Pension Plans: Additional Transparency and Other Actions Needed in Connection with Proxy Voting

In lieu of conducting another proxy voting study, the Department of Labor took other appropriate actions to more regularly assess the level of compliance by plan fiduciaries and external asset managers with proxy voting requirements. In FY05, EBSA began a national project on Employee Stock Ownership Plans (ESOPs). Every ESOP investigation reviews proxy voting. ESOP investigative guidelines on EBSA's internal Best Practices web site include a section on evaluating proxy voting including, but not limited to, a review of proxy procedures and any potential conflict of interest in proxy voting. Investigators examine plan documents and corporate articles and by-laws to ensure that fiduciaries are voting shares in accordance with the corporate charter as well as complying with ERISA standards. The guidelines refer to DOL Interpretive Bulletin 94-2 (29 CFR 2509.94-2), which describes DOL's position on proxy voting, and fiduciary responsibilities. Potential violations involving proxy voting are tracked by field offices in EBSA's Enforcement Management System (EMS), which contains information on every investigation, identifying proxy voting as an issue being reviewed. Because all ESOP investigations review proxy voting, this issue is only entered into EMS when it appears that there is a violation involving proxy voting.) EBSA runs reports that provide the number of ESOP investigations, and the number of those investigations. Evaluations of a region's ESOP project results are formally done at least once a year. However, regions continually review ongoing factors, such as issues that indicate actual violations, that contribute to a successful project. Potential violations of proxy voting have occurred in only three investigations during the ESOP project, which has had 410 investigations closed. Even then, the issues have all involved the possible failure of pass-through voting rights rather than improper voting by fiduciaries.

The Department of Labor has taken several steps to improve its coordination with the Securities and Exchange Commission (SEC). All regional field offices have contacted their local counterparts with the SEC. The two local agencies meet on either a formal or informal basis to discuss issues of interest to each agency. Some EBSA offices have conducted joint investigations with the SEC. Others have either provided assistance to SEC examinations or received assistance from the SEC. Assistance can include both specific information on the entity being investigated and general information concerning the issue being investigation (i.e., EBSA may explain ERISA requirements to the SEC or the SEC may explain their filing requirements to EBSA). Local offices have engaged in cross-training, and meet formally or informally which may result in cases referred. In addition, EBSA and the SEC have developed an access letter that allows either agency to request information on a specific entity and have finalized a Memorandum of Understanding.