Senate Study Bill 1056 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED ATTORNEY GENERAL BILL) A BILL FOR An Act relating to actions regarding the economic interest 1 of enterprise shareholders and participants in and 2 beneficiaries of public pension benefit plans, and providing 3 penalties. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 1056XD (2) 91 sc/ns
S.F. _____ H.F. _____ Section 1. NEW SECTION . 12L.1 Definitions. 1 For purposes of this chapter: 2 1. Best economic interest means investment pursuant to the 3 objective of maximizing risk-adjusted investment returns of the 4 participants and beneficiaries of a pension benefit plan over a 5 time horizon consistent with the risk management profile of the 6 plan. 7 2. Consumer means a person who is a resident of this state 8 and to which any of the following apply: 9 a. The person has an interest in an investment company, 10 including but not limited to mutual funds and exchange-traded 11 funds, registered with the federal securities and exchange 12 commission that directly or indirectly owns shares of an 13 enterprise regulated by the state. 14 b. The person is a beneficiary of or participant in a 15 pension benefit plan. 16 3. Economic analysis means a written analysis 17 demonstrating the factors considered in evaluating the economic 18 impact of a shareholder-sponsored proposal. At a minimum, the 19 analysis must address all of the following factors: 20 a. The subject matter of the shareholder-sponsored proposal. 21 b. An evaluation of the investment companys stated reasons 22 for opposition to the shareholder-sponsored proposal. 23 c. An evaluation of whether the shareholder-sponsored 24 proposal reflects the investment objectives and risk management 25 profile of the pension benefit plan in which the participants 26 and beneficiaries are invested. 27 d. An evaluation of the economic benefits and costs of 28 implementing the proposal, as written, over a time horizon that 29 reflects the investment objectives and risk management profile 30 of the plan. 31 e. The quantifiable impact of the shareholder-sponsored 32 proposal, as written, on the investment returns of the 33 participants and beneficiaries of the plan. 34 f. An explanation of modeling, procedures, or processes used 35 -1- LSB 1056XD (2) 91 sc/ns 1/ 10
S.F. _____ H.F. _____ to complete the economic analysis. 1 4. Fiduciary means a person who, with respect to a pension 2 benefit plan, does any of the following: 3 a. Exercises discretionary authority or discretionary 4 control with respect to management of the plan or exercises 5 authority or control with respect to acquisition, management, 6 or disposition of the plans assets. 7 b. Renders investment advice for a fee or other 8 compensation, direct or indirect, with respect to moneys or 9 other assets of the plan or has authority or responsibility to 10 do so. 11 c. Has discretionary authority or discretionary 12 responsibility in the administration of the plan. 13 5. Investment company means the same as defined in 15 14 U.S.C. 80a-3. 15 6. Pension benefit plan or plan means a plan, fund, or 16 program established, maintained, or offered by a public entity, 17 including but not limited to a public retirement system as 18 defined in section 97D.5, if by its terms or as a result of 19 surrounding circumstances the plan, fund, or program does any 20 of the following: 21 a. Provides retirement income or other retirement benefits 22 to employees or former employees. 23 b. Results in a deferral of income by employees for a period 24 extending to the termination of covered employment or beyond. 25 7. Proxy advisory firm means a person who is engaged 26 in the business of providing proxy voting advice, research, 27 analysis, ratings, or recommendations to a fiduciary, 28 shareholder, or investor, including institutional investors. 29 8. Public entity means the state, political subdivisions 30 of the state, public school corporations, and all public 31 officers, boards, commissions, departments, agencies, and 32 authorities empowered by law to enter into public contracts for 33 the expenditure of public funds, including the state board of 34 regents and institutions under the control of the state board 35 -2- LSB 1056XD (2) 91 sc/ns 2/ 10
