81 FR 95879 - Interpretive Bulletin Relating to the Exercise of Shareholder Rights and Written Statements of Investment Policy, Including Proxy Voting Policies or Guidelines
DEPARTMENT OF LABOR
Employee Benefits Security Administration Federal Register Volume 81, Issue 250 (December 29, 2016)
Employee Benefits Security Administration
Federal Register Volume 81, Issue 250 (December 29, 2016)
| Page Range | 95879-95884 | |
| FR Document | 2016-31515 |
[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)] [Rules and Regulations] [Pages 95879-95884] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-31515] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2509 RIN 1210-AB78 Interpretive Bulletin Relating to the Exercise of Shareholder Rights and Written Statements of Investment Policy, Including Proxy Voting Policies or Guidelines AGENCY: Employee Benefits Security Administration, Labor. ACTION: Interpretive bulletin. ----------------------------------------------------------------------- SUMMARY: This document sets forth supplemental views of the Department of Labor (Department) concerning the legal standards imposed by sections 402, 403 and 404 of Part 4 of Title I of the Employee Retirement Income Security Act of 1974 (ERISA) with respect to voting of proxies on securities held in employee benefit plan investment portfolios, the maintenance of and compliance with statements of investment policy, including proxy voting policy, and the exercise of other legal rights of a shareholder. In this document, the Department withdraws Interpretive Bulletin 2008-2 and replaces it with Interpretive Bulletin 2016-1, which reinstates the language of Interpretive Bulletin 94-2 with certain modifications. DATES: This interpretive bulletin is effective on December 29, 2016. FOR FURTHER INFORMATION CONTACT: Office of Regulations and [[Page 95880]] Interpretations, Employee Benefits Security Administration, (202) 693- 8500. This is not a toll-free number. SUPPLEMENTARY INFORMATION: Background Title I of the Employee Retirement Income Security Act of 1974 (ERISA) establishes minimum standards for the operation of private- sector employee benefit plans and includes fiduciary responsibility rules governing the conduct of plan fiduciaries. The Department's longstanding position is that the fiduciary act of managing plan assets which are shares of corporate stock includes decisions on the voting of proxies and other exercises of shareholder rights. To assist plan fiduciaries in understanding their obligations under ERISA, the Department issued Interpretive Bulletin 94-2 (IB 94-2) in 1994 and updated that guidance in 2008 in Interpretive Bulletin 2008-2 (IB 2008- 2).\1\ --------------------------------------------------------------------------- \1\ IB 94-2 was codified at 29 CFR 2509.94-2 and published with an explanatory preamble in the Federal Register at 59 FR 38863 (July 29, 1994). The IB was presented as a restatement of views the Department had expressed in two letters addressing questions that arose concerning the voting of proxies on shares of corporate stock held by plans. The first letter was addressed to Helmuth Fandl, Chairman of the Retirement Board of Avon Products Inc. and dated February 23, 1988, and the second letter was addressed to Robert A.G. Monks of Institutional Shareholder Services, Inc. and dated January 23, 1990. --------------------------------------------------------------------------- IB 94-2 noted that the duty to vote proxies lies exclusively with the plan trustee unless ``the power to manage, acquire or dispose of the relevant assets has been delegated by a named fiduciary to one or more investment managers'' pursuant to section 403(a)(2) of ERISA. IB 94-2 also explained that when the authority to manage plan assets has been delegated to an investment manager, ``no person other than the investment manager has authority to vote proxies appurtenant to such plan assets except to the extent that the named fiduciary has reserved to itself (or to another named fiduciary so authorized by the plan document) the right to direct a plan trustee regarding the voting of proxies.'' In addition, if the plan document or the investment management agreement does not expressly preclude the investment manager from voting proxies, the investment manager has the exclusive responsibility for proxy voting. An investment manager is not relieved of its own fiduciary responsibilities by following directions of some other person regarding the voting of proxies, or by delegating such responsibility to another person. IB 94-2 pointed out that the maintenance of written statements of investment policy, including guidelines on voting proxies on securities held in plan investment portfolios, is consistent with Title I of ERISA and that compliance with such a policy would be required under ERISA to the extent that such compliance with respect to any given investment decision is consistent with the provisions of Title I and Title IV of ERISA. IB 94-2 also recognized that fiduciaries may engage in other shareholder activities intended to monitor or influence corporate management where the responsible fiduciary concludes that there is a reasonable expectation that such monitoring or communication with management, by the plan alone or together with other shareholders, is likely to enhance the value of the plan's investment in the corporation, after taking into account the costs involved. The bulletin observed that active monitoring and communication may be carried out through a variety of methods including by means of correspondence and meetings with corporate management as well as by exercising the legal rights of a shareholder. IB 94-2 reiterated the Department's view that ERISA does not permit fiduciaries to subordinate the economic interests of participants and beneficiaries to unrelated objectives in voting proxies or in exercising other shareholder rights, but pointed out that a reasonable expectation of enhancing the value of the plan's investment through shareholder activities may exist in various circumstances, for example, where plan investments in corporate stock are held as long-term investments or where a plan may not be able to easily dispose of such an investment. IB 94-2 explained that active monitoring and communication activities could concern such issues as the independence and expertise of candidates for the corporation's board of directors and assuring that the board has sufficient information to carry out its responsibility to monitor management. Other issues identified in the bulletin included such matters as consideration of the appropriateness of executive compensation, the corporation's policy regarding mergers and acquisitions, the extent of debt financing and capitalization, the nature of long-term business plans, the corporation's investment in training to develop its work force, other workplace practices and financial and non-financial measures of corporate performance.\2\ --------------------------------------------------------------------------- \2\ The Department has not been alone in emphasizing the significance of proxy voting to the value of investments. See SEC Final Rule, Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies, Release Nos. 33-8188; 34-47304; IC-25922 (Jan. 31, 2003) and SEC Final Rule, Proxy Voting by Investment Advisers, Release No. IA-2106 (Jan. 31, 2003). In addition, the SEC also adopted a rule requiring corporations to provide additional disclosure in proxy materials associated with the election of directors. See SEC Final Rule, Proxy Disclosure Enhancements, Release Nos. 33-9089; 34-61175 (Dec. 16, 2009). --------------------------------------------------------------------------- On October 17, 2008, the Department replaced IB 94-2 with Interpretive Bulletin 2008-2 codified at 29 CFR 2509.08-2.\3\ The Department's intent was to clarify and update the guidance in IB 94-2 and to reflect interpretive positions issued by the Department after 1994 on shareholder activism and socially-directed proxy voting initiatives. On the same date, the Department published Interpretive Bulletin 2008-1 (IB 2008-1) to update Interpretive Bulletin 94-1 (IB 94-1), which addressed issues regarding fiduciary consideration of investments and investment strategies that take into account environmental, social and governance (ESG) factors. --------------------------------------------------------------------------- \3\ Also published in the Federal Register at 73 FR 61731 (Oct. 17, 2008). --------------------------------------------------------------------------- The Department believes that in the eight years since its publication, the changes made to IB 94-2 by IB 2008-2 have been misunderstood and may have worked to discourage ERISA plan fiduciaries who are responsible for the management of shares of corporate stock from voting proxies and engaging in other prudent exercises of shareholder rights.