Senate committee approves bill to limit pension proxy votes to pecuniary factors
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Summary
The Senate Committee on Retirement and Insurance voted 7–2 to pass House Bill 4428, which directs pension boards and any proxy advisers to base votes and advice only on pecuniary (financial) factors except where non-pecuniary considerations clearly affect financial risk or return.
The Senate Committee on Retirement and Insurance on Wednesday approved House Bill 4428, a measure requiring pension boards and any proxy advisers they use to focus on pecuniary factors when voting or advising on investments.
Sponsor Floor Leader Daniels told the committee the bill narrows the definition of allowable nonfinancial considerations and urges boards to retain control of proxy voting. "The bill strongly urges that, except in very limited circumstances, the boards should maintain control of exercising all their authority and not farm that out," Daniels said.
The measure includes a definition for non-pecuniary factors that specifically cites promotion of environmental, social or political goals as examples of what should not drive votes — unless a sponsor or board can show the factor is reasonably likely to affect financial risk or return. At the committee’s amendment hearing, Daniels said the director of the Teacher Retirement System proposed two technical changes: requiring an entity to be headquartered in the U.S. for certain definitions and aligning language about investment objectives to existing statute language on maximizing risk-adjusted returns.
Opponents warned the restriction could limit pension boards’ ability to consider long-term economic risks to beneficiaries. "In theory, I wish I could support this, but I think we cannot separate the economy from the lives of the people impacted," Minority member Senator Kurt said during debate.
Daniels responded that the bill does not displace fiduciary duties and allows consideration of non-pecuniary factors when those factors are reasonably likely to affect financial risk or return. "We just need to base everything on pecuniary factor and returning maximizing that investment for all those who rely on the pensions," Daniels said.
After debate the committee voted 7 ayes and 2 nays to advance HB 4428.
What happens next: The committee reported the bill favorably to the full Senate for further consideration.