Public Funds and Financing

Plain English Breakdown

The official source material does not provide specific penalties or implementation details.

Tennessee Public Funds and Financing Act

This bill amends Tennessee law to expand the definition of 'program' for local government retirement plans, requires fiduciaries to manage assets solely for financial reasons, mandates economic analyses for certain votes, and restricts agreements with proxy advisory firms.

What This Bill Does

• Expands the definition of 'program' to include plans or funds established by local governments that do not participate in a state-wide retirement system.
• Requires fiduciaries to manage assets solely for financial reasons, excluding environmental, social, and governance (ESG) interests unless proven otherwise through an economic analysis.
• Establishes rules for conducting and documenting economic analyses when voting shares against the board's recommendation.
• Prohibits fiduciaries from entering agreements with proxy advisory firms that do not meet certain standards of objectivity and transparency.

Who It Names or Affects

• Local government entities managing retirement programs.
• Fiduciaries responsible for investment decisions in these programs.
• Proxy advisory firms providing voting advice to fiduciaries.

Terms To Know

fiduciary

A person who manages assets or provides investment advice for a program, ensuring the financial benefit of beneficiaries.

economic analysis

A written evaluation demonstrating the financial impact and benefits/costs of voting on shareholder proposals.

Limits and Unknowns

• The bill does not specify how local governments will implement these changes.
• It is unclear what penalties, if any, apply for non-compliance with the new requirements.

Official Summary Text

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.

Current Bill Text

SENATE BILL 2641
By Roberts

HOUSE BILL 2476
By Lankford
HB2476
012258
- 1 -

AN ACT to amend Tennessee Code Annotated, Title 9,
Chapter 4, relative to investments.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Section 9-4-1401(3), is amended by deleting
the language "established by law and for which the state treasurer has, or has been delegated,
investment authority, oversight, and responsibility:" and substituting instead "established by law,
resolution, or ordinance and for which the state treasurer or a local governmental entity has, or
has been delegated, investment authority, oversight, and responsibility:".
SECTION 2. Tennessee Code Annotated, Section 9-4-1401(3), is amended by adding
the following as a new subdivision:
(F) A plan, fund, or program established, maintained, or offered by a political
subdivision that does not participate in the Tennessee consolidated retirement system or
in a plan under subdivision (3)(C), that does the following:
(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.
SECTION 3. Tennessee Code Annotated, Section 9-4-1401, is amended by adding the
following as new, appropriately designated subdivisions:
( ) "Economic analysis" means a written analysis demonstrating the factors
considered in evaluating the financial impact of a shareholder-sponsored proposal that
addresses:
(A) The subject matter of the shareholder-sponsored proposal;

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(B) An evaluation of the issuer's stated reasons for opposition to the
shareholder-sponsored proposal;
(C) 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;
(D) 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;
(E) The quantifiable impact of the shareholder-sponsored proposal, as
written, on the investment returns of the beneficiaries of the program; and
(F) An explanation of the modeling, procedures, and processes used to
complete the economic analysis;
( ) "Fiduciary" means:
(A) A person who, with respect to a program under Section 2(F):
(i) 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
(ii) Has discretionary authority or discretionary responsibility in the
administration of the program, including a plan administrator for the
political subdivision; or
(B) 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;

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( ) "Political subdivision" has the same meaning as defined in § 4-58-102;
( ) "Proxy advisory firm" means a person who is engaged in the business of:
(A) Providing proxy voting advice, research, analysis, ratings, or
recommendations to the state treasurer, a political subdivision, or a fiduciary; or
(B) Providing proxy voting advice, research, analysis, ratings, or
recommendations relating to an issuer of securities;
( ) "Shareholder-sponsored proposal" means a proposal submitted to an issuer
of securities by a shareholder under 17 CFR 240.14a–8;
SECTION 4. Tennessee Code Annotated, Section 9-4-1402, is amended by designating
the existing language as a new subsection (a) and adding the following new subsection (b):
(b) Consistent with the prudent investor rule pursuant to § 35-14-103, the
standard of care pursuant to § 35-14-104, and the exercise of reasonable care in
delegation of investment and management functions pursuant to § 35-14-111, a
fiduciary, as defined in § 9-4-1401( )(A), and the fiduciary's staff, shall invest, reinvest,
manage, and select investment options for assets of a program, as defined in Section
2(F), for financial reasons for the exclusive benefit of the beneficiaries of the program
while maximizing long-term shareholder value.
SECTION 5. Tennessee Code Annotated, Title 9, Chapter 4, Part 14, is amended by
adding the following as new sections:
9-4-1405. Fiduciary voting responsibilities.
(a) A fiduciary shall vote all shares held directly or indirectly by, subject to, or on
behalf of a program for financial reasons for the exclusive benefit of the beneficiaries of
the program while maximizing long-term shareholder value.
(b) With respect to a shareholder-sponsored proposal, there is a rebuttable
presumption that a fiduciary votes its shares for financial reasons if the fiduciary's vote

