In its recent advisory opinion, the administration expressed that plan fiduciaries risk violating the ‘acting for the exclusive purpose of plan participants and beneficiaries’ rule of ERISA 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, EBSA said, it would expect fiduciaries to be able to demonstrate in enforcement actions their compliance with the requirements of ERISA.
“As the Department has indicated in other contexts, 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 administration said in the document.
The EBSA pointed out that the advisory opinion further clarifies Interpretive Bulletin 94-2 in which the department set forth its view that the fiduciary duties required by ERISA to act with prudence and for the sole interest of the participant generally dictate that, in voting proxies, the fiduciary must only consider factors that affect the value of the plan’s investment and not unrelated objectives. ERISA also requires that fiduciaries act for the exclusive purpose of paying benefits and defraying reasonable administrative expenses, the EBSA said.
The previous bulletin provides that an investment policy that contemplates activities intended to monitor or influence the management of a corporation in which a plan owns shares complies with a fiduciary’s obligations under ERISA if the fiduciary concludes that there is a reasonable expectation that such activities will enhance the value of the plan’s investment in the corporation sufficient to outweigh the costs involved. Interpretive Bulletin 94-2 makes it clear that plan fiduciaries must first take into account the cost of such action and the role of the investment in the plan’s portfolio, the EBSA stated in its opinion.
EBSA Advisory Opinion 2007-07A is here .