HR 871 IH

To provide for investment in private sector securities markets of amounts held in the Federal Old-Age and Survivors Insurance Trust Fund for payment of benefits under title II of the Social Security Act.

February 25, 1999

Mr. MARKEY (for himself, Mr. BARTLETT of Maryland, and Mr. POMEROY) introduced the following bill; which was referred to the Committee on Ways and Means

To provide for investment in private sector securities markets of amounts held in the Federal Old-Age and Survivors Insurance Trust Fund for payment of benefits under title II of the Social Security Act.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Social Security Investment Fund Act of 1999'.

SEC. 2. ESTABLISHMENT OF THE SOCIAL SECURITY INVESTMENT BOARD AND EXECUTIVE DIRECTOR.

(a) IN GENERAL- Title VII of the Social Security Act is amended by adding after section 712 (42 U.S.C. 913) the following new section:

`SOCIAL SECURITY INVESTMENT BOARD; EXECUTIVE DIRECTOR

`Social Security Investment Board

`SEC. 713. (a)(1) There is established in the executive branch of the Government an independent agency to be known as the Social Security Investment Board.

`(2) The Board shall be composed of--

`(A) 3 members appointed by the President, of whom 1 shall be designated by the President as Chairman; and

`(B) 2 members appointed by the President, of whom--

`(i) 1 shall be appointed by the President after taking into consideration the recommendation made by the Speaker of the House of Representatives in consultation with the minority leader of the House of Representatives; and

`(ii) 1 shall be appointed by the President after taking into consideration the recommendation made by the majority leader of the Senate in consultation with the minority leader of the Senate.

`(3) Appointments under paragraph (2) shall be made by and with the advice and consent of the Senate.

`(4) Members of the Board shall have substantial experience, training, and expertise in the management of financial investments and the exercise of fiduciary duties.

`(5)(A) A member of the Board shall be appointed for a term of 10 years, subject only to removal by the President for cause, except that of the members first appointed--

`(i) the Chairman shall be appointed for a term of 4 years;

`(ii) one of the members appointed under paragraph (2)(B) shall be appointed for a term of 2 years;

`(iii) the remaining member appointed under paragraph (2)(B) shall be appointed for a term of 6 years;

`(iv) one of the members appointed under paragraph (2)(A) shall be appointed for a term of 8 years; and

`(v) the remaining member appointed under paragraph (2)(A) shall be appointed for a term of 10 years.

`(B)(i) A vacancy on the Board shall be filled in the manner in which the original appointment was made and shall be subject to any conditions which applied with respect to the original appointment.

`(ii) An individual chosen to fill a vacancy shall be appointed for the unexpired term of the member replaced.

`(iii) The term of any member shall not expire before the date on which the member's successor takes office.

`(6) The Board shall--

`(A) establish policies for investments under part B of title II of amounts in the Social Security Investment Fund in the Common Stock Index Fund established pursuant to section 252 and policies for the selection and retention of investment managers to manage such investments;

`(B) review the performance of investments of amounts in the Social Security Investment Fund; and

`(C) review and approve the budget of the Board.

`(7) The Board shall develop investment policies under paragraph (6)(A) which provide for--

`(A) prudent investments suitable for accumulating funds for payment of benefits under title II; and

`(B) low administrative costs.

`(8)(A) The Board may--

`(i) adopt, alter, and use a seal;

`(ii) except as provided in subparagraph (B), establish policies with which the Executive Director is required to comply under section 252; and

`(iii) take such other actions as may be necessary to carry out the functions of the Board.

`(B) The policies of the Board may not require the Executive Director to invest or to cause to be invested any sums in the Social Security Investment Fund in a specific asset or to dispose of or cause to be disposed of any specific asset of the Fund.

`(9)(A) The Board shall meet--

`(i) not less than once during each month; and

`(ii) at additional times at the call of the Chairman.

`(B)(i) The Board shall perform the functions and exercise the powers of the Board on a majority vote of a quorum of the Board.

`(ii) A vacancy on the Board shall not impair the authority of a quorum of the Board to perform the functions and exercise the powers of the Board.

`(C) Three members of the Board shall constitute a quorum for the transaction of business.

`(D)(i) Each member of the Board who is not an officer or employee of the Federal Government shall be compensated at the daily rate of basic pay for level IV of the Executive Schedule for each day during which such member is engaged in performing a function of the Board.

`(ii) A member of the Board shall be paid travel, per diem, and other necessary expenses under subchapter I of chapter 57 of title 5, United States Code, while traveling away from such member's home or regular place of business in the performance of the duties of the Board.