\4\ In particular, the Department is concerned that IB 2008-2 has been read by some stakeholders to articulate a general rule that broadly prohibits ERISA plans from exercising shareholder rights, including voting of proxies, unless the plan has performed a cost-benefit analysis and concluded in the case of each particular proxy vote or exercise of shareholder rights that the action is more likely than not to result in a quantifiable increase in the [[Page 95881]] economic value of the plan's investment. --------------------------------------------------------------------------- \4\ The Department reached a similar conclusion in rescinding IB 2008-1 on economically targeted investments (ETIs) and reinstating the language from its original 1994 guidance in IB 94-1. See Interpretive Bulletin 2015-1, 80 FR 65135 (Oct. 26, 2015). The Department noted that the ETI market which considers ESG factors had grown internationally as new tools and measures were developed leaving investors better equipped to evaluate the question of whether a given investment could both benefit the plan in financial terms and advance environmental, social or corporate governance goals. In fact, the new tools and measures have revealed that environmental, social and governance impacts can be intrinsic to the market value of an investment. Based on those developments, the Department concluded that its attempt to update IB 94-1 in 2008, rather than clarifying permissible ESG considerations, had in practice had a chilling effect on ERISA plans participating in the growth of economically targeted investing. --------------------------------------------------------------------------- The essential point of IB 94-2, however, was to articulate a general principle that a fiduciary's obligation to manage plan assets prudently extends to proxy voting. As such, IB 94-2 properly read was meant to express the view that proxies should be voted as part of the process of managing the plan's investment in company stock unless a responsible plan fiduciary determined that the time and costs associated with voting proxies with respect to certain types of proposals or issuers may not be in the plan's best interest. IB 94-2 was also intended to make it clear that fiduciary duties associated with voting proxies encompass the monitoring of decisions made and actions taken with regard to proxy voting, and that it was appropriate for a plan fiduciary to incur reasonable expenses in fulfilling those fiduciary obligations. While there may be special circumstances that might warrant a discrete analysis of the cost of the shareholder activity versus the economic benefit associated with the outcome of the activity, the Department did not intend to imply that such an analysis should be conducted in most cases. In most cases, proxy voting and other shareholder engagement does not involve a significant expenditure of funds by individual plan investors because the activities are engaged in by institutional investment managers appointed as the responsible plan fiduciary pursuant to sections 402(c)(3), 403(a)(2) and 3(38) of ERISA. Those investment managers often engage consultants, including proxy advisory firms, in an attempt to further reduce the costs of researching proxy matters and exercising shareholder rights.\5\ Thus, such a conclusion ignores the fact that many proxy votes involve very little, if any, additional expense to the individual plan shareholders to arrive at a prudent result and that, depending on the particular resolution and the extent of the plan's holdings, not voting, in fact, may in effect count one way or another. --------------------------------------------------------------------------- \5\ In selecting an investment manager for a plan, the responsible plan fiduciary should include a review of any voting policies or guidelines that would be followed in the management of plan assets to ensure consistency with ERISA. Further, as plan fiduciaries, investment managers who utilize proxy advisory firms should engage in an objective process that is designed to elicit information necessary to assess the provider's qualifications, quality of services offered, and reasonableness of fees charged for the service. The process also must avoid self-dealing, conflicts of interest or other improper influence. The investment manager in considering any proxy recommendation should assure that it is fully informed of potential conflicts of proxy advisory firms and the steps the firm has taken to address them. See generally ``Proxy Voting: Proxy Voting Responsibilities of Investment Advisers and Availability of Exemptions from the Proxy Rules for Proxy Advisory Firms,'' SEC Staff Legal Bulletin No. 20 (IM/CF) (June 30, 2014) (discussing issues that may arise under the federal securities laws for registered investment advisers in connection with selection and monitoring of proxy advisory firms, among other things). --------------------------------------------------------------------------- The pervasiveness of US publicly-traded stock in ERISA plan investment portfolios, both direct holdings and through pooled investment funds, including index funds, is another factor that contributes to the importance of proxy voting and shareholder engagement practices. If there is a problem identified with a portfolio company's management, selling the stock and finding a replacement investment may not be a prudent solution for a plan fiduciary. As Vanguard founder John Bogle put it in the context of index funds, ``the only weapon [index funds] have, if we don't like the management, is to get a new management or to force the management to reform.'' \6\ --------------------------------------------------------------------------- \6\ Interview by Christine Benz with John Bogle, Founder, Vanguard (Oct. 10, 2010) (available at www.morningstar.com/videos/359002/bogle-index-funds-power-in-corporate-governance.aspx). --------------------------------------------------------------------------- The Department is also concerned that despite the guidance on ESG issues the Department recently provided in IB 2015-1, statements in IB 2008-2 may cause confusion as to whether or how a plan fiduciary may consider ESG issues in connection with proxy voting or undertaking other shareholder engagement activities. The Department has rejected a construction of ERISA that would render ERISA's tight limits on the use of plan assets illusory and that would permit plan fiduciaries to expend trust assets to promote myriad public policy preferences. Rather, plan fiduciaries may not increase expenses, sacrifice investment returns, or reduce the security of plan benefits in order to promote collateral goals. However, by focusing on a ``cost-benefit analysis'' demonstrating a ``more likely than not'' enhancement in the economic value of the investment, the Department believes that IB 2008- 2 may be read as discouraging fiduciaries from recognizing the long- term financial benefits that, although difficult to quantify, can result from thoughtful shareholder engagement when voting proxies, establishing a proxy voting policy, or otherwise exercising rights as shareholders. The existence of financial benefits associated with shareholder engagement is suggested by the fact that a growing number of institutional investors are now engaging companies on ESG issues. According to a 2014 survey by the US SIF Foundation, 202 institutional investors or money managers representing $1.72 trillion in US-domiciled assets filed or co-filed shareholder resolutions on ESG issues at publicly traded companies from 2012 through 2014.\7\ The members of the Investor Network on Climate Risk (INCR), a network of institutions representing more than $14 trillion in assets, engage with companies in their portfolios on climate and sustainability issues. Members include BlackRock, California Public Employees' Retirement System, Deutsche Asset & Wealth Management, Prudential Investment Management, State Street Global Advisors and TIAA Global Asset Management.\8\ Globally, over 1300 asset managers and asset owners have signed the Principles for Responsible Investment, the second principle of which states that the managers and owners will be active owners and incorporate ESG issues into ownership policies and practices.\9\ Companies are also being required to be more transparent in the way they address ESG issues. For example, in 2010, the Dodd-Frank Act required publicly traded companies to allow shareholders an advisory vote on executive pay plans at least once every three years.