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Comment Letter to the DOL: Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights

Governance Corporate Governance, Shareholder Capitalism


The Employee Retirement Income Security Act requires a fiduciary governed by the act to “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and . . . with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” The Department first took the position, in the “Avon Letter” back in the 1988, that the fiduciary act of managing plan assets includes the management of voting rights (as well as other shareholder rights) appurtenant to shares of stock. We find it appropriate that the proposed rule would clarify the Department’s position in formal rulemaking. However, we strongly, but respectfully, disagree with the Department’s approach. Specifically, for purposes of this comment letter, we object to the Department’s treatment of investment advisers to funds, as delineated in paragraph (d) of the proposed rule. The Department’s approach does not reflect how dramatically the rise of large investment advisers to mutual funds and exchange traded funds (“ETFs”) has changed the control of voting authority in the U.S. stock markets.