William Roth

Mr. ROTH

Mr. ROTH. Let me answer the distinguished Senator this way. As he knows, we are having a very serious, a very important discussion on judicial review. So I think it would be unhelpful to suddenly turn to a matter that is not even directly related to the legislation before us. Second, I think we all agree this legislation on regulatory reform is among the most important legislation that shall come before us this year. For that reason, it concerns me if we begin to add amendments-- this would be the first--that are not related. I would be happy to assure the distinguished Senator from Illinois that we would be happy to take a hard look at this in committee. I have had a number of people mention the problems, the concern it causes them, but I think if we are going to change it--and perhaps we should-- then it should be done in a manner that is most constructive under the circumstances, rather than being done on an unrelated piece of legislation.

Mr. ROTH. Reserving the right to object, Mr. President, I respectfully request that the Senator from Illinois withdraw his request. First of all, the amendment he is proposing is not germane to the legislation before us. It does represent a very considerable change in our civil service rules that are worthy of review. But I hope that rather than bringing it up at this time, this is a matter that could be reviewed by the Governmental Affairs Committee which has jurisdiction over the matter. [[Page S 10123]]

Mr. ROTH. As the distinguished Senator from Louisiana already pointed out, that is what we are doing now. It is a fact--is it not a fact that the Vice President, the head of OIRA, and others, have said that there are bad rules on the books and something needs to be done? Is that not correct?

Mr. ROTH. So, in a very real way, the adoption of the Glenn-Chafee legislation would mean no significant change, at least as far as cost- benefit is concerned?

Mr. ROTH. That is the point I am trying to make. It is consensual under current conditions, and the Glenn-Chafee would make no change, it would continue to be consensual. Is that correct?

Mr. ROTH. Am I correct in understanding that I believe every President since President Ford has required a cost-benefit analysis to be made, but, despite that general requirement through Executive order and otherwise, it has not been adhered to? Is that correct?

Mr. ROTH. That is correct.

Mr. ROTH. Mr. President, I say to my distinguished friend and colleague from Ohio that I have been in negotiations and discussions with representatives of his side of the aisle in an effort to revise the decisional criteria with respect to the least cost. I am sympathetic to the concept of utilizing a test of cost-effectiveness or greater net benefit to avoid some of the problems raised in his discussion of this section. I wonder if the distinguished Senator is willing to proceed along those lines at this time in developing such an amendment?

Mr. ROTH. Mr. President, will the Senator yield?

Mr. ROTH. I congratulate the distinguished Senator from Louisiana for his very penetrating analysis.

Mr. ROTH. So this, in a sense, would be an exercise in futility.

Mr. ROTH. The Senator is partly right.

Mr. ROTH. As I understand it, and of course none of us have had a chance to review that carefully, the new language of the Glenn-Chafee bill--but essentially what they have done is taken the teeth out of the legislation that was reported out by the Governmental Affairs Committee?

Mr. ROTH. But that is the problem; it has not been done. Is that not correct? [[Page S 10103]]

Mr. ROTH

Mr. ROTH. Mr. President, I ask unanimous consent that the Committee on Foreign Relations be authorized to meet during the session of the Senate on Monday, July 17, 1995, at 2 p.m.

Mr. ROTH

Mr. ROTH. Mr. President, I send an amendment to the desk and ask for its immediate consideration.

Mr. ROTH. Mr. President, I ask unanimous consent that reading of the amendment be dispensed with.

Mr. ROTH. Mr. President, I move to reconsider the vote by which the amendment was agreed to.

