The Employee Benefits Security Administration has released a pair of interpretive bulletins that could affect how benefit plan fiduciaries invest plan assets and exercise shareholder rights.
One of the bulletins, which covers "investing in economically targeted investments," puts tight restrictions on efforts to use plan assets to promote local economic growth, and a second limits efforts to use plan investments to promote political goals or other goals not directly related to the economic interests of a plan's participants.
If plan investment managers want to try to use plan assets to promote local economic growth, they must be able to show that the investments they chose were at least as attractive, on a risk-adjusted basis, as alternatives that would not have promoted local economic growth, EBSA officials write in the bulletin, which appears today in the Federal Register.
EBSA officials describe several examples of forbidden investment strategies.
If, for example, a plan owns an interest in a limited partnership that is considering investing in a company that competes with the plan sponsor, the fiduciaries may not replace the limited partnership investment with another investment based on this fact unless they prudently determine that a replacement investment is economically equal or superior to the original limited partnership investment, officials write.
If another plan sponsor wants to favor "green" companies, or companies that meet specified environmental criteria, "fiduciaries may not simply consider investments only in green companies," officials write. "They must consider all investments that meet the plan's prudent financial criteria."
The fiduciaries can filter out companies that meet their environmental requirements "only if they appropriately determine that other available investments provide equal or better returns at the same or lower risks, and would play the same role in the plan's portfolio," officials write.
In the second bulletin, which deals with benefit plan fiduciaries' exercise of shareholder rights, EBSA officials says fiduciaries should cast shareholder votes solely in accordance with a plan's economic interests.
