Compliance Corner

Retirement Updates

DOL Proposes Rule on Shareholder Rights, Including Proxy Voting

September 15, 2020

On August 31, 2020, the DOL issued a proposed rule instituting standards for situations where fiduciaries exercise shareholder rights, such as voting proxies. As background, ERISA’s investment duties regulation generally requires a fiduciary to act prudently when making decisions on investments. Sometimes, that duty involves the fiduciary having to vote on matters on behalf of plan shareholders (i.e., by proxy). The proposed rule provides guidance on the factors that fiduciaries should consider when exercising shareholder rights.

Specifically, the proposed rule requires fiduciaries who are exercising shareholder rights to carry out their duties prudently, solely in the interests of plan participants and beneficiaries, and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. When making decisions on behalf of shareholders, fiduciaries must:

  • Act solely based on economic interests of the plan and participants, only considering factors that will affect the economic value of the plan’s investment
  • Consider the likely impact the decision will have on the investment performance of the plan based on various factors
  • Not subordinate the interests of the participants and beneficiaries to any non-pecuniary objectives or goals unrelated to their financial interests or the purposes of the plan
  • Investigate material facts that are the basis of any particular proxy vote
  • Maintain records on proxy voting and other exercises of shareholder rights
  • Exercise prudence and diligence in selecting and monitoring plan advisers that assist with the exercise of shareholder rights

Additionally, the guidance clarifies that fiduciaries do not always have to vote proxies; instead, the fiduciary must only vote proxies when they determine that the matter being voted upon would have an economic impact on the plan. There is also a provision outlining permitted practices which would allow fiduciaries to adopt policies on proxy voting.

The DOL will operate a comment period for 30 days after the proposed rule is published in the Federal Register. Plan fiduciaries should discuss this rule with their plan advisers to ensure that they are meeting their fiduciary obligations related to exercising shareholder rights.

Fiduciary Duties Regarding Proxy Voting and Shareholder Rights Proposed Rule »