voting he is responsible are actually voted. They could be polled on specific issues that arise in proxies prior to the date of the annual meeting. A proxy committee of fund beneficiaries and/or fund administrators could be given an advisory role to recommend to the outside investment manager how to vote on specific issues or granted actual 1/ voting authority. Citibank has, for example, instituted the practice of having a representative committee of participants in its Employees' Profit Sharing Plan vote the shares of companies held in the diversified common stock fund of this plan. Alternatively the proxy committee could share voting rights with the investment manager, where the investment manager could recommend a voting position to the fund's proxy committee and then leave it to the committee to cast the votes in accordance with or against the manager's recommendation, or else abstain.

Another more drastic alternative to the concentration of pension fund management in a few large banking institutions is to require that investment management of pension funds above a given size be restricted to businesses not affiliated with commercial banks. This proposal is an essential element of S. 2235, 93rd Congress, introduced by Senator Hart as the Retirement Benefit Fund Act in 1973 and again as S. 3856, 94th Congress, in 1976.

1/ For an example see

Chapter 9, p. 148-150, in which the voting practices of TIAA-CREF are described.

It is beyond the scope of this report to try to assess the impact which the concentration of pension funds in a small number of companies managed by a very limited number of investment managers (bank trust departments, insurance companies and investment companies) has on market behavior of the various stocks these managers hold in the pension fund portfolios. Nor does it attempt to analyze the difficulties which these large holdings present to making sales without adversely affecting share prices.

Among holders of equity securities, no group of institutional investors has grown more rapidly in the last two decades, and especially in the last ten years than State and local retirement systems. They include a wide range of funds, some administered centrally by a single State board or agency, others limited to a single group of employees, such as teachers, or to a single city or county. As shown in Chapter 3, Table 2, the stockholdings of State and local retirement funds in 1956 were negligible, totaling only some $100 million. By 1966 this total had risen to over $2 billion and by the end of 1976 to over $30 billion. By 1976, State and local retirement systems' stock holdings exceeded those of foundations and trailed slightly those of investment and insurance companies. This growth in stock holdings reflects both the rapid growth of Government employee retirement systems in general and the shift of their investments into equity securities on a broad scale.

Seventeen State and local retirement plans located in 12 States were covered by this survey. These included two State plans each, one for public employees generally and one for teachers, in New York and Ohio; State employee plans in California, Florida, Illinois, Michigan, Minnesota, New Jersey, North Carolina, Pennsylvania, Texas and Wisonsin; two New York

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City plans and one for Los Angeles County. Six of the State plans (including both New York State plans) and one local plan were among the 100 top equity holders listed by Institutional Investor in August 1977. The others were among the largest State pension and retirement plans, those with $1 billion or more in assets, listed in the Money Market Directory for 1977. Information on voting practices was supplied by representatives of 14 of the systems surveyed.

Voting Practices

Some plans call for voting to be done by the State or local treasurer, comptroller, the Retirement Board secretary, or its executive director. Most have a committee of public officials, sometimes called a proxy committee or proxy review committee, to vote on non-routine issues. In some cases a distinction is drawn between investment and public or social issues. Thus for example in the Ohio State Teachers Retirement System, investment decisions are made by the executive director, deputy executive director, or assistant executive director for investStockholder proposals dealing with public or social issues are voted by the assistant executive director for investments to the degree possible. Issues which he cannot resolve are referred to a committee consisting of the Executive Director, Assistant Executive Director for Investments, and the Chairman of the Board. Questions which cannot be decided by the committee are referred to the entire Board for decision.

ments.

Of all the State and local retirement systems surveyed, the Wisconsin Investment Board supplied the most detailed information on procedures and guidelines for voting proxies. Here the general counsel of the board votes routine issues and refers non-routine issues to the board's executive director with voting recommendations. Both routine and non-routine issues are defined in the Board's Manual of Operations. Where the pros and cons of a particular issue are considered by the board's executive director to be evenly balanced, a final determination is made in accordance with the board's guidelines by a proxy review committee consisting of the Executive Director, the General Counsel, the Stock Investment Director and the Director of Research. This proxy review committee may consult with the investment analyst following the particular company in question.

In most of the State systems surveyed, proxy votes are cast
This appears particularly to be the case

consistently for management.

where all voting is done by a single official and where no proxy committee

is involved.

In one or more State systems, votes against management or abstention are recommended under the following circumstances:

proposals that would excessively enrich management, such as unduly generous stock option plans or large loans to corporate officers for stock purchases, especially at subsidized interest rates; proposals that would entrench management or directors, including staggered system of electing directors, and requirement of more than a certain percentage--50-70 percent as a rule-- of stockholder approval for merger proposals;