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InsiderOnline Blog: October 2008

Department of Labor Clarifies Limits on Pension Fund Activism

Kudos to the Department of Labor for its continuing efforts to check the union-inspired hijacking of pension plans for political purposes. As the Employee Retirement Income Security Act of 1974 spelled out, pension plans are supposed to be managed so as to maximize plan assets. Yet, for the past couple of decades, unions have been engaged in a plot to redefine “fiduciary duty” so that union-influenced pension plans could play shareholder politics on labor and other issues.

That campaign suffered a setback earlier this month when Labor issued a new interpretive bulletin reaffirming its long-held position that under ERISA plan managers cannot use plan assets to push a social agenda at the expense of plan performance. This means, for instance, that fiduciaries may not sell a plan’s shares in a company merely because they think that company has too big of a carbon footprint.

The bulletin did clarify, however, that a plan may consider non-economic factors only in the rare circumstance that a plan is faced with the choice of two or more investment options of equal value based on economic considerations. But, said the bulletin, before considering objectives beyond maximizing plan value, “fiduciaries must have first concluded that the alternative options are truly equal, taking into account a quantitative and qualitative analysis of the economic impact on the plan.”

Since the early 1990s, unions have been trying to redefine fiduciary duty in order to allow them to use plan assets to pressure companies during labor negotiations. Lately, labor unions have also teamed up with environmental activists to participate in shareholder resolutions to force companies to adopt greener practices. For more on that, see “Union Pension Funds Go Green, but It’s Not the Color of Money,” by Ivan Osorio; and “Pensions in Peril: Are State Officials Risking Public Employee Retirement Benefits by Playing Global Warming Politics?” by Steven J. Milloy and Thomas Borelli.

RELATED POST: Department of Labor: Retirement Plan Managers Cannot Use Funds for Activism

Posted on 10/22/08 04:52 PM by Alex Adrianson

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