DOL Finalizes Rule on Proxy Voting

The Department of Labor today issued a final rule formalizing requirements regarding a fiduciary’s proxy voting activity under the Employee Retirement Income Security Act. The final rule requires that fiduciaries carry out their duties related to proxy voting solely in accordance with the economic interest of retirement investors. The rule becomes part of DOL’s investment duties regulation, which includes the recently finalized DOL rule on ESG investments.

Among other things, the final rule addresses the application of the “prudence and exclusive purpose” duties under ERISA to proxy voting; the use of written proxy voting policies and guidelines; and the selection and monitoring of proxy advisory firms. ERISA fiduciaries may further adopt one or more of the rule’s optional safe harbors to assist them in complying with the decision on whether to vote proxies.

The American Bankers Association had urged DOL to withdraw the proposal—which it viewed as over-prescriptive and warned would create an unworkable regulatory structure for fiduciary proxy voting governance—while offering a number of recommendations that would avoid unintended adverse consequences for fiduciaries and retirement investors. In response to comments by ABA and other stakeholders, DOL amended the final rule to provide a more principles-based approach while eliminating some of the more burdensome proposed requirements. The final rule takes effect 30 days after publication in the Federal Register.