`(iii) Payments authorized under this paragraph shall be paid from the Social Security Investment Fund.

`(E) The accrued annual leave of any officer or employee of the Federal Government who is a member of the Board shall not be charged for any time used in performing services for the Board.

`(10) The members of the Board shall discharge their responsibilities solely in the interest of the Social Security Investment Fund.

`(11) The Board shall prepare and submit to the President, and, at the same time, to the appropriate committees of Congress, an annual budget of the expenses and other items relating to the Board which shall be included as a separate item in the budget required to be transmitted to the Congress under section 1105 of title 31, United States Code.

`(12) The Board shall submit an annual report to the President and to each House of the Congress regarding the financial and operating condition of the Social Security Investment Fund. Such report may include legislative recommendations of the Board relating to any of its functions under this section, part B of title II, or any other provision of law.

`Executive Director

`(b)(1) The Board shall appoint, without regard to the provisions of law governing appointments in the competitive service, an Executive Director of the Social Security Investment Board, by action agreed to by a majority of the members of the Board.

`(2) The Executive Director shall have substantial experience, training, and expertise in the management of financial investments and the exercise of fiduciary duties.

`(3) The Executive Director shall--

`(A) carry out the policies established by the Board;

`(B) carry out the provisions of section 252, relating to investment of the Social Security Investment Fund in common stock;

`(C) administer the provisions of part B of title II;

`(D) prescribe such regulations (other than regulations relating to fiduciary responsibilities) as may be necessary for the administration of part B of title II; and

`(E) meet from time to time with, and provide information to, the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund upon request of the Board of Trustees regarding matters relating to the Social Security Investment Fund.

`(4) The Executive Director may--

`(A) prescribe such regulations as may be necessary to carry out the responsibilities of the Executive Director under this subsection, other than regulations relating to fiduciary responsibilities;

`(B) appoint such personnel as may be necessary to carry out the provisions of part B of title II;

`(C) in accordance with the policies of the Board, procure the services of experts and consultants under section 3109 of title 5, United States Code;

`(D) secure directly from any agency or instrumentality of the Federal Government any information necessary to carry out the provisions of part B of title II and policies of the Board;

`(E) make such payments out of sums in the Social Security Investment Fund as the Executive Director determines are necessary to carry out the provisions of part B of title II and the policies of the Board;

`(F) pay the compensation, per diem, and travel expenses of individuals appointed under subparagraphs (B), (C), and (G) of this paragraph from amounts otherwise available in the Social Security Investment Fund;

`(G) accept and use the services of individuals employed intermittently in the Government service and reimburse such individuals for travel expenses, as authorized by section 5703 of title 5, United States Code, including per diem as authorized by section 5702 of such title; and

`(H) take such other actions as are appropriate to carry out the functions of the Executive Director under part B of title II.

`(5) The Executive Director shall discharge his or her responsibilities solely in the interest of the Social Security Investment Fund.

`Inspector General

`(c) There shall be in the Office of the Board an Inspector General appointed by the President, by and with the advice and consent of the Senate, in accordance with section 3(a) of the Inspector General Act of 1978.'.

(b) CONFORMING AMENDMENTS- Section 11 of the Inspector General Act of 1978 (5 U.S.C. App.) is amended--

(1) in paragraph (1), by striking the second of the two semicolons following `Community Service', by striking `and' before `the chief executive', by striking `and' before `the Chairperson', by striking `or' before `the Commissioner', and by inserting `or the Chairman of the Social Security Investment Board;' before `as the case may be'; and

(2) in paragraph (2), by striking `or' before `the Veterans' Administration', by striking `or' before `the Social Security Administration', and by inserting `, or the Social Security Investment Board' after `the Social Security Administration'.

SEC. 3. SOCIAL SECURITY INVESTMENT PROGRAM.

(a) IN GENERAL- Title II of the Social Security Act is amended--

(1) by inserting before section 201 (42 U.S.C. 401) the following:

`Part A--Old-Age, Survivors, and Disability Insurance Benefits';

and

(2) by adding after section 233 (42 U.S.C. 433) the following new part:

`Part B--Social Security Investment Program

`SOCIAL SECURITY INVESTMENT FUND

`SEC. 251. (a) IN GENERAL- There is hereby created on the books of the Treasury of the United States a trust fund to be known as the `Social Security Investment Fund'. The Social Security Investment Fund shall consist of such amounts as may be appropriated to, or deposited in, the Social Security Investment Fund as provided in this part. Such Fund shall be available--

`(1) for investment in accordance with this part,

`(2) to be transferred to the Managing Trustee of the Federal Old-Age and Survivors Insurance Trust Fund in accordance with this part, and

`(3) subject to subsection (c), to pay the administrative expenses of the Social Security Investment Board and the Executive Director of the Board (including compensation for the officers and employees of the Board).

