Voting shares in the suspense account

[katieinny]

The shares are not publicly traded. We're okay with participants voting their allocated shares for the pass-through-matters, but the plan currently says that the Trustee shall not vote the shares in the suspense account. We're thinking about amending the plan to change that provision so that the Trustee can determine how those shares are voted.

We just want to make sure there isn't a prohibition against the Trustee voting those shares.

[QDROphile]

The Department of Labor would prefer that the Trustee vote the shares and would probably be unhappy with the current provisions.

[katieinny]

Just to be clear -- can the Trustee vote these shares as he chooses and not as an extension of how participant shares are voted?

[QDROphile]

What do the plan/trust documents say?

[katieinny]

Document currently says that the shares in the unallocated shall not be voted -- by anybody. Remember, we're planning on amending the document so that those shares can be voted -- by the Trustee.

[QDROphile]

The question about what the plan document says is an answer to your question about whether the trustee will vote in its discretion or in accordance with other votes. The trustee will do what the plan document says unless the terms are contrary to ERISA, so the amendment should provide for what is desired.

[Peter Gulia]

Although ERISA's fiduciary standard of care includes the idea that a fiduciary follows the plan and trust documents, ERISA 404(a)(1)(D) also says that a fiduciary does so "insofar as [the] documents ... are consistent with the provisions of [ERISA's title I]."

For readers of this board (and especially those who often advise plans that invest in employer securities that aren't publicly traded), what's your outlook on whether (and in what circumstances) a settlor's "don't-vote" provision might be so contrary to a retirement plan's purpose that a trustee or other fiduciary must ignore the provision as contrary to ERISA?

Does the fact that a question is important enough to be put to the shareholders' vote suggest that the decision fundamentally affects the shares' value?

[QDROphile]

The Department of Labor would say that a "don't vote" provision is not consistent with ERISA. It goes farther than that. Also consider the DOL position on proxy voting.

[Guest Mickey Maier]

Most ESOP plans provide that the trustee or other named fiduciary is to vote the shares in the suspense account in their discretion. This is a position that the DOL prefers. Some plans provide that the trustee is to vote unallocated shares in the same proportion that the participant votes the allocated shares (if the vote is passed through). The DOl does not like this method and prefers that the trustee exercise discretion instead of following a formula.

[Peter Gulia]

Interpretive Bulletin 94-2 – even if a court chooses to consider it – describes a PWBA (EBSA) view on figuring out which fiduciary votes a plan’s shares. (There are also some letters and court decisions about the circumstances in which a directed trustee must, may, or must not follow an instruction.) But this view doesn’t consider a situation in which a plan’s documents state that a specified set of shares in a specified security is not to be voted by anyone.

So a question remains about whether a settlor’s “don’t-vote” provision might be so contrary to a retirement plan’s purpose that a fiduciary must ignore the provision as contrary to ERISA.

Apart from this, even if the terms of the shares (including any related shareholder agreement) don’t restrict the shareholder’s right to vote, a retirement plan’s “don’t-vote” provision might call into question whether the shares truly are employer securities that meet relevant ERISA and tax conditions. For stock not traded on an established market, meeting these conditions often requires that the shares have voting power that’s no less than that of the class of common stock with the greatest voting power.

If a plan’s and employer’s circumstances are such that those persons don’t need the shares to meet any definition of employer securities, a question about whether a fiduciary should follow or must ignore a settlor’s “don’t-vote” provision could remain.