\10\ Similarly, in 2009 the SEC issued rules which required companies to disclose in proxy statements relating to the election of directors, among other things, their policy for consideration of diversity in the process by which candidates for director are considered for nomination by a company's nominating committee.\11\ --------------------------------------------------------------------------- \7\ US SIF FOUNDATION, Report on US Sustainable, Responsible and Impact Investing Trends 2014. \8\ See INCR membership list at www.ceres.org/investor-network/incr/member-directory. \9\ The Principles for Responsible Investment (PRI) has been supported by the United Nations since its launch. The PRI has two UN partners, the United Nations Environment Programme Finance Initiative and the United Nations Global Compact, which play an important role in delivering the PRI's strategy. See ``About the PRI'' for further explanation of PRI and their responsible investment effort at www.unpri.org/about. \10\ See Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law No. 111-203, 124 Stat. 1376 (2010), for section 951 requirements. See also SEC Final Rule, Shareholder Approval of Executive Compensation and Golden Parachute Compensation, Release Nos. 33-9178; 34-63768 (Jan. 25, 2011). \11\ SEC Final Rule, Proxy Disclosure Enhancements, Release Nos. 33-9089; 34-61175 (Dec. 16, 2009). --------------------------------------------------------------------------- Other market developments further substantiate the financial benefits from shareholder engagement. Companies themselves are seeking more engagement as a way of understanding and responding to their shareholders' [[Page 95882]] views.\12\ There have also been market events that were catalysts for the growth of shareholder engagement. The financial crisis of 2008 exposed some of the pitfalls of shareholder inattention to corporate governance and highlighted the merits of shareholders taking a more engaged role with the companies. --------------------------------------------------------------------------- \12\ Blackrock and Ceres, 21st Century Engagement: Investor Strategies for Incorporating ESG Considerations into Corporate Interactions (2015). See also Joseph McCahery, Zacharias Sautner & Laura T. Starks, Behind the Scenes The Corporate Governance Preferences of Institutional Investors, 71 The Journal of Finance 2905-2932 (Dec. 2016). --------------------------------------------------------------------------- This is not a trend unique to the United States. Other countries have recognized these developments and taken steps to provide guidance on proxy voting and shareholder engagement in the form of ``stewardship codes.'' The first stewardship code was published in 2010 by the UK's Financial Reporting Council, which traces its origins to principles published by the UK's Institutional Shareholders Committee in 2002 and later the International Corporate Governance Network Principles on Institutional Investor Responsibilities in 2007.\13\ Other such codes have followed, including in Canada, Italy, Japan, Singapore, South Africa, Switzerland, the Netherlands, and Malaysia.\14\ --------------------------------------------------------------------------- \13\ BLACKROCK AND CERES, supra footnote 12, at 34. \14\ Id. --------------------------------------------------------------------------- For all the above reasons, the Department is concerned that the changes to IB 94-2 in IB 2008-2 are out of step with important domestic and international trends in investment management and have the potential to dissuade ERISA fiduciaries from exercising shareholder rights, including the voting of proxies, in areas that are increasingly being recognized as important to long-term shareholder value. In fact, the Department believes the principles originally articulated in IB 94- 2, with certain updates to reflect the trends on shareholder engagement discussed above, are a better expression of a fiduciary's obligations under sections 402(c)(3), 403(a) and 404(a)(1)(A) of ERISA on these issues. The Department therefore has decided to withdraw IB 2008-2 and replace it with Interpretive Bulletin 2016-1 which reinstates the language of IB 94-2 with minor updates. The following Interpretive Bulletin deals solely with the applicability of the prudence and exclusive purpose requirements of ERISA as applied to fiduciary decisions with respect to voting of proxies on securities held in employee benefit plan investment portfolios, the maintenance of and compliance with statements of investment policy, including proxy voting policy, and the appropriateness under ERISA of shareholder engagement with corporate management by plan fiduciaries. The bulletin does not supersede the regulatory standard contained at 29 CFR 2550.404a-1, nor does it address any issues which may arise in connection with the prohibited transaction provisions under ERISA section 406 or the statutory exemptions under ERISA section 408 from those provisions. This Interpretative Bulletin is a restatement of IB 94-2 with certain updates to the examples of areas where monitoring or communication with management is likely to enhance the value of the plan's investment in the corporation. List of Subjects in 29 CFR Part 2509 Employee benefit plans, Pensions. For the reasons set forth in the preamble, the Department is amending part 2509 of title 29 of the Code of Federal Regulations as follows: PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 0 1. The authority citation for part 2509 continues to read as follows: Authority: 29 U.S.C. 1135. Secretary of Labor's Order 1-2003, 68 FR 5374 (Feb. 3, 2003). Sections 2509.75-10 and 2509.75-2 issued under 29 U.S.C. 1052, 1053, 1054. Sec. 2509.75-5 also issued under 29 U.S.C. 1002. Sec. 2509.95-1 also issued under sec. 625, Public Law 109-280, 120 Stat. 780. Sec. 2509.08-2 [Removed] 0 2. Remove Sec. 2509.08-2. 0 3. Add Sec. 2509.2016-01 to read as follows: Sec. 2509.2016-01 Interpretive Bulletin relating to the exercise of shareholder rights and written statements of investment policy, including proxy voting policies or guidelines. This interpretive bulletin sets forth the Department of Labor's (the Department) interpretation of sections 402, 403 and 404 of the Employee Retirement Income Security Act of 1974 (ERISA) as those sections apply to voting of proxies on securities held in employee benefit plan investment portfolios and the maintenance of and compliance with statements of investment policy, including proxy voting policy. In addition, this interpretive bulletin provides guidance on the appropriateness under ERISA of active engagement with corporate management by plan fiduciaries. (1) Proxy Voting The fiduciary act of managing plan assets that are shares of corporate stock includes the voting of proxies appurtenant to those shares of stock. As a result, the responsibility for voting proxies lies exclusively with the plan trustee except to the extent that either (1) the trustee is subject to the directions of a named fiduciary pursuant to ERISA section 403(a)(1), or (2) the power to manage, acquire or dispose of the relevant assets has been delegated by a named fiduciary to one or more investment managers pursuant to ERISA section 403(a)(2). Where the authority to manage plan assets has been delegated to an investment manager pursuant to section 403(a)(2), no person other than the investment manager has authority to vote proxies appurtenant to such plan assets except to the extent that the named fiduciary has reserved to itself (or to another named fiduciary so authorized by the plan document) the right to direct a plan trustee regarding the voting of proxies. In this regard, a named fiduciary, in delegating investment management authority to an investment manager, could reserve to itself the right to direct a trustee with respect to the voting of all proxies or reserve to itself the right to direct a trustee as to the voting of only those proxies relating to specified assets or issues. If the plan document or investment management agreement provides that the investment manager is not required to vote proxies, but does not expressly preclude the investment manager from voting proxies, the investment manager would have exclusive responsibility for voting proxies. Moreover, an investment manager would not be relieved of its own fiduciary responsibilities by following directions of some other person regarding the voting of proxies, or by delegating such responsibility to another person. If, however, the plan document or the investment management contract expressly precludes the investment manager from voting proxies, the responsibility for voting proxies would lie exclusively with the trustee. The trustee, however, consistent with the requirements of ERISA section 403(a)(1), may be subject to the directions of a named