DOL PEEKING OVER PROXY SHOULDERS
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March 06, 1995 12:00 AM

DOL PEEKING OVER PROXY SHOULDERS

Patricia B. Limbacher
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    WASHINGTON - The Labor Department will be checking to see if pension funds have been voting their proxies.

    Nearly eight months after it issued an agency bulletin encouraging pension fund sponsors to become activist shareholders, the Labor Department has announced it will be studying whether pension funds actually followed through last year.

    Assistant Secretary of Labor Olena Berg announced at the Institutional Shareholder Services Inc. annual Washington conference last month that the department will be investigating last year's pension fund proxy voting standards and practices.

    "This is an investigation to encourage awareness in the plan community," Ms. Berg said.

    The department's Pension and Welfare Benefits Administration will focus on about 100 domestic contests that took place in the 1994 proxy season and will study four types of votes: incentive stock options plan in companies that had poor performance; the elimination of existing shareholder rights and protections; shareholder proposals to adopt confidential voting; and the election of officers.

    Ms. Berg said plan fiduciaries will be judged on their decision-making processes and whether they followed the prescribed actions in last year's interpretive bulletin - not the actual vote.

    The inquiry will include questions for plan fiduciaries such as: how they reached a conclusion to decide the vote; what process they used in making the decision; whether they complied with the department's interpretive bulletin; whether they have proper procedures in place for the 1995 proxy season; and whether they have written policies and procedures on proxy voting.

    "We hope to get a better picture concerning the extent to which plans or their investment managers engage in corporate activism," Ms. Berg said at the ISS conference.

    "They are going to get a good reading on how well (plan sponsors and) investment managers comply with ERISA's proxy voting obligations," added James E. Heard, president of ISS.

    In July, the department issued an interpretive bulletin outlining its position on proxy voting, which reinforced existing rules in the 1974 Employee Retirement Income Security Act. The bulletin encouraged pension funds to adopt written proxy voting guidelines, which may include positions on proposals to create classified boards of directors or positions on providing cumulative voting for board members.

    In addition, the bulletin said plan sponsors are required to periodically check to see whether the investment manager or the fiduciary responsible for voting proxies is following the plan's proxy voting guidelines.

    Ms. Berg said she hopes the information will be available at the start of this year's proxy season, and added it's unlikely the study will result in any departmental action.

    But most private pension plans already are voting their proxies, said Gina Mitchell, director of government relations for the Financial Executives Institute, Washington.

    Last year, a survey of FEI's Committee on Investment of Employee Benefit Assets' 140 private plan sponsors, managing more than $700 billion in assets, showed 91% delegate some or all of their proxy voting responsibilities to investment managers. Of this percentage, 98% of plan sponsors have written statements establishing that all proxies must be voted in the best interest of plan participants.

    What's more, 93% of plan sponsors that authorized another plan fiduciary to vote their proxies did not give guidance on specific shareholder issues. Most of CIEBA's private plan sponsors believe the investment managers should be more knowledgeable on the shareholder issue because, as managers, they are closer to investment decisions, Ms. Mitchell said.

    Most plan sponsors interviewed said they expected some form of action on proxy voting from the Department of Labor.

    One private plan sponsor, who asked not to be identified, said he thought most other plan sponsors were aware of their proxy voting responsibilities and the department's guidelines.

    "Most people I talk with seem to be taking this very seriously," the sponsor said. "But I think (the Department of Labor is) going to find things are in good shape."

    Jon Lukomnik, deputy comptroller of pensions for the New York City Employees' Retirement Systems, whose pension fund is one of the leading institutional shareholder activists, said the PWBA's investigation can only be helpful.

    "The more attention paid to proxy voting, the more sophisticated people will become in voting proxies, which will mean more of corporate management will be held to performing well," Mr. Lukomnik said.

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