61734 Federal Register / Vol. 73, No. 202 / Friday, October 17, 2008 / Rules and Regulations 

4See Advisory Opinion No. 2008–05A (June 27, 

2008) and letter from Department of Labor to 

Jonathan P. Hiatt, General Counsel, AFL–CIO (May 

3, 2005). 

5See Advisory Opinion No. 2007–07A (December 

21, 2007). 

any statement of proxy voting policy, 

before they are allowed to invest, which 

may help to avoid such potential 

conflicts. As with investment policies 

originating from named fiduciaries, a 

policy initiated by an investment 

manager and adopted by the 

participating plans would be regarded 

as an instrument governing the 

participating plans, and the investment 

manager’s compliance with such a 

policy would be governed by ERISA 

Sec. 404(a)(1)(D). 

(3) Shareholder Activism 

An investment policy that 

contemplates activities intended to 

monitor or influence the management of 

corporations in which the plan owns 

stock is consistent with a fiduciary’s 

obligations under ERISA where the 

responsible fiduciary concludes that 

there is a reasonable expectation that 

such monitoring or communication with 

management, by the plan alone or 

together with other shareholders, will 

enhance the economic value of the 

plan’s investment in the corporation, 

after taking into account the costs 

involved. Such a reasonable expectation 

may exist in various circumstances, for 

example, where plan investments in 

corporate stock are held as long-term 

investments or where a plan may not be 

able to easily dispose such an 

investment. Active monitoring and 

communication activities would 

generally concern such issues as the 

independence and expertise of 

candidates for the corporation’s board of 

directors and assuring that the board has 

sufficient information to carry out its 

responsibility to monitor management. 

Other issues may include such matters 

as consideration of the appropriateness 

of executive compensation, the 

corporation’s policy regarding mergers 

and acquisitions, the extent of debt 

financing and capitalization, the nature 

of long-term business plans, the 

corporation’s investment in training to 

develop its work force, other workplace 

practices and financial and nonfinancial measures of corporate 

performance that are reasonably likely 

to affect the economic value of the plan. 

Active monitoring and communication 

may be carried out through a variety of 

methods including by means of 

correspondence and meetings with 

corporate management as well as by 

exercising the legal rights of a 

shareholder. In creating an investment 

policy, a fiduciary shall consider only 

factors that relate to the economic 

interest of participants and their 

beneficiaries in plan assets, and shall 

not use an investment policy to promote 

myriad public policy preferences.4

(4) Socially-Directed Proxy Voting, 

Investment Policies and Shareholder 

Activism. 

Plan fiduciaries risk violating the 

exclusive purpose rule when they 

exercise their fiduciary authority in an 

attempt to further legislative, regulatory 

or public policy issues through the 

proxy process. In such cases, the 

Department would expect fiduciaries to 

be able to demonstrate in enforcement 

actions their compliance with the 

requirements of section 404(a)(1)(A) and 

(B). The mere fact that plans are 

shareholders in the corporations in 

which they invest does not itself 

provide a rationale for a fiduciary to 

spend plan assets to pursue, support, or 

oppose such proxy proposals. Because 

of the heightened potential for abuse in 

such cases, the fiduciaries must be 

prepared to articulate a clear basis for 

concluding that the proxy vote, the 

investment policy, or the activity 

intended to monitor or influence the 

management of the corporation is more 

likely than not to enhance the economic 

value of the plan’s investment before 

expending plan assets. 

The use of pension plan assets by 

plan fiduciaries to further policy or 

political issues through proxy 

resolutions that have no connection to 

enhancing the economic value of the 

plan’s investment in a corporation 

would, in the view of the Department, 

violate the prudence and exclusive 

purpose requirements of section 

404(a)(1)(A) and (B). For example, the 

likelihood that the adoption of a proxy 

resolution or proposal requiring 

corporate directors and officers to 

disclose their personal political 

contributions would enhance the 

economic value of a plan’s investment 

in the corporation appears sufficiently 

remote that the expenditure of plan 

assets to further such a resolution or 

proposal clearly raises compliance 

issues under section 404(a)(1)(A) and 

(B).5

Signed at Washington, DC, this 9th day of 

October, 2008. 

