Pensions and Individual Retirement Accounts (IRAs): Investment Issues

April 3, 2024 R47996

Pensions and Individual Retirement Accounts
April 3, 2024
(IRAs): Investment Issues
Katelin P. Isaacs,
Employer-sponsored pensions and individual retirement accounts (IRAs) are important sources
Coordinator
of income security in retirement for American households. Recent congressional interest in
Specialist in Income
retirement policy has focused on several aspects of pension investments. Some of this interest
Security
involves pension investment policy spanning the state and local, federal, and private sectors. For

example, several hearings in the 118th Congress have examined the role of environmental, social,
Elizabeth A. Myers
and governance (ESG) investing in pension plans with regard to investment managers and
Analyst in Income Security
retirement policy generally. Some other recent developments in pension investment policy have

focused on a particular sector. For instance, recent regulatory and congressional responses to
private sector pension issues have addressed investment advice and investment fees. Similarly,
John J. Topoleski
the investment practices of the Thrift Savings Plan (TSP), a retirement plan covering the civilian
Specialist in Income
federal workforce and the uniformed services, have been legislatively active over recent
Security

Congresses, including the 118th Congress.

This report provides an overview of pension investment issues across state and local pensions,
federal pensions (with a focus on TSP), private sector pension plans, and IRAs. For each of these
types of pensions or retirement accounts, this report explains relevant federal authorities (if any), relevant federal oversight (if
any), and administrative issues. For example, while current TSP investment options are set out specifically under federal law
(5 U.S.C. §8438), state and local pension plans are generally governed by state laws, contract law, and/or state constitutions.
Moreover, state and local pension plans are exempt from many, but not all, requirements under the Employee Retirement
Income Security Act of 1974 (ERISA; P.L. 93-406), the federal law that covers most private sector pension plans.
Understanding the relevant authorities and administration of different types of pension plans and retirement accounts is
crucial to untangling policy proposals to address pension investment issues.
This report also identifies and synthesizes key pension investment issues for Congress, many of which have received
regulatory and congressional responses or have involved legislative activity in the 118th Congress. Specifically, lawmakers
have expressed interest in the following policy issues related to pension investments, by sector:
• State and local pensions: ESG investing, alternative investments, geopolitical considerations, and diverse
asset managers;
• Federal pensions, specifically with regard to TSP: the International “I” Fund benchmark and investments in
Chinese companies, ESG investment issues, the mutual fund window, diverse asset managers, and the
exercise of shareholder rights;
• Private sector pensions: investments based on non-pecuniary factors, exercise of shareholder rights,
alternative investments, collective investment trusts in 403(b) plans, investment advice, investment fees,
and qualified professional asset managers; and
• IRAs: investment restrictions and prohibited transactions.
For background on other aspects of these pension plans and retirement accounts, see CRS Report R47119, Pensions and
Individual Retirement Accounts (IRAs): An Overview.

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Contacts
Author Information ........................................................................................................................ 36

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Pensions and Individual Retirement Accounts (IRAs): Investment Issues

Introduction
A pension is a benefit offered by employers to assist employees in providing for their financial
security in retirement.1 Pensions are a type of deferred compensation intended to replace income
when individuals separate from the paid labor force at older ages. Employers in the public
sector—state and local governments as well as the federal government—and in the private sector
may provide pensions to their employees.2
Pension plans can be classified along several dimensions. In defined benefit (DB) plans
(sometimes referred to as traditional pension plans), participants typically receive monthly
payments in retirement based on a formula that uses either (1) a combination of length of service,
accrual rate, and average of final years’ salary or (2) a flat dollar amount times the number of
months or years in the plan. Some plans offer participants the option to receive their benefits as a
lump-sum amount.
In defined contribution (DC) plans, workers are provided individual accounts funded by their own
contributions, contributions from their employers, or both. The funds in the account may accrue
investment earnings, which can then be used as a source of income in retirement. The type of DC
plan that an employer may offer depends on the type of employer (for example, the types of plans
offered by public sector employers are typically different from those offered by private sector
employers), as well as the employer’s choices regarding plan features (for example, private sector
employers have a number of types of DC plans they can offer). Examples of DC plans include
profit-sharing plans, money purchase plans, 401(k) plans, 403(b) plans, and employee stock
ownership plans (ESOPs).
Individual retirement accounts (IRAs) are tax-advantaged accounts that allow individuals to save
for retirement outside of employer-sponsored plans or to roll over savings from employer-
sponsored plans.3 Traditional and Roth IRAs differ based on their tax treatment. Contributions to
traditional IRAs may be deductible from taxable income, while withdrawals are included in
taxable income. Contributions to Roth IRAs are not deductible and are limited by income, but
qualified withdrawals are not included in taxable income; investment earnings grow tax free.
Most inflows to IRAs come from rollovers of savings in workplace pension plans (such as 401(k)
plans) at job change or retirement.4
In March 2023, nearly three-quarters (72%) of U.S. civilian workers had access to, and more than
half (56%) participated in, DB or DC pension plans at their workplaces.5 Additionally, in 2019,
about 25% of U.S. households owned IRAs.6 Pensions and retirement policy is an area of ongoing
congressional interest as lawmakers seek ways to improve the retirement system for both
employers and employees. Congress may be interested in a number of issues related to pensions,

1 For a discussion of retirement income security more generally, see CRS In Focus IF12330, Retirement Income
Security: Issues and Policies.
2 For background on the various types of pension plans, see CRS Report R47119, Pensions and Individual Retirement
Accounts (IRAs): An Overview.
3 For background on IRAs, see CRS Report R46635, Individual Retirement Account (IRA) Ownership: Data and Policy
Issues, and CRS Report RL34397, Traditional and Roth Individual Retirement Accounts (IRAs): A Primer.
4 For example, in 2020 (the latest year for which data is available), over 96% of the inflows to traditional IRAs came
from rollovers. More inflows to Roth IRAs came from contributions rather than rollovers, but Roth IRA inflows ($85.0
billion) were much smaller than traditional IRA inflows ($616.9 billion) in 2020. See Investment Company Institute,
“The U.S. Retirement Market, Third Quarter 2023,” https://www.ici.org/research/stats/retirement.
5 See Bureau of Labor Statistics, National Compensation Survey, March 2023, https://www.bls.gov/ebs/publications/
employee-benefits-in-the-united-states-march-2023.htm.
6 See CRS Report R47213, Ownership of Retirement Assets: Data in Brief.
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such as proposals to expand pension coverage or the tax treatment of retirement plans. One
pension policy issue that has received considerable attention recently is the investment practices
of different types of retirement plans. For example, in May and June of 2023, the House
Committee on Oversight and Accountability held two joint subcommittee hearings to examine the
role of environmental, social, and governance (ESG) investing,7 including with regard to
investment managers and retirement policy.8 On November 7, 2023, the House Committee on
Ways and Means held a hearing on “Ensuring That ‘Woke’ Doesn’t Leave Americans Broke:
Protecting Seniors and Savers from ESG Activism,”9 which also focused on the role of ESG
investments in retirement policy. Additionally, legislation to make changes to the investment
practices of the Thrift Savings Plan (TSP), a defined contribution retirement plan for the civilian
federal workforce and the uniformed services, has been introduced in recent Congresses.10
This report synthesizes information on selected pension investment issues so Congress can
understand existing legislative proposals as well as develop new legislative proposals. This report
provides background information on pension investment issues generally, including differences
across sectors and types of pension plans.
Overview of Pension Plans
Pensions vary across a number of dimensions that are relevant for the purposes of investment
policy considerations. First, and most significantly, the sector of the employer that sponsors the
pensions matters for the purposes of pension investments. Therefore, this report considers public
sector pension plans sponsored by governments at the (1) state and local level and (2) federal
level and discusses (3) private sector pensions, all on their own terms. Pensions sponsored by
employers across these three sectors differ meaningfully for the purposes of investment policy,
including the role of federal laws (if any), the role of federal oversight (if any), and plan
administration. Similarly, IRAs are subject to their own federal authorities, federal oversight, and
account administration.
Second, as previously mentioned, there are two types of pension plans based on benefit structure:
(1) DB plans, in which participants typically receive their benefits as monthly payments in
retirement, and (2) DC plans, in which participants’ benefits accrue in individual savings
accounts. The different features of these two types of pension plans lend themselves to different
policy issues with regard to investment practices. In addition, DB plan investment decisions may
be influenced by plans’ funded statuses, which differ by sector.11 For example, both private sector

7 For background on ESG investing, see CRS In Focus IF11716, Introduction to Financial Services: Environmental,
Social, and Governance (ESG) Issues.
8 See U.S. Congress, House Committee on Oversight and Accountability, ESG Part I: An Examination of
Environmental, Social, and Governance Practices with Attorneys General, May 10, 2023, https://oversight.house.gov/
hearing/esg-part-i-an-examination-of-environmental-social-and-governance-practices-with-attorneys-general/; and ESG
Part II: The Cascading Impacts of ESG Compliance, June 6, 2023, https://oversight.house.gov/hearing/esg-part-ii-the-
cascading-impacts-of-esg-compliance/.
9 See U.S. Congress, House Committee on Ways and Means, Hearing on Ensuring That “Woke” Doesn’t Leave
Americans Broke: Protecting Seniors and Savers from ESG Activism, November 7, 2023,
https://waysandmeans.house.gov/event/hearing-on-ensuring-that-woke-doesnt-leave-americans-broke-protecting-
seniors-and-savers-from-esg-activism/.
10 For examples of legislation that would have made changes to TSP investments in the 117th Congress, see CRS In
Focus IF12110, Thrift Savings Plan: Investment Issues.
11 Plans’ funded statuses, which differ by sector, may be a result of different funding rules between private and public
sector plans. Private sector DB plans are subject to funding rules in federal law—ERISA sets out requirements for the
minimum required contribution, which is the amount of money that must be contributed each year to a DB pension plan
(continued...)
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and state and local DB plans have historically been underfunded, although in recent years, private
sector plans’ funding status has improved, in part due to changes in law that affect the discount
rate used by plans.12 State and local DB plans continue to be underfunded.13 Federal DB pensions
are not underfunded because they are generally invested in risk-free Treasury securities.14
Pension plans hold a variety of investments.15 The Federal Reserve publishes quarterly data on
the holdings of pension plans in the Financial Accounts of the United States.16 These holdings
include short-term securities (such as checking and savings deposits), corporate equities (such as
company stock), debt (such as mortgages and bonds issued by governments and companies),
mutual funds (such as investment companies that pool money from investors in securities such as
stocks and bonds), and, for DB plans, the claims of the pension funds on plan sponsors (plans’
unfunded benefits).17 Not every pension plan holds every type of asset.18 For example, the DB
pension plans for nearly all federal employees hold only U.S. Treasury securities.
Total assets held in DB retirement plans, DC accounts, and IRAs totaled $40.0 trillion as of June
30, 2023.19 Because assets in pension plans and IRAs comprise a significant portion of U.S.
households’ wealth, changes to pension investment policies could affect both the amount and the
distribution of household wealth.20 Figure 1 shows (1) the amount of financial assets (in trillions
of dollars) in pension plans sponsored by private sector employers, state and local governments,
and the federal government; (2) the amount of assets in IRAs; and (3) the components of these
assets.

(see CRS Report R46366, Single-Employer Defined Benefit Pension Plans: Funding Relief and Modifications to
Funding Rules). State and local pension plans are not subject to federal pension funding requirements and generally
follow pension accounting standards set by the Governmental Accounting Standards Board. In some cases, state and
local plans may not make their full required contributions to the pension plans each year, which contributes to plan
underfunding.
12 See CRS Report R46366, Single-Employer Defined Benefit Pension Plans: Funding Relief and Modifications to
Funding Rules.
13 See Public Plans Data, “Actuarial Funded Ratio for State and Local Pensions, 2001-,” https://publicplansdata.org/
quick-facts/national/#.
14 See “Federal Pension Plans” later in this report.
15 For additional information, see CRS Report R47699, U.S. Retirement Assets: Data in Brief.
16 The Financial Accounts of the United States are available at https://www.federalreserve.gov/releases/z1/.
17 DB plan underfunding is in plan assets because the plans expect to receive the funds that are owed by plan sponsors.
18 The financial accounts data does not have a separate category for international holdings. International holdings are
included in their respective categories. (For example, the sovereign debt of a foreign nation would be under “debt.”)
19 See CRS Report R47699, U.S. Retirement Assets: Data in Brief.
20 In Q3 2023, household net worth totaled $142.4 trillion. See Board of Governors of the Federal Reserve System
(US), “Households; Net Worth, Level [BOGZ1FL192090005Q],” retrieved from Federal Reserve Bank of St. Louis,
https://fred.stlouisfed.org/series/BOGZ1FL192090005Q, January 7, 2024.
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Figure 1. Total Holdings and Components of Financial Assets in U.S. Pension Plans
and Individual Retirement Accounts (IRAs)
In Trillions of Dollars, as of June 30, 2023

Source: Figure constructed by CRS from Board of Governors of the Federal Reserve System, Financial Accounts
of the United States, https://www.federalreserve.gov/apps/fof/FOFTables.aspx. See tables L.118.b, L.118.c, L.119.b,
L.119.c, L.120.b, L.120.c, and L.229.
Notes: IRAs include employer-sponsored IRAs and state-administered IRA programs. Mutual funds invest in a
variety of assets, including corporate equities and debt. As a result, the total amount of corporate equities and
debt held by pension plans likely exceeds the values presented in the Corporate Equities and Debt categories in
the figure. DB claims on sponsors are funds owed but unpaid by plan sponsors to the plans. Unpaid funds are
treated as financial assets. Short-term securities include checkable deposits, savings deposits, money market
funds, and security repurchase agreements. Debt is composed of securities such as commercial paper, U.S.
Treasury securities, U.S. government agency and government-sponsored-enterprise-backed securities, foreign
bonds, and corporate bonds. Corporate equities include publicly traded shares and private equity. Mutual funds
pool money from investors and invest the money in securities such as stocks, bonds, and debt. DB claims on
sponsors are funds owed but unpaid by plan sponsors to the plan. Unpaid funds are treated as financial assets.
Other financial assets include, but are not exclusively composed of, insurance contracts and contributions
receivable.
State and Local Government Pension Plans
Most state and local employees (such as police officers, firefighters, teachers, and other state and
local government employees) are covered by pension plans and, among those with plans, they are
more likely to be covered by DB plans than by DC plans. In March 2023, 91% of all state and
local government workers had access to pension plans, with 86% having access to DB plans and
39% having access to DC plans. In the same month, 81% of state and local government workers
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participated in pension plans (75% DB, 18% DC; some workers participated in both types of
plans).21
Authority and Administration
State and local pension plans are not covered by the Employee Retirement Income Security Act
of 1974 (ERISA; P.L. 93-406), which covers most private sector pension plans and is included in
the U.S. Code in both Title 26 (the Internal Revenue Code, or IRC) and in Title 29 (often called
the Labor Code). Relatedly, state and local pension plans are not covered by the Pension Benefit
Guaranty Corporation (PBGC), which is a government corporation established by ERISA that
insures private sector DB plans.22 Finally, state and local pension plans are exempt from many,
but not all, IRC requirements (such as minimum funding requirements). Instead, these plans are
governed by state laws, contract law, and/or state constitutions.
Many (if not nearly all) state and local government plans follow the accounting and financial
standards set by the Governmental Accounting Standards Board (GASB).23 GASB publishes
accounting and financial reporting standards for state and local governmental pension plans using
U.S. Generally Accepted Accounting Principles. These standards govern how public pensions
calculate and report their assets and liabilities and are intended to promote transparency,
consistency, and comparability across state and local pension plans.
In FY2020, 14.7 million active (working) members and 11.5 million total beneficiaries were
covered by 5,340 DB plans administered by state and local government entities, including
municipalities, townships, counties, school districts, and special districts.24 The Center for
Retirement Research indicated that the 219 largest state and local DB plans (121 state, 108 local)
in its Public Plans Data accounted for 95% of state and local DB pension assets and members in
the United States.25
Most public sector employees are covered by DB plans, but DC plans are becoming more
common.26 Some states have shifted to a hybrid system that combines DB and DC plans. Others,
such as Alaska, have closed their DB plans and instead offer a DC plan to new hires.27 Depending
on the employer, state and local DC plan types include 401(a), 401(k), 403(b), and 457(b) plans.
Employee participation and contributions may be mandatory or optional, depending on the
structure of the plan as determined by the employer. A 401(a) plan may be available to state and
local government workers as part of a DB-DC combination plan or a hybrid cash balance plan. A
403(b) plan may be offered to employees of public schools, churches, and certain charitable tax-

