A House bill introduced this week by Rep. Jim Banks, R-Ind., would seek to prevent 401(k)s and other defined-contribution plans from investing in companies based in China and other “foreign adversary” countries.
It's unclear how much private-sector retirement plans could have allocated to securities based in those countries. But the legislation would bar “any new investments in companies controlled by or based in our foreign adversaries, as well as require the disclosure of existing investments in other foreign adversary and sanctioned entities,” Banks’ office said in an announcement Monday.
That could mean a massive headache for retirement plan investment providers and record keepers. The most common default investment options in 401(k)s, target-date funds, invest a large portion of their assets in U.S. equity and bond funds, but they also have allocations to international and emerging markets funds, many of which do include China-based holdings.
For example, the third-largest stock included in the Vanguard Total International Stock Index Fund, which is used within the company’s popular target-date series, is Shenzhen-based Tencent Holdings.
Most plans also include international equity funds — actively managed or index-based — as stand-alone investment options.
The bill defines “foreign adversary” countries as China, Russia, North Korea and Iran.
The legislation would not allow Erisa fiduciaries to “acquire any interest in, lend money to, engage in transactions with or transfer plan data to any foreign adversary entities” but “does not require divestment of existing investments or breaching existing contracts,” Banks’ office stated.
“Several states, including my home state of Indiana, divested their pension funds from China, but federally regulated Erisa plans continue to fund firms that are building up the People’s Liberation Army, stealing U.S. intellectual property and participating in the Uyghur genocide,” the statement read.
The bill is co-sponsored by Republican Reps. Mike Gallagher of Wisconsin, John Moolenaar of Michigan and Rob Wittman of Virginia.
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