Participant Voting Employer Stock

[Guest halka]

Individual account 401k holds employer securities. Voting is typically passed through w/ particpants directing trustee how to vote. Currently some participants want to attend annual meeting of employer w/ proxy in hand and/or to assign the proxy to a shareholder challenging employer management. Aside from the operational headaches, what legal/ERISA concerns for trustee with respect to operating in "best interests of plan" and issues of participant confidentiality?? Could we just issue a revocable proxy to the participant(s) and see what happens at annual meeting? Thanks

[Kirk Maldonado]

I don't think that the participants are the record holders of the stock. The record holder is the plan.

[Jon Chambers]

That's an interesting question. I'm not sure you can stop the participants from attending the shareholders' meetings with their proxy instructions, even though they are technically not shareholders (trustee owns the shares). But if they don't provide their proxies to the trustee, how will the trustee know how they should vote? I'm currently working with a plan where DOL is reviewing proxy procedures, but they haven't discussed this issue.

One practical suggestion. Have participants complete proxies in accordance with the shareholder challenging management. Then, when that shareholder makes their statement, they can indicate that they represent (indirectly) the plan participants voting with them. This keeps the trustee out of the issue, and protects participant confidentiality.

I think from an ERISA law perspective,if the plan provides for proxy pass-through, the trustee is obligated to vote the shares in accordance with participant directions.

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Jon C. Chambers

Principal

Schultz Collins Lawson Chambers, Inc.

(415) 291-3004