S.F. _____ H.F. _____ of regents. 1 9. Shareholder-sponsored proposal means a proposal 2 submitted to an issuer of securities by a shareholder under 17 3 C.F.R. 240.14a-8. 4 Sec. 2. NEW SECTION . 12L.2 Fiduciary voting 5 responsibilities. 6 1. A fiduciary shall vote all shares held directly 7 or indirectly by, subject to, or on behalf of a pension 8 benefit plan for the benefit of the plans participants and 9 beneficiaries solely in the best economic interest of the plan 10 participants and beneficiaries. 11 2. For purposes of this section, with respect to a 12 shareholder-sponsored proposal, there is a rebuttable 13 presumption that a fiduciary votes its shares solely 14 in the best economic interest of the plan participants 15 and beneficiaries if the fiduciarys vote follows the 16 recommendation of the board of directors of the issuer of the 17 shares, as long as the board includes a majority of independent 18 directors. 19 3. With respect to a shareholder-sponsored proposal, 20 a fiduciarys vote in a manner inconsistent with the 21 recommendation of the board of directors of the issuer of the 22 shares is presumed to be in the best economic interest of the 23 plan participants and beneficiaries if any of the following 24 criteria are met: 25 a. The fiduciary conducts and documents an economic analysis 26 demonstrating that such a vote is in the best economic interest 27 of the plan participants and beneficiaries. 28 b. On behalf of the fiduciary, a third party conducts and 29 documents an economic analysis demonstrating that such a vote 30 is in the best economic interest of the plan participants 31 and beneficiaries, and the fiduciary determines that the 32 economic analysis adequately demonstrates that such a vote is 33 in the best economic interest of the plan participants and 34 beneficiaries. 35 -3- LSB 1056XD (2) 91 sc/ns 3/ 10
S.F. _____ H.F. _____ 4. A fiduciary shall not vote in a manner that does any of 1 the following: 2 a. Subordinates the economic interest of the plans 3 participants and beneficiaries to any environmental, social, 4 policy, governance, or ideological goal. 5 b. Promotes any environmental, social, policy, governance, 6 or ideological goal, unless, based on an economic analysis, it 7 is determined that the vote is in the best economic interest of 8 the plan participants and beneficiaries. 9 5. With respect to shareholder-sponsored proposals, a 10 fiduciary shall annually disclose in a report to the treasurer 11 of state all of the following: 12 a. Each vote that was inconsistent with the recommendation 13 of an issuers board of directors composed of a majority of 14 independent directors. 15 b. The economic analysis conducted and documented with 16 respect to each vote described in subsection 3 to determine 17 that the vote was in the best economic interest of the plans 18 participants and beneficiaries. 19 6. The report required under subsection 5 must be certified 20 by the chief executive officer and chief financial officer, or 21 an individual acting in each capacity, of the fiduciary. 22 7. At least once every three years, a fiduciary shall 23 back test its economic analysis to ensure that the models, 24 procedures, and processes it uses predict the best economic 25 interest of the plans participants and beneficiaries, and 26 shall deliver a report detailing such back testing to the 27 treasurer of state. Based on such back testing, the chief 28 executive officer and chief financial officer, or an individual 29 acting in each capacity, of the fiduciary shall certify that 30 the economic analysis performed by the fiduciary and included 31 in the report is effective. 32 8. The court may award court costs and reasonable attorney 33 fees to a party who prevails in an action brought under this 34 section. 35 -4- LSB 1056XD (2) 91 sc/ns 4/ 10
S.F. _____ H.F. _____ Sec. 3. NEW SECTION . 12L.3 Proxy advisory firms. 1 1. A proxy advisory firm shall not provide proxy voting 2 advice with respect to shareholder-sponsored proposals 3 submitted to any enterprise that the state regulates, unless 4 the proxy advisory firm bases its voting recommendations 5 solely on the best economic interests of the enterprises 6 shareholders. 7 2. For purposes of this section, with respect to a 8 shareholder-sponsored proposal submitted to an enterprise 9 regulated by the state, there is a presumption that a proxy 10 advisory firms voting recommendation is based solely on the 11 best economic interest of the enterprises shareholders if 12 the recommendation follows the recommendation of the board of 13 directors of the issuer of the shares, as long as the board 14 includes a majority of independent directors. 15 3. With respect to a shareholder-sponsored proposal 16 submitted to an enterprise regulated by the state, a proxy 17 advisory firm may recommend a vote that is inconsistent with 18 the recommendation of the board of directors of the issuer of 19 the shares if the proxy advisory firm conducts and documents an 20 economic analysis demonstrating that such a vote is in the best 21 economic interest of the enterprises shareholders. 22 4. With respect to shareholder-sponsored proposals 23 submitted to an enterprise regulated by the state, a proxy 24 advisory firm shall annually disclose in a report to the 25 treasurer of state all of the following: 26 a. Each vote recommendation that was inconsistent with the 27 recommendation of an issuers board of directors composed of a 28 majority of independent directors. 29 b. The economic analysis conducted and documented with 30 respect to each vote recommendation described in subsection 31 3 to determine that the vote recommendation was in the best 32 economic interest of the regulated enterprises shareholders. 33 Sec. 4. NEW SECTION . 12L.4 Consumer right to disclosure. 34 1. a. If a consumer has reason to believe that the 35 -5- LSB 1056XD (2) 91 sc/ns 5/ 10
