119-s1670

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 1670 Introduced in Senate

    (IS) ]

<DOC>

119th CONGRESS
 1st Session
 S. 1670

 To amend the Investment Advisers Act of 1940 to require investment 
advisers for passively managed funds to arrange for pass-through voting 
 of proxies for certain securities, and for other purposes.

_______________________________________________________________________

 IN THE SENATE OF THE UNITED STATES

 May 8, 2025

 Mr. Sullivan (for himself, Mr. Daines, Mr. Cornyn, Mr. Cassidy, Mr. 
 Tillis, Mr. Scott of Florida, Mr. Kennedy, Mr. Hagerty, and Mr. 
 Grassley) introduced the following bill; which was read twice and 
 referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

 A BILL

 To amend the Investment Advisers Act of 1940 to require investment 
advisers for passively managed funds to arrange for pass-through voting 
 of proxies for certain securities, and for other purposes.

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

SECTION 1. SHORT TITLE.

 This Act may be cited as the ``INvestor Democracy is EXpected Act'' 
or the ``INDEX Act''.

SEC. 2. PROXY VOTING OF PASSIVELY MANAGED FUNDS.

    (a) In General.--The Investment Advisers Act of 1940 (15 U.S.C. 
80b-1 et seq.) is amended by inserting after 

section 208 (15 U.S.C. 
80b-8) the following:

``

SEC. 208A. REQUIREMENT WITH RESPECT TO PROXY VOTING OF PASSIVELY 
 MANAGED FUNDS.

 ``

    (a) 

=== Definitions. ===
-In this section--
 ``

    (1) the term `covered security'--
 ``
        (A) means a voting security, as that term is 
 defined in 

section 2

    (a) of the Investment Company Act 
 of 1940 (15 U.S.C. 80a-2

    (a) ), in which a qualified fund 
 is invested; and
 ``
        (B) does not include any voting security (as 
 defined in subparagraph
        (A) ) of an issuer registered 
 with the Commission as an investment company under 
 

section 8 of the Investment Company Act of 1940 (15 
 U.S.C. 80a-8);
 ``

    (2) the term `passively managed fund' means a qualified 
 fund that--
 ``
        (A) is designed to track, or is derived from, an 
 index of securities or a portion of such an index;
 ``
        (B) discloses that the qualified fund is a 
 passive fund or an index fund;
 ``
            (C) allocates not less than 40 percent of the 
 total assets of the qualified fund to an investment 
 strategy that is designed to track, or is derived from, 
 an index of securities or a portion of such an index; 
 or
 ``
            (D) discloses that an allocation described in 
 subparagraph
            (C) follows an investment strategy that is 
 passive or based on an index of securities;
 ``

    (3) the term `qualified fund' means--
 ``
        (A) an investment company, as that term is 
 defined in 

section 3 of the Investment Company Act of 
 1940 (15 U.S.C. 80a-3);
 ``
        (B) a private fund;
 ``
            (C) an eligible deferred compensation plan, as 
 that term is defined in 

section 457

    (b) of the Internal 
 Revenue Code of 1986;
 ``
            (D) an entity described in 

section 3
            (c) (11) of 
 the Investment Company Act of 1940 (15 U.S.C. 80a-
 3
            (c) (11) );
 ``
        (E) a plan maintained by an employer described in 
 clause
            (i) ,
            (ii) , or
            (iii) of 

section 403

    (b)

    (1)
        (A) of 
 the Internal Revenue Code of 1986 to provide annuity 
 contracts described in 

section 403

    (b) of such Code;
 ``
        (F) a common trust fund, or similar fund, 
 maintained by a bank;
 ``
        (G) any fund established under 

section 8438

    (b)

    (1) of title 5, United States Code; or
 ``
        (H) any separate managed account of a client of 
 an investment adviser;
 ``

