The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
“CLARIFYING TREATMENT OF INVESTMENT ADVISERS UNDER ERISA” mentioning the U.S. Dept of Labor was published in the Senate section on pages S10300-S10301 on Oct. 1, 1997.
The publication is reproduced in full below:
CLARIFYING TREATMENT OF INVESTMENT ADVISERS UNDER ERISA
Mr. JEFFORDS. Mr. President, on Friday, September 26, 1997, I introduced legislation which amends title I of the Employee Retirement Income Security Act of 1974 [ERISA] to permit investment advisers registered with State securities regulators to continue to serve as investment managers to ERISA plans. At the end of last Congress, the Investment Supervision Coordination Act, landmark bipartisan legislation that adopted a new approach for regulating investment advisers, was passed and signed into law. Under this legislation, beginning July 8, 1997, States are assigned primary responsibility for regulating smaller investment advisers and the Securities and Exchange Commission is assigned primary responsibility for regulating larger investment advisers. Prior to the passage of the legislation, the issue arose that smaller investment advisers registered only with the States--and prohibited from registering with the SEC--would no longer meet the definition of investment manager under ERISA because the current Federal law definition only recognized advisers registered with the Securities and Exchange Commission. As a temporary measure, a 2-
year sunset provision was included in the securities reform legislation extending the qualification of State registered investment advisers as investment managers under ERISA for 2 years. The purpose of this provision was to address the problem on an immediate basis while concurrently giving the congressional committees with jurisdiction over ERISA matters the opportunity to review and act on the issue. We have reviewed this issue and have developed the legislation that I am introducing today to permanently correct this problem.
Without this legislation, State licensed investment advisers who, because of the securities reform legislation, no longer are permitted to register with the Securities and Exchange Commission will be unable to continue to be qualified to serve as investment managers to pension and welfare plans covered by ERISA. Without this legislation, the practices of thousands of small investment advisers, investment advisory firms and their supervision of client 401(k) and certain other pension plans will be seriously disrupted after October 10, 1998.
For business reasons, it is necessary for an investment adviser seeking to advise and manage assets of employee benefit plans subject to ERISA to meet ERISA's definition of investment manager. It is also important, for business reasons, to eliminate the uncertainty about the status of small investment advisers as investment managers under ERISA. This uncertainty makes it difficult for such advisers to acquire new ERISA plan clients and may well cause the loss of existing clients.
Arthus Levitt, chairman of the Securities and Exchange Commission, has written a letter expressing the need for this legislation and his support for this effort to correct this problem. I ask that a copy of Chairman Levitt's letter be inserted in the Record.
It is my understanding that this bill is supported by the Department of Labor. In addition, this bill is supported by the Institute of Certified Financial Planners, the National Association of Personal Financial Advisors, the International Association for Financial Planning, the American Institute of Certified Public Accountants, and the North American Securities Administrators Association, Inc. Mr. President, the sooner that Congress responds in a positive fashion to correct this problem, the better for small advisers and the capital management marketplace.
The letter follows:
U.S. Securities and
Exchange Commission,
Washington, DC, April 7, 1997.Hon. James M. Jeffords,Chairman, Committee on Labor and Human Resources,U.S. Senate, Washington, DC.
Dear Chairman Jeffords: I am writing to urge that the Senate Committee on Labor and Human Resources consider enacting legislation to amend the Employee Retirement Income Security Act of 1974 (``ERISA'') in a small but terribly important way. Unless the Congress acts quickly, thousands of small investment adviser firms, and their employees, risk having their businesses and their livelihoods inadvertently disrupted by changes to federal securities laws that were enacted during the last Congress.
At the very end of its last session, Congress passed the Investment Advisers Supervision Coordination Act. This was landmark bipartisan legislation that replaced an overlapping and duplicative state and federal regulatory scheme with a new approach that divided responsibility for investment adviser supervision: states were assigned primary responsibility for regulating smaller investment advisers, and the Securities and Exchange Commission was assigned primarily responsibility for regulating larger investment advisers. We supported this approach.
Under the Coordination Act takes effect in the next few months, most of the nation's 23,500 investment adviser firms--regardless of their size--will continue to be registered with the SEC, as they have for many decades. Once the Act becomes effective, however, we estimate that as many as 16,000 firms will be required to withdraw their federal registration. Indeed, this requirement is crucial if the Act's overall intent of reducing overlapping and duplicative regulation is to be realized. But the withdrawal of federal registration is also what causes the problem for these firms under ERISA.
As a practical business matter, it is a virtual necessity for a professional money manager (such as an investment adviser) seeking to serve employee benefit plans subject to ERISA to meet ERISA's definition of ``investment manager.'' The term is defined in ERISA to include only investment advisers registered with the SEC, and certain banks and insurance companies. Once the Coordination Act becomes effective, large advisers registered with the SEC will of course continue to meet the definition. But small advisory firms will not be able to meet the definition of investment manager because they will be registered with the states rather than with the SEC. Thus they may well be precluded from providing advisory services to employee benefit plans subject to ERISA, even if they have been doing so successfully for many years.
The sponsors of the Coordination Act were aware that the interplay between the Act and ERISA could have substantial detrimental consequences for small advisers, and thus added an amendment to ERISA during the House-Senate Conference on the Act. The ERISA amendment provided that investment advisers registered with a state can serve as
``investment managers'' for two years, or through October 12, 1998. My staff has been told that this ``sunset'' provision was included in the ERISA amendment so that the appropriate congressional committees with jurisdiction over ERISA could have a reasonable amount of time to review the amendment before deciding whether to make it permanent. Apart from that important procedural issue, I am not aware of any other considerations that would suggest the need for the ERISA amendment to expire in two years.
I believe that the Congress should move as quickly as possible to enact legislation that eliminates the sunset provision, and permanently enables properly registered state investment advisers to continue their service as investment managers under ERISA. There is no reason to wait until 1998 to do so. In fact, many small investment advisers believe that the ongoing uncertainty about their status as
``investment managers'' under ERISA is making it difficult for them to acquire new ERISA plan clients, and may even cause them to lose existing clients. Some advisers think the harm they could suffer, even before the expiration of the sunset provision next year, could be irreparable, and it is easy to see why.
It is only through the swift action of your Committee that these unintended and unnecessary consequences for thousands of successful small businesses can be avoided. If you or your staff would like additional information about this matter, please do not hesitate to contact me at 942-0100, or Barry P. Barbash, Director of the Division of Investment Management, or Robert E. Plaze, an Associate Director in the Division, at 942-0720.
Sincerely,Arthur Levitt.
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