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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
public pensions; proxy voting
Purpose
Prescribes requirements and prohibitions for fiduciaries, proxy advisory firms and pension benefit plans relating to proxy voting for the sole economic interest of beneficiaries. Prescribes consumer disclosure requirements and proxy voting reporting requirements. Allows the Attorney General (AG) to enforce the proxy voting requirements and prohibitions and seek civil penalties for violations.
Background
The state offers four retirement programs, including: 1) the Arizona State Retirement System (ASRS) for all employees and officers of the state and political subdivisions; 2) the Corrections Officer Retirement Plan for correctional officers; 3) the Elected Officials' Retirement plan for eligible elected officials; and 4) the Public Safety Personnel Retirement System (PSPRS) for public safety employees (A.R.S. Title 38, Chapter 5).
Additionally, ASRS may establish one or more supplemental savings plans for employers to provide public employees an opportunity to save additional tax-deferred monies for retirement. A political subdivision or political subdivision entity that is not participating in ASRS may elect to allow its employees to participate in a supplemental employee deferral plan overseen by ASRS by entering into an agreement with ASRS.
Beginning July 1, 2022, an employee of an employer who is not participating in PSPRS, or any PSPRS-administered retirement plan, may elect to participate in an ASRS supplemental employee deferral plan (A.R.S. § 38-781).
If allowing the AG to enforce the proxy voting requirements and prohibitions results in collecting civil penalties for violations, there may be a fiscal impact to the state General Fund.
Provisions
1. Requires a fiduciary to vote all shares held directly or indirectly by, subject to or on behalf of a pension benefit plan for the benefit of the plan's participants and beneficiaries in the sole economic interest of the plan's participants and beneficiaries.
2. Defines pension benefit plan or plan as a plan, fund or program established, maintained or offered by a public entity, including a public retirement system, if by its terms or as a result of surrounding circumstances the plan, fund or program:
a) provides retirement income or other retirement benefits to employees or former employees; or
b) results in a deferral of income by employees for a period extending to the termination of covered employment or beyond.
3. Defines public entity as the state, a political subdivision of the state, a public school corporation and a public officer, board, commission, department, agency and authority empowered by law to enter into public contracts for the expenditure of public monies, including the Arizona Board of Regents and the universities under its control.
4. Stipulates that, with respect to a shareholder-sponsored proposal, there is a rebuttable presumption that a fiduciary votes its shares in the sole economic interest of the plan's participants and beneficiaries if the fiduciary's vote follows the recommendation of the share issuer's board of directors, if the board includes a majority of independent directors.
5. Stipulates that, with respect to a shareholder-sponsored proposal, a fiduciary's vote in a manner inconsistent with the recommendation of the share issuer's board of directors is presumed to be in the sole economic interest of the plan's participants and beneficiaries, if:
a) the fiduciary conducts and documents an economic analysis demonstrating that the vote is in the sole economic interest of the plan's participants and beneficiaries; or
b) on behalf of the fiduciary, a third party conducts and documents an economic analysis demonstrating that the vote is in the sole economic interest of the plan's participants and beneficiaries and the fiduciary determines that the economic analysis adequately demonstrated that the vote is in the sole economic interest of the plan's participants and beneficiaries.
6. Prohibits a fiduciary from voting in a manner that does any of the following:
a) subordinates the economic interest of the plan's participants and beneficiaries to any environmental, social, policy, governance or ideological goal; or
b) promotes any environmental, social, policy, governance or ideological goal, unless, based on an economic analysis, it is determined that the vote is in the sole economic interest of the plan's participants and beneficiaries and to maximize risk-adjusted investment returns of the plan's participants and beneficiaries.
7. Requires a fiduciary, with respect to a shareholder-sponsored proposal, to annually disclose in a report to the State Treasurer both:
a) each vote that is inconsistent with the recommendation of a share issuer's board of directors composed of a majority of independent directors; and
b) the economic analysis conducted to determine that the vote was in the sole economic interest of the plan's participants and beneficiaries.
