HSB 667 (LSB 5408XD (4) 90)

SENATE/HOUSE FILE _____

BY  (PROPOSED ATTORNEY GENERAL BILL)

A BILL FOR

An Act relating to actions regarding the economic interest of enterprise shareholders and participants in and beneficiaries of public pension benefit plans, and providing penalties.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  12L.1  Definitions.
   For purposes of this chapter:
   1.  “Best economic interest” means investment pursuant to the objective of maximizing risk-adjusted investment returns of the participants and beneficiaries of a plan over a time horizon consistent with the risk management profile of the plan.
   2.  “Consumer” means a person who is a resident of this state and to which any of the following apply:
   a.  The person has an interest in an investment company, including but not limited to mutual funds and exchange-traded funds, registered with the federal securities and exchange commission that directly or indirectly owns shares of an enterprise regulated by the state.
   b.  The person is a beneficiary or participant in a plan.
   3.  “Economic analysis” means a written analysis demonstrating the factors considered in evaluating the economic impact of a shareholder-sponsored proposal. At a minimum, the analysis must address all of the following factors:
   a.  The subject matter of the shareholder-sponsored proposal.
   b.  An evaluation of the investment company’s stated reasons for opposition to the shareholder-sponsored proposal.
   c.  An evaluation of whether the shareholder-sponsored proposal reflects the investment objectives and risk management profile of the plan in which the participants and beneficiaries are invested.
   d.  An evaluation of the economic benefits and costs of implementing the proposal, as written, over a time horizon that reflects the investment objectives and risk management profile of the plan.
   e.  The quantifiable impact of the shareholder-sponsored proposal, as written, on the investment returns of the participants and beneficiaries of the plan.
   f.  An explanation of modeling, procedures, or processes used to complete the economic analysis.
   4.  “Fiduciary” means a person who, with respect to a pension benefit plan, does any of the following:
   a.  Exercises discretionary authority or discretionary control with respect to management of the plan or exercises authority or control with respect to acquisition, management, or disposition of the plan’s assets.
   b.  Renders investment advice for a fee or other compensation, direct or indirect, with respect to moneys or other assets of the plan or has authority or responsibility to do so.
   c.  Has discretionary authority or discretionary responsibility in the administration of the plan.
   5.  “Investment company” means the same as defined in 15 U.S.C. §80a-3.
   6.  “Pension benefit plan” or “plan” means a plan, fund, or program established, maintained, or offered by a public entity, including but not limited to a public retirement system as defined in section 97D.5, if by its terms or as a result of surrounding circumstances the plan, fund, or program does any of the following:
   a.  Provides retirement income or other retirement benefits to employees or former employees.
   b.  Results in a deferral of income by employees for a period extending to the termination of covered employment or beyond.
   7.  “Proxy advisory firm” means a person who is engaged in the business of providing proxy voting advice, research, analysis, ratings, or recommendations to a fiduciary, shareholder, or investor, including institutional investors.
   8.  “Public entity” means the state or a political subdivision of the state, including any agency, authority, department, enterprise, instrumentality, school, college, university, or other subunit operated by the state or a political subdivision of the state.
   9.  “Shareholder-sponsored proposal” means a proposal submitted to an issuer of securities by a shareholder under 17 C.F.R. §240.14a-8.
    Sec. 2.  NEW SECTION.  12L.2  Fiduciary voting responsibilities.
   1.  A fiduciary shall vote all shares held directly or indirectly by, subject to, or on behalf of a plan for the benefit of the plan’s participants and beneficiaries solely in the best economic interest of the plan participants and beneficiaries.
   2.  For purposes of this section, with respect to a shareholder-sponsored proposal, there is a rebuttable presumption that a fiduciary votes its shares solely in the best economic interest of the plan participants and beneficiaries if the fiduciary’s vote follows the recommendation of the board of directors of the issuer of the shares, as long as such board includes a majority of independent directors.
   3.  With respect to a shareholder-sponsored proposal, a fiduciary’s vote in a manner inconsistent with the recommendation of the board of directors of the issuer of the shares is presumed to be in the best economic interest of the plan participants and beneficiaries if any of the following criteria are met:
   a.  The fiduciary conducts and documents an economic analysis demonstrating that such a vote is in the best economic interest of the plan participants and beneficiaries.
   b.  On behalf of the fiduciary, a third party conducts and documents an economic analysis demonstrating that such a vote is in the best economic interest of the plan participants and beneficiaries, and the fiduciary determines that the economic analysis adequately demonstrates that such a vote is in the best economic interest of the plan participants and beneficiaries.
