On December 11, 2020, the Department of Labor (DOL, or Department) issued final regulations providing rules under applicable provisions of ERISA concerning how plan fiduciaries should exercise shareholder rights, including proxy voting. Overall, the final rule reflects the DOL’s recent focus on the consideration of pecuniary and economic factors above all else in determining whether plan fiduciaries are meeting their duties of loyalty and prudence. The final rule reflects a significant departure from previous guidance, which contained specific requirements and prohibitions on the activities of plan fiduciaries.
Background: The DOL’s long-held position is that the exercise of proxy voting rights of shares held within an ERISA plan is a fiduciary decision. The duty to exercise these rights (whether by the plan’s trustee, investment manager, or plan sponsor) is generally set forth in relevant plan documents and is often undertaken with the assistance of third parties such as proxy advisory firms or third-party consultants, which provide research and recommendations on how to vote on specific proxy proposals.
Prior guidance (set forth in DOL interpretive bulletins) has varied depending on whether the administration at the time of issuance was Republican (George W. Bush) or Democrat (Barack Obama), with Republican-issued guidance tending to have a more narrow approach and Democrat-issued guidance a broader approach regarding the issues on which plan fiduciaries can and should vote. The current rule focuses the DOL’s position on a number of issues, with the overall theme being the Department’s focus on economic return as tantamount.
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