Bradford P. Campbell, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. E8–24552 Filed 10–16–08; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2509 

RIN 1210–AB29 

Interpretive Bulletin Relating to 

Investing in Economically Targeted 

Investments 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Interpretive bulletin. 

SUMMARY: This document sets forth the 

views of the Department of Labor 

concerning the legal standards imposed 

on fiduciaries of employee benefit plans 

by sections 403 and 404 of Title I of the 

Employee Retirement Income Security 

Act (ERISA) when considering 

investments in ‘‘economically targeted 

investments.’’ These guidelines affect 

fiduciaries of employee benefit plans, 

including trustees, investment managers 

and others responsible for the 

management of employee benefit plan 

assets. 

DATES: This interpretive bulletin is 

effective on October 17, 2008. 

FOR FURTHER INFORMATION CONTACT: 

Office of Regulations and 

Interpretations, Employee Benefits 

Security Administration, (202) 693– 

8500. This is not a toll free number. 

SUPPLEMENTARY INFORMATION: On June 

23, 1994, the Department of Labor (the 

Department) published Interpretive 

Bulletin § 2509.94–1 (29 CFR 2509.94– 

1) addressing the limited circumstances 

under which fiduciaries, consistent with 

the requirements of sections 404 and 

404 of Title I of the Employee 

Retirement Income Security Act 

(ERISA), may, in connection with 

investment decisions, take into account 

factors other than the economic interests 

of the plan. The guidance provided in 

this document, Interpretive Bulletin 

§ 2509.08–1, clarifies, through 

explanation and examples, that 

fiduciary consideration of noneconomic factors should be rare and, 

when considered, should be 

documented in a manner that 

demonstrates compliance with ERISA’s 

rigorous fiduciary standards. This 

guidance modifies and supersedes the 

guidance provided in interpretive 

bulletin 94–1. 

List of Subjects in 29 CFR Part 2509 

Employee benefit plans, Pensions. 

■ For the reasons set forth in the 

preamble, the Department is amending 

Subchapter A, Part 2509 of Title 29 of 


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Federal Register / Vol. 73, No. 202 / Friday, October 17, 2008 / Rules and Regulations 61735 

1Sec. 403(c)(1), 29 U.S.C.A. 1103(c)(1). 

2Sec. 404(a)(1)(A)(i), 29 U.S.C.A. 1104(a)(1)(A)(i). 

3See letters from the Department of Labor to 

Jonathan Hiatt dated May 3, 2005; to Thomas 

Donahue dated December 21, 2007 (A.O. 2007– 

07A); and to David Chavern dated June 27, 2008 

(A.O. 2008–05A). 

the Code of Federal Regulations as 

follows: 

Subchapter A—General 

PART 2509—INTERPRETIVE 

BULLETINS RELATING TO THE 

EMPLOYEE RETIREMENT INCOME 

SECURITY ACT OF 1974 

■ 1. The authority citation for part 2509 

continues to read as follows: 

Authority: 29 U.S.C. 1135. Secretary of 

Labor’s Order No. 1–2003, 68 FR 5374 Feb. 

3, 2003). Sections 2509.75–10 and 2509.75– 

2 are also issued under 29 U.S.C. 1052, 1053, 

1054. Section 2509.75–5 is also issued under 

29 U.S.C. 1002. 

§ 2509.94–1 [Removed] 

■ 2. Part 2509 is amended by removing 

§ 2509.94–1. 

■ 3. Part 2509 is further amended by 

adding new § 2509.08–1 to read as 

follows: 

§ 2509.08–1 Supplemental guidance 

relating to fiduciary responsibility in 

considering economically targeted 

investments. 