   4.  A fiduciary shall not vote in a manner that does any of the following:
   a.  Subordinates the economic interest of the plan’s participants and beneficiaries to any environmental, social, policy, governance, or ideological goal.
   b.  Promotes any environmental, social, policy, governance, or ideological goal, unless, based on an economic analysis, it is determined that the vote is in the best economic interest of the plan participants and beneficiaries.
   5.  With respect to shareholder-sponsored proposals, a fiduciary shall annually disclose in a report to the treasurer of state all of the following:
   a.  Each vote that was inconsistent with the recommendation of an issuer’s board of directors composed of a majority of independent directors.
   b.  The economic analysis conducted and documented with respect to each vote described in subsection 3 to determine that the vote was in the best economic interest of the plan’s participants and beneficiaries.
   6.  The report required under subsection 5 must be certified by the chief executive officer and chief financial officer, or an individual acting in each capacity, of the fiduciary.
   7.  At least once every three years, a fiduciary shall back test its economic analysis to ensure that the models, procedures, and processes it uses predict the best economic interest of the plan’s participants and beneficiaries, and shall deliver a report detailing such back testing to the treasurer of state. Based on such back testing, the chief executive officer and chief financial officer, or an individual acting in each capacity, of the fiduciary shall certify that the economic analysis performed by the fiduciary and included in the report is effective.
   8.  The court may award court costs and reasonable attorney fees to a party who prevails in an action brought under this section.
    Sec. 3.  NEW SECTION.  12L.3  Proxy advisory firms.
   1.  A proxy advisory firm shall not provide proxy voting advice with respect to shareholder-sponsored proposals submitted to any enterprise that the state regulates, unless the proxy advisory firm bases its voting recommendations solely on the best economic interests of the enterprise’s shareholders.
   2.  For purposes of this section, with respect to a shareholder-sponsored proposal submitted to an enterprise regulated by the state, there is a presumption that a proxy advisory firm’s voting recommendation is based solely on the best economic interest of the enterprise’s shareholders if the recommendation follows the recommendation of the board of directors of the issuer of the shares, as long as the board includes a majority of independent directors.
   3.  With respect to a shareholder-sponsored proposal submitted to an enterprise regulated by the state, a proxy advisory firm may recommend a vote that is inconsistent with the recommendation of the board of directors of the issuer of the shares if the proxy advisory firm conducts and documents an economic analysis demonstrating that such a vote is in the best economic interest of the enterprise’s shareholders.
   4.  With respect to shareholder-sponsored proposals submitted to an enterprise regulated by the state, a proxy advisory firm shall annually disclose in a report to the treasurer of state all of the following:
   a.  Each vote recommendation that was inconsistent with the recommendation of an issuer’s board of directors composed of a majority of independent directors.
   b.  The economic analysis conducted and documented with respect to each vote recommendation described in subsection 3 to determine that the vote recommendation was in the best economic interest of the regulated enterprise’s shareholders.
    Sec. 4.  NEW SECTION.  12L.4  Consumer right to disclosure.
   1.  a.  If a consumer has reason to believe that the requirements of section 12L.2 or 12L.3 have not been met, a consumer may submit a request to any of the following to obtain a copy of the documented economic analysis demonstrating that such a vote is solely in the best economic interest of the consumer:
   (1)  The investment company that owns shares of an enterprise regulated by the state.
   (2)  The plan, in each case, in which the consumer is an investor, beneficiary, or participant.
   b.  There is a presumption that a vote is solely in the best economic interest of the consumer if the vote follows the recommendation of the board of directors of the issuer of the shares, as long as the board includes a majority of independent directors.
   2.  a.  The investment company or plan shall respond in writing to the consumer within ninety days of receipt of a request described in subsection 1 by doing one of the following:
   (1)  Providing the consumer with the requested economic analysis.
   (2)  Informing the consumer that no economic analysis is available, if the investment company did not conduct and document an economic analysis.
   (3)  Informing the consumer that the vote at issue was consistent with the recommendation of the board of directors of the issuer of the shares and such board is composed of a majority of independent directors.
   b.  The investment company or plan shall provide information in response to a consumer request at no cost up to twice annually per consumer.
