DOL Issues Final Rule on Proxy Voting and Shareholder Rights

The final regulation includes delayed compliance dates to January 31, 2022, for certain recordkeeping and proxy voting requirements.

The Department of Labor (DOL) has announced a final rule establishing a regulatory framework for private employee benefit plans’ fiduciaries to follow when they exercise shareholder rights, including proxy voting, and select and monitor proxy advisory firms.

The DOL says the final rule will benefit plan participants and beneficiaries by ensuring that the individuals responsible for the retirement savings of millions of American workers are putting workers’ financial interests first when deciding whether and how to vote proxies, and that they are advancing prudent management of plan assets.

“The final rule will help managers of retirement plans fulfill their duties of prudence and loyalty to American workers and retirees when voting proxies and exercising other shareholder rights,” U.S. Secretary of Labor Eugene Scalia said in a statement. “The rule reflects modifications in response to rulemaking comments in order to establish appropriately tailored safeguards for employee benefit plans using a principles-based approach.”

Acting Assistant Secretary of Labor for the DOL’s Employee Benefits Security Administration (EBSA) Jeanne Klinefelter Wilson added: “ERISA [Employee Retirement Income Security Act] plan fiduciaries must put the growth and security of workers’ retirement savings first. This rule will help ERISA plan fiduciaries follow the law and navigate their prudence and loyalty duties when exercising shareholder rights and obligations.”

The final rule confirms that proxy voting decisions and other exercises of shareholder rights must be solely in the interest of providing plan benefits to participants and beneficiaries considering the impact of any costs involved. It ensures that plan fiduciaries do not subordinate the interests of participants and beneficiaries in their retirement income or financial benefits under the plan to any non-pecuniary objective or promote non-pecuniary benefits or goals.

The DOL says the rule will also improve fiduciary practices relating to the selection and monitoring of proxy advisory firms. It adds that any cost savings or other benefits to plans will flow to participants and beneficiaries in the form of more secure retirement income.

The DOL estimates that the costs of these provisions will be small or will be offset by cost savings on a per plan basis.

When the DOL first issued its proposed rule on benefit plan proxy voting, some retirement industry stakeholders voiced concern that it risked seriously chilling proxy voting activities and other forms of shareholder engagement executed by investment managers and other parties on behalf of retirement plan investors.

The new rule follows the DOL’s recent regulation that confirmed fiduciaries must select investments solely in accordance with workers’ economic interests, i.e. only pecuniary factors.

The DOL settled upon the final proxy voting rule after reviewing approximately 300 written comments and 6,700 form letters from a diverse set of stakeholders, including plan sponsors and fiduciaries, individual plan participants and beneficiaries, financial services companies, elected governmental officials, and trade and industry associations.

The final rule will be effective 30 days after it is published in the Federal Register. It includes delayed compliance dates to January 31, 2022, for certain recordkeeping and proxy voting requirements.

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