This Interpretive Bulletin sets forth 

the Department of Labor’s interpretation 

of sections 403 and 404 of the Employee 

Retirement Income Security Act of 1974 

(ERISA), as applied to employee benefit 

plan investments in ‘‘economically 

targeted investments,’’ that is, 

investments selected for the economic 

benefits they create apart from their 

investment return to the employee 

benefit plan. The guidance set forth in 

this interpretive bulletin modifies and 

supersedes the guidance set forth in 

interpretive bulletin 94–1 (29 CFR 

2509.94–1). 

ERISA requires that a fiduciary act 

solely in the interest of the plan’s 

participants and beneficiaries and for 

the exclusive purpose of providing 

benefits to their participants and 

beneficiaries. The Act specifically 

states, in relevant part, that: 

• ‘‘[A]ssets of a plan shall never inure 

to the benefit of any employer and shall 

be held for the exclusive purposes of 

providing benefits to participants in the 

plan and their beneficiaries.* * *’’ 1

• ‘‘[A] fiduciary shall discharge his 

duties with respect to a plan solely in 

the interest of the participants and 

beneficiaries and for the exclusive 

purpose of providing benefits to 

participants and their beneficiaries.’’ 2

ERISA’s plain text thus establishes a 

clear rule that in the course of 

discharging their duties, fiduciaries may 

never subordinate the economic 

interests of the plan to unrelated 

objectives, and may not select 

investments on the basis of any factor 

outside the economic interest of the 

plan except in very limited 

circumstances enumerated below. 

With regard to investing plan assets, 

the Department has issued a regulation, 

at 29 CFR 2550.404a–1, interpreting the 

prudence requirements of ERISA as they 

apply to the investment duties of 

fiduciaries of employee benefit plans. 

The regulation provides that the 

prudence requirements of section 

404(a)(1)(B) are satisfied if (1) the 

fiduciary making an investment or 

engaging in an investment course of 

action has given appropriate 

consideration to those facts and 

circumstances that, given the scope of 

the fiduciary’s investment duties, the 

fiduciary knows or should know are 

relevant, and (2) the fiduciary acts 

accordingly. This includes giving 

appropriate consideration to the role 

that the investment or investment 

course of action plays (in terms of such 

factors as diversification, liquidity and 

risk/return characteristics) with respect 

to that portion of the plan’s investment 

portfolio within the scope of the 

fiduciary’s responsibility. 

Other facts and circumstances 

relevant to an investment or investment 

course of action would, in the view of 

the Department, include consideration 

of the expected return on alternative 

investments with similar risks available 

to the plan. It follows that, because 

every investment necessarily causes a 

plan to forgo other investment 

opportunities, an investment will not be 

prudent if it would be expected to 

provide a plan with a lower rate of 

return than available alternative 

investments with commensurate degrees 

of risk or is riskier than alternative 

available investments with 

commensurate rates of return. 

ERISA’s plain text does not permit 

fiduciaries to make investment 

decisions on the basis of any factor 

other than the economic interest of the 

plan. Situations may arise, however, in 

which two or more investment 

alternatives are of equal economic value 

to a plan. The Department has 

recognized in past guidance that under 

these limited circumstances, fiduciaries 

can choose between the investment 

alternatives on the basis of a factor other 

than the economic interest of the plan. 

The Department has interpreted the 

statute to permit this selection because 

(1) ERISA requires fiduciaries to invest 

plan assets and to make choices 

between investment alternatives, (2) 

ERISA does not itself specifically 

provide a basis for making the 

investment choice in this circumstance, 

and (3) the economic interests of the 

plan are fully protected by the fact that 

the available investment alternatives 

are, from the plan’s perspective, 

economically indistinguishable. 

