the following new paragraph:
``(8) CORRECTION PERIOD.--
``(A) IN GENERAL.--For purposes of subsection (d)(21), the term `correction period' means the 14-day period beginning on the later of--
``(i) the date on which such transaction occurs, or
``(ii) the date such fiduciary or disqualified person (or other person) knew, or reasonably should have known, the facts that would cause the transaction (without regard to subsection (d)(21) or this paragraph) to constitute a violation of subparagraph (A), (B), (C), or (D) of subsection (c)(1).
``(B) EXCEPTION FOR EMPLOYER SECURITIES AND REAL PROPERTY.--Subsection (d)(21) does not apply to any transaction between a plan and a plan sponsor or its affiliates that involves the acquisition or sale of an employer security (as defined in section 407(d)(1) of the Employee Retirement Income Security Act) or the acquisition, sale, or lease of employer real property (as defined in section 407(d)(2) of such Act).
``(C) EXCEPTION FOR KNOWING VIOLATIONS.--In the case of any fiduciary or other disqualified person (or any other person knowingly participating in such transaction), subsection (d)(21) does not apply to any prohibited transaction if, at the time such transaction occurs, such fiduciary or disqualified person (or other person) knew that the transaction would (without regard to subsection (d)(21) or this paragraph) constitute a violation of subparagraph (A), (B), (C), or (D) of subsection
(c)(1).
``(D) ABATEMENT OF TAX WHERE THERE IS A CORRECTION.--If a transaction is not treated as a prohibited transaction by reason of subsection (d)(21), then no tax under subsections (a) and (b) shall be assessed with respect to such transaction, and, if assessed, the assessment shall be abated, and, if collected, shall be credited or refunded as an overpayment.
``(E) OTHER DEFINITIONS.--For purposes of this paragraph and subsection (d)(21)--
``(i) the term `security' has the meaning given such term by section 475(c)(2) (without regard to subparagraph (F)(iii) and the last sentence thereof),
``(ii) the term `commodity' has the meaning given such term by section 475(e)(2) (without regard to subparagraph (D)(iii) thereof), and
``(iii) the terms `correction' and `correct' mean, with respect to a transaction, undoing the transaction to the extent possible, but in any case, making good to the plan or affected account any losses resulting from the transaction and restoring to the plan or affected account any profits made through use of the plan.''.
(C) Section 4975(f)(5) of such Code is amended by striking ``The terms'' and inserting ``Except as provided in paragraph (8)(E)(iii), the terms''.
(h) Cross Trading.--
(1) IN GENERAL.--Section 408(b) of such Act (29 U.S.C. 1108(b)), as amended by subsection (g)(1), is amended by adding at the end the following new paragraph:
``(19) CROSS TRADING.--Any transaction involving the purchase and sale of a security or other property between a plan and any other account managed by the same fiduciary, if--
``(A) the transaction is a purchase or sale, for no consideration other than cash payment against prompt delivery of a security or other property for which market quotations are readily available,
``(B) the transaction is effected at the independent current market price of the security or other property (within the meaning of section 270.17a-7(b) of title 17, Code of Federal Regulations),
``(C) no brokerage commission, fee (except for customary transfer fees or similar fees, the fact of which is disclosed pursuant to subparagraph (D)), or other remuneration is paid to the fiduciary directing the transaction in connection with the transaction,
``(D) a fiduciary for each plan participating in the transaction authorizes (in a document that is separate from any other written agreement of the parties or in the terms of the plan) the investment manager to engage in cross trades at the investment manager's discretion, after such fiduciary has received disclosure regarding the conditions under which cross trades may take place (but only if such disclosure is separate from any other agreement or disclosure involving the asset management relationship),

``(E) each plan participating in the transaction has assets of at least $50,000,000 (unless the plan is invested in a pooled account), except that if the assets of a plan are invested in a master trust containing the assets of plans maintained by employers in the same controlled group (as defined in section 407(d)(7)), the master trust has assets of at least $50,000,000,
``(F) the investment manager provides a quarterly report detailing the cross trades in which the plan participated to the plan fiduciary who authorized cross trading under subparagraph (D), and
``(G) the fiduciary does not base its fee schedule on the plan's consent to cross trading, and no other service (other than the investment opportunities and cost savings available through a cross trade) is conditioned on the plan's consent to cross trading.''.
(2) CONFORMING AMENDMENT.--Section 4975(d) of such Code, as amended by subsection (g)(2)(A), is amended--
(A) by striking ``or'' at the end of paragraph (20),
(B) by striking the period at the end of paragraph (21) and inserting ``; or'', and
(C) by adding at the end the following new paragraph:
``(22) any transaction involving the purchase and sale of a security or other property between a plan and any other account managed by the same fiduciary, if--
``(A) the transaction is a purchase or sale, for no consideration other than cash payment against prompt delivery of a security or other property for which market quotations are readily available,
``(B) the transaction is effected at the independent current market price of the security or other property (within the meaning of section 270.17a-7(b) of title 17, Code of Federal Regulations),
``(C) no brokerage commission, fee (except for customary transfer fees or similar fees, the fact of which is disclosed pursuant to subparagraph (D)), or other remuneration is paid to the fiduciary directing the transaction in connection with the transaction,
``(D) a fiduciary for each plan participating in the transaction authorizes (in a document that is separate from any other written agreement of the parties or in the terms of the plan) the investment manager to engage in cross trades at the investment manager's discretion, after such fiduciary has received disclosure regarding the conditions under which cross trades may take place (but only if such disclosure is separate from any other agreement or disclosure involving the asset management relationship),

``(E) each plan participating in the transaction has assets of at least $50,000,000 (unless the plan is invested in a pooled account), except that if the assets of a plan are invested in a master trust containing the assets of plans maintained by employers in the same controlled group (as defined in section 407(d)(7) of the Employee Retirement Security Act), the master trust has assets of at least $50,000,000,
``(F) the investment manager provides a quarterly report detailing the cross trades in which the plan participated to the plan fiduciary who authorized cross trading under subparagraph (D), and
``(G) the fiduciary does not base its fee schedule on the plan's consent to cross trading, and no other service (other than the investment opportunities and cost savings available through a cross trade) is conditioned on the plan's consent to cross trading.''.
(i) Effective Dates.--
(1) IN GENERAL.--The amendments made by this section shall apply to any transaction after the date of the enactment of this Act.
(2) CORRECTION PERIOD.--The amendments made by subsection (g) shall apply to any transaction which the fiduciary or disqualified person discovers, or reasonably should have discovered, after the date of the enactment of this Act, constitutes a prohibited transaction.


(As printed in the Congressional Record for the Senate on Oct 3, 2005.)