21 Bureau of Labor Statistics, “National Compensation Survey: Employee Benefits in the United States,” March 2023,
September 2023, https://www.bls.gov/ebs/publications/employee-benefits-in-the-united-states-march-2023.htm.
22 For background on the PBGC, see CRS Report 95-118, Pension Benefit Guaranty Corporation (PBGC): A Primer.
23 See Governmental Accounting Standards Board, “About the GASB,” https://gasb.org/about-us/about-the-gasb.
24 U.S. Census Bureau, 2020 Annual Survey of Public Pensions: State and Local Tables, https://www.census.gov/data/
tables/2020/econ/aspp/aspp-historical-tables.html. Fiscal year dates vary by state. Between 25% and 30% of state and
local DB plan members and beneficiaries are not covered by Social Security. See National Conference on Public
Employee Retirement Systems and Cobalt Community Research, 2019 NCPERS Public Retirement Systems Study,
January 21, 2020, https://www.ncpers.org/files/
2019%20NCPERS%20Public%20Retirement%20Systems%20Study%20Report%20Final.pdf.
25 Center for Retirement Research at Boston College, “Public Plans Data,” https://publicplansdata.org/public-plans-
database. Data retrieved from website on February 16, 2024.
26 See CRS Report R43439, Worker Participation in Employer-Sponsored Pensions: Data in Brief.
27 See American Society of Pension Professionals and Actuaries, “Snapshot: The Effect of the DB to DC Shift in
Alaska,” June 5, 2023, https://www.asppa-net.org/news/snapshot-effect-db-dc-shift-alaska.
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exempt entities. A 457(b) plan is a voluntary, supplementary DC savings vehicle, often offered to
state and local government employees in conjunction with a traditional DB pension.
State and Local Pension Plan Investment Issues
Investment issues for state and local pensions include those related to:
• ESG investing,
• geopolitical concerns,
• alternative investments, and
• diverse asset managers.
Most state and local pension investment issues have been focused on DB plans.28 In comparison
with private sector pensions, which use company resources to make up for DB plan underfunding,
state and local pension plans could have different investment risk tolerances because plan
underfunding is generally made up through increased taxation or reductions in other public
spending.29
Congress has expressed interest in issues affecting state and local pension plan investments—
particularly those related to ESG investing. However, because state and local plans are not subject
to the part of federal pensions law governing plan investments, Congress may have fewer options
to influence state and local pension plan investments.30
ESG Investment Issues
There is no universally agreed-upon definition of what constitutes ESG.31 In addition,
inconsistent disclosure standards make it harder for investors to measure a firm’s performance on
ESG issues. In general, the E means that investors and stakeholders may examine a firm’s impact
on the environment, the S refers to the consideration of a firm’s effects on its various
stakeholders, such as consumers, employees, suppliers, contractors, and the local and broader
communities; and G refers to the consideration of policies, processes, and controls implemented
by a firm.32
State and local pension plans are taking different approaches to ESG issues. Some plans
specifically incorporate ESG factors into their investment choices; others limit the consideration
of ESG factors in the investment process, such as by requiring plan fiduciaries to choose

28 This might be because DC plan assets comprise a small portion of state and local pension assets (less than $500
billion compared to $9.5 trillion for DB).
29 For a discussion of the different incentives of participants and stakeholders in the public pension plan system, see
American Academy of Actuaries, Risk Management and Public Plan Retirement Systems, https://www.actuary.org/
sites/default/files/files/PPPTF_Final_Report_c_0.pdf.
30 One example of federal legislation that would have affected public sector pensions is the Public Employee Pension
Transparency Act, first introduced by Representative Devin Nunes in the 111th Congress (see H.R. 6484) and later
introduced in subsequent Congresses. This bill would have required state and local pension plans to file annual reports
with the Department of the Treasury disclosing pension liabilities based on a specified (typically lower) interest rate.
State and local governments not in compliance with the reporting requirements would lose their ability to issue tax-
exempt bonds.
31 For information about ESG, see CRS In Focus IF11716, Introduction to Financial Services: Environmental, Social,
and Governance (ESG) Issues.
32 For more details on what ESG investment factors might include, see Securities and Exchange Commission,
“Environmental, Social, and Governance (ESG) Funds—Investor Bulletin,” February 26, 2021, https://www.sec.gov/
oiea/investor-alerts-and-bulletins/environmental-social-and-governance-esg-funds-investor-bulletin.
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investments solely based on factors that balance risk and return or to divest from companies or
asset managers as state law might dictate. Some examples include New York, which integrates
ESG considerations in its investment decisions;33 Texas, which barred state governmental entities
(which include public pension funds) from contracting with companies that boycott fossil fuel
companies;34 and Kansas, which passed a law that prevents the use of ESG considerations in state
contracts and investments.35
Pensions and Investments 1000 Summary Report includes data on DB plans among the top 200
funds that use ESG factors. Public sector plans included in this list include those based in
Alabama, California, Illinois, Iowa, Maryland, New Jersey, New York, Ohio, Washington, and
Wisconsin.36
Advocates of ESG investing note that portfolios that consider ESG factors may lead to greater
portfolio diversification and improved corporate performance and can align with investors’
goals.37 Opponents of ESG investment point out the higher costs associated with ESG investing,
lower returns, and misalignment with the goal of maximizing investment returns instead of
pursuing social policy.38
Geopolitical Considerations
Related to ESG issues are geopolitical issues, on which some plans base investment decisions.39
In recent years, two general trends in state and local pension investment policies have been to (1)
divest from certain countries (e.g., Russia, Belarus, China) and entities based in those countries
and (2) bar investments in companies that support the Boycott, Divestment and Sanctions (BDS)

33 See New York Common Retirement Fund, Environmental, Social and Governance (ESG) Strategy,
https://www.osc.ny.gov/files/common-retirement-fund/2020/pdf/ESG-strategy-report-2020.pdf. In addition,
California’s CalPERS plan, which has nearly 2.2 million participants, operates a Sustainable Investments Program,
which assists the investment office by integrating ESG risks and opportunity consideration into investment
decisionmaking and engages with companies and managers to manage ESG risks. See CalPERS, 2021-22 Annual
Comprehensive Financial Report, https://www.calpers.ca.gov/docs/forms-publications/acfr-2022.pdf, and CalPERS,
“Sustainable Investments Program,” https://www.calpers.ca.gov/page/investments/sustainable-investments-program.
34 See Texas Comptroller of Public Accounts, “Texas Comptroller Glenn Hegar Announces List of Financial
Companies That Boycott Energy Companies,” August 24, 2022, https://comptroller.texas.gov/about/media-center/
news/20220824-texas-comptroller-glenn-hegar-announces-list-of-financial-companies-that-boycott-energy-companies-
1661267815099; and Oklahoma State Treasurer, “Financial Institutions Remain on Oklahoma Treasurer’s List of
Restricted Companies,” August 15, 2023, https://oklahoma.gov/treasurer/news-releases/financial-institutions-remain-
on-oklahoma-treasurers-list-of-restricted-companies.html.
35 See Kansas legislature, HB 2100, https://www.kslegislature.org/li/b2023_24/measures/hb2100/.
36 See Pensions and Investments, The P&I 1000 Summary Report, https://www.pionline.com/pi1000.
37 See, for example, Tensie Whelan et al., “ESG and Financial Performance: Uncovering the Relationship by
Aggregating Evidence from 1,000 Plus Studies Published Between 2015-2020,” New York University Stern Center for
Sustainable Business, August 2021, https://www.stern.nyu.edu/sites/default/files/assets/documents/
ESG%20Paper%20Aug%202021.pdf.
38 See, for example, testimony of the Hon. Jason Isaac, in Ensuring That “Woke” Doesn’t Leave Americans Broke,
https://gop-waysandmeans.house.gov/wp-content/uploads/2023/11/Isaac-Testimony.pdf, and testimony of the Hon.
Marlo M. Oaks, , in Ensuring That “Woke” Doesn’t Leave Americans Broke, https://gop-waysandmeans.house.gov/
wp-content/uploads/2023/11/Oaks-Testimony.pdf.
39 There is no universally agreed-upon definition of what constitutes ESG. Investors and other stakeholders consider a
wide-ranging array of topics as part of ESG. Some might categorize geopolitical concerns as an ESG issue; this report
discusses them separately.
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movement.40 In the past, there have been efforts to divest from Sudan, Northern Ireland, and
Iran.41
For example, Indiana, New Jersey, and New York have introduced legislation and/or undertaken
executive actions to divest from Russia.42 In 2023, Indiana’s public pension system divested from
investments controlled by the People’s Republic of China or the Chinese Community Party.43 In
2015, Illinois was the first state to divest its public pensions from companies that participate in
the BDS movement.44 In some cases, the pension plans are making divestment decisions. In other
cases, sanctions in state laws require all public funds, including pension funds, to divest from
certain countries or entities in specified countries.
Alternative Investments
In the past 30 years, many state and local DB pension plans have increased the allocation of
alternative investments (i.e., financial assets that are not stocks, bonds, or cash, including assets
such as private equity, hedge funds, real estate, and commodities) in their investment portfolios.
Alternative investments might be perceived as being less regulated and transparent or having
higher fees compared to traditional investments. On the other hand, advocates note that
alternative investments’ low correlation with traditional investments could strengthen
diversification of investment portfolios.45 The CRR indicated that the plans in the Public Plans
database had about 9% of their assets invested in alternatives in 2001 and that the percentage
increased to 34% in 2022.46 State and local pension plans typically have a greater percentage of
their investments allocated to private equity than do private sector plans.47 It is unclear why state
and local and private sector DB plans differ in the percentages of plan assets allocated to
alternatives, but it might be related to plan sponsors’ different risk tolerances due to a variety of
factors.48

40 The BDS movement, according to its website, is a global movement made up of unions, academic associations,
churches, and grassroots movements that seeks to employ boycotts, divestment, and sanctions against Israel. See BDS,
https://bdsmovement.net/.
41 See National Association of State Retirement Administrators, “Divestment,” https://www.nasra.org/files/
Topical%20Reports/Governance%20and%20Legislation/Pension%20Reform/divestment.pdf.
42 In general, news reports suggest that state plan holdings in Russia account for approximately 1% or less of total
pension assets.
43 See Indiana Senate Bill 268, https://iga.in.gov/legislative/2023/bills/senate/268/details.
44 See Illinois.gov, “Governor Signs Historic Anti-BDS Law in Illinois,” press release, July 23, 2015,
https://www.illinois.gov/news/press-release.13202.html.
45 See CFA Institute, “Introduction to Alternative Investments,” https://www.cfainstitute.org/en/membership/
professional-development/refresher-readings/introduction-alternative-investments.
46 See Jean-Pierre Aubry, “Public Pension Investment Update: Have Alternatives Helped or Hurt?,” Center for
Retirement Research at Boston College, November 22, 2022, https://crr.bc.edu/public-pension-investment-update-
have-alternatives-helped-or-hurt/.
47 For example, WTW indicated that at the end of 2021, the 100 largest private sector DB plans that are sponsored by
publicly traded corporations had about 9.5% of their investments allocated to alternative investments. See Brendan
McFarland, “WTW Pension 100: Year-End 2021 Disclosures of Funding, Discount Rates, Asset Allocations and
Contributions,” WTW, May 4, 2022, https://www.wtwco.com/en-us/insights/2022/05/wtw-pension-100-year-end-
2021-disclosures-of-funding-discount-rates-asset-allocations.
48 Some note that one reason may be that public pension plans “have become optimistic about the so-called alpha of
alternatives relative to public equities.” See Juliane Begenau, Pauline Liang, and Emil Siriwardane, “The Rise of
Alternatives,” January 18, 2024, Stanford University Graduate School of Business Research Paper,
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4105813.
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Diverse Asset Managers
Some policymakers have expressed interest in growing the diversity of professional asset
managers in the public pension investment space, including minority- and women-owned
business enterprises. Several states have enacted laws, implemented programs, or established
goals to encourage the utilization of diverse asset managers under the notion that diversity among
asset managers can enhance financial outcomes and lead to better risk-adjusted returns on plan
assets. For example, Maryland’s State Retirement and Pension System operates a program that
“seeks to identify promising smaller or developing managers.”49 At the local level, the Chicago
Teachers’ Pension Fund’s annual financial report noted that, during the year ending June 30,
2019, “approximately 44% ($4.8 billion) of the Fund’s investment portfolio was managed by
qualified minority, women, and disabled-person owned investment managers.”50
These actions at the state and local level have also been a model for interest in diverse asset
managers at the federal pension level, especially as a consideration for TSP (see the discussion in
the federal pension section below on “Diverse Asset Managers”).51
Federal Pension Plans
Most of the civilian federal workforce is covered by one of two DB retirement plans: the Civil
Service Retirement System (CSRS) for employees first hired prior to 1984, or the Federal
Employees’ Retirement System (FERS) for employees first hired in 1984 or later.52 Both CSRS
and FERS are financed through the Civil Service Retirement and Disability Fund (CSRDF). The
CSRDF is similar to the Social Security trust funds in that, by law, 100% of its assets are invested
in special-issue U.S. Treasury bonds or other bonds backed by the full faith and credit of the U.S.
government.53 When the trust fund needs cash to pay retirement benefits, it redeems the bonds
and the Treasury disburses an equivalent dollar value of payments to CSRS and FERS
beneficiaries.54