Given the significance of ERISA’s 

requirement that fiduciaries act ‘‘solely 

in the interest of participants and 

beneficiaries,’’ the Department believes 

that, before selecting an economically 

targeted investment, fiduciaries must 

have first concluded that the alternative 

options are truly equal, taking into 

account a quantitative and qualitative 

analysis of the economic impact on the 

plan. ERISA’s fiduciary standards 

expressed in sections 403 and 404 do 

not permit fiduciaries to select 

investments based on factors outside the 

economic interests of the plan until they 

have concluded, based on economic 

factors, that alternative investments are 

equal. A less rigid rule would allow 

fiduciaries to act on the basis of factors 

outside the economic interest of the 

plan in situations where reliance on 

those factors might compromise or 

subordinate the interests of plan 

participants and their beneficiaries. The 

Department rejects a construction of 

ERISA that would render the Act’s tight 

limits on the use of plan assets illusory, 

and that would permit plan fiduciaries 

to expend ERISA trust assets to promote 

myriad public policy preferences.3

A plan fiduciary’s analysis is required 

to comply with, but is not necessarily 

limited to, the requirements set forth in 

29 CFR 2550.404a–1(b). In evaluating 

the plan portfolio, as well as portions of 

the portfolio, the fiduciary is required to 

examine the level of diversification, 

degree of liquidity, and the potential 

risk/return in comparison with available 

alternative investments. The same type 

of analysis must also be applied when 

choosing between investment 

alternatives. Potential investments 

should be compared to other 

investments that would fill a similar 

role in the portfolio with regard to 

diversification, liquidity, and risk/ 

return. 

In light of the rigorous requirements 

established by ERISA, the Department 

believes that fiduciaries who rely on 

factors outside the economic interests of 

the plan in making investment choices 

and subsequently find their decision 

challenged will rarely be able to 

demonstrate compliance with ERISA 

absent a written record demonstrating 

that a contemporaneous economic 


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61736 Federal Register / Vol. 73, No. 202 / Friday, October 17, 2008 / Rules and Regulations 

analysis showed that the investment 

alternatives were of equal value. 

Examples: 

A plan owns an interest in a limited 

partnership that is considering investing 

in a company that competes with the 

plan sponsor. The fiduciaries may not 

replace the limited partnership 

investment with another investment 

based on this fact unless they prudently 

determine that a replacement 

investment is economically equal or 

superior to the limited partnership 

investment and would not adversely 

affect the plan’s investment portfolio, 

taking into account factors including 

diversification, liquidity, risk and 

expected return. The competition of the 

limited partnership with the plan 

sponsor is a factor outside the economic 

interests of the plan, and thus cannot be 

considered unless an alternative 

investment is equal or superior to the 

limited partnership. 

A multiemployer plan covering 

employees in a metropolitan area’s 

construction industry wants to invest in 

a large loan for a construction project 

located in the same area because it will 

create local jobs. The plan has taken 

steps to ensure that the loan poses no 

prohibited transaction issues. The loan 

carries a return fully commensurate 

with the risk of nonpayment. Moreover, 

the loan’s expected return is equal to or 

greater than construction loans of 

similar quality that are available to the 

plan. However, the plan has already 

made several other loans for 

construction projects in the same 

metropolitan area, and this loan could 

create a risk of large losses to the plan’s 

portfolio due to lack of diversification. 

The fiduciaries may not choose this 

investment on the basis of the local job 

creation factor because, due to lack of 

diversification, the investment is not of 

equal economic value to the plan. 

A plan is considering an investment 

in a bond to finance affordable housing 

for people in the local community. The 

bond provides a return at least as 

favorable to the plan as other bonds 

with the same risk rating. However, the 

bond’s size and lengthy duration raises 

a potential risk regarding the plan’s 

ability to meet its predicted liquidity 

needs. Other available bonds under 

consideration by the plan do not pose 

this same risk. The return on the bond, 

although equal to or greater than the 

alternatives, would not be sufficient to 

offset the additional risk for the plan 

created by the role that this bond would 

play in the plan’s portfolio. The plan’s 

fiduciaries may not make this 

investment based on factors outside the 

economic interest of the plan because it 

is not of equal or greater economic value 

to other investment alternatives. 