8. Requires a fiduciary's annual report to the State Treasurer to be certified by the fiduciary's CEO and CFO, or an individual acting on behalf of the fiduciary's CEO of CFO.
9. Requires a fiduciary, at least once every three years, to:
a) back test its economic analysis to ensure that the models, procedures and processes the fiduciary uses to predict the sole economic interest are accurate; and
b) deliver a report detailing the back testing to the State Treasurer.
Proxy Advisory Firm Regulations
10. Defines proxy advisory firm as a person who is engaged in the business of providing proxy voting advice, research, analysis, ratings or recommendations to a fiduciary or providing proxy voting advice, research, analysis, ratings or recommendations relating to an issuer of securities.
11. Prohibits, with respect to any enterprise regulated by the state, a proxy advisory firm from:
a) providing proxy voting advice on shareholder-sponsored proposals submitted to the enterprise unless the firm bases its voting recommendations on the sole economic interest of the enterprise's shareholders; and
b) with respect to a company-sponsored say on pay proposal, providing proxy voting advice that undermines the use of discretion by an independent compensation committee of the issuer's board of directors, is based on prior shareholder support levels beyond the level at which the proposal passed under the relevant state law or relies on assumptions or methodologies not consistent with generally accepted accounting principles.
12. Stipulates that, with respect to a shareholder-sponsored proposal submitted to a state-regulated enterprise, there is a presumption that a proxy advisory firm's voting recommendation is based in the sole economic interest of the enterprise's shareholders if the recommendation is consistent with the recommendation of the share issuer's board of directors and the board is composed of a majority of independent directors.
13. Allows a proxy advisory firm, with respect to a shareholder-sponsored proposal submitted to a state-regulated enterprise, to recommend a vote that is inconsistent with the recommendation of the share issuer's board of directors if the firm conducts and documents an economic analysis demonstrating that the vote is in the sole economic interest of the enterprise's shareholders.
14. Requires a proxy advisory first to annually disclose in a report to the State Treasurer:
a) each vote recommendation that is inconsistent with the recommendation of a share issuer's board of directors composed of a majority of independent directors; and
b) the economic analysis conducted to determine that the vote recommendation is in the sole economic interest of the regulated enterprise's shareholders.
15. Prohibits a proxy advisory firm, with respect to a shareholder-sponsored proposal to be considered for voting by a plan, from providing proxy voting advice to a plan unless the firm bases its voting recommendations on the sole economic interest of the plan's participants and beneficiaries.
16. Stipulates that, with respect to a shareholder-sponsored proposal to be considered for voting by a plan, there is a presumption that a proxy advisory firm's voting recommendation is in the sole economic interest of the plan's participants and beneficiaries if the recommendation is consistent with the recommendation of the share issuer's board of directors and the board is composed of a majority of independent directors.
17. Allows a proxy advisory firm, with respect to a shareholder-sponsored proposal to be considered for voting by a plan, to recommend a vote that is inconsistent with the recommendation of the share issuer's board of directors if the firm conducts and documents an economic analysis demonstrating that the vote is in the sole economic interest of the plan's participants and beneficiaries.
18. Requires a proxy advisory first to annually disclose in a report to the board of trustees or an oversight body to the plan both:
a) each vote recommendation that is inconsistent with the recommendation of a share issuer's board of directors composed of a majority of independent directors; and
b) the economic analysis conducted to determine that the vote recommendation is in the sole economic interest of the plan's participants and beneficiaries.
19. Prohibits a proxy advisory firm from providing to a plan proxy, with respect to a company-sponsored say on pay proposal, voting advice that:
a) undermines the use of discretion by an independent compensation committee of the issuer's board of directors;
b) is based on prior shareholder support levels beyond the level at which the proposal passes under state law; or
c) relies on assumptions or methodologies that do not comply with generally accepted accounting principles.
Prohibitions Against Conflicts of Interest
20. Prohibits a plan from entering into an agreement with a proxy advisory firm for proxy advisory services unless the firm acknowledges in writing and accepts under contract its statutory obligations.