fiduciary if the plan so provides. The fiduciary duties described at ERISA section 404(a)(1)(A) and(B), require that, in voting proxies, the responsible fiduciary consider those factors that may affect the value of the plan's investment and not subordinate the interests of the participants and beneficiaries in their retirement income [[Page 95883]] to unrelated objectives. These duties also require that the named fiduciary appointing an investment manager periodically monitor the activities of the investment manager with respect to the management of plan assets, including decisions made and actions taken by the investment manager with regard to proxy voting decisions. The named fiduciary must carry out this responsibility solely in the interest of the participants and beneficiaries and without regard to its relationship to the plan sponsor. It is the view of the Department that compliance with the duty to monitor necessitates proper documentation of the activities that are subject to monitoring. Thus, the investment manager or other responsible fiduciary would be required to maintain accurate records as to proxy voting. Moreover, if the named fiduciary is to be able to carry out its responsibilities under ERISA section 404(a) in determining whether the investment manager is fulfilling its fiduciary obligations in investing plans assets in a manner that justifies the continuation of the management appointment, the proxy voting records must enable the named fiduciary to review not only the investment manager's voting procedure with respect to plan-owned stock, but also to review the actions taken in individual proxy voting situations. The fiduciary obligations of prudence and loyalty to plan participants and beneficiaries require the responsible fiduciary to vote proxies on issues that may affect the value of the plan's investment. This principle applies broadly. However, the Department recognizes that in some special cases voting proxies may involve out of the ordinary costs or unusual requirements, for example in the case of voting proxies on shares of certain foreign corporations. Thus, in such cases, a fiduciary should consider whether the plan's vote, either by itself or together with the votes of other shareholders, is expected to have an effect on the value of the plan's investment that warrants the additional cost of voting. Moreover, a fiduciary, in deciding whether to purchase shares for which this may be the case, should consider whether the difficulty and expense in voting the shares is reflected in their market price. (2) Statements of Investment Policy The maintenance by an employee benefit plan of a statement of investment policy designed to further the purposes of the plan and its funding policy is consistent with the fiduciary obligations set forth in ERISA section 404(a)(1)(A) and (B). Since the fiduciary act of managing plan assets that are shares of corporate stock includes the voting of proxies appurtenant to those shares of stock, a statement of proxy voting policy would be an important part of any comprehensive statement of investment policy. For purposes of this document, the term ``statement of investment policy'' means a written statement that provides the fiduciaries who are responsible for plan investments with guidelines or general instructions concerning various types or categories of investment management decisions, which may include proxy voting decisions as well as policies concerning economically targeted investments or incorporating environmental, social or governance (ESG) factors in investment policy statements or integrating ESG-related tools, metrics and analyses to evaluate an investment's risk or return or choose among equivalent investments. A statement of investment policy is distinguished from directions as to the purchase or sale of a specific investment at a specific time or as to voting specific plan proxies. In plans where investment management responsibility is delegated to one or more investment managers appointed by the named fiduciary pursuant to ERISA section 402(c)(3), the named fiduciary responsible for appointment of investment managers has the authority to condition the appointment on acceptance of a statement of investment policy. Thus, such a named fiduciary may expressly require, as a condition of the investment management agreement, that an investment manager comply with the terms of a statement of investment policy which sets forth guidelines concerning investments and investment courses of action which the investment manager is authorized or is not authorized to make. Such investment policy may include a policy or guidelines on the voting of proxies on shares of stock for which the investment manager is responsible. In the absence of such an express requirement to comply with an investment policy, the authority to manage the plan assets placed under the control of the investment manager would lie exclusively with the investment manager. Although a trustee may be subject to the directions of a named fiduciary pursuant to ERISA section 403(a)(1), an investment manager who has authority to make investment decisions, including proxy voting decisions, would never be relieved of its fiduciary responsibility if it followed directions as to specific investment decisions from the named fiduciary or any other person. Statements of investment policy issued by a named fiduciary authorized to appoint investment managers would be part of the ``documents and instruments governing the plan'' within the meaning of ERISA section 404(a)(1)(D). An investment manager to whom such investment policy applies would be required to comply with such policy, pursuant to ERISA section 404(a)(1)(D) insofar as the policy directives or guidelines are consistent with titles I and IV of ERISA. Therefore, if, for example, compliance with the guidelines in a given instance would be imprudent, then the investment manager's failure to follow the guidelines would not violate ERISA section 404(a)(1)(D). Moreover, ERISA section 404(a)(1)(D) does not shield the investment manager from liability for imprudent actions taken in compliance with a statement of investment policy. The plan document or trust agreement may expressly provide a statement of investment policy to guide the trustee or may authorize a named fiduciary to issue a statement of investment policy applicable to a trustee. Where a plan trustee is subject to an investment policy, the trustee's duty to comply with such investment policy would also be analyzed under ERISA section 404(a)(1)(D). Thus, the trustee would be required to comply with the statement of investment policy unless, for example, it would be imprudent to do so in a given instance. Maintenance of a statement of investment policy by a named fiduciary does not relieve the named fiduciary of its obligations under ERISA section 404(a) with respect to the appointment and monitoring of an investment manager or trustee. In this regard, the named fiduciary appointing an investment manager must periodically monitor the investment manager's activities with respect to management of the plan assets. Moreover, compliance with ERISA section 404(a)(1)(B) would require maintenance of proper documentation of the activities of the investment manager and of the named fiduciary of the plan in monitoring the activities of the investment manager. In addition, in the view of the Department, a named fiduciary's determination of the terms of a statement of investment policy is an exercise of fiduciary responsibility and, as such, statements may need to take into account factors such as the plan's funding policy and its liquidity needs as well as issues of prudence, diversification and other fiduciary requirements of ERISA. [[Page 95884]] An investment manager of a pooled investment vehicle that holds assets of more than one employee benefit plan may be subject to a proxy voting policy of one plan that conflicts with the proxy voting policy of another plan. Compliance with ERISA section 404(a)(1)(D) would require the investment manager to reconcile, insofar as possible, the conflicting policies (assuming compliance with each policy would be consistent with ERISA section 404(a)(1)(D)) and, if necessary and to the extent permitted by applicable law, vote the relevant proxies to reflect such policies in proportion to each plan's interest in the pooled investment vehicle. If, however, the investment manager determines that compliance with conflicting voting policies would violate ERISA section 404(a)(1)(D) in a particular instance, for example, by being imprudent or not solely in the interest of plan participants, the investment manager would be required to ignore the voting policy that would violate ERISA section 404(a)(1)(D) in that instance. Such