U.S. Department of Labor Issues Final Rule on Proxy Voting and Shareholder Rights by Employee Benefit Plans

WASHINGTON, DC – The U.S. Department of Labor today 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 final rule will benefit plan participants and beneficiaries by ensuring that 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.  The final rule will advance prudent management of plan assets and resources.  

“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,” said U.S. Secretary of Labor Eugene Scalia. “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.”

“ERISA plan fiduciaries must put the growth and security of workers’ retirement savings first,” said Acting Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson.  “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 is intended to protect the interests of participants and beneficiaries by: (1) confirming that proxy voting decisions and other exercises of shareholder rights must be solely in the interest of, and for the exclusive purpose of, providing plan benefits to participants and beneficiaries considering the impact of any costs involved; (2) ensuring that plan fiduciaries 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; and (3) improving fiduciary practices relating to the selection and monitoring of proxy advisory firms. 

Cost savings and other benefits to plans will flow to participants and beneficiaries in the form of more secure retirement income. The Department estimates that the incremental costs of these provisions will be small or likely offset by cost savings on a per plan basis because the Department anticipates that many plans will adopt policies that use the rule’s safe harbor policies and because the activities that would be required under the final rule already are reflected in common practices.

Under the Employee Retirement Income Security Act of 1974 (ERISA), the final rule “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” amends the Department’s investment duties regulation at 29 CFR 2550.404a-1.  The rule also complements the Department’s recent amendments to the investment duties regulation in Financial Factors in Selecting Plan Investments, 85 FR 72846 (Nov. 13, 2020), to protect workers’ retirement savings, which confirmed that fiduciaries must select investments solely in accordance with workers’ economic interests considering only pecuniary factors.

The Department issued this final rule after reviewing approximately 300 written comments and 6,700 submissions (i.e., form letters) as part of two petitions that were received in response to the proposal.  Commenters comprised a diverse set of stakeholders, including plan sponsors and fiduciaries, individual plan participants and beneficiaries, financial services companies, academics, elected government officials, and trade and industry associations.  The public comments were posted on the Department’s website (www.dol.gov/ebsa) and at www.regulations.gov.

The final rule is effective 30 days after the rule is published in the Federal Register and applies to exercises of shareholder rights after such date. The final rule includes delayed compliance dates to January 31, 2022, for certain recordkeeping and proxy voting policy requirements, subject to conditions set forth in the 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. EBSA accomplishes this mission by developing effective regulations; assisting and educating workers, plan sponsors, fiduciaries, and service providers; and vigorously enforcing the law.

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