21. Prohibits a proxy advisory firm provide proxy voting advice to a 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.
22. Specifies that an actual or potential conflict of interest that could reasonably be expected to affect the objectivity or reliability of the proxy voting advice includes the following acts by a proxy advisory firm or any of its affiliates:
a) receiving or seeking to receive fees for consulting services from either:
i. the share issuer or any of its affiliates that is the subject of any proxy voting advice, written report, research, analysis, rating or recommendation furnished by the proxy advisory firm; or
ii. the sponsor of a shareholder-sponsored proposal or any of its affiliates that is the subject of the proxy voting advice;
b) being a member of any organization that actively supports a shareholder-sponsored proposal that is, or is substantially similar to, the subject of the proxy voting advice.
23. Prohibits a proxy advisory firm from providing proxy voting advice to a plan if its voting recommendation is not consistent with the recommendation of a board of directors or a committee of the board of directors when the recommendation is decided by a majority of independent directors that is based on a decision to either:
a) pursue the adjudication of a business dispute in federal or state court; or
b) exercise its discretion in connection with executive compensation decisions.
24. Prohibits a proxy advisory firm from providing proxy voting advice to a plan if its negative voting recommendation is based on the level of shareholder support received on a previous proposal submitted to a vote at the company, if the company's previous proposal was approved by shareholders pursuant to the laws of the state of incorporation of the company.
AG Enforcement
25. Allows the AG to enforce the proxy voting requirements and prohibitions.
26. Allows the AG, if the AG has reasonable cause to believe that a person has engaged in, is engaging in, or is about to engage in a violation of the proxy voting requirements and prohibitions, to:
a) require the person to file, on AG-prescribed forms, a statement or report in writing, under oath, as to all the circumstances surrounding the actual, alleged or potential violation and other information that the AG deems necessary;
b) examine under oath any person in connection with the actual, alleged or potential violation;
c) examine any record, book, document or paper as the AG deems necessary;
d) issue civil investigatory demands consistent with an investigation into a potential enforcement action; and
e) under a district court order, impound any record, book, document, paper or sample or material relating to the actual, alleged or potential violation and retain the impounded item in the AG's possession until the completion of all proceedings
27. Allows the AG to initiate an action in the name of the state and seek an in junction to restrain a violation of the proxy voting requirements and prohibitions.
28. Determines that:
a) a violation of the proxy voting requirements and prohibitions constitutes irreparable harm; and
b) each share voted by a fiduciary that is not voted in the sole economic interest of the shareholder constitutes a separate violation.
29. Allows the AG, for each violation, to seek civil penalties of up to $1,000 per violation which must be deposited in the state General Fund.
Consumer Right to Disclosure
30. Allows a consumer, if the consumer believes that shares underlying the consumer's investment have been voted in a manner inconsistent with the consumer's best interest, to submit a request to obtain a copy of the documented economic analysis demonstrating that the vote is solely in the best economic interest of the consumer.
31. Allows a consumer, in each case that the consumer is an investor, beneficiary or participant, to submit the request to the investment company that owns shares of an enterprise regulated by the state or the plan.
32. Stipulates that there is a presumption that a vote is in the sole economic interest of the consumer if the vote is consistent with the recommendation of the issuer's board of directors and the board is composed of a majority of independent directors.
33. Requires an investment company or plan to respond in writing to the consumer, within 90 days after receiving a request, by:
a) providing the consumer with the requested economic analysis;
b) informing the consumer that an economic analysis is not available if the investment company did not conduct and document an economic analysis; or
c) informing the consumer that the vote at issue was cast consistent with the recommendation of the share issuer's board of directors of the issuer and the board is composed of a majority of independent directors.
34. Requires the information provided by the investment company or plan to be free of charge not more than twice annually per consumer.
Miscellaneous
35. Defines terms.
36. Becomes effective on the general effective date.
Prepared by Senate Research
February 4, 2026
MG/hk