an investment manager may, however, require participating investors to accept the investment manager's own investment policy statement, including any statement of proxy voting policy, before they are allowed to invest. As with investment policies originating from named fiduciaries, a policy initiated by an investment manager and adopted by the participating plans would be regarded as an instrument governing the participating plans, and the investment manager's compliance with such a policy would be governed by ERISA section 404(a)(1)(D). (3) Shareholder Engagement An investment policy that contemplates activities intended to monitor or influence the management of corporations in which the plan owns stock is consistent with a fiduciary's obligations under ERISA where the responsible fiduciary concludes that there is a reasonable expectation that such monitoring or communication with management, by the plan alone or together with other shareholders, is likely to enhance the value of the plan's investment in the corporation, after taking into account the costs involved. Such a reasonable expectation may exist in various circumstances, for example, where plan investments in corporate stock are held as long-term investments, where a plan may not be able to easily dispose of such an investment, or where the same shareholder engagement issue is likely to exist in the case of available alternative investments. Active monitoring and communication activities would generally concern such issues as the independence and expertise of candidates for the corporation's board of directors and assuring that the board has sufficient information to carry out its responsibility to monitor management. Other issues may include such matters as governance structures and practices, particularly those involving board composition, executive compensation, transparency and accountability in corporate decision-making, responsiveness to shareholders, the corporation's policy regarding mergers and acquisitions, the extent of debt financing and capitalization, the nature of long-term business plans including plans on climate change preparedness and sustainability, governance and compliance policies and practices for avoiding criminal liability and ensuring employees comply with applicable laws and regulations, the corporation's workforce practices (e.g., investment in training to develop its work force, diversity, equal employment opportunity), policies and practices to address environmental or social factors that have an impact on shareholder value, and other financial and non-financial measures of corporate performance. Active monitoring and communication may be carried out through a variety of methods including by means of correspondence and meetings with corporate management as well as by exercising the legal rights of a shareholder. Phyllis C. Borzi, Assistant Secretary, Employee Benefits Security Administration, Department of Labor. [FR Doc. 2016-31515 Filed 12-28-16; 8:45 am] BILLING CODE 4510-29-P
![Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Rules and Regulations 95879
unless the submitter requests and particular information under any director of the Office of Information
provides justification for a longer exemption of the FOIA. In order to rely Government Services. * * *
designation period. on Exemption 4 as basis for (b) The Commission will make each
(c) When notice to submitters is nondisclosure, the submitter must such report available for public
required. (1) The Commission must explain why the information constitutes inspection in an electronic format. In
promptly provide written notice to the a trade secret or commercial or financial addition, the Commission will make the
submitter of confidential commercial information that is confidential. raw statistical data used in each report
information whenever records (3) A submitter who fails to respond available in a timely manner for public
containing such information are within the time period specified in the inspection in an electronic format,
requested under the FOIA if the notice will be considered to have no which will be available—
Commission determines that it may be objection to disclosure of the (1) Without charge, license, or
required to disclose the records, information. The Commission is not registration requirement;
provided— required to consider any information (2) In an aggregated, searchable
(i) The requested information has received after the date of any disclosure format; and
been designated in good faith by the decision. Any information provided by (3) In a format that may be
submitter as information considered a submitter under this subpart may itself downloaded in bulk.
protected from disclosure under be subject to disclosure under the FOIA. * * * * *
Exemption 4; or (f) Analysis of objections. The
(ii) The Commission has a reason to Dated: December 22, 2016.
Commission must consider a submitter’s
believe that the requested information objections and specific grounds for For the Commission.
may be protected from disclosure under nondisclosure in deciding whether to Jenny R. Yang,
Exemption 4, but has not yet disclose the requested information. Chair.
determined whether the information is (g) Notice of intent to disclose. [FR Doc. 2016–31388 Filed 12–28–16; 8:45 am]
protected from disclosure. Whenever the Commission decides to BILLING CODE 6570–01–P
(2) The notice must either describe disclose information over the objection
the commercial information requested of a submitter, the Commission must
or include a copy of the requested provide the submitter written notice, DEPARTMENT OF LABOR
records or portions of records which must include:
containing the information. In cases (1) A statement of the reasons why Employee Benefits Security
involving a voluminous number of each of the submitter’s disclosure Administration
submitters, the Commission may post or objections was not sustained;
publish a notice in a place or manner (2) A description of the information to 29 CFR Part 2509
reasonably likely to inform the be disclosed or copies of the records as
submitters of the proposed disclosure, RIN 1210–AB78
the Commission intends to release them;
instead of sending individual and Interpretive Bulletin Relating to the
notifications. (3) A specified disclosure date, which Exercise of Shareholder Rights and
(d) Exceptions to submitter notice must be 10 days after the notice. Written Statements of Investment
requirements. The notice requirements (h) Notice of FOIA lawsuit. Whenever Policy, Including Proxy Voting Policies
of this section do not apply if: a requester files a lawsuit seeking to or Guidelines
(1) The Commission determines that compel the disclosure of confidential
the information is exempt under the commercial information, the AGENCY: Employee Benefits Security
FOIA, and therefore will not be Commission must promptly notify the Administration, Labor.
disclosed; submitter. ACTION: Interpretive bulletin.
(2) The information has been lawfully (i) Requester notification. The
published or has been officially made Commission must notify the requester SUMMARY: This document sets forth
available to the public; whenever it provides the submitter with supplemental views of the Department
(3) Disclosure of the information is notice and an opportunity to object to of Labor (Department) concerning the
required by a statute other than the disclosure; whenever it notifies the legal standards imposed by sections
FOIA or by a regulation issued in submitter of its intent to disclose the 402, 403 and 404 of Part 4 of Title I of
accordance with the requirements of requested information; and whenever a the Employee Retirement Income
Executive Order 12600 of June 23, 1987; submitter files a lawsuit to prevent the Security Act of 1974 (ERISA) with
or disclosure of the information. respect to voting of proxies on securities
(4) The designation made by the ■ 17. Amend § 1610.21 as follows: held in employee benefit plan
submitter under paragraph (b) of this ■ a. Revise the first sentence of investment portfolios, the maintenance
section appears obviously frivolous. In paragraph (a); of and compliance with statements of
such case, the Commission must give ■ b. Redesignate paragraph (b) as investment policy, including proxy
the submitter written notice of any final paragraph (c); and voting policy, and the exercise of other
decision to disclose the information ■ c. Add new paragraph (b). legal rights of a shareholder. In this
within 10 days prior to a specified The revision and addition read as document, the Department withdraws
disclosure date. follows: Interpretive Bulletin 2008–2 and
(e) Opportunity to object to disclosure. replaces it with Interpretive Bulletin
(1) The Commission must specify a § 1610.21 Annual report.
