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Newly Proposed DOL Rule Would Curb Fiduciaries’ Proxy Power (1)

Aug. 31, 2020, 8:46 PMUpdated: Sept. 1, 2020, 11:46 AM

Fiduciaries and other asset managers would be prohibited from voting proxies or exercising other shareholder rights impacting a retirement plan unless a matter has an economic impact on pension and 401(k) plans, under a newly proposedU.S. Labor Department rule.

The proposal sets forth additional “permitted practices” under which the plan fiduciary can adopt certain proxy voting policies and parameters to only serve in the plan’s economic interest.

The Employee Benefits Security Administration sought the rulemaking to establish clearer proxy voting guidance for fiduciaries out of concern prior guidance caused confusion, the agency said Monday.

“The proposal would clarify Employee Retirement Income Security Act fiduciary duties for proxy voting and monitoring proxy advisory firms,” Acting Assistant Secretary Jeanne Klinefelter Wilson said in a statement. “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.”

This proposed rule is related to EBSA’s pursuit of other regulations limiting the ability of fiduciaries to incorporate environmental, social, and governance factors when making investment decisions.

The department in June proposed a new rule that would change the Employee Retirement Income Security Act of 1974 (ERISA) to require those overseeing pension and 401(k) plans to always put economic interests ahead of so-called “non-pecuniary goals,” or those that take into account ESG-related factors.

EBSA takes the position that environmental, social and governance investment strategies sacrifice returns, increase risks, and promote goals unrelated to financial performance, according to a recent Bloomberg News report.

The department is giving the public 30 days to comment on the proposal.

(Updated with comment from Jeanne Klinefelter Wilson in fourth paragraph. Story originally published on Aug. 31.)

To contact the reporter on this story: Jaclyn Diaz in Washington at jdiaz@bloomberglaw.com

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com

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