University of Southern California

Interpretive Bulletin 08-1 and Economically Targeted Investing: A Missed Opportunity

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Postscript (Comment) by Edward A. Zelinsky
November, 2008

In the waning days of the Bush administration, the Department of Labor (“DOL”) issued Interpretive Bulletin 08-1 (“IB 08-1”) concerning the legal obligations of employee benefit plan fiduciaries when they invest the plan assets they control. Specifically, IB 08-1 addresses plan fiduciaries’ duties in the context of “economically targeted investing,” the investment of plan assets in pursuit of benefits for third parties rather than for plan participants and their beneficiaries. IB 08-1 revises prior regulations on economically targeted investing issued early in the Clinton administration.

The assets held in trust by employee benefit plan fiduciaries represent compensation earned by plan participants. In accordance with the duty of loyalty codified by the Employee Retirement Income Security Act of 1974 (“ERISA”), such assets must be invested with single-minded concern for the welfare of the participants and their beneficiaries. Economically targeted investing contravenes ERISA’s duty of loyalty by permitting, indeed encouraging, plan trustees to invest plan assets to generate ancillary benefits for persons other than the participants whose labor is embodied in those assets.

IB 08-1 was thus a missed opportunity. Economically targeted investing is neither a coherent concept nor a concept compatible with ERISA’s duty of loyalty. Nevertheless, IB 08-1, rather than repudiating such investing, purports to limit it. Like most such half measures, IB 08-1 proves wanting.

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