S.F. _____ H.F. _____ requirements of section 12L.2 or 12L.3 have not been met, a 1 consumer may submit a request to any of the following to obtain 2 a copy of the documented economic analysis demonstrating that 3 such a vote is solely in the best economic interest of the 4 consumer: 5 (1) The investment company that owns shares of an enterprise 6 regulated by the state. 7 (2) The pension benefit plan, in each case, in which the 8 consumer is an investor, beneficiary, or participant. 9 b. There is a presumption that a vote is solely in the 10 best economic interest of the consumer if the vote follows the 11 recommendation of the board of directors of the issuer of the 12 shares, as long as the board includes a majority of independent 13 directors. 14 2. a. The investment company or plan shall respond in 15 writing to the consumer within ninety days of receipt of 16 a request described in subsection 1 by doing one of the 17 following: 18 (1) Providing the consumer with the requested economic 19 analysis. 20 (2) Informing the consumer that no economic analysis is 21 available, if the investment company did not conduct and 22 document an economic analysis. 23 (3) Informing the consumer that the vote at issue was 24 consistent with the recommendation of the board of directors 25 of the issuer of the shares and such board is composed of a 26 majority of independent directors. 27 b. The investment company or plan shall provide information 28 in response to a consumer request at no cost up to twice 29 annually per consumer. 30 Sec. 5. NEW SECTION . 12L.5 Enforcement. 31 1. This chapter may be enforced by the attorney general. 32 2. If the attorney general has reasonable cause to believe 33 that a person has engaged in, is engaging in, or is about to 34 engage in a violation of this chapter, the attorney general may 35 -6- LSB 1056XD (2) 91 sc/ns 6/ 10
S.F. _____ H.F. _____ do any of the following: 1 a. Require the person to file on forms prescribed by the 2 attorney general a statement or report in writing, under oath, 3 as to all the circumstances surrounding the actual, alleged, or 4 potential violation and such other data and information as the 5 attorney general deems necessary. 6 b. Examine under oath any person in connection with the 7 actual, alleged, or potential violation. 8 c. Examine any record, book, document, account, or paper as 9 the attorney general deems necessary. 10 d. Issue civil investigatory demands consistent with 11 investigation into a potential enforcement action. 12 e. Under an order of the district court, impound any record, 13 book, document, account, paper, or sample or material relating 14 to the actual, alleged, or potential violation and retain the 15 same in the attorney generals possession until the completion 16 of all proceedings undertaken under this chapter or in court. 17 3. The attorney general may initiate an action in the 18 name of the state and may seek an injunction to restrain 19 any violations of this chapter. A violation of this chapter 20 shall constitute irreparable harm. Each share voted by a 21 fiduciary that is not voted in the best economic interest of 22 the shareholder constitutes a separate violation. The attorney 23 general may also seek civil penalties for each violation under 24 this chapter. All civil penalties issued shall be in equity. 25 Civil penalties shall not exceed one thousand dollars per 26 violation. Civil penalties collected under this chapter shall 27 be deposited in the general fund of the state. 28 Sec. 6. Section 97A.7, subsection 1, Code 2025, is amended 29 to read as follows: 30 1. The board of trustees shall be the trustees of the 31 retirement fund created by this chapter as provided in section 32 97A.8 and shall have full power to invest and reinvest funds 33 subject to the terms, conditions, limitations, and restrictions 34 imposed by subsection 2 and chapters 12F , 12H , 12J , and 12K , 35 -7- LSB 1056XD (2) 91 sc/ns 7/ 10
S.F. _____ H.F. _____ and 12L and subject to like terms, conditions, limitations, 1 and restrictions said trustees shall have full power to hold, 2 purchase, sell, assign, transfer, or dispose of any of the 3 securities and investments of the retirement fund which have 4 been invested, as well as of the proceeds of said investments 5 and any moneys belonging to the retirement fund. The board 6 of trustees may authorize the treasurer of state to exercise 7 any of the duties of this section . When so authorized the 8 treasurer of state shall report any transactions to the board 9 of trustees at its next monthly meeting. 