A pension fund will diversify its investments to ensure that there are enough assets to pay current and future pensions for its participants and beneficiaries. The most dominant percentage of fund money is invested in the stocks of corporations.
When a fund owns stock in a corporation it not only obtains the right to participate in the growth and success of that corporation, it also has the right to vote on important matters concerning corporate policies and governance. “Proxies” are essentially shares that represent amounts of votes that can be cast by the shareholder.
Corporations normally hold annual shareholder meetings where certain decisions by the company are put to a vote by the shareholders. Issues include the election of the corporation’s Board of Directors, executive compensation packages for senior management, the approval of auditors and a variety of other issues.
The Department of Labor has promulgated that proxies held by a fund represent assets of the fund and must be voted as a means of protecting its investments in a corporation. Further, the Department of Labor recognizes that shareholders have the responsibility to be “active owners” who have the right and responsibility to communicate with companies in which they invest.
Proxy voting services have been established to vote the proxies. Those services are responsible for voting proxies for the exclusive benefit of plan participants. If a fund does not establish its own guidelines and monitor the votes of its shares, the shares will then be voted by the investment managers according their set of guidelines.
LIUNA recommends that funds take the following actions regarding proxy voting:
1. Adopt proxy voting guidelines that are consistent with the long-term interests of the funds’ participants and beneficiaries.
2. Make sure that investment managers vote the fund’s proxies in a manner consistent with the adopted guidelines or turn the proxies over to a proxy service that will do so.
3. Select a proxy voting service that votes proxies according to the fund’s guidelines and monitors proposals and voting results at corporations.
Staff at the Department of Corporate Affairs can provide further information regarding proxy voting services and proxy voting guidelines.