49 See Maryland State Retirement and Pension System, Terra Maria: Developing Manager Program in Public Markets
and Private Equity, updated February 2011, https://sra.maryland.gov/sites/main/files/file-attachments/
terramariadevelopingmanagerprogram-description.pdf.
50 See Chicago Teachers’ Pension Fund, 124th Comprehensive Annual Financial Report, 2019, p. 12,
https://www.ctpf.org/sites/files/2020-10/2019_ctpf_cafr_final_post.pdf.
51 At the federal level, the House Financial Services Committee held a hearing in 2019 about challenges, solutions, and
opportunities for inclusion of diverse asset managers. See U.S. Congress, House Committee on Financial Services,
Diverse Asset Managers: Challenges, Solutions and Opportunities for Inclusion, 117th Cong., 1st Sess., June 25, 2019,
https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407321.
52 Military servicemembers are covered by a separate retirement system, which is not discussed in this report. For
details on retirement benefits for military servicemembers, see CRS Report RL34751, Military Retirement:
Background and Recent Developments. A number of smaller DB and DC plans have been established for certain
civilian federal employees within various agencies. There are a few additional plans that provide federal pensions to a
non-trivial number of civilian federal employees. For example, the Foreign Service Retirement and Disability System
(FSRDS) and the Foreign Service Pension System (FSPS) are DB plans that cover Foreign Service Officers (FSOs)
based on their dates of hire in a similar way to CSRS and FERS. The Federal Reserve also operates its own DB and DC
plans on behalf of its bank and board employees and certain other employees. For more information all of these federal
pension plans, including CSRS and FERS, see CRS Report R47084, Federal Retirement Plans: Frequently Asked
Questions.
53 See 5 U.S.C. §8348(c). For information on the investment practices of the Social Security trust funds, see CRS In
Focus IF10564, Social Security Trust Fund Investment Practices.
54 For more information on the CSRDF, see CRS Report RL30023, Federal Employees’ Retirement System: Budget
and Trust Fund Issues.
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Federal employees enrolled in either CSRS or FERS may also contribute to the TSP, a DC
pension plan similar to the 401(k) plans provided by many private sector employers.55 However,
only employees enrolled in FERS are eligible for employer matching contributions under TSP.
Newly hired FERS employees are automatically enrolled in TSP and contribute 5% of their pay,
though they have the option to decline participation or change the amount of their contributions.
TSP participants may contribute from their salaries up to the current contribution limits.56 An
employee covered by FERS receives an automatic 1% agency contribution and an agency match
equal to 100% of the worker’s first 3% of basic pay and 50% of the next 2% of basic pay.57
Because the CSRDF investments are restricted to Treasury securities, the remaining discussion
about federal pension plans focuses on TSP investment issues. Below is an explanation of the
authority for and administration of TSP investments as well as an explanation of current TSP
investment options.
TSP Investments: Authority and Administration
The Thrift Savings Plan (TSP) was created under the Federal Employees’ Retirement System Act
(FERSA; P.L. 99-335; June 6, 1986). The Federal Retirement Thrift Investment Board (FRTIB)
administers TSP.58 FRTIB is an independent agency that receives no appropriations from
Congress. Instead, administrative expenses for FRTIB are paid through TSP loan fees, 1% agency
automatic contributions forfeited by certain employees who leave federal service before they have
vested, and administrative charges against participant accounts.59
FRTIB is composed of five board members chosen by the President and confirmed by the Senate.
The Board also selects an Executive Director who manages daily operations.60 Under current law,
members of the FRTIB and the Executive Director serve as fiduciaries, legally obligated to act
“solely in the interest of the [TSP] participants and beneficiaries … and for the exclusive purpose
of providing benefits to participants and their beneficiaries.”61
All TSP investment options are set out under current law.62 In order to offer these investment
options to participants, FRTIB develops specific investment policies—for example, selecting
benchmarks for the index fund investment options—that provide for “prudent investments
suitable for accumulating funds for payment of retirement income; and low administrative
costs.”63 Thus, in addition to its fiduciary responsibilities, FRTIB must adhere to its statutory
mandates to keep administrative costs low and prudently manage returns for TSP account holders.

55 Military servicemembers and FSOs may also contribute to the TSP.
56 Contribution limits are available at TSP.gov, “Contribution Limits,” https://www.tsp.gov/making-contributions/
contribution-limits/.
57 Participants are fully vested in the 1% agency automatic contributions to the TSP after three years (two years for
congressional employees and certain senior political appointees). There is no vesting requirement for other
contributions (i.e., employee or agency matching contributions). See 5 U.S.C. §8432(g). (Vesting refers to ownership,
or amounts not being subject to forfeiture.)
58 For more information on FRTIB, see https://www.frtib.gov/.
59 For more information on TSP administrative expenses, see TSP.gov, “Expenses and Fees,” https://www.tsp.gov/tsp-
basics/expenses-and-fees/.
60 For information on current FRTIB board members as well as the Executive Director, see https://www.frtib.gov/
board-members/. The FRTIB currently has one vacancy.
61 5 U.S.C. §8477(b)(1)).
62 5 U.S.C. §8438.
63 5 U.S.C. §8475.
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At its creation in 1986, the TSP was designed to be passively managed in order to avoid political
manipulation—in particular, using the large pool of assets managed by FRTIB for political
purposes.64 Thus, TSP index funds are all passively managed by professional fund managers, each
with an investment objective of matching the performance of a specific, benchmark index fund.
TSP fund managers do not actively select a fund’s portfolio assets. Currently, BlackRock and
State Street Global Advisors both hold fund manager contracts for all TSP index funds.65
Three investment options—the “C” Fund (a common stock index fund), the “F” Fund (a fixed
income index fund), and the “G” Fund (a government security fund)—were authorized at TSP’s
creation under FERSA. Two additional index funds, the “S” Fund (a small cap stock index fund)
and the “I” Fund (an international stock index fund), were added in 2001 in accordance with the
Thrift Savings Plan Act of 1996 (P.L. 104-208; September 30, 1996).
In 2005, FRTIB introduced “Lifecycle Funds” (L Funds), which are invested in various
combinations of the five core TSP funds with allocations based on the year that the participant
expects to begin withdrawing money from the TSP. The Smart Savings Act (P.L. 113-255;
December 18, 2014) changed the default investment option to the age-appropriate Lifecycle Fund
for automatic contributions to TSP. Prior to P.L. 113-255, TSP default contributions were
automatically invested in the “G” Fund of the TSP. (The default contribution rate for most
employees is 5% if enrolled in TSP after October 1, 2020, or 3% if enrolled between August 1,
2010, and September 30, 2020.)
Title I of Division B of P.L. 111-31, the Thrift Savings Plan Enhancement Act (June 22, 2009),
provided FRTIB with the authority to set up a mutual fund window (MFW) “if the Board
determines that such addition would be in the best interests of participants.”66 The TSP mutual
fund window opened to eligible participants in June 2022.67 (Additional details on this TSP
investment option are provided below in the “Current TSP Investment Options” and “Mutual
Fund Window” sections.)
Current TSP Investment Options
Participants in the TSP may currently choose among five core funds in which they can invest their
TSP contributions:
• The “C” Fund replicates the Standard and Poor’s 500 Index of 500 large to
medium-sized U.S. companies.68
• The “F” Fund invests in bonds in the same proportion as they are represented by
the Barclays Capital U.S. Aggregate Bond Index.69

64 House Conference Report 99-906 (May 16, 1986).
65 For the announcement of the most recent BlackRock fund manager contract, see FRTIB, “Federal Retirement Thrift
Investment Board Awards the First of Two Fund Manager Contracts,” press release, February 24, 2020,
https://www.frtib.gov/pdf/reading-room/PressRel/PR_2020-02-26_Fund_Manager_Contract.pdf. For the
announcement of the State Street Global Advisors fund manager contract, see FRTIB, “Federal Retirement Thrift
Investment Board Awards the Second of Two Fund Manager Contracts,” press release, October 22, 2020,
https://www.frtib.gov/pdf/reading-room/PressRel/PR_2020-10-27_Multi_Manager_Selection.pdf.
66 5 U.S.C. §8438(b)(5)(A)).
67 See TSP.gov, “Mutual Fund Window,” at https://www.tsp.gov/mutual-fund-window/.
68 For additional details, see TSP.gov, “C Fund,” https://www.tsp.gov/funds-individual/c-fund/.
69 For additional details, see TSP.gov, “F Fund,” https://www.tsp.gov/funds-individual/f-fund/.
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• The “G” Fund invests in U.S. government securities and pays interest equal to
the average rate of return on government securities with maturities of four years
or more.70
• The “S” Fund tracks the Dow Jones U.S. Completion Total Stock Market Index
of small to medium-sized U.S. companies not included in the “C” Fund.71
• The “I” Fund currently replicates the Morgan Stanley Capital International
(MSCI) EAFE (Europe, Australasia, Far East) Index.72
• On November 14, 2023, FRTIB announced that it had voted to change the I
Fund benchmark to replicate the MSCI All Country World ex USA ex China
ex Hong Kong Investable Market Index.73 (Implementation of this change is
scheduled for 2024 but has not occurred as of the date of this report.74)
Additionally, the L Funds are composed of the five core TSP funds and consist of L2025 through
L2065 in five-year increments and the L Income Fund, which is a low-risk option designed to
achieve asset preservation for participants making withdrawals or nearing retirement.75 As the
participant approaches retirement, the proportion of contributions invested in the C, I, and S
funds—which invest in stocks—is reduced. The proportion invested in the G and F funds—which
invest in bonds—is increased. This helps to protect participants who are nearing retirement from
investment losses that would occur from a sharp decline in stock prices.
Finally, eligible TSP participants may invest in the mutual fund window (MFW). According to the
final rule implementing the TSP MFW:
A mutual fund window is a type of brokerage window. A brokerage window is a retirement
plan feature that allows participants to open a brokerage account to put some of their
retirement savings in investments that are not curated by their retirement plan’s
fiduciaries.76
FRTIB set out the following terms and conditions for MFW participation:77 (1) a minimum initial
transfer of $10,000 into the MFW; (2) a limit of no more than 25% of a TSP account holder’s
balance into the MFW (thus, a minimum balance of $40,000 is required); and (3) inclusion of
transfers to and from the MFW in the overall limit on interfund transfers (two per month). FRTIB
also specified fees for TSP participants who choose to invest in the MFW: an annual $55
administrative fee, an annual $95 maintenance fee, a per-trade fee of $28.75, and any fees and
expenses imposed by the specific mutual fund(s). According to the FRTIB, “The MFW offers
roughly 5,000 mutual funds in roughly 300 mutual fund families, including those offered by

70 For additional details, see TSP.gov, “G Fund,” https://www.tsp.gov/funds-individual/g-fund/.
71 For additional details, see TSP.gov, “S Fund,” https://www.tsp.gov/funds-individual/s-fund/.
72 For additional details, see TSP.gov, “I Fund,” https://www.tsp.gov/funds-individual/i-fund/.
73 FRTIB, “Federal Retirement Thrift Investment Board Approves a New Benchmark Index for the I Fund,” press
release, November 14, 2023, https://www.frtib.gov/pdf/reading-room/PressRel/PR_2023-11-14_I-Fund-Benchmark-
Change.pdf. Ex means “excluding.”
74 FRTIB has stated that it plans to announce when the I Fund benchmark transition is complete no later than December
31, 2024. See FRTIB, “I Fund Benchmark Change in 2024,” February 5, 2024, https://www.tsp.gov/plan-news/2024-
02-05-I-Fund-benchmark-index-change-in-2024/.
75 For additional details, see TSP.gov, “Lifecyle Funds,” https://www.tsp.gov/funds-lifecycle/.
76 FRTIB, “Mutual Fund Window,” 87 Federal Register 27917, May 10, 2022, https://www.govinfo.gov/content/pkg/
FR-2022-05-10/pdf/2022-09972.pdf.
77 FRTIB, “Mutual Fund Window,” 87 Federal Register 27917-27923, May 10, 2022, https://www.govinfo.gov/
content/pkg/FR-2022-05-10/pdf/2022-09972.pdf.
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Fidelity, T. Rowe Price, and Vanguard. For funds with multiple classes, the lowest expense ratio
class is offered.”78
TSP Investment Issues
Several TSP investment-related policy issues have been legislatively active in recent Congresses.
Below is a discussion of key TSP investment issues, including:
• the TSP “I” Fund benchmark and investments in Chinese companies,
• ESG investment issues,
• the TSP mutual fund window (MFW),
• diverse asset managers, and
• the exercise of shareholder rights and proxy voting on behalf of TSP assets.
Examples of relevant legislation from the 118th Congress are also provided.
“I” (International) Fund Benchmark and Investments in Chinese Companies
TSP I Fund investment practices have drawn attention from policymakers over recent years.
Specifically, there has been FRTIB deliberation surrounding changes to the I Fund benchmark,
including concerns from policymakers about potential investments in Chinese companies. In
November 2017, after consulting with experts,79 FRTIB made the decision to move from the
current I Fund benchmark—the Morgan Stanley Capital International (MSCI) EAFE (Europe,
Australasia, Far East) Index—to a new benchmark: the MSCI ACWI ex U.S. IMI (All Country
World ex USA Investable Market Index).80 FRTIB justified this decision using the following
arguments: (1) the MSCI ACWI ex. U.S. IMI represents 99% of the international equity market
(vs. the MSCI EAFE Index, which represents only 58%) and, thus, is a more representative
benchmark that better fulfills the statutory requirement of a complete representation of the
international equity markets; and (2) the MSCI ACWI ex. U.S. IMI would be more in line with
the investment policies of other large retirement plans in the private and public sectors, which
offer the ability to invest in Canada and emerging markets.
Before the change to the I Fund benchmark could be implemented, however, this FRTIB decision
received attention from policymakers. This interest focused on issues raised by investments in
certain Chinese companies. For example, in August 2019, Senators Rubio and Shaheen sent a
letter to FRTIB outlining concerns with the proposed I Fund benchmark change as:
a decision to invest in China-based companies, including many firms that are involved in
the Chinese government’s military, espionage, human rights abuses and ‘Made in China
2025’ industrial policy, and therefore poses fundamental questions about the board’s
statutory and fiduciary responsibilities to American public servants who invest in federal
retirement plans.81

