DOL Eases Overly Prescriptive Stance in Final Proxy Voting Rule

It’s unclear how the rule will be interpreted and enforced after the federal administration changes hands, experts say.


The US Department of Labor (DOL) on Friday relaxed its stance on proxy voting and shareholder rights in a final rule, but maintained that private plan fiduciaries should refrain from voting on matters that are not financially material to the plan. 

In August, the DOL proposed a rule mandating that plan fiduciaries only participate in proxies that have an economic impact on the plan, after taking costs of exercising shareholder rights into account. 

But the DOL has since modified the contentious rule after receiving a torrent of backlash from stakeholders in the investment community, according to the rule, titled “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights.” 

More than 300 written comments were submitted during the open comment period, as well as more than 6,700 form letters from stakeholders that were submitted as part of two separate petitions. 

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The final “principles-based” rule is more flexible, though ambiguous. It determines that fiduciaries exercise shareholder rights “solely” in the interest of providing plan benefits to beneficiaries, instead of promoting any “non-pecuniary,” or non-financial, goals. It also says fiduciaries should continue to monitor proxy advisory firms. 

“ERISA [the Employee Retirement Income Security Act] plan fiduciaries must put the growth and security of workers’ retirement savings first,” Acting Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson said in a statement. 

“This rule will help ERISA plan fiduciaries follow the law and navigate their prudence and loyalty duties when exercising shareholder rights and obligations,” Wilson added.

ERISA fiduciaries evaluating their proxy voting policies should review this final rule carefully, said George Michael Gerstein, co-chair of the fiduciary governance group at Stradley Ronon Stevens & Young. 

While there is more slack in the final proxy voting rule than in the proposal it was based on, it’s too early to tell how the ruling will be interpreted and enforced, particularly as the federal government transitions into a new administration, Gerstein said. 

Under the Biden administration, the final proxy voting rule could be modified or rescinded back to the 2016 proxy voting rule, which has broader support among environmental, social, and governance (ESG) investors who support advancing shareholder proposals, such as those that deal with climate change, which have been discouraged under the Trump administration. 

“It’s not clear what they’ll do, but I’m sure this is on the radar,” Gerstein said. 

Related Stories: 

SEC Hikes Investment Commitments for Shareholders Submitting Proposals

DOL, Dubious About ESG Pension Investing, Cuts It a Bit of Slack in Final Rule

DOL Sends Fiduciary Rule Update to OMB

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