    (4) the term `registrant' means an issuer of covered 
 securities;
 ``

    (5) the term `routine matter' does not include--
 ``
        (A) a proposal that is not submitted to a holder 
 of covered securities by means of a proxy statement 
 comparable to that described in 

section 240.14a-101 of 
 title 17, Code of Federal Regulations, or any successor 
 regulation;
 ``
        (B) a proposal that is--
 ``
            (i) the subject of a counter-
 solicitation; or
 ``
            (ii) part of a proposal made by a person 
 other than the applicable registrant;
 ``
            (C) a proposal that relates to a merger or 
 consolidation, except when, with respect to a 
 registrant--
 ``
            (i) the proposal is to merge with a 
 wholly owned subsidiary of the registrant; and
 ``
            (ii) holders of covered securities issued 
 by the registrant that dissent to the proposal 
 do not have rights of appraisal;
 ``
            (D) a proposal that relates to the sale, lease, 
 or exchange of all, or substantially all, of the 
 property and assets of a registrant;
 ``
        (E) an election for directors (or comparable 
 positions); or
 ``
        (F) any other matter determined by the Commission 
 or an exchange registered under 

section 6 of the 
 Securities Exchange Act of 1934 (15 U.S.C. 78f) to be 
 not routine; and
 ``

    (6) the term `voting person' means a person that provides 
 voting instructions under subsection

    (b) or
            (c) .
 ``

    (b) Requirement.--
 ``

    (1) In general.--Subject to subsection

    (g) , if an 
 investment adviser holds authority to vote a proxy solicited 
 pursuant to 

section 14 of the Securities Exchange Act of 1934 
 (15 U.S.C. 78n) in connection with any vote of covered 
 securities held by a passively managed fund, and the voting 
 authority held by that investment adviser with respect to those 
 covered securities (when combined with the voting authority of 
 other persons controlled by, or under common control with, that 
 investment adviser) is more than 1 percent of the voting 
 authority of the outstanding securities of the registrant 
 subject to the vote, the investment adviser shall vote 
 proportionate amounts of those covered securities in accordance 
 with the voting instructions of--
 ``
        (A) in the case of a passively managed fund that 
 issues securities, persons holding securities in the 
 passively managed fund, such that, solely for the 
 purposes of that vote, the percentage of securities 
 held by such a person shall be deemed to be the 
 percentage of the covered securities beneficially owned 
 by that person; and
 ``
        (B) in all cases other than a case described in 
 subparagraph
        (A) , persons holding economic interests in 
 the passively managed fund, such that, solely for 
 purposes of that vote, the percentage of economic 
 interests held by such a person shall be deemed to be 
 the percentage of the covered securities beneficially 
 owned by that person.
 ``

    (2) Prohibition.--If paragraph

    (1) applies with respect 
 to any vote of covered securities and the investment adviser to 
 which that paragraph applies does not receiving voting 
 instructions from all persons described in subparagraphs
        (A) and
        (B) of that paragraph, the investment adviser may not vote 
 the proportion of the shares of the covered securities for 
 which the investment adviser does not receive voting 
 instructions.
 ``
            (c) Passively Managed Fund as Security Holder of Another 
Passively Managed Fund.--If a passively managed fund (referred to in 
this subsection as the `holding fund') holds securities of another 
passively managed fund (referred to in this subsection as the `held 
fund'), and there is a vote with respect to covered securities held by 
the held fund, the investment adviser of the holding fund shall obtain 
voting instructions from persons holding securities in the holding 
fund, or to persons holding economic interests in the holding fund, as 
applicable, with respect to that vote in the manner described in 
subsection

    (b) .
 ``
            (d) Prohibitions.--
 ``

    (1) Reimbursement.--No person may seek reimbursement from 
 a registrant, or require any expenses incurred to be paid by a 
 registrant, with respect to the obligations imposed under this 
 section.
 ``

    (2) Partial compliance.--An investment adviser may not 
 solicit voting instructions from some, but not all, voting 
 persons under subsection

    (b)

    (1) or
            (c) , as applicable.
 ``

    (e) Exceptions.--
 ``

    (1) Voting on routine matters.--Notwithstanding 
 subsections

    (b)

    (1) ,

    (b)

