SB 2641

Present law gives the state treasurer the sole authority to exercise all voting rights with respect to securities held by a program and to give general or special proxies or powers of attorney with or without the power of substitution. Such authority mu st be exercised for financial reasons, impartially and solely in the interests of the beneficiaries of the program. As used in this paragraph, a "program"" means any of the following that are established by law and for which the state treasurer has invest me nt authority, oversight, and responsibility: (i) a trust fund; (ii) an endowment fund; (iii) deferred or tax-sheltered compensation plan or plans; (iv) programs under the Tennessee College Savings Trust Act; and programs under The Achieving a Better Life Experience (ABLE) Act. This bill expands the definition of ""program"" to include a plan, fund or program established, maintained, or offered by a political subdivision that does not participate in the Tennessee consolidated retirement system (TCRS) or a d ef erred or tax-sheltered compensation plan that (i) provides retirement income or other retirement benefits to employees or former employees or (ii) results in a deferral of income by employees for a period extending to the termination of covered employment or beyond. FIDUCIARY RESPONSIBILITIES This bill requires a fiduciary to invest, reinvest, manage, and select investment options for assets of a program, and to vote all shares held by a program for financial reasons for the exclusive benefit of the beneficiaries of the program while maximizi ng long-term shareholder value. As used in this bill, a ""fiduciary"" means a person who, with respect to a program, does either of the following:  Exercises discretionary authority or discretionary control with respect to management of the program or exercises authority or control with respect to acquisition, management, or disposition of the program's assets; or has discretionary authority or discretionary responsibility in the administration of the program, including a plan administrator for the political subdivision.  A person who, with respect to a program, renders investment advice for a fee or other compensation, direct or indirect, with respect to moneys or other assets of the program or has authority or responsibility to do so. Economic Analysis This bill provides that there is a rebuttable presumption that a fiduciary votes its shares for financial reasons if the fiduciary's vote follows the recommendation of the board of directors of the issuer of the shares. However, a fiduciary's vote in a manner inconsistent with the recommendation of the board of directors of the issuer of the shares is also presumed to be for financial reasons if the fiduciary, or a third party acting on behalf of a fiduciary, conducts and documents an economic analysis de monstrating the vote is for financial reasons. This bill prohibits a fiduciary from voting in a manner that (i) subordinates the financial interest of the program's beneficiaries to any environmental, social, and governance interests or (ii) promotes any environmental, social, and governance interests, unless, based on an economic analysis, it is determined that the vote is for financial reasons. As used in this bill, an ""economic analysis"" means a written analysis demonstrating the factors considered in evaluating the financial impact of a shareholder-sponsored proposal that addresses all of the following:  The subject matter of the shareholder-sponsored proposal.  An evaluation of the issuer's stated reasons for opposition to the shareholder-sponsored proposal.  An evaluation of whether the shareholder-sponsored proposal is consistent with the investment objectives and risk management profile of the program in which the beneficiaries are invested.  An evaluation of the financial benefits and costs of implementing the shareholder-sponsored proposal, as written, over a time horizon that is consistent with the investment objectives and risk management profile of the program.  The quantifiable impact of the shareholder-sponsored proposal, as written, on the investment returns of the beneficiaries of the program.  An explanation of the modeling, procedures, and processes used to complete the economic analysis. This bill requires a fiduciary to back test its economic analysis at least once every three years to ensure that the models, procedures, and processes it used to predict the financial reasons were effective. Based on such testing, the chief executive off icer and the chief financial officer of the fiduciary must certify that the economic analysis performed by the fiduciary was effective. Fiduciary Annual Disclosures With respect to shareholder-sponsored proposals, this bill requires a fiduciary to annually disclose in a report to the state treasurer or the chief legislative body of a political subdivision (i) each vote that was inconsistent with the recommendation o f an issuer's board of directors composed of a majority of independent directors; and (ii) the economic analysis conducted and documented with respect to each such vote to determine that the vote was for financial reasons. The report must be certified by t he chief executive officer and chief financial officer of the fiduciary. PROXY ADVISORY FIRMS This bill prohibits the state treasurer, a political