DOL Guidance on Proxy Proposals

The U.S. Department of Labor recently issued Advisory Opinion 2007-07A to the U.S. Chamber of Commerce, responding to the Chamber’s concerns about “the use of pension plan assets by plan fiduciaries to further public policy debates and political activities through proxy resolutions that have no connection to enhancing the value of the plan’s investment in a company.”
Mike Melbinger notes in his CompensationStandards.com blog: “By way of background for those not familiar with ERISA, the DOL has long considered the right to vote proxies related to a retirement plan's stock holdings as a valuable asset of the plan. In Advisory Opinion 2007-07A, the DOL said:
‘Under section 404(a)(1)(A) and (B) of ERISA, plan fiduciaries must act solely in the interest of participants and beneficiaries and for the exclusive purpose of paying benefits and defraying reasonable administrative expenses. In our view, plan fiduciaries risk violating the exclusive purpose rule when they exercise their fiduciary authority in an attempt to further legislative, regulatory or public policy issues through the proxy process when there is no clear economic benefit to the plan. In such cases, the Department would expect fiduciaries to be able to demonstrate in enforcement actions their compliance with the requirements of section 404(a)(1)(A) and (B).* * *Consistent with these various pronouncements, the use of pension plan assets by plan fiduciaries to further policy or political issues through proxy resolutions that have no connection to enhancing the value of the plan’s investment in a corporation would, in the view of the Department, violate the prudence and exclusive purpose requirements of section 404(a)(1)(A) and (B).’
Those of us familiar with ERISA's fiduciary requirements were sometimes curious as to how some union plan fiduciaries could square their proxy activism with ERISA. Apparently, the DOL was too.”