DOL Proposes Rule on Employee Benefit Plan Proxy Voting

The U.S. Department of Labor (DOL) has made available a proposed rule that would address the application of the prudence and exclusive purpose duties under the Employee Retirement Income Security Act (ERISA) with respect to proxy voting and exercises of other shareholder rights.

The proposed rule amends the department’s longstanding “investment duties” regulation.

The DOL says it has issued sub-regulatory guidance and individual letters over the years affirming that, in voting proxies and in exercising other shareholder rights, plan fiduciaries must consider factors that may affect the value of the plan’s investment and not subordinate the interest of participants and beneficiaries in their retirement income to unrelated objectives. The agency says it believes, however, that aspects of the guidance and letters may have led to some confusion or misunderstandings.

The proposal is designed to address those issues through a notice and comment rulemaking process that will build a public record to help the DOL develop an improved investment duties regulation with the goal of ensuring plan fiduciaries execute their ERISA duties in an appropriate and cost-efficient manner when exercising shareholder rights.

“The proposed proxy rule would ensure that individuals responsible for the retirement savings of millions of American workers are voting proxies only where it is financially in the interest of the plan to do so,” said Secretary of Labor Eugene Scalia, in an announcement. “The proposal would provide clarity and further the prudent management of plan assets and resources.”

“The proposal would clarify Employee Retirement Income Security Act fiduciary duties for proxy voting and monitoring proxy advisory firms,” said Acting Assistant Secretary of the department’s Employee Benefits Security Administration (EBSA) Jeanne Klinefelter Wilson. “The proposed rule would reduce plan expenses by giving fiduciaries clear directions to refrain from spending workers’ retirement savings to research and vote on matters that are not expected to have an economic impact on the plan.”

The proposal includes provisions that would articulate general duties requiring fiduciaries to vote any proxy where the fiduciary prudently determines that the matter being voted upon would have an economic impact on the plan. It also prohibits fiduciaries from voting any proxy unless the fiduciary prudently determines that the matter has an economic impact on the plan. To assist fiduciaries in complying with these duties, the proposal also sets forth “permitted practices” under which the plan fiduciary can adopt certain proxy voting policies and parameters reasonably designed to serve the plan’s economic interest.

The proposal includes a 30-day comment period and instructions on submitting comments through www.regulations.gov.