10 Sec. 7. Section 97B.4, subsection 5, Code 2025, is amended 11 to read as follows: 12 5. Investments. The system, through the chief investment 13 officer, shall invest, subject to chapters 12F , 12H , 12J , and 14 12K , and 12L and in accordance with the investment policy and 15 goal statement established by the board, the portion of the 16 retirement fund which, in the judgment of the system, is not 17 needed for current payment of benefits under this chapter 18 subject to the requirements of section 97B.7A . 19 Sec. 8. Section 97B.7A, subsection 1, Code 2025, is amended 20 by adding the following new paragraph: 21 NEW PARAGRAPH . d. Prioritize the best economic interest of 22 the systems participants and beneficiaries in accordance with 23 chapter 12L. 24 Sec. 9. Section 262.14, unnumbered paragraph 1, Code 2025, 25 is amended to read as follows: 26 The board may invest funds belonging to the institutions, 27 subject to chapters 12F , 12H , 12J , and 12K , and 12L and the 28 following regulations: 29 EXPLANATION 30 The inclusion of this explanation does not constitute agreement with 31 the explanations substance by the members of the general assembly. 32 This bill requires a fiduciary to vote all shares of a 33 pension benefit plan established, maintained, or offered by 34 a public entity solely in the best economic interest of the 35 -8- LSB 1056XD (2) 91 sc/ns 8/ 10
S.F. _____ H.F. _____ plan participants and beneficiaries. The bill creates the 1 rebuttable presumption that, if a fiduciarys vote aligns with 2 the recommendation of the board of directors of the issuer 3 of the shares or if the fiduciary or a third party conducts 4 and documents an economic analysis showing that the vote is 5 in the best economic interest of the plan participants and 6 beneficiaries, the vote is in the best interest of the plan 7 participants and beneficiaries. The bill prohibits a fiduciary 8 from voting shares of a plan based on any environmental, 9 social, policy, governance, or ideological goal that is 10 not in the best economic interest of plan participants and 11 beneficiaries. 12 The bill requires a fiduciary to annually report to 13 the treasurer of state any vote inconsistent with the 14 recommendation of an issuers board of directors and the 15 economic analysis on which the fiduciary relied. This report 16 must be certified by the fiduciarys chief executive officer 17 and chief financial officer. 18 The bill also requires a fiduciary to review its economic 19 analysis every three years to ensure that the fiduciarys 20 models, procedures, and processes predict the best economic 21 interest of the plan participants and beneficiaries. 22 The bill permits a court to award court costs and reasonable 23 attorney fees to the prevailing party in a suit concerning 24 fiduciary voting responsibilities under the bill. 25 The bill prohibits a proxy advisory firm from providing 26 proxy voting advice regarding shareholder-sponsored proposals 27 to an entity that the state regulates unless the advice is 28 based solely on the best economic interests of the enterprises 29 shareholders. If a proxy advisory firms advice follows the 30 recommendation of the board of directors of the issuer of the 31 shares or if the proxy advisory firm conducts and documents an 32 economic analysis demonstrating that the vote is in the best 33 economic interest of the plan participants and beneficiaries, 34 then the advice is presumed to be based solely on the best 35 -9- LSB 1056XD (2) 91 sc/ns 9/ 10
S.F. _____ H.F. _____ economic interest of the enterprises shareholders. A proxy 1 advisory firm must submit an annual report to the treasurer of 2 state disclosing any vote inconsistent with the issuers board 3 of directors recommendations and the economic analysis on 4 which the proxy advisory firm relied. 5 The bill permits an investor, beneficiary, or participant of 6 a plan to submit a request for the economic analysis conducted 7 for a fiduciarys vote to the investment company that owns 8 shares of an enterprise regulated by the state or the plan if 9 the individual has reason to believe the provisions of the bill 10 have not been met. The investment company or plan must respond 11 in writing within 90 days by providing the requested economic 12 analysis or informing the individual that no economic analysis 13 was conducted or the vote aligned with the recommendation 14 of the board of directors of the issuer of the shares. The 15 investment company or plan must provide such a response without 16 cost up to twice annually per consumer. 17 The bill allows the attorney general to investigate any 18 suspected violations of the bill and to enforce the bills 19 provisions by initiating an action in the name of the state 20 and seeking civil penalties for each violation. Each share 21 not voted in the best economic interest of the shareholder 22 qualifies as a separate violation and constitutes irreparable 23 harm. The bill requires civil penalties to be in equity and 24 to not exceed $1,000 per violation. Civil penalties collected 25 under the bill are deposited in the general fund of the state. 26 The bill makes conforming changes. 27 -10- LSB 1056XD (2) 91 sc/ns 10/ 10