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Pension Plans: Additional
Transparency and Other Actions Needed in Connection with Proxy Voting
GAO-04-749, August 10, 2004
The General
Accounting Office (“GAO”) provided sobering news for those who were
inspired by President Bush’s vision of an “ownership society” earlier in
the week. GAO analyzed the Department of Labor’s (“DOL”) enforcement of
voting rights of the estimated 100,000,000 people with interests in
employee benefit plans. The arguments are familiar to any first year law
student: there is no problem; there is no reason to find out if there were
problems; even if there were a problem DOL doesn’t have legal authority to
deal with it; even if Congress provides the authority DOL should not
investigate. Beyond all this, DOL looked into the problem in 1986. The
whole world knows of the financial disaster for pensioners since then
except for DOL which finds “…the diversion of needed resources to an
enforcement study that we have no reason to believe will find significant
non-compliance with ERISA would be an inappropriate use of resources.”
The
conclusions:
- There
are few complaints. Maybe, this has to do with the fact that there is no
disclosure with the result that nobody knows whether they have the basis
for complaint or not. “Because of the current limited level of
disclosure, DOL receives few complaints related to proxy voting” ;
- DOL
finds the enabling law deficient. How can one prove conflicting
interest; how can one prove damages? And yet, in the “smoking gun”
situation of the merger of Hewlett Packard (“HP”) and Deutsche Asset
Management (“DeAM”), the SEC has already completed an enforcement
action, while there is, as yet - more than two years after the event -
no enforcement action from DOL, the primarily involved agency. So much
for President Bush’s “rotten apple” undertaking.
- DOL
opposes the practice of having an “independent fiduciary” when a
conflict of interest existed, because Congress in 1974 “expressly
allowed corporate officers and other persons ‘to wear two hats’”. We are
then assured that this creates no risk because of the “high standards of
fiduciary duty, the personal liability of fiduciaries for their
decisions…”
- DOL
opposes a departmental enforcement study, because of other priorities,
and “the Department has conducted three specific enforcement studies of
proxy voting practices that determined fiduciaries generally comply with
ERISA and, since the completion of the last study, has seen no evidence
of a negative change in the level of compliance…” The last study was
done in 1996. Maybe, the DOL is the last instrumentality within the
OECD world to have heard of Enron, World Com, Tyco, et cetera.
Beneficiaries of ERISA plans have greater losses in their retirement
plans in the eight years since DOL’s last study than at any other time
in history? Why did many companies fail? It had to do with governance -
failures by boards and executives. The failure of boards is attributable
to the impotence of institutional owners, of whom the ERISA plans are
the largest. It is a stunning insensitivity that DOL would eschew any
interest in investigating further - after an 8 year hiatus - the impact
of dysfunctionality of fiduciaries subject to its supervision.
- “SEC has
taken steps to increase transparency in the mutual fund industry.” That
means that investment companies and advisors are required to disclose
votes and conflicts publicly. “DOL’s inability to take similar steps
with respect to pension plan fiduciaries may provide inappropriate
incentives for fiduciaries to act solely in the interest of plan
participants when voting proxies.” What message is sent to the community
at large - the largest class of owners has no obligation to report their
conflicting interests and votes while the second largest must do so.
What’s OK with the SEC is not OK with DOL?
- How can
the United States ever enjoy the benefit of informed and involved
ownership of public corporations if the relevant government agencies
show no concern about confusing the public with inconsistent policies?
What ever happened to the commitment for One Government?
Robert A.G.
Monks
September 9, 2004
Enclosure:
Pension Plans: Additional Transparency and
Other Actions Needed in Connection with Proxy Voting
GAO-04-749, August 10, 2004
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