2016–1, which reinstates the language of
(a) The Legal Counsel shall, on or
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reasonable time period within which Interpretive Bulletin 94–2 with certain
the submitter must respond to the notice before February 1, submit individual modifications.
referenced above. Freedom of Information Act reports for
(2) If a submitter has any objections to each principal agency FOIA component DATES: This interpretive bulletin is
disclosure, it should provide the agency and one for the entire agency covering effective on December 29, 2016.
a detailed written statement that the preceding fiscal year to the Attorney FOR FURTHER INFORMATION CONTACT:
specifies all grounds for withholding the General of the United States and to the Office of Regulations and
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![Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Rules and Regulations 95881
economic value of the plan’s little, if any, additional expense to the SIF Foundation, 202 institutional
investment. individual plan shareholders to arrive at investors or money managers
The essential point of IB 94–2, a prudent result and that, depending on representing $1.72 trillion in US-
however, was to articulate a general the particular resolution and the extent domiciled assets filed or co-filed
principle that a fiduciary’s obligation to of the plan’s holdings, not voting, in shareholder resolutions on ESG issues at
manage plan assets prudently extends to fact, may in effect count one way or publicly traded companies from 2012
proxy voting. As such, IB 94–2 properly another. through 2014.7 The members of the
read was meant to express the view that The pervasiveness of US publicly- Investor Network on Climate Risk
proxies should be voted as part of the traded stock in ERISA plan investment (INCR), a network of institutions
process of managing the plan’s portfolios, both direct holdings and representing more than $14 trillion in
investment in company stock unless a through pooled investment funds, assets, engage with companies in their
responsible plan fiduciary determined including index funds, is another factor portfolios on climate and sustainability
that the time and costs associated with that contributes to the importance of issues. Members include BlackRock,
voting proxies with respect to certain proxy voting and shareholder California Public Employees’ Retirement
types of proposals or issuers may not be engagement practices. If there is a System, Deutsche Asset & Wealth
in the plan’s best interest. IB 94–2 was problem identified with a portfolio Management, Prudential Investment
also intended to make it clear that company’s management, selling the Management, State Street Global
fiduciary duties associated with voting stock and finding a replacement Advisors and TIAA Global Asset
proxies encompass the monitoring of investment may not be a prudent Management.8 Globally, over 1300 asset
decisions made and actions taken with solution for a plan fiduciary. As managers and asset owners have signed
regard to proxy voting, and that it was Vanguard founder John Bogle put it in the Principles for Responsible
appropriate for a plan fiduciary to incur the context of index funds, ‘‘the only Investment, the second principle of
reasonable expenses in fulfilling those weapon [index funds] have, if we don’t which states that the managers and
fiduciary obligations. While there may like the management, is to get a new owners will be active owners and
be special circumstances that might management or to force the management incorporate ESG issues into ownership
warrant a discrete analysis of the cost of to reform.’’ 6 policies and practices.9 Companies are
the shareholder activity versus the The Department is also concerned also being required to be more
economic benefit associated with the that despite the guidance on ESG issues transparent in the way they address ESG
outcome of the activity, the Department the Department recently provided in IB issues. For example, in 2010, the Dodd-
did not intend to imply that such an 2015–1, statements in IB 2008–2 may Frank Act required publicly traded
analysis should be conducted in most cause confusion as to whether or how a companies to allow shareholders an
cases. In most cases, proxy voting and plan fiduciary may consider ESG issues advisory vote on executive pay plans at
other shareholder engagement does not in connection with proxy voting or least once every three years.10 Similarly,
involve a significant expenditure of undertaking other shareholder in 2009 the SEC issued rules which
funds by individual plan investors engagement activities. The Department required companies to disclose in proxy
because the activities are engaged in by has rejected a construction of ERISA statements relating to the election of
institutional investment managers that would render ERISA’s tight limits directors, among other things, their
appointed as the responsible plan on the use of plan assets illusory and policy for consideration of diversity in
fiduciary pursuant to sections 402(c)(3), that would permit plan fiduciaries to the process by which candidates for
403(a)(2) and 3(38) of ERISA. Those expend trust assets to promote myriad director are considered for nomination
investment managers often engage public policy preferences. Rather, plan by a company’s nominating
consultants, including proxy advisory fiduciaries may not increase expenses, committee.11
firms, in an attempt to further reduce sacrifice investment returns, or reduce Other market developments further
the costs of researching proxy matters the security of plan benefits in order to substantiate the financial benefits from
and exercising shareholder rights.5 promote collateral goals. However, by shareholder engagement. Companies
Thus, such a conclusion ignores the fact focusing on a ‘‘cost-benefit analysis’’ themselves are seeking more
that many proxy votes involve very demonstrating a ‘‘more likely than not’’ engagement as a way of understanding
enhancement in the economic value of and responding to their shareholders’
5 In selecting an investment manager for a plan,
the responsible plan fiduciary should include a the investment, the Department believes 7 US SIF FOUNDATION, Report on US
review of any voting policies or guidelines that that IB 2008–2 may be read as Sustainable, Responsible and Impact Investing
would be followed in the management of plan discouraging fiduciaries from Trends 2014.
assets to ensure consistency with ERISA. Further, recognizing the long-term financial 8 See INCR membership list at www.ceres.org/
as plan fiduciaries, investment managers who investor-network/incr/member-directory.
utilize proxy advisory firms should engage in an benefits that, although difficult to
9 The Principles for Responsible Investment (PRI)
objective process that is designed to elicit quantify, can result from thoughtful
information necessary to assess the provider’s has been supported by the United Nations since its
shareholder engagement when voting launch. The PRI has two UN partners, the United
qualifications, quality of services offered, and
reasonableness of fees charged for the service. The
proxies, establishing a proxy voting Nations Environment Programme Finance Initiative
process also must avoid self-dealing, conflicts of policy, or otherwise exercising rights as and the United Nations Global Compact, which
interest or other improper influence. The shareholders. play an important role in delivering the PRI’s
investment manager in considering any proxy strategy. See ‘‘About the PRI’’ for further
The existence of financial benefits explanation of PRI and their responsible investment
recommendation should assure that it is fully
informed of potential conflicts of proxy advisory
associated with shareholder engagement effort at www.unpri.org/about.