78 FRTIB, “Facts About the TSP’s Mutual Fund Window,” press release, June 2022, https://www.frtib.gov/pdf/reading-
room/FactSheets/FS_2022-06-01_MFW_Fact_Sheet_June_2022.pdf.
79 See Aon Hewitt, “Benchmark Study: Federal Retirement Thrift Investment Board, Thrift Savings Plan,” November
2017, https://www.frtib.gov/pdf/reading-room/InvBMarks/2017Oct_Benchmark-Evaluation-Report.pdf.
80 See TSP.gov, “Investment Benchmark Update,” November 13, 2019, https://www.tsp.gov/plan-news/2024-02-05-I-
Fund-benchmark-index-change-in-2024/.
81 Office of Sen. Rubio, “Rubio, Shaheen Urge TSP Board to Reverse Decision to Steer Federal Retirement Savings to
China,” press release, August 26, 2019, https://www.rubio.senate.gov/rubio-shaheen-urge-tsp-board-to-reverse-
decision-to-steer-federal-retirement-savings-to-china/.
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In November 2019, FRTIB reviewed its decision and announced that it was moving ahead to
finalize the I Fund benchmark change.82 In May 2020, however, FRTIB announced that it was
deferring any action on the I Fund benchmark due to (1) the “meaningfully different economic
environment related in large part to the impact of the global COVID-19 pandemic” and (2) the
nominations of new FRTIB members.83 The current I Fund benchmark, the MSCI EAFE Index,
does include investments in Hong Kong, which FRTIB claims has been less than 4% of the I
Fund since its creation in 2001.84 But the current I Fund benchmark (the MSCI EAFE Index) does
not, nor has it ever, included investments in mainland China.85 Among the dynamic offering of
more than 5,000 mutual funds available through the TSP MFW, however, there is likely exposure
to investments in Chinese companies (for additional details on this issue, see “Mutual Fund
Window,” below).
Most recently, in November 2023, FRTIB announced that it had voted to change the I Fund
benchmark to replicate the MSCI All Country World ex USA ex China ex Hong Kong Investable
Market Index (MSCI ACWI IMI ex USA ex China ex Hong Kong Index).86 According to FRTIB,
this new index represents 90% of non-U.S. market capitalization and is expected to outperform
the current I Fund benchmark on a “risk-adjusted basis over the long term.”87 Thus, the MSCI
ACWI IMI ex USA ex China ex Hong Kong Index will provide a more representative benchmark
that better fulfills the statutory requirement for the I Fund of a complete representation of the
international equity markets. At the same time, this new benchmark will exclude China and Hong
Kong, thus addressing concerns related to Chinese investments. Implementation for the new I
Fund benchmark is scheduled for 2024. (As of the publication of this report, it has not yet
occurred.88)

82 See TSP.gov, “Investment Benchmark Update.”
83 FRTIB, “Federal Retirement Thrift Investment Board Defers Action on I Fund Transition,” press release, May 13,
2020, https://www.frtib.gov/pdf/reading-room/PressRel/PR_2020-05-13_Defer_I_Fund_Implementation.pdf.
On June 9, 2022, the Senate confirmed four nominees to the FRTIB, including three new Board Members (Leona
Bridges, Michael Gerber, and Stacie Olivares) and one Board Member who received another term (Dana Bilyeu). See
FRTIB, “Federal Retirement Thrift Investment Board Announces the Confirmation of Dana Bilyeu, Leona Bridges,
Michael Gerber and Stacie Olivares as New Members of the Board,” press release, June 28, 2022,
https://www.frtib.gov/pdf/reading-room/PressRel/PR_2022-06-
28_Board_Members_Bilyeu_Bridges_Gerber_Olivares.pdf.
On September 1, 2022, David Jones announced his resignation from the FRTIB, effective September 15, 2023. See
FRTIB, “Federal Retirement Thrift Investment Board Announces Resignation of Board Member David A. Jones,”
press release, September 1, 2022, https://www.frtib.gov/pdf/reading-room/PressRel/PR_2022-08-
01_DAJ_Resignation.pdf.
For more information on current Board Members, see https://www.frtib.gov/board-members/.
84 FRTIB, “TSP Fact Sheet—Investment in China,” press release, August 2023, https://www.frtib.gov/pdf/reading-
room/FactSheets/FS_2023-08-04_TSP_Investment_in_China.pdf.
85 FRTIB, “TSP Fact Sheet—Investment in China.”
86 FRTIB, “Federal Retirement Thrift Investment Board Approves a New Benchmark Index for the I Fund,” press
release, November 14, 2023, https://www.frtib.gov/pdf/reading-room/PressRel/PR_2023-11-14_I-Fund-Benchmark-
Change.pdf.
87 FRTIB, “Federal Retirement Thrift Investment Board Approves a New Benchmark Index for the I Fund,” p. 1.
88 For more information, see FRTIB, “I Fund Benchmark Change in 2024.”
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Examples of Legislation in the 118th Congress89
Several pieces of legislation have been introduced in the 118th Congress that would have the
effect of prohibiting any TSP investment in Chinese firms. For example, S. 1650, the TSP Act of
2023 (introduced by Senator Rubio), and H.R. 3455, the TSP Act (introduced by Representative
Waltz), would both amend TSP law to prohibit any investments in “countries of concern,” defined
as a country identified as a threat to the national security of the United States in the most recent
Annual Threat Assessment report submitted to Congress by the Director of National
Intelligence.90 In addition, S. 149, the TSP Fiduciary Security Act of 2023 (introduced by Senator
Rubio), would amend FRTIB fiduciary duties under current law to include national security
concerns and would prohibit TSP investments in entities on certain lists maintained by the
Department of Defense and the Department of Commerce (e.g., Chinese military companies).
This type of legislation would have prevented the I Fund benchmark change to the MSCI ACWI
ex USA (i.e., due to its exposure to Chinese investments). However, it is not clear that it would
prevent the proposed I Fund benchmark change to the MSCI ACWI IMI ex USA ex China ex
Hong Kong, as it does not have exposure to Chinese companies. These bills would, however,
likely require FRTIB to make changes to the TSP mutual fund window, which does currently have
exposure to Chinese companies. (For additional discussion on this issue, see the section on
“Mutual Fund Window.”)
ESG Investment Issues
Policymakers have also been interested in ESG issues with regard to TSP investments.91 For
example, in a May 2021 report, the Government Accountability Office (GAO) recommended that
FRTIB evaluate TSP investment risks with regard to climate change:
Investment risks associated with climate change are expected to impact the global economy
and cause unprecedented disruption to the financial markets, and investors, including
retirement plans, are considering how their portfolios may be exposed to these risks.
Passive investment strategies, like those used by TSP, are generally seen as providing the
important benefits of broad diversification and low costs, leading to greater risk-adjusted
returns when compared to active investment strategies. However, even passive investment
strategies are exposed to financial risks from climate change as the impacts are expected
to be widespread across all economic sectors. Climate and financial experts urge passive
investors and others to consider the unique and systemic risks posed by climate change.92
In its comments responding to this GAO report, FRTIB did not agree or disagree with GAO’s
recommendation—although it did provide a response that challenged some of GAO’s conclusions
and asserted that its current investment strategy already prices in risk:
The draft report states that the FRTIB “does not currently have any knowledge” of the risks
of climate change. We disagree with that characterization. As we discussed several times
with the GAO representatives and as is mentioned in the report, the FRTIB subscribes to a
strict indexing discipline using the broadest possible market opportunity set. As such,

89 Examples of TSP-related legislation here and below are provided for illustrative purposes and should not be
considered exhaustive.
90 The legislative text in these bills was also offered as S.Amdt. 523 to S. 2226, the National Defense Authorization Act
for Fiscal Year 2024, but this amendment was not agreed to in the Senate.
91 For background on ESG, see CRS In Focus IF11716, Introduction to Financial Services: Environmental, Social, and
Governance (ESG) Issues.
92 GAO, Retirement Savings: Federal Workers’ Portfolios Should Be Evaluated for Possible Financial Risks Related to
Climate Change, GAO-21-327, May 25, 2021, p. 39, https://www.gao.gov/assets/gao-21-327.pdf.
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individual companies are held in the TSP index funds at their market weights, in line with
the theory that markets are generally efficient and that the market portfolio is the most
efficient from a risk and return perspective. The theory has proven to hold true over decades
of empirical studies. Indeed, we build our 10 Lifecycle Funds using that analysis. The
efficient market theory concludes that the market is pricing all risks into its valuation in an
on-going basis. It also posits that a broad index fund with all assets held at market weight
provides the highest return to risk ratio.93
Prior to the opening of the TSP MFW in June 2022, there were no ESG investment options
available to TSP participants, as the core funds are all passively managed with the investment
objective of matching the performance of a specific, benchmark index fund selected by the
FRTIB. In authorizing the MFW in 2009, Congress acknowledged that some TSP participants
may wish to access “socially responsible funds” as part of their investment options.94 In TSP
annual reports from 2020 and 2021, FRTIB acknowledged that offering ESG investment would
be part of the MFW: “Of the more than 5,000 mutual funds available through the MFW, there will
be funds that are designed for ESG investment (however a participant may define that), as well as
commodity specific funds, actively managed funds, and emerging manager funds.”95 Thus, with
the current availability of the MFW, eligible TSP participants have access to ESG investment
options (for additional information on the TSP MFW, see “Mutual Fund Window,” below).
Examples of Legislation in the 118th Congress
There has been legislation introduced in the 118th Congress that would both expand and prohibit
ESG investing through TSP. For example, Representative Schiff introduced H.R. 1261, the
Federal Employees Sustainable Investment Act, which would create a new TSP index fund, the
Corporate Responsibility Stock Index Fund. This new index fund would be invested in a stock
portfolio designed to replicate the performance of a commonly-recognized, passively-managed
index comprised of stocks that meet certain minimum criteria related to corporate responsibility.
In terms of anti-ESG legislation, Representative Roy introduced H.R. 3612, the No ESG in TSP
Act, which would prohibit any ESG mutual funds from being offered as part of the TSP MFW.
Senator Lee introduced S. 2147, the Senate companion bill. Additionally, a policy rider (Section
754) in H.R. 4664, the Financial Services and General Government Appropriations Act, 2024,
would prevent any funding to be used “to make investments under the Thrift Savings Plan in
certain mutual funds that make investment decisions based primarily on environmental, social, or
governance criteria.”
Mutual Fund Window
In a 2008 TSP participant survey, 39% of participants—and 46% of TSP participants who were
military servicemembers—reported that the addition of a self-directed mutual fund window
would improve TSP.96 In 2009, P.L. 111-31 provided the FRTIB with an authority to set up an
MFW “if the Board determines that such addition would be in the best interests of participants.”97

93 GAO, Retirement Savings, p. 50.
94 See H.Rept. 111-58 Part 2, P.L. 111-31, Division B, Thrift Savings Plan Enhancement Act of 2009, p. 5.
95 FRTIB, “TSP Annual Report 2020,” p. 2, https://www.frtib.gov/pdf/reading-room/congress/annual/TSP-Annual-
Report_2020.pdf; and FRTIB, “TSP Annual Report 2021, p. 2, https://www.frtib.gov/pdf/reading-room/congress/
annual/TSP-Annual-Report_2021.pdf.
96 FRTIB, “2008 TSP Participant Survey Results,” pp. 57-58, https://www.frtib.gov/pdf/reading-room/SurveysPart/
satisfaction/TSP-Survey-Results-2008.pdf.
97 5 U.S.C. §8438(b)(5)(A)).
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In providing this authority, the House Committee on Oversight and Government Reform noted
that:
The Committee recognizes some investors today have sophisticated or specialized
investment needs. Participants may want added diversity by investing in funds comprised
of real estate investment trusts, emerging markets, or inflation-protected bonds. Other
participants may want to align their portfolio with their personal convictions by investing
in socially responsible funds. The self-directed investment options are intended to provide
a vehicle for meeting these needs of plan participants without complicating the basic
structure of the Thrift Savings Plan.98
From 2009 until its decision to offer an MFW in April 2015, FRTIB deliberation about this issue
included consultations with relevant subject matter experts and the Employee Thrift Advisory
Council (ETAC).99 In November 2020, FRTIB announced that the recordkeeping contract to
implement the MFW, along with other TSP service delivery features, was awarded to Accenture
Federal Services.100 FRTIB published the final regulations for the MFW on May 10, 2022.101 The
TSP MFW opened to eligible participants in June 2022.102
With regard to the mutuals funds offered through the TSP MFW, FRTIB has explained that:
All the mutual funds on the platform comply with all applicable U.S. laws and regulations,
including those promulgated by the Securities and Exchange Commission (SEC) and the
Office of Foreign Assets Control (OFAC). The mutual funds on the TSP MFW platform
will follow the same rules applicable to any other mutual fund offered in any other public
or private retirement plan in the United States.103
Additionally, FRTIB is not providing fiduciary oversight over the MFW, which it noted mirrors
the practice of private sector retirement plans104 and could “place unreasonable cost and resource

