Alert October 21, 2008

DOL Releases Interpretive Bulletins on the Consideration of Outside Factors in Making Investment Decisions and Exercising Shareholder Rights

The Department of Labor (the “DOL”) released two interpretive bulletins, Interpretive Bulletin 08-1 (“I.B. 08-1”) and Interpretive Bulletin 08-2 (“I.B. 08-2”), under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), restating and clarifying prior guidance regarding fiduciary obligations when considering economically targeted investments and shareholder rights. 

I.B. 08-1 addresses those circumstances in which ERISA plan fiduciaries may consider factors other than the economic interests of the plan in making investment decisions.  According to the DOL, when making investment decisions ERISA plan fiduciaries may consider factors other than the economic interests of the plan only if the investment alternatives are equal, taking into account all relevant qualitative and quantitative factors, including the level of diversification, degree of liquidity and the potential risk/return.  The DOL noted that to protect any such investment decisions from challenge, ERISA plan fiduciaries should create a written record of the economic analysis undertaken to demonstrate that the investment alternatives were determined to be of equal value. 

I.B. 08-2 similarly addresses ERISA plan fiduciary obligations in considering factors other than the plan’s economic interests in the context of proxy voting, statements of investment policy and shareholder activism.  The DOL states that in voting proxies, ERISA plan fiduciaries may consider only those factors that relate to the economic value of the plan’s investment – including whether the cost of voting the proxy outweighs the expected economic benefit of voting – regardless of whether any such vote is made pursuant to a statement of investment policy.  Further, the DOL states that while ERISA plan fiduciaries generally satisfy their fiduciary obligations by acting pursuant to a statement of investment policy, ERISA plan fiduciaries may vote in compliance with and act pursuant to a statement of investment policy only to the extent that doing so would be prudent and solely in the economic interest of plan participants.  ERISA plan fiduciaries, including those that select or monitor other fiduciaries, should carefully consider whether their objectives or actions are motivated or influenced by objectives unrelated to the economic interests of the plan.