firms and the steps the firm has taken to address is suggested by the fact that a growing 10 See Dodd-Frank Wall Street Reform and
them. See generally ‘‘Proxy Voting: Proxy Voting number of institutional investors are Consumer Protection Act, Public Law No. 111–203,
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Responsibilities of Investment Advisers and 124 Stat. 1376 (2010), for section 951 requirements.
now engaging companies on ESG issues. See also SEC Final Rule, Shareholder Approval of
Availability of Exemptions from the Proxy Rules for
Proxy Advisory Firms,’’ SEC Staff Legal Bulletin
According to a 2014 survey by the US Executive Compensation and Golden Parachute
No. 20 (IM/CF) (June 30, 2014) (discussing issues Compensation, Release Nos. 33–9178; 34–63768
that may arise under the federal securities laws for 6 Interview by Christine Benz with John Bogle, (Jan. 25, 2011).
registered investment advisers in connection with Founder, Vanguard (Oct. 10, 2010) (available at 11 SEC Final Rule, Proxy Disclosure
selection and monitoring of proxy advisory firms, www.morningstar.com/videos/359002/bogle-index- Enhancements, Release Nos. 33–9089; 34–61175
among other things). funds-power-in-corporate-governance.aspx). (Dec. 16, 2009).
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![95882 Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Rules and Regulations
views.12 There have also been market compliance with statements of (1) Proxy Voting
events that were catalysts for the growth investment policy, including proxy The fiduciary act of managing plan
of shareholder engagement. The voting policy, and the appropriateness assets that are shares of corporate stock
financial crisis of 2008 exposed some of under ERISA of shareholder engagement includes the voting of proxies
the pitfalls of shareholder inattention to with corporate management by plan appurtenant to those shares of stock. As
corporate governance and highlighted fiduciaries. The bulletin does not a result, the responsibility for voting
the merits of shareholders taking a more supersede the regulatory standard proxies lies exclusively with the plan
engaged role with the companies. contained at 29 CFR 2550.404a–1, nor trustee except to the extent that either
This is not a trend unique to the does it address any issues which may (1) the trustee is subject to the directions
United States. Other countries have arise in connection with the prohibited of a named fiduciary pursuant to ERISA
recognized these developments and transaction provisions under ERISA section 403(a)(1), or (2) the power to
taken steps to provide guidance on section 406 or the statutory exemptions manage, acquire or dispose of the
proxy voting and shareholder under ERISA section 408 from those relevant assets has been delegated by a
engagement in the form of ‘‘stewardship provisions. This Interpretative Bulletin named fiduciary to one or more
codes.’’ The first stewardship code was is a restatement of IB 94–2 with certain investment managers pursuant to ERISA
published in 2010 by the UK’s Financial updates to the examples of areas where section 403(a)(2). Where the authority to
Reporting Council, which traces its monitoring or communication with manage plan assets has been delegated
origins to principles published by the management is likely to enhance the to an investment manager pursuant to
UK’s Institutional Shareholders value of the plan’s investment in the section 403(a)(2), no person other than
Committee in 2002 and later the corporation. the investment manager has authority to
International Corporate Governance vote proxies appurtenant to such plan
List of Subjects in 29 CFR Part 2509
Network Principles on Institutional assets except to the extent that the
Investor Responsibilities in 2007.13 Employee benefit plans, Pensions. named fiduciary has reserved to itself
Other such codes have followed, For the reasons set forth in the (or to another named fiduciary so
including in Canada, Italy, Japan, preamble, the Department is amending authorized by the plan document) the
Singapore, South Africa, Switzerland, part 2509 of title 29 of the Code of right to direct a plan trustee regarding
the Netherlands, and Malaysia.14 Federal Regulations as follows: the voting of proxies. In this regard, a
For all the above reasons, the named fiduciary, in delegating
Department is concerned that the PART 2509—INTERPRETIVE investment management authority to an
changes to IB 94–2 in IB 2008–2 are out BULLETINS RELATING TO THE investment manager, could reserve to
of step with important domestic and EMPLOYEE RETIREMENT INCOME itself the right to direct a trustee with
international trends in investment SECURITY ACT OF 1974 respect to the voting of all proxies or
management and have the potential to reserve to itself the right to direct a
dissuade ERISA fiduciaries from ■ 1. The authority citation for part 2509
trustee as to the voting of only those
exercising shareholder rights, including continues to read as follows:
proxies relating to specified assets or
the voting of proxies, in areas that are Authority: 29 U.S.C. 1135. Secretary of issues.
increasingly being recognized as Labor’s Order 1–2003, 68 FR 5374 (Feb. 3, If the plan document or investment
important to long-term shareholder 2003). Sections 2509.75–10 and 2509.75–2 management agreement provides that
value. In fact, the Department believes issued under 29 U.S.C. 1052, 1053, 1054. Sec.
the investment manager is not required
the principles originally articulated in 2509.75–5 also issued under 29 U.S.C. 1002.
Sec. 2509.95–1 also issued under sec. 625, to vote proxies, but does not expressly
IB 94–2, with certain updates to reflect preclude the investment manager from
the trends on shareholder engagement Public Law 109–280, 120 Stat. 780.
voting proxies, the investment manager
discussed above, are a better expression § 2509.08–2 [Removed] would have exclusive responsibility for
of a fiduciary’s obligations under voting proxies. Moreover, an investment
sections 402(c)(3), 403(a) and ■ 2. Remove § 2509.08–2.
manager would not be relieved of its
404(a)(1)(A) of ERISA on these issues. ■ 3. Add § 2509.2016–01 to read as
own fiduciary responsibilities by
The Department therefore has decided follows:
following directions of some other
to withdraw IB 2008–2 and replace it person regarding the voting of proxies,
§ 2509.2016–01 Interpretive Bulletin
with Interpretive Bulletin 2016–1 which relating to the exercise of shareholder or by delegating such responsibility to
reinstates the language of IB 94–2 with rights and written statements of investment another person. If, however, the plan
minor updates. policy, including proxy voting policies or document or the investment
The following Interpretive Bulletin guidelines. management contract expressly
deals solely with the applicability of the This interpretive bulletin sets forth precludes the investment manager from
prudence and exclusive purpose the Department of Labor’s (the voting proxies, the responsibility for
requirements of ERISA as applied to Department) interpretation of sections voting proxies would lie exclusively
fiduciary decisions with respect to 402, 403 and 404 of the Employee with the trustee. The trustee, however,
voting of proxies on securities held in Retirement Income Security Act of 1974 consistent with the requirements of
employee benefit plan investment (ERISA) as those sections apply to ERISA section 403(a)(1), may be subject
portfolios, the maintenance of and voting of proxies on securities held in to the directions of a named fiduciary if
12 Blackrock and Ceres, 21st Century Engagement:
employee benefit plan investment the plan so provides.
Investor Strategies for Incorporating ESG
portfolios and the maintenance of and The fiduciary duties described at
compliance with statements of ERISA section 404(a)(1)(A) and(B),
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Considerations into Corporate Interactions (2015).