`(b) MAINTENANCE OF BALANCE WITH FEDERAL OLD-AGE AND SURVIVORS INSURANCE TRUST FUND-

`(1) IN GENERAL- The Managing Trustee of the Federal Old-Age and Survivors Insurance Trust Fund shall make determinations during each fiscal year of amounts necessary to be transferred between the Social Security Investment Fund and the Federal Old-Age and Survivors Insurance Trust Fund so as to ensure that, to the maximum extent practicable, the amount transferred is equal to the prescribed amount for such fiscal year.

`(2) MAINTENANCE OF BENEFIT CUSHION- In determining the extent to which any amount is to be transferred from the Federal Old-Age and Survivors Insurance Trust Fund pursuant to paragraph (1) during any fiscal year, the Managing Trustee of the Trust Fund shall first, not later than the beginning of such fiscal year, determine the amount which is necessary for the fiscal year to meet current withdrawals from the Trust Fund under part A. Solely for purposes of making determinations under paragraph (1), the balance in the Trust Fund shall be deemed during such fiscal year not to include such amount. Any transfer pursuant to this subsection shall not include such amount, and such amount shall be invested or applied to current withdrawals as described in section 201(d).

`(3) PRESCRIBED AMOUNT- For purposes of paragraph (1), the `prescribed amount' for a fiscal year shall be:

The prescribed amount is--

2001

$81.5 billion.

2002

$67.5 billion.

2003

$88.5 billion.

2004

$87.4 billion.

2005

$106.0 billion.

2006

$117.7 billion.

2007

$148.9 billion.

2008

$175.1 billion.

2009

$203.4 billion.

2010

$232.6 billion.

2011

$256.5 billion.

2012

$280.1 billion.

2013

$299.9 billion.

2014

$316.5 billion.

2015 or thereafter

$324.5 billion.

`(4) TRANSFERS BETWEEN FUNDS TO MAINTAIN PRESCRIBED AMOUNT-

`(A) TRANSFERS TO THE SOCIAL SECURITY INVESTMENT FUND- Upon any determination under paragraph (1) made by the Managing Trustee that a transfer of any amount from the Federal Old-Age and Survivors Insurance Trust Fund to the Social Security Investment Fund is necessary, the Managing Trustee shall transfer such amount from the Trust Fund to the Social Security Investment Fund.

`(B) TRANSFERS FROM THE SOCIAL SECURITY INVESTMENT FUND- Upon any determination under paragraph (1) made by the Managing Trustee that a transfer of any amount from the Social Security Investment Fund to the Federal Old-Age and Survivors Insurance Trust Fund is necessary, the Managing Trustee shall certify such determination to the Executive Director and, upon receipt of such certification, the Executive Director shall transfer such amount from the Social Security Investment Fund to the Trust Fund.

`(c) TERMINATION OF TRANSFERS UPON DEPLETION OF FEDERAL OLD-AGE AND SURVIVORS INSURANCE TRUST FUND-

`(1) ISSUANCE OF CERTIFICATION UPON DETERMINATION OF IMPENDING DEPLETION OF TRUST FUND- Not later than July 1 of each fiscal year, the Managing Trustee of the Federal Old-Age and Survivors Insurance Trust Fund shall determine,

using reasonable assumptions, whether, by reason of transfers from the Trust Fund to the Social Security Investment Fund necessary to provide for payment form the Social Security Investment Fund during the following fiscal year of administrative expenses of the Social Security Investment Board and the Executive Director of the Board, the balance in the Trust Fund would, but for the provisions of this subsection, be reduced under this section during such following fiscal year to the amount to be determined for such following fiscal year under subsection (b)(2). Upon so determining that such balance would be reduced to such an amount during such following fiscal year, the Managing Trustee shall certify such determination to the Social Security Investment Board, the Comptroller General of the United States, and each House of the Congress.

`(2) TERMINATION OF TRANSFERS UPON CERTIFICATION- In any case in which the Managing Trustee issues a certification under paragraph (1), effective October 1 of the following fiscal year, subsection (b) shall cease to be effective.

`(3) AUTHORIZATION OF APPROPRIATIONS FOR ADMINISTRATIVE EXPENSES UPON TERMINATION OF TRANSFERS- There is authorized to be appropriated, for the fiscal year referred to in paragraph (2) and subsequent fiscal years, from amounts in the general fund of the Treasury which are not otherwise appropriated, such sums as are necessary to pay the administrative expenses of the Social Security Investment Board and the Executive Director of the Board.