Mr. ROTH. Mr. President, my amendment is to promote the use of risk assessment in a consistent manner across agencies because we believe it will clearly improve the intent of S. 343 and will further the bill's intent of improving risk assessment within the Federal Government. It only makes sense to ensure that the conduct, application, and practice of risk assessment be done as uniformly as possible across agencies. A consistent approach will help to minimize unnecessary bureaucracy, overlap, and duplication, and will lead to a more efficient and effective process of performing risk assessment. This amendment is pulled directly from the Glenn substitute, and shows our effort to continue this process in a truly bipartisan manner. This amendment would require the Director of OMB, in consultation with the Office of Science and Technology Policy to survey relevant agency risk assessment practices to determine the scope and adequacy of risk assessment practices used by the Federal Government. The amendment also requires the establishment of interagency mechanisms to promote coordination among agencies' risk assessment practices, to promote the use of state-of-the-art risk assessment practices throughout the Federal Government, and establish mechanisms to communicate risk assessment practices between Federal and State agencies, as well as to promote Federal and State cooperation in the development and application of risk assessment. In addition, the amendment requires national peer review panels every 3 years to review risk assessment practices across agencies for programs designed to protect human health, safety, and the environment. This amendment will ensure that advances in science and technology are continuously incorporated in Federal risk assessment practices and ensure coordination of these practices among Federal and State agencies. This amendment will, therefore, improve risk assessment practices in the Federal Government, and will result in a more effective and efficient risk assessment process--a process that is the foundation of effective health, safety, and environmental regulations. Mr. President, I urge adoption of my amendment.

Mr. ROTH

Mr. ROTH. Not under these circumstances.

Mr. ROTH. Mr. President, I would not.

