WASHINGTON - Rep. Jim Saxton, R-N.J., has backed down on an outright ban on economically targeted investments. He is still trying to block funding for an ETI clearinghouse and Labor Department travel budgets that promote the investment.
Mr. Saxton, who introduced a bill in early May that would have banned these investments, has agreed to change technical wording some said could ban other investments that happen to provide incidental ETI-like benefits.
The bill still would void a June 1994 interpretive bulletin on ETIs, and would eliminate funding for a clearinghouse that would store information on ETIs. Capitol Hill staff members would not say whether the change would reverse the bill's original wording that said ETIs violate pension law.
The change in the bill happened shortly before a House Employer/Employee Relations Subcommittee hearing. It was announced by the subcommittee's chairman, Rep. Harris Fawell, who reached the agreement with Mr. Saxton.
But Assistant Secretary of Labor Olena Berg said the change would produce more questions than answers.
Voiding the interpretive bulletin would create a "legal morass" because it would question fiduciary standards pension fund executives use when evaluating an ETI. Fiduciary standards on ETIs would be left to the courts to decide because Congress, if it voids the interpretive bulletin in the bill, would leave no standards for the investment, Ms. Berg said.
What's more, the Labor Department may not be able to issue guidance because guidance may be construed as promoting the investment - another violation of the bill, Ms. Berg said.
Mr. Fawell agreed the original bill could create problems with certain investments that had incidental benefits. The bill originally stated that fiduciaries violate their principles of undivided loyalty when they make an investment like an ETI because it benefits people other than plan participants.
Mr. Fawell said the changes to the original bill should avoid the problems while still banning the Labor Department from promoting and providing information on the investment.
A Capitol Hill staff member said the wording has not been finalized, but the bill would not prevent plan sponsors from going to the Labor Department for guidance on specific investments.
The Financial Executives Institute, Washington, was the only lobbying group that testified at the hearing, saying it could only support a bill that made changes to allow for investments that "happen to provide incidental benefits."
Myra Drucker, assistant treasurer for Xerox Corp., Stamford, Conn., and chairwoman of FEI's Committee on the Investment of Employee Benefit Assets, said the bill could create problems for Xerox, which invests in venture capital partnerships that target specific areas.
The original bill "could inadvertently create uncertainties about investments which many of us make in the normal course of business ........," Ms. Drucker said.
Ms. Berg noted Ms. Drucker's predecessor at CIEBA - Judith Mares, former chief investment officer at Ameritech in Chicago -suggested the Labor Department issue an interpretive bulletin on ETIs and set up a clearinghouse.
"If you can provide information, you essentially level the playing field," Ms. Berg said.
Ms. Berg repeated her arguments from previous hearings that the Labor Department would never mandate any form of pension investing, nor would it tax pension funds. The Labor Department's intent with the interpretive bulletin was to codify what the department has been saying about ETIs through the past five administrations, she said.
Rep. Matthew Martinez, D-Calif., ranking minority member on the House Employer/Employee Relations Subcommittee, said the bill is a solution looking for a problem.
"I think this is a bill that we don't need," Mr. Martinez said at the hearing. "Everyone knows that there are good ETIs and there are bad ETIs."
Meanwhile, the bill still retains the ban on the Department of Labor's two year-$1.2 million deal with Hamilton Securities Inc., Washington, to create a clearinghouse or databank containing information and examples of good and bad ETIs. Hamilton has just confirmed 11 members to its board for the clearinghouse, now known as the E2 Databank.
While Ms. Berg said at the hearing that the clearinghouse would not be a catalog of recommended investment opportunities, Mr. Fawell said the clearinghouse is dangerously close to the Department of Labor endorsing ETIs.
A Hamilton spokeswoman said no congressional aide has talked to Hamilton to find out how the clearinghouse is set up.