Proxy Voting Update on DOL Agenda

A look at the Department of Labor’s (DOL)’s fall regulatory agenda reveals a planned notice of proposed rulemaking on proxy voting.

In April, the White House issued an executive order on the evolving topic of proxy voting and environmental, social and governance investing programs being put into practice by retirement plans subject to the Employee Retirement Income Security Act (ERISA). In the order, the Trump Administration says its intent is to “promote energy infrastructure and economic growth.”

In its agenda, the DOL says: “This deregulatory action would modernize fiduciary practices related to the voting rights associated with ERISA plan investments and harmonize those regulations with the requirements of other regulators.”

On August 21, the Securities and Exchange Commission (SEC) issued an interpretive release titled “Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers,” directed at all advisers registered under the Investment Advisers Act of 1940. The SEC focused on three broad categories of Adviser Act compliance as to proxy voting activity: 1) when and to what extent the act applies; 2) the standard of conduct that applies to advisers who engage in proxy voting activities; and 3) the responsibilities of advisers who utilize the services of third-party proxy voting services.

The last the industry heard about guidance for plan fiduciaries in regards to proxy voting by employee benefits plans was in 2018. In a previous discussion with PLANSPONSOR, David Levine, principal with Groom Law Group, explained that the DOL’s Field Assistance Bulletin 2018-01 (issued under the Trump Administration) puts a new spin on the earlier and more legally significant Interpretive Bulletin 2016-01, in which the Obama Administration directed the DOL to operate under the assumption that proxy voting and shareholder engagement can be consistent with a fiduciary’s obligation under ERISA.

The new Trump-inspired spin, in essence, says that the DOL primarily characterized proxy voting and shareholder activism activities as permissible under ERISA because they typically do not involve a significant expenditure of funds, Levine explained. In other words, with President Trump in charge, the DOL now operates under the assumption that it is not always appropriate for retirement plan fiduciaries to routinely incur significant expenses and to engage in direct negotiations with the board or management of publicly held companies with respect to which the plan is just one of many investors.

In its regulatory agenda, the DOL says the goal of its notice of proposed rulemaking “would be to protect the interests of participants and beneficiaries by: (1) addressing practices that could present conflicts of interest associated with proxy advisory firm recommendations; (2) ensuring that proxy voting decisions are based on best information; and (3) ensuring that proxy voting decisions are solely in the interest of, and for the exclusive purpose of providing plan benefits to, participants and beneficiaries.”

Plan sponsors may not know what to do with proxy statements and a request for voting from one of the investments held in their ERISA plans. Michael A. Webb, vice president, Cammack Retirement Group, says it is not a requirement that the plan vote each proxy, and a number of factors, including the expense related to properly reviewing and voting the proxy, should generally be considered. Typically, the plan’s trustee is the one who votes the proxy.

Webb suggests that plans should vote the proxy in a manner consistent with their investment policy in general or the statement of proxy voting policy contained within the plan’s investment policy, in particular. “Proxies can be complicated, and if there is any doubt as to who should be voting the proxy, as well as the procedures that govern the manner in which the proxy should be voted, outside counsel with specific expertise in such matters should be consulted,” he says.