Could a Maine law requiring pension trustees to divest from companies in Northern Ireland override their fiduciary duty to invest prudently?

Currency note

This opinion was issued in 1988. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Plain-English summary

The Executive Director of the Maine State Retirement System asked the Attorney General whether newly enacted Legislative Document 2008, "An Act Concerning Investment of State Funds in Corporations Doing Business in Northern Ireland," would compromise the fiduciary responsibilities of the System's Board of Trustees. The bill required trustees to urge companies doing business in Northern Ireland to adopt the MacBride Principles (workplace fairness measures addressing religious discrimination) and, starting July 1, 1992, to divest from noncompliant companies "if it is in accordance with sound investment criteria consistent with prudent standards of fiduciary responsibility."

The opinion concluded nothing in the bill infringed the trustees' fiduciary responsibility. Because the bill's own text and legislative Statement of Fact made the divestiture requirement contingent on consistency with the pre-existing "prudent person standard" already governing the retirement funds' investments, the Legislature had effectively subordinated its policy preference for MacBride-compliant investments to the trustees' independent investment judgment. In practice, the opinion explained, the bill would only direct trustees to prefer MacBride-compliant investments when choosing among otherwise-equal investment alternatives, not require divestment that conflicted with sound investment criteria.

Background and analysis (as of 1988)

The opinion pointed to the Legislature's own prior establishment of the "prudent person standard" (incorporating the Uniform Probate Code's prudent-investor rule) as the governing standard for how Retirement System funds must be invested. Reading LD 2008 against that backdrop, the opinion concluded that the bill's divestiture requirement, by its own express terms, only came into play when consistent with that standard, meaning the Legislature's preference for MacBride-compliant investment and its disfavor of noncompliant companies was legally subordinate to the trustees' independent fiduciary investment judgment. The opinion characterized the bill's practical effect as directing trustees to apply the MacBride principles only when choosing among investment alternatives that were otherwise equal from a prudent-investment standpoint, not as overriding sound investment criteria in any specific case.

Citations and references

Statutes (as they stood in 1988):

• 5 M.R.S.A. § 17153(3), incorporating 18-A M.R.S.A. § 7-302, establishing the prudent-person standard for Retirement System investments
• 5 M.R.S.A. § 17108(2)(A), further governing the trustees' investment responsibilities

Source

• Landing page: https://www.maine.gov/legis/lawlib/lldl/agops/agops.htm
• Original PDF: https://lldc.mainelegislature.org/Open/AG/Opinions/1988/ag_19880321.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

MAINE STATE LEGISLATURE

The following document is provided by the
LAW AND LEGISLATIVE DIGITAL LIBRARY
at the Maine State Law and Legislative Reference Library
http://legislature.maine.gov/lawlib

Reproduced from scanned originals with text recognition applied
(searchable text may contain some errors and/or omissions)

88-4

JAMES E. TIERNEY
ATTORNEY GENERAL

STATE OF MAINE
DEPARTMENT OF THE ATTORNEY GENERAL
STATE HOUSE STATION 6
AUGUSTA, MAINE 04333

March 21, 1988

Claude R. Perrier
Executive Director
Maine State Retirement System
State House Station #46
Augusta, Maine 04333

Dear Claude:

Last Thursday, March 17, 1988, the Maine Legislature enacted Legislative Document 2008, "AN ACT Concerning Investment of State Funds in Corporations Doing Business in Northern Ireland" and sent it to the Governor for his approval. The legislation requires the Board of Trustees of the Maine State Retirement System to urge corporations doing business in Northern Ireland to adopt and implement the MacBride Principles. According to the legislation, the MacBride Principles are goals for corporations doing business in Northern Ireland to follow and are designed to increase representation of under-represented religious groups in the work force, provide adequate security for minority employees in the work place, eliminate a variety of discriminatory practices to provide adequate job training and establish certain affirmative action programs. Further, L.D. 2008 requires that after July 1, 1992, "if it is in accordance with sound investment criteria consistent with prudent standards of fiduciary responsibility", the Board of Trustees divest from the portfolio of its investments those corporations doing business in Northern Ireland who have not adopted and implemented the MacBride Principles.

You have inquired whether this legislation, if signed by the Governor, in any way compromises the fiduciary responsibilities of the Board of Trustees. For the reasons which follow, it is the Opinion of this Department that nothing in L.D. 2008 infringes upon the fiduciary responsibility of the Trustees. To the contrary, the express terms of L.D. 2008 and its Statement of Fact indicates the divestiture requirements of the bill come into play "only if divestiture is in accordance with the prudent person standard of fiduciary responsibility."

The Legislature has previously established the "prudent person standard" as the standard by which funds of the Retirement System are to be invested. 5 M.R.S.A. § 17153(3) incorporating 18-A M.R.S.A. § 7-302. See also 5 M.R.S.A. § 17108(2)(A). Accordingly, in legal effect, the Legislature in L.D. 2008 has subordinated its preference for investment in companies implementing the MacBride principles, and its non-support of companies doing business in Northern Ireland not implementing those principles, to the investment judgment of the Trustees in carrying out their general responsibility for funds of the Retirement System. The practical effect of the bill, if it becomes law, would be to direct the Trustees to follow the principles embodied in the bill in choosing among investment alternatives that are otherwise equal. Nothing in L.D. 2008 requires the Trustees to divest its portfolio in a particular company if it is not in accordance with sound investment criteria standards previously set out for the Trustees in exercising their fiduciary responsibilities.

I trust this fully responds to the concern that has been raised in your correspondence to my Department dated March 21, 1988. If this office may be of any further assistance, please do not hesitate to call Assistant Attorney General Gregory Sample, 289-3661.

Sincerely,

JAMES E. TIERNEY
Attorney General

JET/ec