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A Look at DOL Guidance, Regs and Plans’ Exercise of Shareholder Rights

Government Affairs

The fiduciary standards in ERISA include an obligation to act prudently and solely for the exclusive purpose of providing benefits to participants and beneficiaries and for defraying reasonable expenses, and those standards apply to DB plans and DC plans. The Department of Labor (DOL) has not been silent on the matter, and the Congressional Research Service (CRS) has issued a look at that guidance and regulation. 

Proxy Voting and Exercising Shareholder Rights


A pension plan fiduciary is subject to fiduciary responsibility when deciding whether to vote or not to vote (via proxy or in person) and when deciding how to vote, the CRS notes. They are subject to fiduciary responsibility in the selection and monitoring of proxy advisory firms and ensuring that any proxy advisory firm votes in the best interest of plan participants.

The DOL’s long-standing position, says the CRS, is that plan fiduciaries should engage in proxy voting activities in discharging their fiduciary obligation to prudently manage plan investments. Since there are many issues shareholders may vote on, the CRS notes, institutional investors — such as mutual funds and pension plans — frequently use proxy advisory firms for proposal voting recommendations. Such firms provide institutional investors with research and recommendations on management and shareholder proposals that are voted on at annual corporate meetings.

Voting and Fiduciary Obligations


A pension plan fiduciary’s obligations include voting in a manner that reflects the duty to act solely in the interest of plan participants and beneficiaries, the report reminds. Recent discussions, it notes, focus on which factors are financially relevant to a corporation and, thus, a pension plan’s investment performance — and whether and how institutional investors should vote on proposals related to these factors. 

For example: 

Are fiduciaries expressing their personal preferences or considering what they believe are important financial factors when they support proposals to require companies to disclose their greenhouse gas emissions? 

Do proxy advisory firms have conflicts of interest, such as making recommendations on shareholder proposals while also providing consulting services to those same firms?

DOL Guidance


1988. In an opinion letter to Avon Products, Inc., the DOL said that “the fiduciary act of managing plan assets that are shares of corporate stock includes the voting of proxies appurtenant to those shares” and that a pension plan fiduciary “has a duty to monitor decisions made and actions taken by investment managers with regard to proxy voting.”

1994. In Information Bulletin (IB) 94-2, the DOL recognized that fiduciaries may engage in shareholder activities if — after accounting for costs — such activities are expected to enhance the value of the plan’s investment. However, fiduciaries may not subordinate the economic interests of participants to unrelated objectives.

2008. In IB 2008-02, the DOL clarified that fiduciaries’ voting proxies, after taking into account costs associated with exercising shareholder rights, “shall consider only those factors that relate to the economic value of the plan’s investment and shall not subordinate the interests of the participants and beneficiaries in their retirement income to unrelated objectives.”

2016. In IB 2016-01, the DOL reinstated IB 94-2 with some modifications, noting that IB 2008-02 “worked to discourage ERISA plan fiduciaries who are responsible for the management of shares of corporate stock from voting proxies and engaging in other prudent exercises of shareholder rights.” In IB 2016-01, the DOL said a plan’s investment policy that “contemplates engaging in shareholder activities that are intended to monitor or influence the management of corporations can be consistent with a fiduciary’s duties under ERISA,” if the activity is likely to enhance the value of the plan’s investment.

2018. In Field Assistance Bulletin 2018-01, the DOL said fiduciaries that engage in activities to influence corporate policy might warrant “a documented analysis of the cost of the shareholder activity compared to the expected economic benefit (gain) over an appropriate investment horizon.”

DOL Regulations


December 2020. On Dec. 16, 2020, the DOL issued a final rule relating to the application of ERISA’s prudence and exclusive purpose duties to the exercise of shareholder rights. Fiduciaries were not required to vote all proxies, and proxies must be voted — after taking into account associated costs — with the economic interests of plans and plan participants, and in a manner that did not subordinate their interests to any non-economic objectives or promote goals unrelated to financial interests of participants and beneficiaries. On March 10, 2021 — after the start of a new Administration — the DOL announced that it would not enforce this final rule or pursue enforcement actions and that it intended to revisit it.

December 2022. On Dec. 1, 2022, the DOL issued a final rule that addressed proxy voting and the exercise of shareholder rights; it became effective Jan. 30, 2023. The DOL said the purpose was to clarify the application of ERISA’s fiduciary duties on the exercise of shareholder rights, noting that the 2020 final rule had a “negative impact on plans’ financial performance as they shy away from proxy votes and shareholder engagement activities that are economically relevant.”

Finding out More

The CRS report “Department of Labor Guidance and Regulations on the Exercise of Shareholder Rights by Private-Sector Pension Plans” is available here: