Fiduciary Proxy Voting Rule Finalized After White House OK

The Labor Department released a final rule Friday that restricts fiduciaries from voting on pension or retirement plan matters that aren’t in the plan’s financial interests.

The Fiduciary Duties Regarding Proxy Voting and Shareholder Rights rule (RIN: 1210-AB91) amends the DOL’s investment duties regulation, establishing practices by which a fiduciary can adopt proxy voting policies and parameters. The rule applies to plans covered by the Employee Retirement Income Security Act of 1974, which sets minimum standards for voluntary private-sector plans.

“The job of ERISA plan fiduciaries first and foremost is to manage plan assets with care and with undivided loyalty to the plan participants’ financial interest in receiving the employee benefits they have worked so hard to earn,” Jeanne Klinefelter Wilson, acting assistant secretary of labor for the Employee Benefits Security Administration, said during a press conference by phone Friday.

The White House Office of Management and Budget cleared the rule Wednesday after a two-week review period.

The DOL made “significant changes” to the final rule in response to comments calling the proposed rule’s reporting requirements burdensome, said a senior DOL official. The rule was downgraded from economically significant to non-economically significant, meaning it’s likely not to have an annual effect on the economy greater than $100 million.

The DOL initially sought the rulemaking to establish clearer proxy voting guidance for fiduciaries out of concern previous guidance caused confusion, the agency said in a statement when the rule was announced.

EBSA had issued sub-regulatory guidance and individual letters stating that fiduciaries must not “subordinate the interest of participants and beneficiaries in their retirement income to unrelated objectives.” But a misunderstanding persisted, according to the proposed rule, that fiduciaries were responsible for researching and voting all proxies, causing plans to expand their assets unnecessarily.

“The rule expressly states that fiduciary obligations do not require the voting of every proxy,” said Deputy Secretary of Labor Patrick Pizzella during the call Friday. “It provides safe harbors, so that fiduciaries are clear in the understanding that they need not vote proxies that are unlikely to impact investment performance of the plan and portfolio.”

Friday’s announcement follows a flurry of major agency proposals released this summer that affect fiduciary responsibilities and benefits plans focused on environmental, social, and corporate governance funds.

The proxy voting rule proposal was first published in the Federal Register on Sept. 4 and, like the others released this summer, had only a 30-day public comment window. It will go into effect 30 days after it’s published in the Federal Register, although certain record-keeping requirements may be delayed by up to a year for investment advisers who aren’t registered with the U.S. Securities and Exchange Commission.