U.S. Department of Labor Proposes Rule on Employee Benefit Plan Proxy Voting and Exercises of Other Shareholder Rights

WASHINGTON, DC – The U.S. Department of Labor today 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 at 29 CFR 2550.404a-1.

The Department 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 Department 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 Department 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. “The proposal would provide clarity and further the prudent management of plan assets and resources.”

“The proposal would clarify ERISA fiduciary duties for proxy voting and monitoring proxy advisory firms,” said Acting Assistant Secretary of the Department’s Employee Benefits Security Administration 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 comply 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. Commenters are free to express their views not only on the specific provisions of the proposal, but also on any issues germane to the subject matter of the proposal.

The Department’s Employee Benefits Security Administration (EBSA) developed the proposed rule. EBSA’s mission is to assure the security of the retirement, health and other workplace related benefits of America’s workers and their families. The agency accomplishes this mission by developing effective regulations; assisting and educating workers, plan sponsors, fiduciaries and service providers; and vigorously enforcing the law.

The mission of the Department of Labor is to foster, promote and develop the welfare of the wage earners, job seekers and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.