subdivision, or a fiduciary from entering into an agreement with a proxy advisory firm with respect to the provision of proxy advisory services unless the proxy advisory firm acknowledges in writing an d accepts under contract its obligations under this bill. As used in this bill, a ""proxy advisory firm"" means a person who is engaged in the business of (i) providing proxy voting advice, research, analysis, ratings, or recommendations to the state treas ur er, a political subdivision, or a fiduciary or (ii) providing proxy voting advice, research, analysis, ratings, or recommendations relating to an issuer of securities. This bill prohibits a proxy advisory firm from providing proxy voting advice to a program if an actual or potential conflict of interest exists that could reasonably be expected to affect the objectivity or reliability of the proxy voting advice. An act ual or potential conflict of interest includes all of the following acts by a proxy advisory firm or any of its affiliates:  Receiving or seeking to receive fees for consulting services from the issuer of the shares or any of its affiliates that are the subject of any proxy voting advice, written report, research, analysis, rating, or recommendation furnished by the proxy advisory firm.  Receiving or seeking to receive fees for consulting services from the sponsor of a shareholder-sponsored proposal or any of its affiliates that is the subject of the proxy voting advice.  Being a member of an organization that actively supports a shareholder-sponsored proposal that is, or is substantially similar to, the subject of the proxy voting advice. This bill also prohibits a proxy advisory firm from providing proxy advice to a program if its voting recommendation is not consistent with the recommendation of a board of directors or committee of the program, and the recommendation is based on a decis ion by the applicable company's board of directors to (i) pursue the adjudication of a business dispute in federal or state court or (ii) exercise its discretion in connection with executive compensation decisions. Further, a proxy advisory firm is prohi bi ted from providing voting advice to a program if its negative voting recommendation is based on the level of shareholder support received with respect to a previous proposal submitted to a vote at the company, if the company's previous proposal was approv ed by shareholders. ON APRIL 13, 2026, THE SENATE ADOPTED AMENDMENT #1 AND PASSED SENATE BILL 2641, AS AMENDED. AMENDMENT #1 r ewrites this bill to add to present law concerning pension plans and proxy advisors. This amendment applies to defined benefit pension plans e stablished and maintained by a local government entity for its employees that is subject to the Public Employee Defined Benefit Financial Security Act of 201 4. This amendment requires a political subdivision with authority over a pension plan to do the following w ith respect to such plan : (1) I nvesting, reinvesting, managing, and selecting investment options for the assets of a pension plan for financial reasons for the exclusive financial benefit of the beneficiaries of the pension plan while maximizing long-term shareholder value; (2) Exercising, in person or by proxy, all voting rights with respect to direct holdings in securities; (3) Submitting an annual report no later than September 1 of each year to the finance, ways and means committee of the senate and the standing committee of the house of representatives with jurisdiction over finance, ways and means . The full text of this amendment specifies several components that must be include in the reports; and (4) Ensuring that a pension plan does not enter into an agreement with a proxy advisory firm with respect to the provision of proxy advisory services unless the proxy advisory firm acknowledges in writing and accepts, under contract, its obligations und er (1)-(3) . This amendment prohibits a proxy advisory firm from provid ing proxy voting advice to a pension plan if an actual or potential conflict of interest exists that could reasonably be expected to affect the objectivity or reliability of the proxy voting advice. The full text of this amendment specifies three acts that constitute an actual or potential conflict of interest . This amendment also requires a prohibits a proxy advisory firm from provid ing proxy voting advice to a pension plan if its negative voting recommendation is based, in whole or in part, on the level of shareholder support received with respect to a previous proposal submitted to a vote at the company; provided, that the company's previous proposal was approved by the shareholders in accordan ce with the laws of the state of incorporation of the applicable company. Such prohibitions do not apply to fiduciaries, asset managers, custodians, consultants, or other service providers that are not proxy advisory firms. This amendment requires a proxy advisory firm that provides proxy voting advice to a pension plan to provide a financial analysis supporting every recommendation that the proxy advisory firm makes to the pension plan on a shareholder proposal that differs from the company management's recommendation. Such requirement does not apply to fiduciaries, asset managers, custodians, consultants, or other service providers that are not proxy advisory firms."