For that, we turn to the website of the New York City retirement plan. It says, "The New York City Pension Funds take the responsibility of stock ownership seriously. They believe that advocacy and activism for shareholder rights, corporate governance reforms, and corporate responsibility is consistent with their fiduciary obligations. They understand the interconnectedness and interdependencies of markets and societies within the global economy. Accordingly, they expect companies in which they invest to strive continually to be good citizens in the communities where they do business."

There you have it. Under the terms described in the New York City retirement plan website, Liu has the "fiduciary obligation" to undertake shareholder advocacy and activism. Since I'm not an attorney I can't comment on the legal nature of what the web-site says, but let's take it at its word, because it brings up a potential fiduciary conflict that has flummoxed trustees for some time.

Let's start with the assumption, as ERISA and the New York State website says, that the plan trustee has the duty to act solely in the "best interests" of the plan participants. Now, let's add the additional "fiduciary obligation" as defined by the New York City website, (and, incidentally, the SEC as it pertains to RIAs), to vote proxies in a meaningful manner.

According to the Wikipedia entry on "fiduciary," it says a fiduciary has "a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty." The entry even cites the Stewart v Layton (1992) case as precedent for this matter. It is this web of conflicts that proxy voting begins to spin in the case of fiduciary duty.

There's a school of thought that broadly defines fiduciary duty to include going beyond the stated purpose of the trust by acting in the beneficiary's best interest for all matters. For example, in the case of a retirement trust, the stated purpose is to provide for the beneficiaries retirement benefits. But was if that retirement trust also invests in the beneficiaries' employer and that employer seeks to grow by laying off employees.

From a shareholder stand-point (i.e., the retirement trust), this is exactly the type of outcome they want to see in their investments. From an employee stand-point (i.e., the beneficiaries of the retirement trust), they stand to lose in the short-term if they happen to be on the layoff list (although, as future retirees they will benefit in the long-term).

Sacrificing the short-term for the benefit of the long-term is a very difficult decision for any human to make. For trustees, the hope is the trust document clearly defines which fiduciary duty takes priority. Short of that, and perhaps even despite what the trust document says, the reconciliation of conflicting fiduciary duties are most likely to be resolved in the trust courts.

There is a point, however nebulous, when shareholder activism begins to hurt the long-term benefits of the retirement plan participants. With many state's experiencing problems with underfunded pension plans, maybe now is the time to reconsider separating politics from plan assets.