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DOL Releases Opinion Letter on Pension Assets and Politically Motivated Proxy Activity

Pension fiduciaries may not engage in politically motivated proxy activity, according to an opinion letter released by the U.S. Department of Labor (DOL). The letter states that fiduciaries may not introduce or support proxy resolutions unless doing so would provide a clear economic benefit to the plan. The DOL was responding to an inquiry from the U.S. Chamber of Commerce about whether a shareholder activism campaign organized by an employee organization to promote its health care agenda – and reportedly to seek disclosure of political contributions from corporate directors and officers to candidates who oppose that agenda – was compatible with ERISA.

Under ERISA, plan fiduciaries must act solely in the interest of plan participants and beneficiaries. Plan fiduciaries may not increase expenses, sacrifice investment returns or reduce the security of plan benefits to support or promote goals not directly related to the plan.

The DOL has previously expressed strong concern about the use of plan assets to promote legislative, regulatory or public policy positions that have no connection to the payment of benefits or plan administrative expenses. Prior DOL guidance notes that the fiduciary obligations of prudence and loyalty require responsible fiduciaries to vote proxies on issues that affect the value of the plan’s investment. However, before doing so, fiduciaries need to consider whether the benefit to the plan would outweigh the costs of proxy resolutions, proxy voting services, analysis of the likely net effect on the value of plan investments and other related expenses.

The same principle applies to fiduciary activities that involve monitoring or influencing the management of a corporation. For example, requiring corporate directors and officers to disclose their personal political contributions is extremely unlikely to enhance the value of a plan’s investment in the company and would raise ERISA fiduciary standards compliance issues.

According to the opinion letter, responsible fiduciaries may consider only those factors that affect the value of the plan’s investment – they may not subordinate the interests of participants and beneficiaries to other goals. Plan fiduciaries that use the proxy process to further legislative, regulatory or public policy goals risk violating ERISA’s exclusive-purpose rule.