From Argo and Zero Dark Thirty to Anti-Terrorism Divestment Under ERISA

With all the anti-terrorism themes that have somehow made it into these posts, see the Argo and Zero Dark Thirty entries,* I wanted to note a couple of provisions in certain anti-terrorism legislation that, to me, have interesting ERISA connections.**  The interesting issue here is whether ERISA fiduciaries, in a manner that is consistent with their fiduciary duties, can divest holdings that may be supportive of terrorist activities. 

The initial reaction might be that they can't just simply divest given ERISA's single-minded focus on investment returns.  But, hey, sure they can - and, it turns out, even the statutes themselves give one quite a push.  In this regard, it is interesting to see the ways in which Congress has ported over the principles embodied in Interpretive Bulletin 2008-1 (previously Interpretive Bulletin 94-1), in dealing with these matters. 

So, in section 5 of the Sudan Accountability and Divestment Act of 2007, Pub. L. No. 110–174, we have the following:

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Sense of Congress Regarding Certain ERISA Plan Investments.

It is the sense of Congress that a fiduciary of an employee benefit plan, as defined in section 3(3) of [ERISA], may divest plan assets from, or avoid investing plan assets in, any person the fiduciary determines is conducting or has direct investments in business operations in Sudan described in section 3(d) of this Act, without breaching the responsibilities, obligations, or duties imposed upon the fiduciary by section 404 of [ERISA], if—

(1) the fiduciary makes such determination using credible information that is available to the public; and

(2) such divestment or avoidance of investment is conducted in accordance with section 2509.94–1 of title 29, Code of Federal Regulations (as in effect on the day before the date of the enactment of this Act).

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See also § 3 thereof (relating to divestment by state and local governments), § 4 thereof (relating to policies of investment managers).

Then, later, in section 204 of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, Pub. L. No. 111-195, comes the following provision:

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Sense of Congress Regarding Certain ERISA Plan Investments.

It is the sense of Congress that a fiduciary of an employee benefit plan, as defined in section 3(3) of [ERISA], may divest plan assets from, or avoid investing plan assets in, any person the fiduciary determines engages in investment activities in Iran described in section 202(c) of this Act, without breaching the responsibilities, obligations, or duties imposed upon the fiduciary by subparagraph (A) or (B) of section 404(a)(1) of [ERISA], if--

(1) the fiduciary makes such determination using credible information that is available to the public; and

(2) the fiduciary prudently determines that the result of such divestment or avoidance of investment would not be expected to provide the employee benefit plan with--

(A) a lower rate of return than alternative investments with commensurate degrees of risk; or

(B) a higher degree of risk than alternative investments with commensurate rates of return.
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See also § 202 thereof (relating to divestment by state and local governments), § 203 thereof (relating to policies of investment managers).

Notice the way in which, in section 204(2), they replaced the cross-reference to old Interpretive Bulletin 94-2 that was in section 5(2) of the Sudan legislation with actual substantive language grounded in the thinking of Interpretive Bulletin 2008-1.  (Gee, do you think that DOL personnel might have had a hand in the crafting of some of this stuff?).  As our Vulcan brethren might say, "Fascinating."

Anyway, while no real new ground is broken here, it seems worthy of note that the DOL's ETI-type thinking has crept its way into express statutory provisions of this type.

And, of course, congrats to Argo (and its producer/director/star, Ben(jamin) Affleck), one of the great movies of our time!!***

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* Hmm.  From Argo to Zero Dark Thirty.  From A to Z.  I hadn't noticed that.  Fun.

** Thanks to some terrific discussion from John Nixon in "Public Plans and Social Investing: When Doing the Right Thing Is Not Enough," Bloomberg BNA Pension & Benefits Daily (Feb. 26, 2013), for alerting me to these provisions.

*** Hey - give me some credit here.  I called this one right off the bat.  See the post first cited above.  (Although I guess I wasn't right about Gangster Squad.)