Social Investment Policies Redux: Department of Labor Issues Final Rule Regarding Proxy Voting and Shareholder Rights
On December 11, 2020 the Department of Labor announced a final rule regarding fiduciary duties relating to proxy voting and other shareholder rights under ERISA employee benefit plans. This final rule is in supplement to, and consistent with, the Department’s final rule issued on October 30, 2020 regarding social investment policies for employee benefit plans,
In an effort to clarify prior guidance, the Department issued the final proxy voting rule based on principles and process rather than specific mandates that could add to plan compliance costs. With respect to proxy voting and shareholder rights ERISA plan fiduciaries are expected to fulfill their duties to act prudently and in the exclusive interests of plan participants in accordance with the following principles:
1. The fiduciary duty to manage shareholder rights does not require the voting of every proxy or the exercise of every shareholder right.
2. The responsible fiduciary must:
- act solely in accordance with the economic interests of the plan and its participants;
- consider any costs involved before deciding to vote a proxy;
- NOT subordinate participants’ interests in financial retirement security under the plan to any non-pecuniary objectives, like social or political goals;
- evaluate material facts that provide the basis for any specific proxy vote or other exercise of shareholder rights;
- maintain records relating to proxy voting and the exercise of other shareholder rights; and - act prudently and diligently in the selection and monitoring of any shareholder rights advisers or other service providers.
3. The responsible fiduciary may adopt one or both of the following safe-harbor policies that are considered ERISA compliant:
(a) proxy voting will focus only on proposals that the fiduciary has prudently determined are substantially related to the subject corporation’s business activities or are expected to have a material effect on the value of the plan’s investments;
(b) the fiduciary will refrain from voting on proposals when the fiduciary prudently determines that the size of the plan’s holdings in the stock subject to vote is sufficiently small so that the matter subject to the vote is not expected to have a material impact on the plan’s investments.
If you have any questions relating to this Client Alert, or would like to discuss this matter, please contact James N. Karas, Jr., Robert C. Daleo, Jason D. Navarino, or Adam J. McInerney or other members of Riker Danzig’s Employee Benefits and Executive Compensation Practice Group.