Labor Secretary Robert Reich is more interested in changing the way institutional investors look at ERISA than he is in changing the law itself.
"ERISA has proven to be, just by nature of the explosion of the pension funds, a very flexible and workable regulatory area," Mr. Reich said in an interview.
ERISA, he said, could help not only the long-term goals of the fund, but the entire U.S. economy as well.
Institutional investors "are moving in the direction that we're encouraging, toward looking at long-term performance," Mr. Reich said. "They are taking an active role in monitoring boards of directors, managements, and are taking a more active engagement with proxies, and beginning to look at non-financial criteria."
Mr. Reich said the Department of Labor will start making sure pension fiduciaries have fulfilled their obligation to vote proxies. Recently, the Labor Department issued an interpretive bulletin to clarify that fiduciaries have an obligation to vote proxies. Sources said the Labor Department may follow through with some type of enforcement initiative as early as this fall, but details are unclear right now.
In addition, the Labor Department has issued a second interpretive bulletin on economically targeted investments. This bulletin codifies existing law, which says fiduciaries are satisfying their prudence and diversification requirements when they invest in ETIs that provide a competitive risk-adjusted rate of return as well as an additional benefit.
These initiatives are taken with the understanding that pension funds occupy a large position in the economy, Mr. Reich said. According to a study conducted by the Riverside Economic Research, Washington, pension funds held 28.6% of the equity market in 1992.
Pension funds "actually make the market," Mr. Reich said. "So when they take actions that improve the economy overall, they take actions that improve long-term corporate performance, and are lifting all boats ... It's a natural incentive to invest for the long term and to move in the direction that many (funds) are moving."