    Sec. 5.  NEW SECTION.  12L.5  Enforcement.
   1.  This chapter may be enforced by the attorney general.
   2.  If the attorney general has reasonable cause to believe that a person has engaged in, is engaging in, or is about to engage in a violation of this chapter, the attorney general may do any of the following:
   a.  Require the person to file on forms prescribed by the attorney general a statement or report in writing, under oath, as to all the circumstances surrounding the violation and such other data and information as the attorney general deems necessary.
   b.  Examine under oath any person in connection with the violation.
   c.  Examine any record, book, document, account, or paper as the attorney general deems necessary.
   d.  Issue civil investigatory demands consistent with investigation into a potential enforcement action.
   e.  Under an order of the district court, impound any record, book, document, account, paper, or sample or material relating to the violation and retain the same in the attorney general’s possession until the completion of all proceedings undertaken under this chapter or in court.
   3.  The attorney general may initiate an action in the name of the state and may seek an injunction to restrain any violations of this chapter. A violation of this chapter shall constitute irreparable harm. Each share voted by a fiduciary that is not voted in the best economic interest of the shareholder constitutes a separate violation. The attorney general may also seek civil penalties for each violation under this chapter. All civil penalties issued shall be in equity. Civil penalties shall not exceed one thousand dollars per violation. Civil penalties collected under this chapter shall be deposited in the general fund of the state.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill requires a fiduciary to vote all shares of a pension benefit plan established, maintained, or offered by a public entity solely in the best economic interest of the plan participants and beneficiaries. The bill creates the rebuttable presumption that, if a fiduciary’s vote aligns with the recommendation of the board of directors of the issuer of the shares or if the fiduciary or a third party conducts and documents an economic analysis showing that the vote is in the best economic interest of the plan participants and beneficiaries, the vote is in the best interest of the plan participants and beneficiaries. The bill prohibits a fiduciary from voting shares of a plan based on any environmental, social, policy, governance, or ideological goal that is not in the best economic interest of plan participants and beneficiaries.
   The bill requires a fiduciary to annually report to the treasurer of state any vote inconsistent with the recommendation of an issuer’s board of directors and the economic analysis on which the fiduciary relied. This report must be certified by the fiduciary’s chief executive officer and chief financial officer.
   The bill also requires a fiduciary to review its economic analysis every three years to ensure that the fiduciary’s models, procedures, and processes predict the best economic interest of the plan participants and beneficiaries.
   The bill permits a court to award court costs and reasonable attorney fees to the prevailing party in a suit concerning fiduciary voting responsibilities.
   The bill prohibits a proxy advisory firm from providing proxy voting advice regarding shareholder-sponsored proposals to an entity that the state regulates unless the advice is based solely on the best economic interests of the enterprise’s shareholders. If a proxy advisory firm’s advice follows the recommendation of the board of directors of the issuer of the shares or if the proxy advisory firm conducts and documents an economic analysis demonstrating that the vote is in the best economic interest of the plan participants and beneficiaries, then the advice is presumed to be based solely on the best economic interest of the enterprise’s shareholders. A proxy advisory firm must submit an annual report to the treasurer of state disclosing any vote inconsistent with the issuer’s board of directors’ recommendations and the economic analysis on which the proxy advisory firm relied.
   The bill permits an investor, beneficiary, or participant of a plan to submit a request for the economic analysis conducted for a fiduciary’s vote to the investment company that owns shares of an enterprise regulated by the state or the plan if the individual has reason to believe that shares of the plan have not been voted in the best economic interest of the plan participants and beneficiaries. The investment company or plan must respond in writing within 90 days by providing the requested economic analysis or informing the individual that no economic analysis was conducted or the vote aligned with the recommendation of the board of directors of the issuer of the shares. The investment company or plan must provide such a response without cost up to twice annually per consumer.
   The bill allows the attorney general to investigate any suspected violations of the bill and to enforce the bill’s provisions by initiating an action in the name of the state and seeking civil penalties for each violation. Each share not voted in the best economic interest of the shareholder qualifies as a separate violation and constitutes irreparable harm. The bill requires civil penalties to be in equity and to not exceed $1,000 per violation. Civil penalties collected under the bill are deposited in the general fund of the state.