Inspector General Urges Greater DOL Oversight of Pension Plan Proxy Voting

Published on: April 29, 2011

Topics: Employment Law, Proxy Advisory Firms, Shareholder Viewpoints

In a March 31 audit report, the U.S. Department of Labor’s Office of the Inspector General (OIG) found that the Employee Benefit Security Administration (EBSA) should take steps to ensure that pension plans are not voting their proxies to promote social objectives to the detriment of plan participants.  A frequent complaint about certain pension funds, especially those maintained by labor unions and other activists, is that their proxy voting often supports social objectives that are not necessarily in the “sole interest” of the fund as required under ERISA.  The OIG report found that EBSA “does not have adequate assurances that fiduciaries or third parties voted proxies solely for the economic benefit of plans” since ERISA does not require fiduciaries to document proxy voting monitoring or provide the economic rationale for voting decisions.  Based on the audit findings, OIG made three recommendations to the Assistant Secretary for the EBSA, Phyllis Borzi:

• Advocate that ERISA be amended to give the Secretary of Labor the authority to assess monetary penalties against fiduciaries for failing to vote proxies solely for the economic benefit of the plan;
• Revise regulations to require documentation demonstrating active monitoring of proxy voting and the economic benefit of such voting decisions; and
• Include proxy vote monitoring in enforcement investigations to ensure that proper documentation has been maintained.

Ms. Borzi refused to implement any of OIG’s recommendations, despite the fact that they are consistent with a 2007 EBSA opinion letter which argued that proxy voting should be conducted solely for the plan’s benefit.  Nevertheless, the OIG report is an interesting development given her recent efforts to broaden the definition of fiduciary under ERISA to cover proxy advisory firms.