98 H.Rept. 111-58 Part 2, P.L. 111-31, Division B, Thrift Savings Plan Enhancement Act of 2009, p. 5.
99 For a legislative and program history of the TSP MFW, see FRTIB, “Mutual Fund Window,” 87 Federal Register
3940-3943, January 26, 2022, https://www.govinfo.gov/content/pkg/FR-2022-01-26/pdf/2022-01312.pdf.
As explained at https://www.frtib.gov/board-members/: “The Employee Thrift Advisory Council (ETAC) is comprised
of representatives from Federal and Postal unions and management associations, as well as a representative from the
Department of Defense on behalf of uniformed service members. ETAC provides advice on matters relating to TSP
investment policies and plan administration. The Board and the Executive Director meet with ETAC at least annually.”
100 FRTIB, “Federal Retirement Thrift Investment Boards Awards Recordkeeping Contract,” press release, November
16, 2020, https://www.frtib.gov/pdf/reading-room/PressRel/PR_2020-11-
17_RKSA_Award_Announcement_FINAL.pdf.
101 FRTIB, “Mutual Fund Window,” 87 Federal Register 27917-27923, May 10, 2022, https://www.govinfo.gov/
content/pkg/FR-2022-05-10/pdf/2022-09972.pdf.
102 See TSP.gov, “Mutual Fund Window,” https://www.tsp.gov/mutual-fund-window/. As of December 2023, out of a
total of 6,997,017 TSP accounts, FRTIB reports that there were slightly over 4,000 MFW accounts with funds in them
(i.e., approximately 0.06% of all TSP accounts). See FRTIB, “Thrift Fund Statistics: December 2023,”
https://www.frtib.gov/pdf/minutes/2024/Jan/Att1-Participant-Activity-Report-December-2023.pdf. More generally,
FRTIB estimates that 2%-3% of TSP account holders will be using the MFW two to three years after implementation
(see FEDweek Staff, “TSP Projects Just 2-3% of Investors Will Use Mutual Fund Window,” FEDweek, March 22,
2024, https://www.fedweek.com/fedweek/tsp-projects-just-2-3-of-investors-will-use-mutual-fund-window/).
103 FRTIB, “Facts about the TSP’s Mutual Fund Window,” p. 1.
104 See, for example, Department of Labor, Understanding Brokerage Windows in Self- Directed Retirement Plans,
report to Honorable Martin Walsh, Secretary of the Department of Labor, Advisory Council on Employee Welfare and
Pension Benefit Plans (2021), p. 47, https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-
council/2021-understanding-brokerage-windows-in-self-directed-retirement-plans.pdf (“Investments accessible through
a brokerage window are not routinely monitored by plan fiduciaries, and most experts conclude that, except perhaps in
extraordinary circumstances, plan fiduciaries are not obligated to monitor brokerage window investments nor do their
fiduciary duties apply with respect to those investments.”).
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burdens on the FRTIB.”105 Instead, eligible TSP participants may create MFW accounts to view
the complete list of available mutual funds and use a Morningstar tool to sort and review funds.106
According to the FRTIB, the TSP MFW
provides TSP participants with access to roughly 4,700 commercially available mutual
funds, including funds from Berkshire, BNY Mellon, Calvert, Cohen & Steers, Fidelity,
Franklin Templeton, Goldman Sachs, John Hancock, JPMorgan, Morgan Stanley, Schwab,
T Rowe Price, TIAA, Vanguard, and Voya, among many others.107
Examples of Relevant Legislation in the 118th Congress
In general, any legislation that would require major investment changes, including divestment for
any reason (e.g., from Chinese companies [S. 149, S. 1650, and H.R. 3455]), would affect the
TSP mutual fund window. Additionally, as described above, there are three bills that would
prohibit ESG investments specifically in the mutual fund window: H.R. 3612 and S. 2147, the No
ESG in TSP Act, as well as Section 754 in H.R. 4664, the Financial Services and General
Government Appropriations Act, 2024.
Diverse Asset Managers
Some policymakers have also expressed interest in expanding professional services contracts to
minority- and women-owned business enterprises in the arena of public pension investment,
including TSP investment. At a July 2008 hearing held by the House Oversight and Government
Reform Committee’s Subcommittee on the Federal Workforce, Postal Service, and the District of
Columbia on “Investing in the Future: Minority Opportunities and the Thrift Savings Plan,”
Representative Danny Davis stated:
The debate over minorities participating in the TSP funds has been a concern for quite
some time; yet, the issue came to the forefront during last year’s Congressional Black
Caucus legislative conference. The executive director of the Federal Retirement Thrift
Investment Board revealed that there are minority firms with talent in long-term financial
management. However, most of these firms gravitate toward the active fund management
business, which is not an investment strategy of the TSP. Research by the TSP indicates
that there may be only one minority-owned firm that deals with passive-management of
index funds.108
After this hearing, Section 105 of the Thrift Savings Plan Enhancement Act of 2009 (enacted as
part of P.L. 111-31) created annual reporting requirements for FRTIB, which included reporting
on “the diversity demographics of any company, investment adviser, or other entity retained to
invest and manage the assets of the Thrift Savings Fund.”109
A September 2017 GAO report, Investment Management: Key Practices Could Provide More
Options for Federal Entities and Opportunities for Minority- and Women-Owned Asset
Managers, examined how federal entities, including TSP, were using minority- and women-

105 FRTIB, “Mutual Fund Window,” 87 Federal Register 27920, May 10, 2022, https://www.govinfo.gov/content/pkg/
FR-2022-05-10/pdf/2022-09972.pdf.
106 FRTIB, “Facts About the TSP’s Mutual Fund Window,” p. 1.
107 FRTIB, “TSP Fact Sheet—Investment in China,” p. 2.
108 U.S. Congress, House Committee on Oversight and Government Reform, Subcommittee on the Federal Workforce,
Postal Service, and the District of Columbia, Investing in the Future: Minority Opportunities and the Thrift Savings
Plan, 110th Cong., 2nd sess., July 10, 2008, Serial No. 110-133, p. 2.
109 See, for example, Appendix A (BlackRock) and Appendix B (State Street) in FRTIB, TSP Annual Report 2022,
https://www.frtib.gov/pdf/reading-room/congress/annual/TSP-Annual-Report_2022.pdf.
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owned asset managers and identified key practices to increase opportunities for these asset
managers: (1) “top leadership commitment,” (2) “remove potential barriers,” (3) “outreach,” and
(4) “communicate priorities and expectations.”110 This report concluded that FRTIB did not
intend to use any of these best practices in setting up the TSP MFW.111
In October 2021, Senators Menendez, Padilla, Luján, Brown, Merkley, Kaine, and Booker sent a
letter urging the FRTIB “to create opportunities for federal workers to invest in funds run by
racially, ethnically, and gender diverse asset managers. When it comes to their retirement
investments, federal workers deserve the chance to make the strategic and values-driven choice to
prioritize diversity.”112 The signatories of this letter highlighted the opportunity for diverse asset
managers in the MFW.113
There has been legislation introduced in prior Congresses related to the use of diverse asset
managers by federal institutional investors, including FRTIB (e.g., S. 4097 and H.R. 7594 in the
117th Congress). At this time, no such legislation has been introduced in the 118th Congress.
Exercise of Shareholder Rights
Under current law, FRTIB, the Executive Director, and TSP participants are all prohibited from
exercising shareholder voting rights associated with TSP assets.114 Therefore, TSP fund managers
(i.e., BlackRock and State Street Global Advisors) are the only parties currently exercising voting
rights, with oversight provided by the FRTIB. According to the FRTIB:
[T]he FRTIB does not set proxy voting policy for its Fund managers. The FRTIB does,
however, require that the Fund managers conform to their stated proxy voting policy. The
FRTIB receives quarterly reports from an independent organization hired by the money
manager to audit that their proxy voting complies with their policy. Those reports are sent

110 GAO, Investment Management: Key Practices Could Provide More Options for Federal Entities and Opportunities
for Minority- and Women-Owned Asset Managers, GAO-17-726, September 13, 2017, https://www.gao.gov/products/
gao-17-726.
111 See also Appendix V in GAO-17-726 for FRTIB’s response to GAO.
112 See Office of Sen. Menendez, “Menendez, Booker, Colleagues Urge for Diversity Among Federal Retirement Asset
Managers,” press release, October 21, 2021, https://www.menendez.senate.gov/newsroom/press/menendez-booker-
colleagues-urge-for-diversity-among-federal-retirement-asset-managers.
113 In terms of the contracting rules, including for professional services such as asset managers, FRTIB states:
FRTIB is a self-funded federal agency with independent budgetary authority that receives no
annual appropriations from Congress. Due to our unique status, FRTIB is not strictly bound to
adhere to the Federal Acquisition Regulation (FAR). While subject to many of the same
procurement laws as other government agencies, FRTIB also works under the mandate of its
enabling statute, the Federal Employees’ Retirement System Act (FERSA), which requires that
FRTIB fiduciaries manage Thrift Savings Fund (TSF) assets in the sole interest of the TSF
participants and beneficiaries, and expend funds for the exclusive purpose of providing benefits to
participants and beneficiaries and defraying reasonable expenses of administering the TSP. To that
end, FRTIB procurements will largely adhere to the FAR, unless doing so might infringe upon the
Agency’s fiduciary obligations under FERSA. FRTIB has adopted the FAR as its primary
contracting policy and procedures for procuring its goods and services.
FRTIB designed the Thrift Federal Acquisition Supplement (T-FAS) as a supplement to the FAR,
which specifies when the Agency’s policies and practices deviate from the FAR. See link to T-FAS
below. The T-FAS provides an efficient blend of the FAR and federal procurement law while
allowing the Agency to be more flexible to accomplish its mission under FERSA (FRTIB, “Doing
Business with FRTIB,” https://www.frtib.gov/procurement/).
114 See 5 U.S.C. §8438(f): “The Board, other Government agencies, the Executive Director, an employee, a Member, a
former employee and a former Member may not exercise voting rights associated with the ownership of securities by
the Thrift Savings Fund.”
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to the FRTIB by the money manager. Our Chief Investment Officer reports on this issue
quarterly to the Board in our monthly, public Board meetings.115
It should be noted that there is additional federal oversight over TSP fiduciary duties. The U.S.
Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) is
responsible for establishing a program to carry out audits to determine the level of compliance
with the requirements related to TSP fiduciary responsibilities and prohibited activities of TSP
fiduciaries.116 EBSA provides regular fiduciary audits of TSP.117
Some policymakers have expressed concerns about proxy voting by TSP asset managers—
particularly with regard to ESG issues. For example, in July 2021, Senators Toomey and Johnson
wrote a letter to FRTIB expressing their concerns:
Specifically, recent statements by the CEOs of BlackRock and State Street Global Advisors
(SSGA) indicate they are using their control of proxy votes for federal employees’ Thrift
Savings Plan (“the Plan”) investments to pressure other companies to adhere to their own
environmental and social policy views. We are concerned that BlackRock and SSGA may
be prioritizing their CEOs’ personal policy views over retirees’ financial security. Federal
law explicitly requires all fiduciaries of the [TSP], including BlackRock and SSGA, to
discharge their responsibilities “solely in the interest of the participants and beneficiaries
and for the exclusive purpose of providing benefits to participants and their
beneficiaries.”118
Examples of Relevant Legislation in the 118th Congress
In the 118th Congress, for example, Representative Buck introduced H.R. 3406, the Stop TSP
ESG Act, which would add “a qualified professional asset manager” to the entities and
individuals prohibited from exercising shareholder voting rights associated with securities held by
TSP. Senator Rubio introduced the Senate companion bill as S. 1891. This proposal would
effectively prevent any TSP proxy voting.
Private Sector Pension Plans
Pension plans can be classified along several dimensions, such as whether the employee receives
a monthly payment in retirement (DB pensions) or accrues funds in an individual account (DC
pensions), and whether the plan sponsor is a private-sector or public-sector employer. To protect
the interests of pension plan participants and beneficiaries, ERISA was enacted (P.L. 93-406).
ERISA covers most private-sector pension plans and is included in the U.S. Code in both Title 26
(the Internal Revenue Code, or IRC) and in Title 29 (often called the Labor Code).119
Nearly all private sector pension plans are required to file Form 5500 with the Internal Revenue
Service (IRS), DOL, and the PBGC. The Form 5500 includes breakdowns on the number of plan

115 Email communication with FRTIB, January 14, 2021.For FRTIB’s quarterly reporting on the proxy voting by asset
managers, see “Meeting Minutes,” available at http://www.frtib.gov for the month after each quarter (i.e., January,
April, July, and October). See, for example, FRTIB, “Monthly Meeting,” October 2020, Attachment 4, pp. 10-13,
https://minutes.frtib.gov/.
116 This authority is provided by the statutory reference to the Secretary of Labor; see 5 U.S.C. §8477(g).
117 See, for example, EBSA, “FY2022 Thrift Savings Plan Fiduciary Oversight Program,” April 26, 2022,
https://www.frtib.gov/pdf/minutes/2022/Apr/MM-2022Apr-Att7.pdf.
118 Sens. Pat Toomey and Ron Johnson, letter to David A. Jones, Acting Chairman, Federal Retirement Thrift
Investment Board, June 30, 2021, https://www.banking.senate.gov/imo/media/doc/toomey_johnson_letter_to_frtib.pdf.
119 For an overview of ERISA, see CRS Report RL34443, Summary of the Employee Retirement Income Security Act
(ERISA).
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participants, financial information about the plan, and details of companies providing services to
the plan. Though information on plan investments is included in the Form 5500, this information
is not aggregated into downloadable Form 5500 datasets nor presented in a standardized manner.
To see information on an individual plan’s investments, individuals must download the plan’s
Form 5500 and examine the corresponding schedule.120
Duties of Plan Sponsors Regarding Plan Investments Under ERISA
ERISA contains provisions governing many aspects of pension plans (e.g., reporting and
disclosure requirements, participation standards, funding requirements). ERISA also contains
fiduciary standards, which require that individuals who make decisions in and for private sector
pension plans and their participants (referred to as fiduciaries) adhere to specified standards of
conduct, including:
• The duty of loyalty, which requires fiduciaries to discharge their duties “solely in
the interest of the participants and beneficiaries” and for the “exclusive purpose”
of providing benefits to participants and beneficiaries and defraying reasonable
expenses of administering the plan;
• The duty of prudence, which requires fiduciaries to also act “with the care, skill,
prudence, and diligence under the circumstances then prevailing that a prudent
man would use in the conduct of an enterprise of a like character with like aims;”
• The duty to diversify investments, which requires fiduciaries to diversify the
investments of plans “so as to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so;” and
• The duty to act in accordance with plan documents, which requires fiduciaries to
discharge their duties “in accordance with the documents and instruments
governing the plan insofar as such documents and instruments are consistent
with” ERISA.121
ERISA also prohibits fiduciaries from engaging in transactions deemed likely to injure pension
plans, referred to as prohibited transactions. ERISA bars certain transactions between a plan and
a party in interest with respect to a plan, and between a plan and a plan fiduciary.122 In order to
facilitate transactions between pension plans and service providers that would otherwise be
prohibited by ERISA, a number of prohibited transaction exemptions (PTEs) exist, either in
statute or as issued by DOL.123

120 Schedule H of the Form 5500 provides financial information for the plan. A plan must provide details on plan
investments as an attachment to Schedule H.
121 See ERISA §404 and 29 C.F.R. §2550.404a-1.
122 These transactions include sale, exchange, or leasing of any property; lending of money or other extension of credit;
furnishing of goods, services, or facilities; transfer or use of any plan assets; and acquisition, on behalf of the plan, of
any employer security or employer real property in violation of ERISA Section 407, which limits the amount of
employer securities and property that may be held by a plan. A fiduciary may not deal with the assets of the plan in his
own interest or for his own account; act in any transaction involving the plan on behalf of a party (or represent a party)
whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or receive any
consideration for his own personal account from any party dealing with such plan in connection with a transaction
involving the assets of the plan. See 29 U.S.C. §1106.
123 A list of class exemptions is available at https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-
regulations/exemptions/class.
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Private Sector Pension Plan Investment Considerations
Few explicit restrictions on private sector pension plan investments exist.124 Because the fiduciary
duty is such a high standard (and fiduciaries can be held personally liable for violating their
duties), plan sponsors tend to be cautious about which types of investments are included in their
plans. Among those who are fiduciaries are individuals who choose plan investments. The roles
of fiduciaries in DB plans and DC plans are described in more detail below.
Defined Benefit Plans
Private sector DB plan sponsors are responsible for choosing how plans’ assets are invested.
While DB plan participants can file claims for breach of fiduciary duty, because participants have
a claim on their monthly benefits they receive and not on the assets on the plans, they generally
cannot take action for fiduciaries’ investment choices unless they experience loss of benefits.
Defined Contribution Plans
Most private sector DC plans are those in which participants have individual accounts and choose
their investments from among the options provided by the plan sponsors, referred to as 404(c)
plans.125
DC plan sponsors make various decisions about plan features, including which investment
options to include in the plans (referred to designated investment alternatives).126 The investment
options usually include mutual funds with varying characteristics such as index funds (which
mirror the performance of a stock market index such as the S&P 500), small and large cap funds
(which invest in small or large firms as measured by market capitalization), bond funds (which
invest in debt obligations), real estate funds (which invest in real estate), and target date funds
(which change the investment mix between bonds and stocks as an individual gets closer to
retirement). DC plans may also offer participants collective investment trusts (CITs), which are
pooled investment vehicles managed by bank and trust companies, and annuities, which provide a
monthly payment in retirement that lasts until the death of the participant or, if married, the
surviving spouse.
In addition to mutual fund investments, less than one-third of private sector DC plans allow
participants to invest via brokerage windows.127 A brokerage window allows plan participants to