    (2) , and
            (d) (2) , if an investment 
 adviser chooses not to solicit voting instructions with respect 
 to a vote described in subsection

    (b)

    (1) or
            (c) , or, as of the 
 date that is 10 days before such a vote, the investment adviser 
 has not received voting instructions from a person described in 
 subparagraph
        (A) or
        (B) of subsection

    (b)

    (1) or subsection
            (c) , 
 as applicable, the investment adviser may vote the covered 
 securities for which the investment adviser has not received 
 voting instructions with respect to a routine matter.
 ``

    (2) Mirror voting exception for matters requiring 
 approval of a majority of outstanding securities.--
 Notwithstanding subsections

    (b)

    (1) ,

    (b)

    (2) , and
            (d) (2) , if a 
 matter to be considered at a meeting of a registrant requires 
 the approval of a majority of the outstanding securities of the 
 registrant entitled to vote on the matter, an investment 
 adviser to which any such provision applies may, with respect 
 to any covered securities for which voting instructions have 
 not been received, as of the date that is 10 days before that 
 vote, vote the uninstructed covered securities in a manner that 
 is proportionate to the votes submitted on the matter by all 
 other security holders of the registrant.
 ``

    (f) Dissemination of Information.--
 ``

    (1) In general.--Any investment adviser subject to the 
 requirements of subsection

    (b) or
            (c) shall, with respect to 
 the dissemination of information and other materials to a 
 voting person, comply with the following requirements, unless 
 the voting person affirmatively declines to receive that 
 information and other materials:
 ``
        (A) Provide to the voting person--
 ``
            (i) a proxy statement, other proxy 
 soliciting material, or an information 
 statement;
 ``
            (ii) an annual report from the applicable 
 registrant;
 ``
            (iii) a form of voting instruction to 
 return to the investment adviser; and
 ``
            (iv) any control or identification number 
 that the voting person needs to return to the 
 investment adviser the voting instruction 
 provided under subparagraph
        (B) .
 ``
        (B) Provide the voting person with not less than 
 5 business days after the date on which the voting 
 person receives the materials provided under paragraph

    (1) to return those materials to the investment 
 adviser.
 ``

    (2) Electronic delivery.--All, or any portion, of the 
 materials that an investment adviser is required to provide 
 under paragraph

    (1)
        (A) may be provided electronically, 
 including an internet website address provided by the 
 applicable registrant or a third party.
 ``

    (3) Option for investment advisers.--An investment 
 adviser may provide recommendations to voting persons with the 
 material provided under paragraph

    (1)
        (A) , or after providing 
 the material under that paragraph, if the investment adviser 
 permits voting recommendations to be provided to voting persons 
 by third parties on a nondiscriminatory basis and on a wide 
 range of views.
 ``

    (4) Satisfaction of requirements by passively managed 
 fund.--With respect to any requirement applicable to an 
 investment adviser under this subsection, the requirement may 
 be satisfied by the applicable passively managed fund, which 
 may cover any expenses, direct or indirect, incurred in 
 carrying out that requirement.
 ``

    (g) Safe Harbor and Rule of Construction Regarding Duties.--An 
investment adviser--
 ``

    (1) with respect to a matter that is not a routine 
 matter, may choose not to solicit voting instructions from any 
 person under subsection

    (b)

    (1) or
            (c) , subject to subsections
            (d) (2) and

    (e) ; and
 ``

    (2) if the investment adviser chooses not to solicit 
 voting instructions under subparagraph
        (A) , shall not be 
 considered to be in violation of any duty under any Federal or 
 State law for failing to vote the applicable securities.''.

    (b) Effective Date.--

Section 208A of the Investment Advisers Act of 
1940, as added by subsection

    (a) , shall take effect on the first August 
1 that occurs after the date that is 2 years after the date of 
enactment of this Act.

SEC. 3. VOTING INSTRUCTIONS FROM CUSTOMERS.

 

Section 14

    (b)

    (1) of the Securities Exchange Act of 1934 (15 U.S.C. 
78n

    (b)

    (1) ) is amended by inserting ``voting instruction,'' after 
``consent,''.
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