PSCA Gives a Thumbs Down on DOL Proxy Proposal

In response to the Department of Labor’s proposed rule addressing fiduciary duties concerning proxy voting, the Plan Sponsor Council of America says that its “primary concern” is that it is “not needed.”

“Existing guidance regarding fiduciaries’ duties relating to securities held in portfolios of ERISA retirement plans, including proxy voting policy and other legal rights of a shareholder, provides clear principles informing fiduciaries’ understanding of their obligations,” the PSCA stated in an Oct. 5 comment letter to the DOL’s Employee Benefits Security Administration.

The DOL’s proposed proxy voting rule released Aug. 31 says that fiduciaries should “refrain from spending workers’ retirement savings to research and vote on matters that are not expected to have an economic impact on the plan.” The proposed regulation seeks to amend the department’s 1979 Investment duties regulation to specify that—in voting proxies and in exercising other shareholder rights—plan fiduciaries must consider factors that may affect the value of the plan’s investment and not subordinate the interest of participants and beneficiaries in their retirement income to unrelated objectives. 

The PSCA submits, however, that the experience of its members does not comport with the DOL’s assertion that “aspects of [existing DOL] guidance and letters may have led to some confusion or misunderstandings” regarding the voting of proxies by fiduciaries. “Rather, PSCA members generally believe that ERISA plan fiduciaries consistently ‘execute their ERISA duties in an appropriate and cost-efficient manner when exercising shareholder rights,’” the letter states.

“Importantly, we believe that DOL’s ‘concerns’ and ‘reason to believe’ that the Proposal is warranted merit reconsideration as a basis for its promulgation,” the PSCA further argues. To that end, the letter emphasizes that—by the DOL’s own description—it does not have supporting data for some key assumptions and estimates of the proposal. Moreover, the department’s economic assessment is subject to uncertainty because it “lacks complete data on plan’s exercise of shareholder rights appurtenant to stock holdings, including proxy voting activities, and the attendant costs and benefits,” the PSCA observes, quoting from the proposed regulation.

The organization also notes that it is concerned that by “giving fiduciaries clear directions” on matters related to carrying out their duties with respect to proxy votes, the proposal contravenes ERISA principles. “It is well-established that whether the actions of plan fiduciaries meet ERISA’s general fiduciary requirements is an ‘inherently factual’ determination in almost any situation,” PSCA explains. Yet, the “specific standards” of Paragraph (e)(2) of the Proposal, which fiduciaries must meet when deciding on exercises of shareholder rights, prescribe considerations for fiduciaries “which could in some cases be resource-intensive [and] may often burden fiduciaries out of proportion to any potential benefit to the plan.”

Finally, PSCA states concern that the proposal’s prescriptive approach increases litigation risks for plan sponsors and plans themselves.

While specifying the considerations fiduciaries must make while considering exercises of shareholder rights to meet their duties of prudence and loyalty, the proposal does not address the increased risks of second-guessing by participants, the letter explains. “We believe that a straightforward principles-based process for evaluating whether to exercise shareholder rights is more consistent with ERISA prudence,” PSCA advises.

The Federal Register shows that the DOL’s proxy voting proposal has received more than 7,000 comments as of the Oct. 5 due date. As of this writing, however, the comments and submissions hadn’t yet been posted online for public analysis.