124 One investment restriction that exists for DC plans and IRAs is collectibles, such as artwork, rugs and antiques,
metals, gems, stamps, alcoholic beverages, and most coins. Amounts invested in collectibles are treated as distributions
and may be subject to income tax and a 10% penalty (26 U.S.C. §408(m)). Gold, silver, and platinum coins issued by
the U.S. Treasury and gold, silver, palladium, and platinum bullion are permissible. Nonfungible tokens, or NFTs, are
digital certificates of ownership that represent digital or physical assets. In March 2023, Treasury and the IRS
announced that they were soliciting feedback for upcoming guidance regarding the tax treatment of an NFT as a
collectible. Certain plans, such as DC plans in which participants direct the investments of their accounts, may be
subject to other restrictions, such as limitations on the amount of employer stock held in a plan.
125 See ERISA 404(c).
126 See 29 C.F.R. §2550.404a-5.
127 Although one-quarter to one-third of DC plans offer brokerage windows, a small fraction of participants use them.
Plan Sponsor Council of America found that 31.2% of plans in its survey offered brokerage windows. See Plan Sponsor
Council of America, “65th Annual Survey of Profit Sharing and 401(k) Plans,” https://www.psca.org/research/401k/
65thAR. An ERISA advisory report on brokerage windows cited data from various financial services firms. In that
report, brokerage window offer rates varied by firm: Fidelity (17.4% in 2016), Vanguard (20% of all plans; 38% of
plans with 5,000 or more participants), and Alight Solutions (46%). Vanguard’s data stated that while 33% of all
participants had access to brokerage windows, less than 0.5% of all participants used them. Alight’s data stated that
(continued...)
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invest in options beyond those provided by the plan, such as individual stocks and a wide variety
of mutual funds. Some plans place restrictions on participants’ investments within brokerage
windows, such as limiting the percentage of an individual’s account balance that can be invested
in the brokerage window or prohibiting investments in the stock of the employee’s company.128
At job change or retirement, many individuals with DC plans roll over their savings into IRAs.
IRA investment restrictions and policy issues are described later in this report.
Private Sector Pension Plan Investment Issues
This section describes several issues related to private sector pension plan investments that have
been topics of discussion in recent Congresses. Each issue is comprised of two parts: an overview
and a discussion of relevant regulatory or congressional responses, if any. The following issues
are discussed:
• Investments based on non-pecuniary factors,
• Exercise of shareholder rights,
• Investment advice,
• Alternative investments in retirement plans,
• Collective investment trusts in 403(b) plans,
• Investment fees, and
• Qualified professional asset managers (QPAMs).
ESG Investment Issues
Over the years, investors—including pension plan sponsors and participants—have taken an
interest in investment features beyond the standard risk and return relationship. Examples of such
investments include those that consider the effects of climate change (e.g., preferring renewable
energy companies to fossil fuel companies), a firm’s supply chain practices (e.g., ensuring that
seafood is not caught with forced labor), faith-based approaches (e.g., investing based on the
Bible or Sharia law), corporate governance structures (e.g., considering the diversity of a
corporation’s board of directors), or geopolitical circumstances (e.g., avoiding countries that are
perceived to be hostile to U.S. interests). These investments have been referred to with various
names, such as economically targeted investments, socially responsible investments, and ESG
investing. Policymakers’ opinions vary as to the appropriateness of these types of investments
within pension plans. Some Members of Congress are interested in facilitating these investments;
others are interested in limiting them.
In 1994, 2008, and 2015, DOL issued guidance in the form of Interpretive Bulletins and, in 2018,
a Field Assistance Bulletin on the extent to which pension plan fiduciaries can consider factors

2.4% of participants used brokerage windows. See Advisory Council on Employee Welfare and Pension Benefit Plans,
Understanding Brokerage Windows in Self-Directed Retirement Plans, December 2021, https://www.dol.gov/sites/
dolgov/files/EBSA/about-ebsa/about-us/erisa-advisory-council/2021-understanding-brokerage-windows-in-self-
directed-retirement-plans.pdf.
128 DOL regulations state that a brokerage window is not a designated investment alternative. See 29 C.F.R.
§2550.404a-5(h)(4). In “Field Assistance Bulletin (FAB) 2012-02,” DOL clarified that investments in a brokerage
window could be considered a designated investment alternative if chosen by a significant number of participants (see
Q30 at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2012-02).
However, DOL subsequently removed that in an update to the FAB (see Q39 at https://www.dol.gov/agencies/ebsa/
employers-and-advisers/guidance/field-assistance-bulletins/2012-02r).
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beyond an investment’s risk and return relationship.129 The guidance generally emphasized that
investment decisions must be made with the objective to provide economic benefits to plan
participants. The guidance also described scenarios in which consideration of investments that
have goals beyond providing income to participants could be consistent with a fiduciary’s duties.
For example, if a plan found that two investments were equal on an economic basis, then the plan
could—but would not be required to—choose based on noneconomic factors. DOL, in
Interpretive Bulletin (IB) 2015-01, construed that ERISA prohibits “a fiduciary from
subordinating the interests of participants and beneficiaries in their retirement income to unrelated
objectives.”130
Regulatory and Congressional Responses
On November 13, 2020, under the Trump Administration, DOL issued a final rule relating to the
selection of investments by a pension plan fiduciary.131 The DOL rule said that the evaluation of
an investment by a pension plan fiduciary must be based on economic factors only—what the
regulation called pecuniary factors—and that a pension plan could not subordinate the interests of
participants and their retirement income to non-pecuniary objectives.
On December 1, 2022, under the Biden Administration, DOL issued a final rule that it said would
clarify the application of fiduciary duty when selecting plan investments.132 DOL said that the
November 2020 regulation had a “chilling effect and other potential negative consequences” on
the appropriate use of ESG factors in investment decisions in pension plans. While the regulation
removed some of the barriers from the 2020 regulation to make it easier to consider factors
beyond the risk-return relationship, the 2022 regulation retains what it calls “the core principle”
that the duties of prudence and loyalty require ERISA plan fiduciaries to focus on relevant risk-
return factors. It stated that ERISA fiduciaries cannot subordinate the interests of participants and
beneficiaries (such as by sacrificing investment returns or taking on additional investment risk) to
objectives unrelated to the provision of benefits under the plan.
In the 118th Congress, H.J.Res. 30, which would use the Congressional Review Act (CRA;
enacted in P.L. 104-121) to nullify the 2022 regulation, was passed by the House and Senate and
vetoed by President Biden on March 20, 2023.133
H.R. 4008, the Protecting Americans’ Retirement Savings Act, introduced by Representative Jim
Banks on June 12, 2023, would prohibit private sector pension plans from making new

129 See Pension and Welfare Benefits Administration, “Interpretive Bulletin Relating to the Employee Retirement
Income Security Act of 1974,” https://www.govinfo.gov/content/pkg/FR-1994-06-23/html/94-15162.htm; EBSA,
“Interpretive Bulletin Relating to Economically Targeted Investments,” 73 Federal Register 61734-61736, October 17,
2008, https://www.govinfo.gov/content/pkg/FR-2008-10-17/pdf/E8-24551.pdf; EBSA, “Interpretive Bulletin Relating
to the Fiduciary Standard Under ERISA in Considering Economically Targeted Investments,” 80 Federal Register
65135-61736, October 26, 2015, https://www.govinfo.gov/content/pkg/FR-2015-10-26/pdf/2015-27146.pdf; and
EBSA, “Interpretive Bulletins 2016-01 and 2015-01,” https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-
advisers/guidance/field-assistance-bulletins/2018-01.pdf.
130 EBSA, “Interpretive Bulletin Relating to the Fiduciary Standard Under ERISA in Considering Economically
Targeted Investments,” 80 Federal Register 65135-61736, October 26, 2015, https://www.govinfo.gov/content/pkg/
FR-2015-10-26/pdf/2015-27146.pdf.
131 See EBSA, “Financial Factors in Selecting Plan Investments,” 85 Federal Register 72846-72885, November 13,
2020, https://www.federalregister.gov/documents/2020/11/13/2020-24515/financial-factors-in-selecting-plan-
investments.
132 See EBSA, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” 87 Federal
Register 73882-73886, December 1, 2022.
133 The House failed to override the veto. For more information, see CRS In Focus IF12328, Department of Labor
Guidance and Regulations on Selecting Private-Sector Pension Plan Investments.
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investments in specified countries (China, Russia, North Korea, and Iran) or in entities operated
by individuals or organizations in these specified countries.134
Exercise of Shareholder Rights
Among other responsibilities, pension plan fiduciaries must manage plan assets that involve
shares of corporate stock and, thus, may be required to make and monitor decisions about voting
proxies and exercising shareholder rights. DOL has published guidance over the past few decades
outlining these responsibilities.
Pension plans typically hold stocks as part of their investment portfolios. Ownership of a
company’s stock confers partial ownership and grants the investor certain rights. One of these
rights may include the right to vote on matters such as electing the board of directors and the
approval of mergers and acquisitions. Shareholders can exercise their votes in person. However,
most shareholders do not attend corporate annual meetings. Typically, shareholders have the right
to appoint proxies. A proxy is a written authorization that delegates the shareholder’s voting
power to another person or, more typically, an institution.
DOL’s long-standing position is that plan fiduciaries should engage in proxy voting activities in
discharging their fiduciary obligation to prudently manage plan investments. A pension plan
fiduciary is subject to fiduciary responsibility when deciding whether to vote or not to vote (via
proxy or in person) and when deciding how to vote. The details of how fiduciaries determine
whether and how to vote have been the subject of various regulations.
Due to the large number and diverse array of issues that shareholders may vote on, institutional
investors, such as mutual funds and pension plans, frequently use proxy advisory firms for
proposal voting recommendations. Proxy advisory firms provide institutional investors with
research and recommendations on management and shareholder proposals that are voted on at
annual corporate meetings. Two firms—Institutional Shareholder Services (ISS) and Glass
Lewis—control much of the proxy advisory business. Pension plan fiduciaries are subject to
fiduciary responsibility in the selection and monitoring of proxy advisory firms and ensuring that
any proxy advisory firm votes in the best interest of plan participants.
Regulatory and Congressional Responses
In the 118th Congress, H.J.Res. 30, which would use the CRA (enacted in P.L. 104-121) to nullify
the 2022 regulation, was passed by the House and Senate and vetoed by President Biden on
March 20, 2023.135
Investment Advice
Retirement plans are complex, and individuals often rely on financial services professionals to
assist them with their decisionmaking. For example, an employer might seek assistance in
determining what investments to offer in a 401(k) plan it has established, participants in a 401(k)
plan might seek assistance in choosing their investments from among the options offered by the
plan, or a worker who participates in an employer-sponsored 401(k) plan might seek assistance

134 Pension plans would not be required to divest current investments in these specified countries or entities but would
be subject to disclosure requirements.
135 The House failed to override the veto. For more information, see CRS In Focus IF12362, Department of Labor
Guidance and Regulations on the Exercise of Shareholder Rights by Private-Sector Pension Plans.
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on whether to leave his or her 401(k) account balance in the plan or roll it over into an IRA or
into another employer’s DC plan either upon job change or at retirement.
The compensation structure of some financial services professionals may give rise to conflicts of
interest, particularly if these professionals’ recommendations result in larger commissions or
otherwise benefit them. These potential conflicts could lead to recommendations that are not in
the interests of their clients. By contrast, some financial services professionals have compensation
structures that do not vary based on which products clients choose. This type of compensation
structure could mitigate any conflicts of interest.
Individuals who transact with a pension plan may be required to meet certain standards. The
standard that applies depends on the individuals’ roles and the actions they are taking. For
example, an individual providing investment advice is subject to the high fiduciary standard,
whereas an individual who is acting on the direction of the plan participant to buy or sell a
particular security or mutual fund may have a lower standard of duty.
Following the passage of ERISA, DOL issued regulations in 1975 that created a five-part test to
determine whether an individual provided investment advice and thus was subject to the fiduciary
standard.136 In addition, DOL issued a PTE to ensure that fiduciaries can continue to engage in
practices that would otherwise be prohibited (such as brokers receiving commissions).
To be held to the 1975 fiduciary standard with respect to his or her advice, an individual must (1)
make recommendations on investing in, purchasing, or selling securities or other property or give
advice as to the value (2) on a regular basis, (3) pursuant to a mutual understanding that the
advice (4) serves as a primary basis for investment decisions and (5) is individualized to the
particular needs of the plan regarding such matters as, among other things, investment policies or
strategy, overall portfolio composition, or diversification of plan investments. An investment
adviser is not treated as a fiduciary unless each of the five elements of the test is satisfied for each
instance of advice.
In October 2010, DOL proposed, and subsequently withdrew in September 2011, an expansion of
the definition of fiduciary advice that would have made more individuals and their actions subject
to the fiduciary advice regulation. In April 2015, DOL issued a revised proposal to broaden the
definition of investment advice and in April 2016 issued a final rule and PTE. In March 2017,
DOL issued a Temporary Enforcement Policy that indicated it would not initiate enforcement
actions against financial advisers or financial institutions that failed to satisfy the conditions of
the regulation or PTE.137
In March 2018, a U.S. district court ruled that the 2016 rule was improperly promulgated, and in
March 2018, the U.S. Court of Appeals for the Fifth Circuit vacated the 2016 rule. This meant
that the five-part test was reinstated.138
In October 2020, DOL issued PTE 2020-02 which, as with previous PTEs, allows fiduciaries to
conduct transactions that are otherwise prohibited.139 Investment advice fiduciaries who rely on
PTE 2020-02 must comply with Impartial Conduct Standards, which require them to provide