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follows the recommendation of the board of directors of the issuer of the shares, as long
as the board includes a majority of independent directors.
(c) With respect to a shareholder-sponsored proposal, a fiduciary's vote in a
manner inconsistent with the recommendation of the board of directors of the issuer of
the shares is presumed to be for financial reasons if:
(1) The fiduciary conducts and documents an economic analysis
demonstrating that the vote is for financial reasons; or
(2) On behalf of the fiduciary, a third party conducts and documents an
economic analysis demonstrating that the vote is for financial reasons, and the
fiduciary determines that the economic analysis adequately demonstrates that
the vote is for financial reasons.
(d) A fiduciary shall not vote in a manner that:
(1) Subordinates the financial interest of the program's beneficiaries to
any environmental, social, and governance interests; or
(2) Promotes any environmental, social, and governance interests,
unless, based on an economic analysis, it is determined that the vote is for
financial reasons.
(e) With respect to shareholder-sponsored proposals, a fiduciary shall annually
disclose in a report to the state treasurer, in the case of a program other than a program
as defined in Section 2(F), and to the chief legislative body of a political subdivision, in
the case of a program as defined in Section 2(F), that:
(1) Each vote that was inconsistent with the recommendation of an
issuer's board of directors composed of a majority of independent directors; and

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(2) The economic analysis conducted and documented with respect to
each vote described in subsection (c) to determine that the vote was for financial
reasons.
(f) The report required under subsection (e) must be certified by the chief
executive officer and chief financial officer, or an individual acting in a similar capacity, of
the fiduciary.
(g) At least once every three (3) years, a fiduciary shall back test its economic
analysis to ensure that the models, procedures, and processes it used to predict the
financial reasons were effective, and shall deliver a report detailing the back testing to
the state treasurer, in the case of a program other than a program as defined in Section
2(F), and to the chief legislative body of a political subdivision, in the case of a program
as defined in Section 2(F). Based on the back testing, the chief executive officer and
chief financial officer, or an individual acting in a similar capacity, of the fiduciary shall
certify that the economic analysis performed by the fiduciary and included in the report
was effective.
9-4-1406. Prohibitions against conflicts of interest; disenfranchising shareholders
and undermining independent boards of directors.
(a) The state treasurer, a political subdivision, or a fiduciary shall 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 under this section.
(b) A proxy advisory firm shall not provide 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. For purposes of this section, "an

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actual or potential conflict of interest" includes the following acts by a proxy advisory firm
or any of its affiliates:
(1) 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;
(2) 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; or
(3) Is 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.
(c) A proxy advisory firm shall not provide proxy voting advice to a program if its
voting recommendation is not consistent with the recommendation of a board of
directors or a committee of the program, in either instance which is composed of a
majority of independent directors, and the recommendation is based, in whole or in part,
on a decision by the applicable company's board of directors, or committee thereof, to:
(1) Pursue the adjudication of a business dispute in federal or state court;
or
(2) Exercise its discretion in connection with executive compensation
decisions.
(d) A proxy advisory firm shall not provide proxy voting advice to a program 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;

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provided, that the company's previous proposal was approved by shareholders in
accordance with the law of the state of incorporation of the applicable company.
SECTION 6. The headings in this act are for reference purposes only and do not
constitute a part of the law enacted by this act. However, the Tennessee Code Commission is
requested to include the headings in any compilation or publication containing this act.
SECTION 7. This act takes effect upon becoming a law, the public welfare requiring it.