`INVESTMENT OF SOCIAL SECURITY INVESTMENT FUND IN COMMON STOCK

`SEC. 252. (a) IN GENERAL- The Social Security Investment Board shall establish for the Social Security Investment Fund a Common Stock Index Fund under which sums shall be invested as provided in subsection (b). Any interest or dividends earned on such investments, and the proceeds from any liquidation of such investments, including capital gain derived from such liquidation, shall be credited to and form a part of the Social Security Investment Fund.

`(b) COMMON STOCK INDEX FUND-

`(1) IN GENERAL- The Common Stock Index Fund shall consist of amounts invested in common stock which is selected by qualified professional asset managers as provided in this subsection.

`(2) SELECTION OF INDEX AND PORTFOLIO DESIGN-

`(A) SELECTION OF INDEX- The Social Security Investment Board shall select for purposes of this subsection one or more indices each of which is comprised of common stock the aggregate market value of which is a reasonably complete representation of all publicly held companies whose shares are traded on the United States equity markets.

`(B) PORTFOLIO DESIGN- Amounts held in the Common Stock Index Fund shall be invested in portfolios designed to replicate the performance of the indices selected under subparagraph (A). Each portfolio shall consist solely of stock purchased in a registered public offering or in a secondary market transaction and shall be designed such that, to the extent practicable and consistent with the effective management of such Fund, the percentage of the amount of such Fund in each portfolio that is invested in each stock is the same as the percentage determined by dividing the aggregate market value of all shares of that stock by the aggregate market value of all shares of all stocks included in the corresponding index. The shares of any company shall not be included or excluded from investments under this subsection because of political, social, or religious considerations.

`(3) NO VOTING RIGHTS IN SECURITIES- The Social Security Investment Board and the Executive Director may not--

`(A) exercise voting rights associated with the ownership of securities by the Social Security Investment Fund, or

`(B) direct the manner in which any voting rights are exercised on behalf of the Social Security Investment Fund by any qualified professional asset manager pursuant to this section.

`(c) QUALIFIED PROFESSIONAL ASSET MANAGERS-

`(1) SELECTION- The services of qualified professional asset managers shall be procured by the Executive Director for purposes of this section in a competitive bidding process which shall be established in regulations which shall be prescribed by the Social Security Investment Board.

`(2) DEFINITION- For purposes of this section, the term `qualified professional asset manager' means--

`(A) a bank, as defined in section 202(a)(2) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(2)) which--

`(i) has the power to manage, acquire, or dispose of assets of a plan;

`(ii) has, as of the last day of its latest fiscal year ending before the date of a determination for the purpose of this subparagraph, equity capital in excess of $10,000,000; and

`(iii) has, on the last day of its latest fiscal year ending before the date of a determination for the purpose of this subparagraph, total client assets under its discretionary management and control for investment in excess of $100,000,000;

`(B) a savings association, the accounts of which are insured by the Federal Deposit Insurance Corporation, which--

`(i) has applied for and been granted trust powers to manage, acquire, or dispose of assets of a plan by a State or Government authority having supervision over savings associations;

`(ii) has, as of the last day of its latest fiscal year ending before the date of a determination for the purpose of this subparagraph, equity capital or net worth in excess of $10,000,000; and

`(iii) has, on the last day of its latest fiscal year ending before the date of a determination for the purpose of this subparagraph, total client assets under its discretionary management and control for investment in excess of $100,000,000;

`(C) an insurance company which--

`(i) is qualified under the laws of more than one State to manage, acquire, or dispose of any assets of a plan;

`(ii) has, as of the last day of its latest fiscal year ending before the date of a determination for the purpose of this subparagraph, net worth in excess of $10,000,000;

`(iii) is subject to supervision and examination by a State authority having supervision over insurance companies; and

`(iv) has, on the last day of its latest fiscal year ending before the date of a determination for the purpose of this subparagraph, total client assets under its discretionary management and control for investment in excess of $100,000,000; or

`(D) an investment adviser registered under section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3) if the investment adviser has, on the last day of its latest fiscal year ending before the date of a determination for the purpose of this subparagraph, total client assets under its discretionary management and control for investment in excess of $100,000,000, and--

`(i) the investment adviser has, on such day, shareholder's or partner's equity in excess of $10,000,000; or

`(ii) payment of all of the investment adviser's liabilities, including any liabilities which may arise by reason of a breach or violation of a duty described in section 254, is unconditionally guaranteed by--

`(I) a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the investment adviser and who has, on the last day of the person's latest fiscal year ending before the date of a determination for the purpose of this subparagraph, shareholder's or partner's equity in an amount which, when added to the amount of the shareholder's or partner's equity of the investment adviser on such day, exceeds $10,000,000;

`(II) a qualified professional asset manager described in paragraph (1), (2), or (3); or

`(III) a broker or dealer registered under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) that has, on the last day of the broker's or dealer's latest fiscal year ending before the date of a determination for the purpose of this subparagraph, [Struck out->][ net worth ][<-Struck out] in excess of $10,000,000.

