CalSTRS Votes on Record Number of Shareholder Proposals

The California State Teachers’ Retirement System voted on more than 1,000 shareholder proposals and board elections during the 2022 proxy season, which according to a news release is a record for the $314.8 billion pension fund.

The release says CalSTRS voted on 1,033 shareholder proposals this year, and that nearly 100 proposals that it supported received over 50% support. Its successful proposals included aligning corporate activities with the goals of the Paris Agreement on climate change, enhancing transparency and disclosures on racial equity and strengthening governance practices, according to the release.

“Global markets are increasingly recognizing how important environmental, social, and governance factors are for the long-term value of their investments, including the undeniable risks of climate change,” Aeisha Mastagni, CalSTRS’ Sustainable Investment and Stewardship Strategies’ portfolio manager said in a statement. “Our actions during this historic proxy season are rooted in our mission of securing the financial future of California’s public educators and their beneficiaries.”

Earlier this year, CalSTRS announced it was implementing a “new, more robust approach to corporate engagement” that focuses on “opposing the election of directors in companies that have moved too slowly to achieve greater board diversity or significantly address climate change.” It also said it will directly support shareholder proposals that promote reaching net-zero goals, and expects corporations to publish a report aligned with the Task Force on Climate-Related Financial Disclosures and disclose, at a minimum, direct emissions and indirect emissions, also known as scope 1 and scope 2 emissions.

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And in June, CalSTRS called for the Securities and Exchange Commission to strengthen proposed rules concerning climate-related disclosures among public companies.

For the 2022 proxy season, CalSTRS reviewed each shareholder proposal in the context of its corporate governance principles and its commitment for its investment portfolio to achieve net zero carbon emissions by 2050 or sooner, says the release. It also says CalSTRS engages hundreds of companies a year to promote sustainable business practices, and advocates public policies and corporate practices that promote responsible governance and market transparency, as well as improved human capital management.

CalSTRS has voted on 244 shareholder proposals pertaining to human capital management, workplace diversity and racial equity audits; it also voted for shareholder proposals that eliminate forced arbitration and gag clauses to prevent “persistent systemic harassment,” according to the release.

For the next proxy season, CalSTRS expects to focus more on “actively escalating proxy votes,” the release says, “and putting pressure directly on corporate laggards to provide investor-useful disclosures.”

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Tags: Aeisha Mastagni, California Teachers’ Retirement System, CalSTRS, Climate Change, environmental, ESG, human capital management, Net Zero, Paris agreement, racial equity audits, social and governance, Task Force on Climate-Related Financial Disclosures (TCFD), workforce diversity

The aid, which has been operating on an interim basis, has already protected nearly 130,000 individuals’ pension benefits across some 560 businesses.

The Pension Benefit Guaranty Corporation, under the direction of the Biden administration, has published the final rule implementing the American Rescue Plan Act of 2021’s Special Financial Assistance program.

According to supporters of the program, the Special Financial Assistance program, which is already operating on an interim basis, will protect millions of workers in stressed multiemployer union pension plans who previously faced the possibility of significant cuts to their benefits.

As noted in a statement issued by the Biden administration, multiemployer union pension plans are created through agreements between employers and a union, with plans typically involving multiple employers in a single industry or related industries. Prior to the launch of the Special Financial Assistance program under the ARP, a typical worker whose multiemployer plan became insolvent would see their expected pension benefits slashed substantially.

“Before the American Rescue Plan, workers and retirees participating in more than 200 multiemployer pension plans faced the prospect of not receiving the full benefits they earned and need to support them and their families in retirement,” the White House statement reads.

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“These plans are insured by a federal agency, the Pension Benefit Guaranty Corporation. PBGC provides partial protection of the benefits of approximately 10.9 million workers and retirees in approximately 1,400 private-sector multiemployer, union-connected plans. Prior to the American Rescue Plan, the PBGC’s multiemployer pension insurance program was projected to become insolvent in 2026.”

In the immediate wake of the passage of the ARP, the PBGC issued an interim final rule implementing the program in July 2021. Since that time, unions, employers and other key stakeholders have provided comments that the PBGC and the three Cabinet agencies that constitute its board of directors—the Labor, Treasury, and Commerce Departments—considered in developing the final rule.

There are multiple important policy changes between the interim final rule and the final rule, the PBGC has indicated. For example, one change addresses the amount of Special Financial Assistance needed to better achieve the goal of allowing plans to remain solvent until 2051.

Initially, the interim final rule applied a single rate of return included in the statute that is higher than could be expected for SFA funds given that they were required to be invested exclusively in safe, but low-return, investment-grade fixed-income products. The final rule uses two different rates of return for SFA and non-SFA assets, so that the interest rate for SFA assets is more realistic given the investment limitations on these funds.

Another change in the final rule allows up to 33% of SFA to be invested in return-seeking assets that are projected to allow plans to receive a higher rate of return on their investments than under the interim final rule, subject to certain protections. Namely, this portion of plans’ SFA funds generally must be invested in publicly traded assets on liquid markets to ensure responsible stewardship of federal funds. These return-seeking investments include equities, equity funds and bonds. The other 67% of SFA funds must be invested in investment-grade fixed-income products.

The third major change is meant to ensure plans can confidently restore both past and future benefits and enter 2051 with rising assets. PBGC designed the final rule to ensure that no “MPRA plan”—a group of fewer than 20 multiemployer plans that remained solvent by cutting benefits pursuant to the Multiemployer Pension Reform Act of 2014—was forced to choose between restoring its benefit payments to previous levels and remaining indefinitely solvent. Instead, the final rule ensures that all MPRA plans avoid this dilemma, supporting them with enough assistance so that these plans can both restore benefits and be projected to remain indefinitely solvent going into 2051.

According to PBGC leadership, these changes collectively ensure that all plans that receive SFA are projected to be solvent and pay full benefits through at least 2051.

Various Democratic lawmakers in Congress immediately hailed the PBGC’s final rule. Representative Bobby Scott, a Virginia Democrat who chairs the House Education and Labor Committee, said in a statement that the final rule will ensure the SFA program meets its critical goals.

“For years, workers, retirees, businesses and taxpayers sought a solution to the multiemployer pension crisis,” Scott said. “In response, Congressional Democrats delivered a historic victory through the American Rescue Plan that keeps the promises made to retirees, saves businesses from going under and shields taxpayers from the even greater cost of a multiemployer pension collapse.”

Senator Patty Murray, D-Washington, issued a similar statement. “As families deal with rising costs and the fallout of this pandemic, the last thing anyone needs is to have their finances turned upside down and the pension they worked so hard to earn ripped away—through no fault of their own,” she said.

“Today’s announcement from the Biden Administration will ensure we continue to build on that progress so this program can serve even more struggling pensions, help all plans by getting the entire multiemployer pension system on stronger footing, and protect even more workers from having their hard-earned benefits cut at the worst possible time.”