136 See 29 C.F.R. §2510.3-21.
137 See DOL, “Temporary Enforcement Policy on Fiduciary Duty,” March 10, 2017, https://www.dol.gov/sites/dolgov/
files/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2017-01.pdf.
138 See EBSA, “Conflict of Interest Rule—Retirement Investment Advice: Notice of Court Vacatur,” 85 Federal
Register 40589-40594, July 20, 2020.
139 EBSA, “Prohibited Transaction Exemption 2020–02, Improving Investment Advice for Workers and Retirees,” 85
Federal Register 82798-82866, December 18, 2020, https://www.govinfo.gov/content/pkg/FR-2020-12-18/pdf/2020-
27825.pdf.
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advice that is in the best interest of the retirement investor, charge no more than reasonable
compensation, and make no misleading statements about investment transactions. In addition,
PTE 2020-02 noted that rollover recommendations from an employer plan to an IRA could be
considered investment advice if specified conditions are met—for example, if the investment
recommendation is expected to be part of an ongoing relationship.140 On February 13, 2023, a
federal district court struck down the portion of PTE 2020-02 related to the rollover
recommendations, and on June 30, 2023, in a different federal district court, a magistrate judge
recommended that the guidance related to rollover advice be vacated.141
Regulatory and Congressional Responses
In November 2023, DOL issued a proposed rule that would change the definition of an
investment advice fiduciary under ERISA.142 The rule was accompanied by several other
amendments to existing PTEs, including PTE 2020-02.143 A public hearing on the rule and
associated PTE amendments was held in December 2023.144 Comments on the proposed rule and
amendments were due January 2, 2024.
As of the date of this report, congressional responses include:
• separate letters opposing the proposed regulation from Dr. Virginia Foxx, the
chairwoman, and 10 members of the majority on the House Education and
Workforce Committee;145 a bipartisan group of 50 members of the House of
Representatives; Representative Roger Williams, Chairman, and three members
of the House Committee on Small Business Committee;146 and Senator Roger
Marshall and 10 other Senators;147

140 See EBSA, New Fiduciary Advice Exemption: PTE 2020-02 Improving Investment Advice for Workers and Retirees
Frequently Asked Questions, April 2021, https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/
resource-center/faqs/new-fiduciary-advice-exemption.pdf.
141 See https://www.bloomberglaw.com/product/blaw/document/X1VIAADDLGV944QLQJHAF66N3JO/download.
142 See EBSA, “Retirement Security Rule: Definition of an Investment Advice Fiduciary,” 88 Federal Register 75890-
75979, November 3, 2023, https://www.federalregister.gov/documents/2023/11/03/2023-23779/retirement-security-
rule-definition-of-an-investment-advice-fiduciary.
143 See EBSA, “Proposed Amendment to Prohibited Transaction Exemption 84-24,” 88 Federal Register 76004-76032,
November 3, 2023, https://www.federalregister.gov/documents/2023/11/03/2023-23781/proposed-amendment-to-
prohibited-transaction-exemption-84-24; EBSA, “Proposed Amendment to Prohibited Transaction Exemptions 75-1,
77-4, 80-83, 83-1, and 86-128,” 88 Federal Register 76032-76045, November 3, 2023,
https://www.federalregister.gov/documents/2023/11/03/2023-23782/proposed-amendment-to-prohibited-transaction-
exemptions-75-1-77-4-80-83-83-1-and-86-128; and EBSA, “Proposed Amendment to Prohibited Transaction
Exemption 2020-02,” 88 Federal Register 75979-76003, November 3, 2023, https://www.federalregister.gov/
documents/2023/11/03/2023-23780/proposed-amendment-to-prohibited-transaction-exemption-2020-02.
144 For unofficial transcripts of the hearing, see DOL, “US Department of Labor Publishes Transcripts of Online
Hearing on Proposed Retirement Security Rule, Related Proposed Exemption Amendments,” press release, December
22, 2023, https://www.dol.gov/newsroom/releases/ebsa/ebsa20231222.
145 See letter to Acting Secretary Su from Reps. Foxx, Good, Walberg, Grothman, Stefanik, Allen, Banks, Smucker,
McClain, Bean, and Houchin, December 21, 2023, at https://edworkforce.house.gov/uploadedfiles/
12.21.23_final_comment_ltr_house_committee_on_education_and_the_workforce.pdf.
146 See letter to Acting Secretary Su from Senators Marshall, Barrasso, Braun, Collins, Cornyn, Ernst, Grassley,
Hagerty, Hyde-Smith, Rounds, and Thune, December 18, 2023, at https://www.marshall.senate.gov/wp-content/
uploads/Letter-to-DOL-Fiduciary-Rule-12.18.23.pdf.
147 See letter to Acting Secretary Su and Assistant Secretary Gomez from multiple Members of Congress, January 8,
2024, at https://si-interactive.s3.amazonaws.com/prod/planadviser-com/wp-content/uploads/2024/01/08165414/
2024.1.8_Bipartisan_Hill_DScott_DOL_Retirement_Security_Proposed_Rule_Comment_Letter-FINAL-SIGNED.pdf.
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• a letter supporting the proposed regulation from Senator Bernie Sanders, chair of
the Senate Committee on Health, Education, Labor, and Pensions; and
Representative Bobby Scott, ranking member of the House Education and
Workforce Committee;148
• press releases opposing the proposed regulation from Representative Ann
Wagner, chair of the House Financial Services Subcommittee on Capital Markets,
and supporting the proposed regulation from Representative Scott, ranking
member of the House Committee on Education and the Workforce, and
Representative Maxine Waters, ranking member of the House Financial Services
Committee;149
• a hearing from the House Financial Services committee on January 10, 2024,
entitled Examining the DOL Fiduciary Rule: Implications for Retirement Savings
and Access;150 and
• a hearing from the Subcommittee on Health, Employment, Labor, and Pensions
of the House Education and Workforce committee on February 15, 2024, entitled
Protecting American Savers and Retirees from DOL’s Regulatory Overreach.151
Investment Fees
Retirement plans pay a variety of fees and expenses, such as for plan administration and
recordkeeping, services to the plan and participants, and investment expenses. Fees are a
particular concern in DC plans, because small differences in fees can ultimately have a large
effect on participants’ account balances.152 The complexity of 401(k) plan arrangements may
provide opportunities for fees to be higher than they otherwise might be, particularly if plan
sponsors and participants are not fully informed of the fees they pay.153 Among the fiduciary

148 See Sen. Sanders and Rep. Scott, letter to Acting Secretary Su, January 2, 2024, https://democrats-
edworkforce.house.gov/imo/media/doc/scott_sanders_comment_letter_to_dol_re_retirement_security_rule.pdf.
149 See Office of Rep. Ann Wagner, “Wagner Blasts Misguided, Irresponsible Fiduciary Rule,” press release, October
31, 2023, https://wagner.house.gov/media-center/press-releases/wagner-blasts-misguided-irresponsible-fiduciary-rule;
and Office of Rep. Bobby Scott, “Scott Applauds Proposed Rule to Strengthen America’s Retirement Security,”
October 31, 2023, https://bobbyscott.house.gov/media-center/press-releases/scott-applauds-proposed-rule-strengthen-
americas-retirement-security; and Office of Rep. Maxine Waters, “Ranking Member Maxine Waters Applauds Biden
Administration’s ‘Retirement Security’ Rule Proposal,” October 31, 2023, https://democrats-
financialservices.house.gov/news/documentsingle.aspx?DocumentID=410916.
150 See U.S. Congress, House Committee on Financial Services, Examining the DOL Fiduciary Rule: Implications for
Retirement Savings and Access, January 10, 2024, https://financialservices.house.gov/calendar/eventsingle.aspx?
EventID=409088.
151 See U.S. Congress, House Committee on Education and the Workforce, Subcommittee on Health, Employment,
Labor, and Pensions, Protecting American Savers and Retirees from DOL’s Regulatory Overreach,
https://edworkforce.house.gov/calendar/eventsingle.aspx?EventID=410108.
152 For example, a starting account balance of $20,000 that earned 7% in returns each year would have about $77,000
after 20 years if no fee is charged, whereas the account would have about $70,000 if a 0.5% fee is charged. The same
account would have a balance of about $58,000 after 20 years if a 1.5% fee is charged (17% less than the account that
charged a 0.5% fee). If a 1.5% annual fee is charged, over the course of 30 years the account holder in this example
would pay more than $52,000 in fees. For more information on the fees in private sector DC plans, see EBSA, A Look
at 401(k) Fees, September 2019, https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-
center/publications/a-look-at-401k-plan-fees.pdf; and EBSA, Understanding Your Retirement Plan Fees, September
2021, https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/
understanding-retirement-plan-fees-and-expenses.pdf.
153 GAO, 401(k) Retirement Plans: Many Participants Do Not Understand Fee Information, but DOL Could Take
Additional Steps to Help Them, GAO-21-357, August 26, 2021, https://www.gao.gov/products/gao-21-357. Fees are
(continued...)
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duties of plan sponsors is a duty to ensure that the fees paid for services to the retirement plans
are reasonable.
DC plan participants receive information about plan fees from several sources, including
Summary Plan Descriptions (SPDs), Form 5500 filings, and benefit statements. SPDs describe
how plans operate. Plan sponsors are required to automatically provide copies of these documents
to plan participants upon enrollment and upon written request of plan participants. SPDs are
required to disclose a summary of provisions that may result in a fee charged to a participant, the
payment of which is a condition to the receipt of benefits under the plan.154
The Form 5500 was jointly developed by DOL, the IRS, and PBGC and is required to be
submitted annually by ERISA-covered plans.155 This annual report contains various schedules
with information on the financial condition, investments, and operations of the plans. Plans with
more than 100 participants are required to disclose the identity of service providers that receive
direct or indirect compensation of $5,000 or greater in connection with services rendered to the
plans.156
Plan sponsors must provide participants in DC plans with regular benefit statements. If the
investments in a DC plan are participant directed (which includes most 401(k) plans), then benefit
statement must be provided quarterly and contain information about the fees charged to the
participant.157
In recent years, plan participants have brought a large number of lawsuits alleging that
recordkeeping and investment management fees in their plans were excessive.158 This was
expected to continue after a January 2022 Supreme Court of the United States ruling.159
Regulatory and Congressional Responses
In response to a request by Senator Patty Murray and Representative Bobby Scott, a 2021 GAO
report assessed the extent to which 401(k) plan participants understood the fee information in
retirement plan disclosures and suggested steps that DOL could take to improve participant
understanding of fee disclosures.160 A provision in the SECURE 2.0 Act of 2022 (“SECURE 2.0,”
enacted as Division T of P.L. 117-328; December 29, 2022) requires DOL to review regulations
relating to disclosure requirements for participant-directed individual account plans and explore
(through a public request for information) how the contents and design may be improved to better

not typically a concern in DB plans. Because employers are responsible for funding the plans via their contributions,
they have an incentive to ensure that fees are kept to a minimum.
154 An EBSA Field Assistance Bulletin notes that charges for hardship withdrawals, if a plan allows hardship
withdrawals, might be an example of such a charge. See Field Assistance Bulletin 2003-3 issued by EBSA on May 19,
2003, at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2003-03.
155 Form 5500s are available at https://www.efast.dol.gov/5500Search/.
156 See DOL, “Annual Reporting and Disclosure,” 72 Federal Register 64710-64857, November 16, 2007.
157 As part of regulations related to fee disclosures issued in 2010, DOL published a model disclosure statement that
plan sponsors and administrators could rely on. See https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-
advisers/plan-administration-and-compliance/fiduciary-responsibilities/401k-plan-fee-disclosure-tool.pdf.
158 See CRS Legal Sidebar LSB10636, Supreme Court Rules on Retirement Plan Fiduciary Duty in Hughes v.
Northwestern University; and Ilana Polyak, “401(k) Lawsuits on the Rise as Participants Target Fees, Conflicts of
Interest and Data Privacy,” BenefitsPro, January 21, 2021, https://www.benefitspro.com/2021/01/21/401k-lawsuits-on-
the-rise-as-participants-target-fees-conflicts-of-interest-and-data-privacy/?slreturn=20210718150301.
159 Gregg Greenberg, “Will 2023 Be Another Banner Year for 401(k) Fee Litigation?,” InvestmentNews, February 2,
2023, https://www.investmentnews.com/will-2023-be-another-banner-year-for-401k-fee-litigation-233242.
160 GAO, 401(k) Retirement Plans.
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help participants understand DC plan fees.161 The provision also requires DOL to issue a report to
the House Committee on Education and the Workforce and the Senate Health, Education, Labor,
and Pensions Committee with findings and legislative recommendations related to the findings.
In the 117th Congress, H.R. 7284 would have directed the Secretary of Labor to improve DC plan
fee disclosures, and S. 4361 would have required DOL to study and report on retirement account
disclosure requirements, including ways to improve participants’ understanding of fees.
Alternative Investments in Retirement Plans
Though stocks, bonds, and mutual funds are common plan investments, pension plan fiduciaries
may invest in nearly any asset class provided they adhere to fiduciary duty in the selection and
monitoring of such investments. Several alternative investments, including cryptocurrency and
private equity, have been topics of increasing congressional attention in recent years regarding
their appropriateness for retirement plan participants.
Cryptocurrency
In DC plans, until recently, cryptocurrency was not available as an investment option. In 2021,
FORUSALL announced that it would be the first financial services company to offer plan
sponsors the option to adopt cryptocurrency as an investment for participants.162 In April 2022,
Fidelity announced its intention to allow 401(k) participants whose plan sponsors adopt it as an
investment option to invest up to 20% of their account balances in Bitcoin.163
In DB plans, while plan sponsors may invest in cryptocurrencies, current use appears to be
minimal. DOL outlined its concerns with cryptocurrencies in a March 2022 Compliance Release.
The concerns included the potentially speculative nature of cryptocurrency investments, the
difficulties individuals might have in evaluating whether to—or how much to—include in their
investment portfolios, recordkeeping challenges, valuation concerns, and the regulatory
environment.164
Advocates for including cryptocurrency as an investment option in retirement plans provide
several reasons for why it is an appropriate investment option. They note that it is a widely used
asset class outside of retirement plans. In addition, cryptocurrencies may provide diversification
benefits to an investment portfolio, potentially reducing a portfolio’s risk without necessarily
harming the portfolio’s return. Advocates also claim that younger individuals may be more likely
to participate in workplace retirement plans if investment choices include cryptocurrency.165
Regulatory and Congressional Responses