For purposes of subparagraph (D), the term `shareholder's or partner's equity', when used with respect to an investment adviser, or a person who is affiliated with the investment adviser in a manner described in clause (ii)(I) of subparagraph (D), means the equity shown in the most recent balance sheet prepared for such investment adviser or affiliated person, in accordance with generally accepted accounting principles, within 2 years before the date on which the investment adviser's status as a qualified professional asset manager is determined for the purposes of this section.

`ENGAGEMENT OF QUALIFIED PUBLIC ACCOUNTANT

`SEC. 253. (a) IN GENERAL- The Social Security Investment Board shall annually engage, on behalf of the Social Security Investment Fund, an independent qualified public accountant, who shall conduct an examination of all accounts and other books and records maintained in the administration of this part (including all applicable financial statements) as the public accountant considers necessary to enable the public accountant to make the determination required by subsection (b). The examination shall be conducted in accordance with generally accepted auditing standards and shall involve such tests of the accounts, books, and records as the public accountant considers necessary.

`(b) EXAMINATION AND REPORT- The public accountant conducting an examination under subsection (a) shall determine whether the accounts, books, and records

referred to in such subsection have been maintained in conformity with generally accepted accounting principles applied on a basis consistent with the manner in which such principles were applied during the examination conducted under such subsection during the preceding year. The public accountant shall transmit to the Board a report on his examination, including his determination under this subsection.

`(c) DEFINITION- For the purposes of this section, the term `qualified public accountant' shall have the same meaning as is provided in section 103(a)(3)(D) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1023(a)(3)(D)).

`FIDUCIARY RESPONSIBILITIES

`SEC. 254. (a) IN GENERAL- Under regulations of the Secretary of Labor, the provisions of section 8477 of title 5, United States Code (relating to fiduciary responsibilities; liability and penalties) and section 8478 of such title (relating to bonding) shall apply in connection with the amounts maintained in the Common Stock Index Fund of the Social Security Investment Fund in the same manner and to the same extent as such provisions apply in connection with the Thrift Savings Fund.

`(b) INVESTIGATIVE AUTHORITY- Any authority available to the Secretary of Labor under section 504 of the Employee Retirement Income Security Act of 1974 is hereby made available to the Secretary of Labor, and any officer designated by the Secretary of Labor, to determine whether any person has violated, or is about to violate, any provision applicable under subsection (a).

`(c) EXCULPATORY PROVISIONS; INSURANCE-

`(1) IN GENERAL- Any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void.

`(2) INSURANCE- Amounts in the Social Security Investment Fund available for administrative expenses shall be available and may be used at the discretion of the Social Security Investment Board to purchase insurance to cover potential liability of persons who serve in a fiduciary capacity with respect to amounts maintained in the Common Stock Index Fund of the Social Security Investment Fund, without regard to whether a policy of insurance permits recourse by the insurer against the fiduciary in the case of a breach of a fiduciary obligation.

`DIVERSIFICATION THROUGH INVESTMENT MANAGEMENT

`SEC. 255. The Social Security Investment Board shall prescribe policies governing investment of the Social Security Investment Fund which shall ensure--

`(1) that the management of investments on behalf of the Fund undertaken in the course of carrying out the investment responsibilities of the Executive Director of the Fund is exercised by qualified professional asset managers pursuant to section 252 in such manner as to ensure that not fewer than 3 such managers are each engaged in the management of a substantial portion of such investments,

`(2) that investments managed on behalf of the Fund by any such qualified professional asset manager do not represent more than 1 percent of the total equity interest in any person, and

`(3) that each investment manager will vote on any matter the shares of any issuer held by the Fund under the management of such investment manager in conformity with the voting on such matter of all other shares of such issuer.'.

(b) CONFORMING AMENDMENT- Section 201(d) of such Act (42 U.S.C. 401(d)) is amended in the first sentence by striking `withdrawals' and inserting `withdrawals, or, in the case of the Federal Old-Age and Survivors Insurance Trust Fund, to meet the transfer requirements under section 251(b)'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to fiscal years beginning on or after October 1, 2000.

END