A plan sponsor adopts an investment 

policy that favors plan investment in 

companies meeting certain 

environmental criteria (so-called 

‘‘green’’ companies). In carrying out the 

policy, the plan’s fiduciaries may not 

simply consider investments only in 

green companies. They must consider 

all investments that meet the plan’s 

prudent financial criteria. The 

fiduciaries may apply the investment 

policy to eliminate a company from 

consideration only if they appropriately 

determine that other available 

investments provide equal or better 

returns at the same or lower risks, and 

would play the same role in the plan’s 

portfolio. 

A collective investment fund, which 

holds assets of several plans, is designed 

to invest in commercial real estate 

constructed or renovated with union 

labor. Fiduciaries of plans that invest in 

the fund must determine that the fund’s 

overall risk and return characteristics 

are as favorable, or more favorable, to 

the plans as other available investment 

alternatives that would play a similar 

role in their plans’ portfolios. The 

fund’s managers may select investments 

constructed or improved with union 

labor, after an economic analysis 

indicates that these investment options 

are equal or superior to their 

alternatives. The managers will best be 

able to justify their investment choice 

by recording their analysis in writing. 

However, if real estate investments that 

satisfy both ERISA’s fiduciary 

requirements and the union labor 

criterion are unavailable, the fund 

managers may have to select 

investments without regard to the union 

labor criterion. 

Signed at Washington, DC, this 9th day of 

October 2008. 

Bradford P. Campbell, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. E8–24551 Filed 10–16–08; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF VETERANS 

AFFAIRS 

38 CFR Part 3 

RIN 2900–AM28 

Accrued Benefits; Correction 

AGENCY: Department of Veterans Affairs. 

ACTION: Correcting amendment. 

SUMMARY: This document contains a 

minor correction to the final regulations 

that the Department of Veterans Affairs 

(VA) published in 71 FR 78368 on 

December 29, 2006. The regulation 

relates to the Payment of Benefits to 

Survivors of Estates of Deceased 

Beneficiaries. No substantive change to 

the content of the regulation is being 

made by correcting this amendment. 

DATES: Effective Date: October 17, 2008. 

FOR FURTHER INFORMATION CONTACT: 

Denise Kemp-Nichols, Regulations Staff 

(211D), Compensation and Pension 

Service, Veterans Benefits 

Administration, Department of Veterans 

Affairs, 810 Vermont Avenue, NW., 

Washington, DC 20420, (202) 461–9724. 

SUPPLEMENTARY INFORMATION: VA 

published a final rule in the Federal 

Register on December 29, 2006 (See 71 

FR 78368) revising its final rule 

eliminating the 2-year limitation on 

accrued benefits. In that document, VA 

failed to amend 38 CFR 3.816(f)(2). This 

document corrects that error by 

removing the entire first sentence of 38 

CFR 3.816(f)(2) and in the second 

sentence, by removing the word ‘‘also’’ 

after words ‘‘accrued benefits.’’ 

List of Subjects in 38 CFR Part 3 

Administrative, practice and 

procedures, Claims, Disability benefits, 

Health care, Pensions, Veterans, 

Vietnam. 

Approved: October 10, 2008. 

William F. Russo, 

Director of Regulations Management. 

■ For the reason set out in the preamble, 

VA is correcting 38 CFR part 3 as 

follows. 

PART 3—ADJUDICATION 

■ 1. The authority citation for part 3, 

subpart A continues to read as follows: 

Authority: 38 U.S.C. 501(a), unless 

otherwise noted. 

§ 3.816 [Corrected] 

■ 2. In § 3.816, paragraph (f)(2) is 

amended by removing the entire first 

sentence and in the second sentence 

removing the word ‘‘also’’. 

[FR Doc. E8–24650 Filed 10–16–08; 8:45 am] 

BILLING CODE 8320–01–P 


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