H.R. 5877 — Introduced in House

I 113th CONGRESS 2d Session H. R. 5877 IN THE HOUSE OF REPRESENTATIVES December 11, 2014 Mr. Meeks (for himself and Ms. Waters) introduced the following bill; which was referred to the Committee on Oversight and Government Reform, and in addition to the Committee on Education and the Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned A BILL To amend the Employee Retirement Income Security Act of 1974 and title 5, United States Code, to require plans to establish policies addressing firm-specific risks in asset management services, greater diversification in investment strategies, and the inclusion of diverse asset managers and minority brokerage firms, and for other purposes. 1. Short title This Act may be cited as the American Pension Investments Modernization Act of 2014. 2. Consideration of firm-specific risks and inclusion of diverse asset managers in ERISA plans (a) In general Section 404(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(a)) is amended— (1) in paragraph (1)— (A) in subparagraph (C), by striking and at the end; (B) by designating subparagraph (D) as subparagraph (E); and (C) by inserting after subparagraph (C) the following: (D) in any case in which the fiduciary appoints an investment manager or managers to manage any assets of a plan under section 402(c)(3), or business enterprise or enterprises for brokerage and investment banking services, by establishing policies under which the fiduciary will consider— (i) the concentration level of the plan’s exposure to firm-specific risks, including operational, compliance, and fraud risks; (ii) the inclusion, to the greatest extent feasible, of minority business enterprises for brokerage and investment banking services; and (iii) the utilization of diverse asset managers, taking into consideration the investment opportunities they offer in sectors, strategies, geographies, and demographics not meaningfully available to the plans. ; and (2) by inserting at the end the following: (3) (A) For purposes of this subsection, the term minority business enterprise means any business entity— (i) not less than 51 percent of which is owned by one or more individuals described in subparagraph (C) or, in the case of any publicly owned business, not less than 51 percent of the stock of which is owned by such individuals; or (ii) (I) not less than 35 percent of which is owned by one or more individuals described in subparagraph (C) or, in the case of any publicly owned business, not less than 35 percent of the stock of which is owned by such individuals; and (II) the management and daily business operations of which are controlled by one or more individuals described in subparagraph (C). (B) For purposes of this subsection, the term diverse asset manager means a minority business enterprise that manages an investment portfolio of at least $100,000,000 and not more than $25,000,000,000. (C) An individual described in this subparagraph is— (i) an African-American, Hispanic-American, Asian Pacific American, Subcontinent Asian American, or Native American; (ii) a woman; or (iii) a veteran (as defined in section 101(2) of title 38, United States Code). . (b) Issuance of guidance by Secretary of Labor Not later than 1 year after the date of the enactment of this Act, the Secretary of Labor shall issue guidance relating to the requirement imposed by section 404(a)(1)(D) of such Act (as amended by subsection (a)). In issuing guidance under this subsection, the Secretary of Labor shall consider successful practices from State, local, and private-sector retirement systems’ utilization of diverse and emerging asset managers and of minority business enterprises for brokerage and investment banking services, including established efforts, programs, plans, and goals designed to increase their participation in financial services, and providing pension plans with greater access to investment opportunities that may otherwise be overlooked. 3. Consideration of firm-specific risks and inclusion of diverse asset managers in the Thrift Savings Plan (a) In general Section 8472 of title 5, United States Code, is amended by adding at the end the following: (k) In establishing policies under subsection (f)(1)(A), the Board shall take into account the guidance issued by the Secretary of Labor pursuant to section 404(a)(1)(D) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(a)). . (b) Conforming amendment Section 8477(b)(1)(C) of such title is amended by inserting after of this title, the following: and consistent with the policies developed under section 8472(k),. 4. Active management option under the Thrift Savings Plan (a) In general Subchapter III of chapter 84 of title 5, United States Code, is amended by inserting at the end the following: 8440g. Active management option (a) The Board shall provide employees and Members and former employees or Members the option to participate in actively managed funds within such employee or Member’s Thrift Savings Fund account. Such option or options shall allow not more than 20 percent of an employee or Member’s (or former employee or Member’s) funds to be actively managed. (b) Notwithstanding the requirement of subsection (a), the Board may not subject more than 20 percent of the total assets under management of the Thrift Savings Fund to active management. (c) The Board shall promulgate guidelines regarding the active management of funds under this section. In promulgating such guidelines, the Board shall consider modern and successful practices from State, local, and private-sector retirement systems’ utilization of active management strategies in order to— (1) reduce market downside risks to the best extent possible, including dramatic swings in major market indexes; (2) take advantage of research and investment opportunities offered by small-, minority-, women- and veteran-owned firms that specialize in less traditional asset classes, or less efficient market segments with high-growth potentials, including investments in sectors, strategies, geographies and demographics that are not meaningfully available to large passively invested funds; and (3) take advantage of more effective portfolio designs that diversify across active and passive investment strategies and managers. . (b) Clerical amendment The table of sections for such subchapter is amended by adding after the item relating to section 8440f the following new item: 8440g. Active management option. . 5. Reports Not later than 1 year after the issuance of guidance under section 2(b) and annually thereafter, the Secretary of Labor and the Chairman of the Federal Retirement Thrift Investment Board shall submit a report to Congress on the progress achieved and efforts being made to implement the amendments made by sections 2 and 3, respectively. Such report shall include such recommendations as the Secretary and the Chairman, respectively, deem necessary or appropriate. In addition, each report shall include— (1) an assessment of the extent to which compliance with the requirements contained in such amendments is being achieved; (2) a summary of the enforcement actions taken by each of the agencies assigned administrative enforcement responsibilities for such requirements; (3) to the extent feasible, with respect to the Thrift Savings Plan and terminated plans within the meaning of title IV of the Employee Retirement Income Security Act of 1974— (A) a list of all asset management firms (minority-owned and others) to which plan funds were allocated, and the amount allocated to each asset management firm; (B) the fees charged by each asset management firm, including proceeds from security lending, if any; (C) the list of all firms (minority-owned and others) used for brokerage and investment banking services, and the amount of transactions executed; and (D) the fees charged by each firm used for brokerage and investment banking services. 6. Effective date The amendments made by sections 2 and 3 shall apply with respect to plan years beginning at least 9 months after the issuance of guidance under section 2(b).