Social Investing Revisited?

   There appears to be a continuing debate, with the Department of Labor’s involvement, between the AFL-CIO and the U.S. Chamber of Commerce concerning use of plan assets in proxy voting and shareholder related activities as well as in connection with union organizing campaigns and union goals in collective bargaining negotiations.  The debate takes place in the context of two recently published Advisory Opinions, both issued to the U.S. Chamber of Commerce, one in response to an inquiry by the Chamber as to whether the fiduciary rules of ERISA prohibit the use of plan assets to promote union organizing campaigns and union goals in collective bargaining negotiations (Advisory Opinion 2008-05A) and another concerning whether pension plan assets may be used 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”  (Advisory Opinion 2007-07A).

     The DOL’s response in both cases appears to be consistent with earlier Advisory Opinions concerning use of plan assets for what was once described as “social investment.”  Earlier advisory letters on social investing were issued in the 1980s to Gregory Ridella, Chrysler Corp. (AO 88-16A), Jim Ray (July 8, 1988), Mr. Reed Larson (July 14, 1986) and Mr. Ralph Katz (March 15, 1982).  These 1988 opinions state, in general, that fiduciaries, in deciding whether and to what extent to invest in a particular investment, must consider only factors relating to the interests of plan participants and beneficiaries.  A decision to make an investment may not be influenced by non-economic factors unless the investment when judged solely on the basis of its economic value to the plan, would be equal or superior to alternative investments available to the plan.

     The DOL’s responses to the Chamber also represent a further clarification of Interpretive Bulletin 94-2 (concerning a fiduciary’s role in voting proxies) in which the DOL said that an “investment policy that contemplates activities intended to monitor or influence management of corporations in which the plan owns stock is consistent with fiduciary obligations under ERISA where a responsible fiduciary concludes that there is a reasonable expectation that such monitoring or communication with management…. is likely to enhance the value of the plan investment….”  (emphasis added)

     Query:  Has the DOL’s position on shareholder activism and social investment changed since 1988 or are Advisory Opinions 2007-07A and 2008-05A no more than the DOL’s effort to reiterate its earlier positions when asked by the Chamber to reflect on what the Chamber seems to suggest are questionable new AFL-CIO positions concerning the permitted use of assets?

     The issue is important in light of concerns about providing investment education to plan participants and given that there may be a new movement on the part of institutional investors to boycott investments in certain companies and countries.

     See the attached links for the two recent advisory opinions to the Chamber of Commerce and a letter issued by Alan Lebowitz, DOL Deputy Assistant Secretary for Program Operations, to the AFL-CIO (May 3, 2005). https://www.dol.gov/ebsa/pdf/ao2007-07attachment.pdf;    http://www.dol.gov/ebsa/regs/aos/ao2008-05a.html; http://www.dol.gov/ebsa/regs/aos/ao2007-07a.html

Comments

[EBSTL]

My initial reaction was to question why the DOL would issue an AO to a private party uninvolved in the "transaction." The lack of factual background made it more curious.

This seems analagous to the concept of "standing" in court cases. If the Chamber has no "skin in the game" and is just seeking a prophylactic justification for an opponent, the DOL shouldn't entertain such a request, other than to reject it.

It's not the Department of Labor(ed) Thinking.

[Judy Mazo]

Andy's point is useful - old principles applied to new facts. Diane's question -- what are these "facts", since they're not apparent from the Advisory Opinions -- is also useful.

As to one of the issues, waging proxy battles to demand disclosure of executives' political contributions, I gather that the statement that "the AFL-CIO" and its minions have been threatening to use ERISA plan assets in support of such a campaign is incorrect. There is a group, headed by a former investigative reporter, which is trying to enlist public-sector plans in this kind of effort. Perhaps the Chamber and the DOL confused that with some union funds' challenges to the compensation practices of companies in which they are invested. Whether or not one agrees with the challengers' point of view, they are dealing with issues that affect the value of the investment.

[diane fuchs]

I generally agree with Andrew's thoughts.

One additional observation, however, is that the context of these two Advisory Opinions is somewhat unusual. The Chamber of Commerce seems to have obtained Advisory Opinions outside the standard Advisory Opinion format of presenting a set of facts that are then restated in the AO along with the DOL's views on that particular set of facts. What are the specific facts on which the DOL opines in these two Advisory Opinions? Only the most general of descriptions is offered in the DOL's AOs. What specifically does the Chamber know and what are the facts that have prompted the request for these Advisory Opinions?

[Andrew Oringer]

I agree that the new letters are an interesting development. To me, there's a slight difference in tone as compared with the old letters. I think that the new letters have a reduced emphasis on the permissibility of taking into account non-investment factors so long as the factors do not result in the selection of a less preferable investment (from a purely investment perspective). However, part of the difference in tone may be that the old letters really related to choosing between investments, where one of the investments throws off an ancillary benefit or detriment, while the new letters deal in a more crystallized way with the use of plan assets to accomplish non-investment goals. I guess what I'm saying is that maybe the new letters are less the result of a shift in thinking and more the result of simply an application of the old principles to the new facts.