Several Amendments to ERISA Proposed in House

Several bills have been introduced in the House of Representatives that would make amendments to the Employee Retirement Income Security Act of 1974 (ERISA).

Representative Erin Houchin (R-IN) has introduced H.R. 5337, the Retirement Proxy Protection Act. The proposal would clarify the fiduciary duty under ERISA regarding plan assets that are stock also includes the management of shareholder rights relative to those shares – including the right to vote proxies. In consideration of exercising a shareholder right, the fiduciary may not subordinate the interests of participants and beneficiaries to non-pecuniary objectives and shall

• Act in accordance with the economic interests of the plan and its participants,
• Consider costs involved,
• Evaluate material facts that form basis for proxy vote, and
• Maintain a record of proxy voting activity.

A fiduciary shall also exercise prudence and diligence in the selection and monitoring of a person who advises or assists with the exercise of shareholder rights, including research and analysis, recommendations, and administrative, recordkeeping and reporting services with respect to proxies. Where the authority to exercise shareholder rights has been delegated to an investment manager or proxy firm, a plan fiduciary shall prudently monitor the proxy voting activities and ensure compliance.

The plan fiduciary may adopt a voting policy, and the proposal outlines a safe harbor voting policy with respect to a decision not to vote a proxy provided that the policy

• Limits voting resources to proposals that are substantially related to the business activities of the issuer and are expected to have a material effect on the value of the plan investment or,
• Establishes that the fiduciary will refrain from voting on proposals when the assets of the plan invested in the issuer relative to total assets of such plan are below 5 percent.

Representative Bob Good (R-VA) has introduced H.R. 5338, the No Discrimination in My Benefits Act. The legislation would amend the prudent man standard of care under ERISA to also require the selecting, retaining and monitoring of any fiduciary, counsel, employee or service provider of the plan without regard to race, color, religion, sex, or national origin.

Representative Rick Allen (R-GA) has introduced H.R. 5339, the Roll back ESG To Increase Retirement Earnings Act (RETIRE Act). The bill would amend ERISA to require that fiduciary action regarding investments be based entirely on pecuniary factors, and the interests of plan participants cannot be subordinated by non-pecuniary factors. To the extent a fiduciary cannot distinguish among investment alternatives on the basis of pecuniary factors alone, the fiduciary may use non-pecuniary factors after documenting the following.

• Why pecuniary factors were not sufficient in selection
• How the selected investment compares to alternative investments with regard to diversification, liquidity, and returns within the portfolio relative to the objectives of the plan
• How the selected non-pecuniary factor(s) are consistent with the interests of participants

Further, such investment cannot be included as a default investment alternative.

Representative Jim Banks (R-IN) has introduced H.R. 5340, the Providing Complete Information to Retirement Investors Act. The bill would amend ERISA to require a brokerage window notice in the case of retirement plans that provide for designated investment alternatives and the participant directs an investment into, out of, or within an investment arrangement that is not a designated investment alternative. Under the proposal, a “designated investment alternative” does not include brokerage windows, self-directed brokerage accounts or similar arrangements. The Notice would remind participants that the plan offers designated investment alternatives selected and monitored by fiduciaries and that investments available under the alternative arrangement are not monitored by a plan fiduciary. The Notice is also required to depict an illustration of the impact of investment returns at age 67.