H.R. 2988 — Protecting Prudent Investment of Retirement Savings Act

This section amends the Employee Retirement Income Security Act of 1974 (ERISA) fiduciary prudence standard (29 U.S.C. 1104(a)) by requiring that a fiduciary's investment or investment course of action decisions be based solely on pecuniary factors (i.e., factors expected to materially affect risk or return based on the plan's investment horizons and funding policy), prohibiting subordination of participants' and beneficiaries' retirement income or financial benefits to non-pecuniary objectives. Notwithstanding this requirement, a fiduciary may use non-pecuniary factors as a tie-breaker if unable to distinguish investment alternatives based on pecuniary factors alone and the fiduciary documents (1) why pecuniary factors were insufficient, (2) the selected investment's portfolio impacts relative to alternatives (i.e., diversification, liquidity and return versus cash flow needs, projected return versus funding objectives), and (3) the non-pecuniary factors' consistency with participants' financial interests; for participant-directed individual account plans, a fiduciary may consider non-pecuniary factors in selecting or retaining non-default investment options if satisfying the general prudence standard and the above requirements. The amendments apply to fiduciary actions taken 12 months after enactment.

This section expands the Employee Retirement Income Security Act (ERISA) prudent man standard of care to require plan fiduciaries to select, monitor, and retain any fiduciary, counsel, employee, or service provider of the plan (1) in accordance with the requirements to act solely in the interest of participants and beneficiaries and with prudence and (2) without regard to race, color, religion, sex, or national origin. (Thus, ERISA fiduciaries—who manage private-sector pension and welfare benefit plans covering over 150 million participants—must apply nondiscriminatory practices to plan service providers.)

This section adds a new subsection (f) to ERISA §404 (29 U.S.C. 1104), which sets the prudent man standard of care for fiduciaries of private-sector pension and welfare benefit plans, to establish duties for managing shareholder rights—including proxy voting—appurtenant to plan assets that are shares of stock, applicable to exercises occurring on or after January 1, 2026. The provision requires fiduciaries, when deciding whether and how to exercise such rights, to (1) act prudently and solely in the economic interests of participants and beneficiaries, considering costs and material facts and without subordinating those interests to non-pecuniary objectives; (2) maintain records of voting and related activities; (3) prudently select and monitor delegates such as investment managers or proxy advisory firms; and (4) periodically review any adopted proxy voting policies. It authorizes safe harbor policies under which fiduciaries satisfy duties by limiting voting to proposals substantially related to the issuer's business activities or expected to materially affect the plan investment's value, or by refraining from voting if plan assets invested in the issuer are below 5% of total plan assets (or total assets under management), with compliance presumed for decisions not to vote. The duties do not apply to qualifying employer securities or securities where rights are passed through to participants and beneficiaries in individual account plans.

This section establishes notice requirements under ERISA §404(c) for brokerage windows (i.e., self-directed brokerage accounts) in participant-directed individual account pension plans, effective January 1, 2027. Before a participant directs an investment into, out of, or within a non-designated investment arrangement such as a brokerage window, the participant must receive and acknowledge a specified notice stating that (1) designated investment alternatives are prudently selected and monitored by plan fiduciaries; (2) brokerage window investments are not; (3) such investments may involve diminished returns, higher fees, and higher risk; and (4) hypothetical illustrations of account growth to age 67 at annual returns of 4%, 6%, and 8%, accompanied by a graph of projected balances. The section further defines "designated investment alternative" under ERISA §3 to mean plan-designated options selected by a responsible fiduciary, excluding brokerage windows and similar arrangements. (As background, ERISA §404(c) provides a fiduciary safe harbor from liability for participant-directed investment losses if specified disclosures and control are provided; thus, these requirements preserve the safe harbor only for informed brokerage window use.)

This section directs the Comptroller General to submit to Congress, not later than two years after the date of enactment of this Act, a report comparing the returns generated by investment arrangements available in defined contribution plans under the Employee Retirement Income Security Act of 1974 (ERISA) that—(1) are not designated investment alternatives (as defined in ERISA section 2(46)); (2) are subject to ERISA section 404(c)(7); and (3) are available in such plans—with the returns generated by other investment options available in such plans.