Mr. ROTH

Mr. ROTH. Mr. President, today together with Senator Baucus, I am introducing the Common Trust Fund Improvement Act of 1995--In short, this legislation would allow banks to move assets of their common trust funds to one or more mutual funds without gain or loss being recognized by the trust funds or their participants. Bank common trust funds have been used by banks since World War II to collectively invest pools of monies in their capacities as trustees, executors, administrators, or guardians of certain customer accounts for which they have a fiduciary responsibility. At present, there are more than $120 billion in assets residing in bank common trust funds, but little if any new money is flowing into these common trust funds. By allowing the conversions under this legislation, banks can reduce investment risk and, in some cases, increase total investment return for their customer accounts by using larger, more diversified and efficient investment pools for asset allocation. Mutual funds are the pooling vehicle of choice because they can grow into much larger investment pools than can common trust funds. By law, the participants in a bank's common trust fund are limited to that bank's fiduciary customers. Mutual funds can be offered to all types of investors. Thus, the conversion of bank common trust fund assets into mutual funds is really a transitional issue, permitting financial institutions the ability to provide their existing trust customers with the same efficient and safe investment vehicles that they are providing to their new customers. The conversion of their common trust funds into one or more mutual funds would also benefit banks by providing them with one set of investment pools to manage. This legislation is necessary because it appears that the conversion of common trust fund assets into one or more mutual funds would, under current law, trigger tax to the participants of the common trust fund, an event that could be viewed under State laws as a breach of a bank's fiduciary responsibilites. Thus, at present, banks generally are finding it prohibitive to convert their common trust funds into more economically efficient mutal funds. Permitting tax-free conversions of a common trust fund's assets to more [[Page S 9915]] than one mutual fund would allow the more diverse common trust assets to be allocated to several mutual funds according to the appropriate investment and other objectives of the mutual funds. While the multiple conversion feature will benefit all banking institutions, it is particularly significant for small and medium-size banks with smaller common trust funds; these institutions generally find it far too costly to create their own mutual funds, and they are not likely to find a single third party mutual fund for each common trust fund able to accept substantially all the assets of the common trust fund. While this legislation has been estimated to cost less than $100 million over five years, I am very mindful of the need to ensure that tax-law changes, no matter how appropriate and essential, do not add to the federal deficit that we are all trying so hard to eliminate. Therefore, it may be necessary to modify this proposal in order to reduce its revenue cost to a negligible level. Unfortunately, as is the case with many tax policy changes, modifications to the legislation that address revenue concerns may make the proposal more complex to administer, however, I am willing to make this trade off if it becomes absolutely necessary in order to include this legislation in a revenue bill later this year. In addition, I intend to introduce legislation soon--also related to financial institutions--to create financial securitization investment trusts [FASITs] that should provide the necessary revenue offset to pay for this proposal. My legislation addresses an important business issue for large and small banks, and an important investment issue for their customers. Versions of this legislation have passed the Congress on two separate occasions with my strong support in the Senate. Given its modest cost, its noncontroversial nature and its widespread support, I am hopeful that this much needed legislation will be enacted this year. Let me make a few short comments to summarize why I believe this legislation to permit conversions of common trust funds into mutual funds without the recognition of gain or loss should be enacted: It will permit all bank customers, not just trust customers, more options for investing their savings. It will make banks more competitive. Many savers are abandoning bank certificates of deposit for the competition, and banks are unable to offer their customers an option. Customers are unfamiliar with common trust funds, but do understand mutual funds. Therefore, mutual funds are more attractive to them. The conversion is like a merger of two existing registered funds which allows securities to move intact from one fund to another with no tax consequences, so there is no ``sale''. The participant's underlying investment is unchanged. As a result, we also believe that there should not be a revenue loss associated with this proposal. No revenue would be gained under current law, because banks have a fiduciary duty to their customers and they would not incur a capital gains tax in order to make the conversion unless this law is changed. Therefore, the idea that retaining current law will somehow result in more revenue is misplaced. proposal to permit tax-free conversion of common trust fund assets to one or more mutual funds current law Banks historically have established common trust funds in order to maintain pooled funds of small fiduciary accounts. Under section 584, common trust funds must be maintained by banks exclusively for the collective investment of monies in the banks' capacity as trustee, executor administrator, or guardian of certain accounts, in conformity with rules established by the Federal Reserve and the Comptroller of the Currency. Common trust funds are not subject to income tax, and they are not treated as corporations. They are a conduit, with income ``passed through'' to fund participants for tax purposes. Mutual funds are also considered conduits under the Tax Code. Unlike common trust funds, however, mutual funds are treated as corporations. As a result of this differing tax treatment, it is unclear whether a mutual fund may merge with or acquire the assets of a common trust fund in a transaction that is tax-free to the common trust fund and its participants. reasons for change The economic efficiencies, diversification, and liquidity of mutual funds are key reasons for their popularity and growth in recent years. These are attributes that are not generally found in common trust funds. It would be desirable for banks to convert their existing common trust funds into mutual funds so that bank customers, including trust participants, may take advantage of the benefits of mutual funds. The conversion of its common trust funds into one or more mutual funds would also benefit banks by providing them with one set of investment pools to manage. Permitting tax-free conversions of a common trust fund to more than one mutual fund would allow the more diverse common trust fund assets to be allocated to several mutual funds according to the appropriate investment and other objectives of the mutual funds. The multiple conversions feature is particularly significant for banks with small common trust funds, which probably would not be able to find a single mutual fund with the same investment objectives of a common trust fund. However, until current law is clarified, it appears that the conversion of common trust fund assets into one or more mutual funds would trigger tax to the participants of the common trust fund, an event that could be viewed under State laws as a breach of a bank's fiduciary responsibilities. Thus, at present, banks generally are finding it prohibitive to convert their common trust funds into more economically efficient mutual funds. proposal This proposal would allow a common trust fund to transfer substantially all of its assets to one or more mutual funds without gain or loss being recognized by the trust fund or its participants. The common trust fund would transfer it assets to the mutual funds solely in exchange for shares of the mutual funds, and the common trust fund would then distribute the mutual fund shares to its participants in exchange for the participants' interests in the common trust fund. The basis of any asset received by the mutual fund would be the basis of the asset in the hands of the common trust fund prior to the conversion. In a conversion to more than one mutual fund, the basis in each mutual fund would be determined by allocating the basis in the common trust fund units among the mutual funds in proportion to the fair market value of the transferred assets. This proposal has been designed to have a minimal cost to the Federal Treasury, and versions of this proposal have been passed by the Congress on two previous occasions. The benefits of such a change would be felt by customers of large and small banking institutions throughout the country, and has the support of both the mutual funds and banking industries.

Mr. ROTH

Mr. ROTH. I move to reconsider the vote by which the amendment was agreed to.

Mr. ROTH. Mr. President, I am willing to accept the amendment and yield back the remainder of my time.

Mr. ROTH. Mr. President, let me point out that there is absolutely no intention in S. 343 to undermine the integrity of the peer review process. While I think the concerns of Senator Feingold are unwarranted, I believe that we are willing to accept the amendment. As I understand the amendment, the Senator is first saying that we may exclude any person with substantial and relevant expertise as a participant, on the basis that such a person has a potential financial interest in the outcome. But the Senator is also providing that such person may be included if his interest is fully disclosed to the agency and the agency includes such disclosure as part of the record. So, as I understand it, the Senator is trying to be more evenhanded on the matter. Is that correct?