Social Investing Revisited?

      There appears to be a continuing debate, with the Department of Labor’s involvement, between the AFL-CIO and the U.S. Chamber of Commerce concerning use of plan assets in proxy voting and shareholder related activities as well as in connection with union organizing campaigns and union goals in collective bargaining negotiations. The debate takes place in the context of two recently published Advisory Opinions, both issued to the U.S. Chamber of Commerce, one in response to an inquiry by the Chamber as to whether the fiduciary rules of ERISA prohibit the use of plan assets to promote union organizing campaigns and union goals in collective bargaining negotiations (Advisory Opinion 2008-05A) and another concerning whether pension plan assets may be used by plan fiduciaries to further public policy debates and political activities through proxy resolutions that “have no connection to enhancing the value of the plan’s investment in a company” (Advisory Opinion 2007-07A).

The DOL’s response in both cases appears to be consistent with earlier Advisory Opinions concerning use of plan assets for what was once described as “social investment.” Earlier advisory letters on social investing were issued in the 1980s to Gregory Ridella, Chrysler Corp. (AO 88-16A), Jim Ray (July 8, 1988), Mr. Reed Larson (July 14, 1986) and Mr. Ralph Katz (March 15, 1982). These 1988 opinions state, in general, that fiduciaries, in deciding whether and to what extent to invest in a particular investment, must consider only factors relating to the interests of plan participants and beneficiaries. A decision to make an investment may not be influenced by non-economic factors unless the investment when judged solely on the basis of its economic value to the plan, would be equal or superior to alternative investments available to the plan.

The DOL’s responses to the Chamber also represent a further clarification of Interpretive Bulletin 94-2 (concerning a fiduciary’s role in voting proxies) in which the DOL said that an “investment policy that contemplates activities intended to monitor or influence management of corporations in which the plan owns stock is consistent with fiduciary obligations under ERISA where a responsible fiduciary concludes that there is a reasonable expectation that such monitoring or communication with management…. is likely to enhance the value of the plan investment….” (emphasis added)

Query: Has the DOL’s position on shareholder activism and social investment changed since 1988 or are Advisory Opinions 2007-07A and 2008-05A no more than the DOL’s effort to reiterate its earlier positions when asked by the Chamber to reflect on what the Chamber seems to suggest are questionable new AFL-CIO positions concerning the permitted use of assets?

The issue is important in light of concerns about providing investment education to plan participants and given that there may be a new movement on the part of institutional investors to boycott investments in certain companies and countries.

See the attached links for the two recent advisory opinions to the Chamber of Commerce and a letter issued by Alan Lebowitz, DOL Deputy Assistant Secretary for Program Operations, to the AFL-CIO (May 3, 2005).;;