See also Joseph McCahery, Zacharias Sautner & investment policy, including proxy require that, in voting proxies, the
Laura T. Starks, Behind the Scenes The Corporate voting policy. In addition, this responsible fiduciary consider those
Governance Preferences of Institutional Investors,
71 The Journal of Finance 2905–2932 (Dec. 2016).
interpretive bulletin provides guidance factors that may affect the value of the
13 BLACKROCK AND CERES, supra footnote 12, on the appropriateness under ERISA of plan’s investment and not subordinate
at 34. active engagement with corporate the interests of the participants and
14 Id. management by plan fiduciaries. beneficiaries in their retirement income
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![95884 Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Rules and Regulations
An investment manager of a pooled activities would generally concern such for our review of a petition submitted by
investment vehicle that holds assets of issues as the independence and the state of Delaware pursuant to section
more than one employee benefit plan expertise of candidates for the 126 of the Clean Air Act (CAA). The
may be subject to a proxy voting policy corporation’s board of directors and petition requests that the EPA make a
of one plan that conflicts with the proxy assuring that the board has sufficient finding that Homer City Generating
voting policy of another plan. information to carry out its Station, located in Indiana County,
Compliance with ERISA section responsibility to monitor management. Pennsylvania, emits air pollution that
404(a)(1)(D) would require the Other issues may include such matters significantly contributes to
investment manager to reconcile, insofar as governance structures and practices, nonattainment and interferes with
as possible, the conflicting policies particularly those involving board maintenance of the 2008 and 2015
(assuming compliance with each policy composition, executive compensation, ozone national ambient air quality
would be consistent with ERISA section transparency and accountability in standards (NAAQS) in the state of
404(a)(1)(D)) and, if necessary and to the corporate decision-making, Delaware. Under section 307(d)(10) of
extent permitted by applicable law, vote responsiveness to shareholders, the CAA, the EPA is authorized to grant a
the relevant proxies to reflect such corporation’s policy regarding mergers time extension for responding to a
policies in proportion to each plan’s and acquisitions, the extent of debt petition if the EPA determines that the
interest in the pooled investment financing and capitalization, the nature extension is necessary to afford the
vehicle. If, however, the investment of long-term business plans including public, and the agency, adequate
manager determines that compliance plans on climate change preparedness opportunity to carry out the purposes of
with conflicting voting policies would and sustainability, governance and the section 307(d) notice-and-comment
violate ERISA section 404(a)(1)(D) in a compliance policies and practices for rulemaking requirements. By this
particular instance, for example, by avoiding criminal liability and ensuring action, the EPA is making that
being imprudent or not solely in the employees comply with applicable laws determination. The EPA is therefore
interest of plan participants, the and regulations, the corporation’s extending the deadline for acting on the
investment manager would be required workforce practices (e.g., investment in petition to no later than July 9, 2017.
to ignore the voting policy that would training to develop its work force, DATES: This final rule is effective on
violate ERISA section 404(a)(1)(D) in diversity, equal employment December 29, 2016.
that instance. Such an investment opportunity), policies and practices to
manager may, however, require ADDRESSES: The EPA has established a
address environmental or social factors
participating investors to accept the docket for this action under Docket ID
that have an impact on shareholder
investment manager’s own investment No. EPA–HQ–OAR–2016–0691. All
value, and other financial and non-
policy statement, including any documents in the docket are listed on
financial measures of corporate
statement of proxy voting policy, before the http://www.regulations.gov Web
performance. Active monitoring and
they are allowed to invest. As with site. Although listed in the index, some
communication may be carried out
investment policies originating from information is not publicly available,
through a variety of methods including
named fiduciaries, a policy initiated by e.g., Confidential Business Information
by means of correspondence and
an investment manager and adopted by or other information whose disclosure is
meetings with corporate management as
the participating plans would be restricted by statute. Certain other
well as by exercising the legal rights of
regarded as an instrument governing the material, such as copyrighted material,
a shareholder.
participating plans, and the investment is not placed on the Internet and will be
manager’s compliance with such a Phyllis C. Borzi, publicly available only in hard copy
policy would be governed by ERISA Assistant Secretary, Employee Benefits form. Publicly available docket
section 404(a)(1)(D). Security Administration, Department of materials are available electronically
Labor. through http://www.regulations.gov.
(3) Shareholder Engagement [FR Doc. 2016–31515 Filed 12–28–16; 8:45 am] FOR FURTHER INFORMATION CONTACT: Mr.
An investment policy that BILLING CODE 4510–29–P Benjamin Gibson, Office of Air Quality
contemplates activities intended to Planning and Standards (C545–E), U.S.
monitor or influence the management of EPA, Research Triangle Park, North
corporations in which the plan owns ENVIRONMENTAL PROTECTION Carolina 27709, telephone number (919)
stock is consistent with a fiduciary’s AGENCY 541–3277, email: gibson.benjamin@
obligations under ERISA where the epa.gov.
responsible fiduciary concludes that 40 CFR Part 52
there is a reasonable expectation that SUPPLEMENTARY INFORMATION:
such monitoring or communication with [EPA–HQ–OAR–2016–0691; FRL–9957–28–
OAR] I. Background and Legal Requirements
management, by the plan alone or
for Interstate Air Pollution
together with other shareholders, is Extension of Deadline for Action on
likely to enhance the value of the plan’s This is a procedural action to extend
the November 2016 Section 126
investment in the corporation, after the deadline for the EPA to respond to
Petition From Delaware
taking into account the costs involved. a petition from the state of Delaware
Such a reasonable expectation may exist AGENCY: Environmental Protection filed pursuant to CAA section 126(b).
in various circumstances, for example, Agency (EPA). The EPA received the petition on
where plan investments in corporate ACTION: Final rule. November 10, 2016. The petition
stock are held as long-term investments, requests that the EPA make a finding
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where a plan may not be able to easily SUMMARY: In this action, the under section 126(b) of the CAA that the
dispose of such an investment, or where Environmental Protection Agency (EPA) Homer City Generating Station, located
the same shareholder engagement issue is determining that 60 days is in Indiana County, Pennsylvania, is
is likely to exist in the case of available insufficient time to complete the operating in a manner that emits air
alternative investments. Active technical and other analyses and public pollutants in violation of the provisions
monitoring and communication notice-and-comment process required of section 110(a)(2)(D)(i)(I) of the CAA
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Document Created: 2016-12-29 01:58:55
Document Modified: 2016-12-29 01:58:55
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Interpretive bulletin. | |
| Dates | This interpretive bulletin is effective on December 29, 2016. | |
| Contact | Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693- 8500. This is not a toll-free number. | |
| FR Citation | 81 FR 95879 | |
| RIN Number | 1210-AB78 | |
| CFR Associated | Employee Benefit Plans and Pensions |
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