DOL Proposes Rule Clarifying Plan Fiduciaries' Proxy Voting Obligations

Steven Lofchie Commentary by Steven Lofchie

The DOL proposed a rule that would clarify the duties of ERISA plan fiduciaries on proxy voting.

The DOL stated that the purpose of the proposal, which would amend ERISA Regulation Section 2550.404a-1 ("Investment Duties"), is to clear up the "persistent misunderstanding" that fiduciaries must vote all proxies, which has resulted in plans unnecessarily spending money researching items of no material economic significance. The proposal would address this by affirmatively requiring fiduciaries not to vote in situations where the assets of a plan would be expended on activities that do not economically impact the plan. The proposal also would establish "permitted practices" that allow fiduciaries to adopt proxy-voting policies reasonably designed to serve the plan's economic interest.

In addition, the proposal would rescind Interpretive Bulletin 2016-01, which the DOL stated no longer represents its view on how fiduciaries should exercise voting rights.

Comments on the proposal must be submitted 30 days after publication in the Federal Register.

Commentary

The proposed rule is a blunt statement by the DOL in making entirely explicit that the obligation of a plan fiduciary is to act for the benefit of plan participants, and not to spend money on any activity that does not further that goal. The proposal is not in direct contradiction of Interpretive Bulletin 2016-01, but the tone is quite different. That Interpretive Bulletin concludes that fiduciaries should not spend excessively on proxy issues that are not material, and, implicitly, that any omission of voting would have to be affirmatively justified. By contrast, the proposed rule does not suggest that there is some implied obligation to vote every proxy; rather, it states that what advisers must justify is spending the money of plan beneficiaries.

In this regard, the proposal rule is entirely consistent with the DOL's recent statement that plan fiduciaries should invest for the economic benefit of plan participants, and ought not to invest to advance an environmental, social, and governance (ESG) goal that does not serve the economic interests of plan participants. See, e.g., NYDFS Urges DOL to Reconsider Proposed Amendment on Investment Recommendations; Financial Factors in Selecting Plan Investments.

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