Local governments must manage pension investments for beneficiaries' financial benefit

Local governments must invest plan assets and vote the plan's directly held shares for financial reasons that serve beneficiaries' exclusive financial benefit while maximizing long-term shareholder value. This applies to local governments that control defined benefit pension plans for their employees covered by the Public Employee Defined Benefit Financial Security Act of 2014. Investment decisions must follow the prudent investor rule, the stated standard of care, and reasonable care when delegating investment and management work. The law takes effect July 1, 2026.

Local governments must send an annual report to the Senate and House finance committees about proxy advice and votes involving plan direct holdings. The report covers direct holdings: securities held by the plan itself or through an account or fund it wholly owns. The report must follow the committees' format and identify any proxy advisory firm used, recommendations that differed from final votes, and counts of proposals and votes where recommendations or votes differed from company or adviser positions. The reporting year runs from July 1 through June 30, and the report is due by September 1 each year.

Proxy advisory firms must not advise a covered pension plan when a conflict could reasonably be expected to affect the advice's objectivity or reliability. The restriction applies when a proxy advisory firm gives voting advice to a covered pension plan. Conflicts include receiving or seeking consulting fees from an issuer or proposal sponsor tied to the advice, or belonging to an organization that actively supports the proposal or a substantially similar one. This rule does not apply to fiduciaries, asset managers, custodians, consultants, or other service providers that are not proxy advisory firms. The law takes effect July 1, 2026.

Proxy advisory firms must give a financial analysis when their recommendation on a shareholder proposal differs from company management's recommendation, and must not oppose certain previously approved proposals based partly on past support levels. These rules cover proxy advice to pension plans about shareholder proposals. The analysis must cover the proposal, the firm's stated reasons, fit with the plan's goals and risk profile, costs and benefits, expected effect on returns, and methods used. The limit on negative recommendations applies when shareholders approved the earlier proposal under the law of the company's state of incorporation. The law takes effect July 1, 2026.