161 A Senate Finance Committee summary of SECURE 2.0 noted that this provision builds on recommendations made
in the aforementioned 2021 GAO report. See U.S. Congress, Senate Committee on Finance, SECURE 2.0 Section-by-
Section Summary, https://www.finance.senate.gov/imo/media/doc/
Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf.
162 See https://www.forusall.com/press.
163 See Fidelity, “A First-of-Its-Kind Investment Account,” https://www.fidelityworkplace.com/s/digitalassets.
164 See DOL, “Compliance Assistance Release No. 2022-01: 401(k) Plan Investments in ‘Cryptocurrencies,’” March
10, 2022, https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-advisers/plan-administration-and-compliance/
compliance-assistance-releases/2022-01.pdf.
165 See Anne Tergesen, “Cryptocurrency Comes to Retirement Plans as Coinbase Teams Up with 401(k) Provider,”
Wall Street Journal, June 10, 2021, https://www.wsj.com/articles/coinbase-teams-up-with-401-k-provider-to-offer-
crypto-11623317402.
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On March 10, 2022, DOL released a Compliance Assistance Release, “401(k) Plan Investments in
‘Cryptocurrencies,’” in which the department expressed “serious concerns” about plan
fiduciaries’ decisions to allow DC plan participants to invest in cryptocurrencies.166 The release
indicated that DOL planned to conduct an investigative program aimed at plans that offer such
investments and that plan fiduciaries could expect to be questioned by DOL about their decisions.
Subsequently, a DOL official noted that plans that allow their participants to invest in
cryptocurrency would not be automatically subjected to audits.167
The Financial Freedom Act of 2023 (S. 427 introduced by Senator Tommy Tuberville, and H.R.
1177, introduced by Representative Byron Donalds) would prohibit DOL regulations that require
plans to consider factors beyond the risk and return relationship that would constrain or prohibit
the type of investments that could be offered through a brokerage window in a DC plan.
Private Equity
Private equity funds are pooled investment vehicles that are not registered with the SEC.168
Private equity funds are typically open to accredited investors, such as high-income and high-net-
worth individuals, and qualified clients, such as institutional investors (which includes pension
funds).
In DC plans, plan sponsors have not made private equity available as a standalone investment
option, most likely due to characteristics of private equity, such as illiquidity and difficulty of
regular valuation.
In DB plans, fiduciaries invest in private equity funds. The Pensions and Investments 1,000
Summary Report found that, as of September 30, 2021, the top 200 DB plans (both public and
private sector) held $680.8 billion in private equity (out of $6.9 trillion in total assets).169
Regulatory and Congressional Responses
While private equity is not available as a standalone investment in DC plans, in June 2020, DOL
issued an information letter in response to a request from Groom Law Group that clarified that a
DC plan fiduciary would not violate fiduciary duty for including private equity as a component of
an asset allocation fund (e.g., a target-date fund), provided the fiduciary determined that it was an
appropriate investment choice for the plan.170
In December 2021, DOL issued a Supplement Statement to the June 2020 information letter
regarding private equity in DC plans.171 The Supplement Statement cautioned plan fiduciaries
from misreading the 2020 information letter as saying that private equity (as a component of an
asset allocation fund in a DC plan) was appropriate for a typical 401(k) plan and stated that the
letter “did not endorse or recommend such investments.” DOL noted that it agreed with some
stakeholders that, in the requester’s original letter to DOL, “the claimed benefits of [private
equity] investments reflected the perspective of the industry.” DOL also cited stakeholder

166 See DOL, “Compliance Assistance Release No. 2022-01.”
167 For more information, see CRS In Focus IF12153, Cryptocurrency in 401(k) Retirement Plans.
168 See Investor.gov, “Private Equity Funds,” https://www.investor.gov/introduction-investing/investing-basics/
investment-products/private-investment-funds/private-equity.
169 See Pensions and Investments, “P&I 1,000 Summary Report,” https://www.pionline.com/pi1000.
170 See EBSA, “Information Letter 06-03-2020,” June 3, 2020, https://www.dol.gov/agencies/ebsa/about-ebsa/our-
activities/resource-center/information-letters/06-03-2020.
171 See EBSA, “U.S. Department of Labor Supplement Statement on Private Equity in Defined Contribution Plan
Designated Investment Alternatives,” December 21, 2021, https://www.dol.gov/agencies/ebsa/about-ebsa/our-
activities/resource-center/information-letters/06-03-2020-supplemental-statement.
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concerns about the ability of plan fiduciaries in a typical 401(k) plan to fulfill the obligations
required to determine whether private equity was an appropriate investment for the plan.
Collective Investment Trusts in 403(b) Plans
In general, pension plans have few investment restrictions. However, 403(b) plans—which are
DC plans sponsored by public educational organizations (including public primary and secondary
schools, state colleges and universities, and public junior colleges), 501(c)(3) tax-exempt
organizations, and certain ministers—may invest only in (1) annuity contracts provided by
insurance companies and/or (2) custodial accounts invested only in SEC-registered mutual
funds.172
In contrast, while many 401(k) plans offer mutual funds as investment options, they also often
invest through collective investment trusts (CITs). CITs are pooled investment funds maintained
by banks or trust companies that are available only to certain qualified retirement plans. Mutual
funds and CITs differ in their regulatory structure. Mutual funds are investment trusts and are
regulated by the SEC. Because CITs are held by banks, however, they are regulated by the
Comptroller of the Currency.173
Regulatory and Congressional Responses
Over the years, Congress has tried to harmonize some of the rules that cover 401(k) and 403(b)
plans.174 A provision in SECURE 2.0 (enacted as Division T of P.L. 117-328; December 29, 2022)
amended the IRC to permit 403(b) custodial accounts to invest in group trusts (e.g., CITs) with
other tax-preferred savings plans and IRAs. A CIT is an example of a group trust. Previously,
assets of 403(b) custodial accounts could not be commingled in group trusts with assets other
than those of regulated investment companies (i.e., mutual funds).
SECURE 2.0 amended the IRC but did not amend securities laws (e.g., the Securities Act of
1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940, which
would be required to permit 403(b) plans to participate in CITs.
In the 118th Congress, H.R. 3063, as reported out of the House Financial Services Committee on
May 24, 2023, would amend securities laws to permit 403(b) plans to invest in CITs.175
Qualified Professional Asset Managers
In order to facilitate transactions between DB and DC pension plans and service providers that
would otherwise be prohibited by ERISA,176 DOL issued PTE 84-14 (referred to as the QPAM

172 A third type of 403(b) arrangement, which is only available to church employees described in Title 26, Section
403(b)(9), of the U.S. Code, is a retirement income account. Retirement income accounts do not have any investment
restrictions.
173 See Office of the Comptroller of the Currency, “Collective Investment Funds,” https://www.occ.treas.gov/topics/
supervision-and-examination/capital-markets/asset-management/collective-investment-funds/index-collective-
investment-funds.html.
174 For example, the SECURE 2.0 Act of 2022 (Division T of P.L. 117-328) modified the types of contributions that
403(b) participants may withdraw in hardship distributions to mirror the rules for 401(k) plan hardship distributions.
175 The bill would also permit 403(b) plans to invest in non-registered variable annuities (referred to as insurance
separate accounts). Insurance separate accounts are investment vehicles made available through group annuity
contracts that commingle assets from multiple retirement plans. Their assets are separated from all other assets of the
insurance companies.
176 Title I of ERISA, as amended, broadly prohibits transactions between plans and “parties in interest,” and Title II of
ERISA, as amended, includes parallel provisions applicable to tax-qualified plans and “disqualified persons.”
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exemption).177 A QPAM is an entity independent of the plan sponsor that has discretionary
authority over an investment fund (e.g., a bank, savings and loan association, insurance company,
or investment advisor). The QPAM exemption permits various parties that are related to pension
plans to engage in transactions involving plan assets (e.g., sale of any property, lending money,
furnishing of services) if the assets are managed by QPAMs. Without this class exemption, most
transactions between pension plans and a “party in interest” would be prohibited.
Regulatory and Congressional Responses
The QPAM exemption was first issued in 1984 and has twice been amended.178 In July 2022,
DOL gave notice of a proposed amendment to the QPAM exemption.179 The comment period
closed on September 26, 2022. Under current law and regulation, QPAMs may no longer qualify
for the PTE if they are convicted of certain crimes. The proposed amendment would make several
changes, among which include updating the list of crimes to explicitly include certain foreign
crimes and adjusting the asset management and equity thresholds in the QPAM definition.
After the comment period on the proposed amendment closed on September 26, 2022, in March
2023, DOL announced it was reopening the comment period for the proposed amendment to the
prohibited transaction class exemption 84-14 (the QPAM exemption).180 The reopened comment
period started on March 23, 2023, and ended on April 6, 2023.181 As of the date of this report,
DOL has not finalized the proposed amendment.
Individual Retirement Accounts (IRAs)
IRAs are tax-advantaged accounts that individuals can establish to accumulate funds for
retirement.182 Depending on the type of IRA, contributions may be made on a pretax or post-tax
basis, and investment earnings are either tax-deferred or tax-free. In addition, workers can roll
over savings from employer-sponsored retirement savings plans into IRAs to preserve their
savings’ tax advantages.
Traditional IRA contributions may be tax deductible depending on the IRA owner’s household
income and workplace pension coverage. The contributions may accrue investment earnings in an
account, and these earnings can be used as a source of income in retirement. Taxes are paid on
both contributions and any investment earnings when funds are distributed.

177 DOL has authority to grant additional PTEs on an individual or class basis.
178 See EBSA, “Class Exemptions,” https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/
exemptions/class.
179 See EBSA, “Proposed Amendment to Prohibited Transaction Class Exemption 84-14 (the QPAM Exemption),” 87
Federal Register 45204-45232, July 27, 2022, https://www.federalregister.gov/documents/2022/07/27/2022-15702/
proposed-amendment-to-prohibited-transaction-class-exemption-84-14-the-qpam-exemption.
180 See EBSA, “Reopening Comment Period for the Proposed Amendment to Prohibited Transaction Class Exemption
84-14 (the QPAM Exemption),” 88 Federal Register 17466-17467, March 23, 2023, https://www.federalregister.gov/
documents/2023/03/23/2023-05522/reopening-comment-period-for-the-proposed-amendment-to-prohibited-
transaction-class-exemption-84-14.
181 Comments are available at https://www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-
comments/1210-ZA07.
182 For more information on IRAs, see CRS Report RL34397, Traditional and Roth Individual Retirement Accounts
(IRAs): A Primer.
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IRAs: Authority and Administration
Traditional IRAs were authorized by ERISA (P.L. 93-406). Roth IRAs were authorized by the
Taxpayer Relief Act of 1997 (P.L. 105-34). One key difference between traditional and Roth IRAs
is that contributions to Roth IRAs are made with after-tax funds, and qualified distributions are
not included in taxable income; investment earnings accrue free of taxes. The IRS has
responsibility for enforcing IRA tax laws.
An IRA must be a trust or custodial account, and the trustee must be either (1) a bank or (2) a
nonbank that applies to the IRS to be considered eligible. Trustees that meet these requirements
include financial institutions, credit unions, mutual fund companies, life insurance companies,
and stock brokerages. Most individuals with IRAs hold them through large financial institutions
(e.g., Fidelity, Vanguard).
These institutions offer an array of investment choices for IRA investors, such as mutual funds,
exchange-traded funds, bonds, and publicly traded stocks. IRA investors are limited to the options
offered by their financial institutions.
Some individuals save for retirement through self-directed IRAs (SDIRAs). SDIRAs are set up
through IRS-approved custodians that specialize in SDIRAs. These custodians permit individuals
to exercise discretion over their investment choices and invest in nearly any asset class, including
cryptocurrencies; private equity; real estate; and ownership interests in limited liability
corporations, partnerships, trusts, or similar entities. SDIRA owners are responsible for selecting,
managing, monitoring, and retaining all investments in their accounts.
Investment Restrictions and Prohibited Transactions
Owners of IRAs or SDIRAs must adhere to IRA investment rules. In general, while IRAs have
few investment restrictions, the following do apply:
• Any amounts invested in collectibles—such as artwork, rugs and antiques,
metals, gems, stamps, alcoholic beverages, and most coins183—are treated as
distributions and may be subject to income tax and a 10% penalty.184
• IRA owners are not permitted to invest in life insurance contracts.185
• IRAs (absent some meeting narrow exceptions) are not permitted to be
shareholders of S corporations.186

183 Gold, silver, and platinum coins issued by the U.S. Treasury and gold, silver, palladium, and platinum bullion are
permissible.
184 See 26 U.S.C. §408(m).
185 See 26 U.S.C. §408(a)(3) and 26 U.S.C. §408(e)(5).
186 See Treasury Regulation Section 1.1361-1(h)(1)(vii).
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Prohibited Transactions
In addition to the investment restrictions above, IRA owners, beneficiaries, and any disqualified
persons—such as the IRA owners’ fiduciaries and any family members—are not permitted to
engage in a number of prohibited transactions.187 These include borrowing money from an IRA,
selling property to it, using it as security for a loan, and buying property for personal use (present
or future) with IRA funds. An individual who engages in a prohibited transaction causes the IRA
to no longer be treated as an IRA as of the first day of the year. The entire amount of the account
is treated as a distribution (based on the account’s value at the beginning of the year) and may be
subject to tax and penalty.
DOL and the IRS have oversight responsibilities for prohibited transactions relating to IRAs.188
IRA owners who invest in unconventional assets—typically done through SDIRAs—are more
likely to engage in prohibited transactions compared to IRA owners who invest in assets offered
by their financial institutions. A 2019 GAO report recommended that formalizing collaborative
efforts from DOL and the IRS could strengthen oversight of prohibited transactions within
IRAs.189
Regulatory and Congressional Responses
In general, there has been little action from a regulatory or congressional standpoint regarding
IRA investments. An early version of the Build Back Better Act, which later became the Inflation
Reduction Act, included several provisions that would have affected IRA investments.
For example, some investments are available only to what are referred to as accredited
investors.190 These investments are private securities offerings, which are exempt from certain
SEC requirements. Examples include hedge funds, venture capital, and private equity. Individuals
can qualify as accredited investors if they meet certain income or net worth thresholds or have
specified educational credentials. Section 138312 of H.R. 5376, as reported in the House on
September 27, 2021, would have prohibited IRA owners from investing in securities that are
available only to accredited investors.191 This provision was not included in the version of H.R.
5376 that became law (P.L. 117-169).

187 See 26 U.S.C. §4975.
188 DOL may provide interpretive guidance and has authority to grant exemptions from prohibited transactions rules.
The IRS enforces tax laws relating to IRAs (including assessing additional taxes for IRA owners who engage in
prohibited transactions).
189 See GAO, Individual Retirement Accounts: Formalizing Labor’s and IRS’s Collaborative Efforts Could Strengthen
Oversight of Prohibited Transactions, GAO-19-495, June 2019, https://www.gao.gov/assets/gao-19-495.pdf.
190 For more details on accredited investors, see CRS In Focus IF11278, Accredited Investor Definition and Private
Securities Markets.
191 See Section 138312 at https://www.congress.gov/117/crpt/hrpt130/CRPT-117hrpt130-pt3.pdf.
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Author Information

Katelin P. Isaacs, Coordinator
John J. Topoleski
Specialist in Income Security
Specialist in Income Security

Elizabeth A. Myers

Analyst in Income Security

Acknowledgments
Tamar B. Breslauer, Senior Research Librarian at CRS, made significant contributions to the research for
this report.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
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