DOL’s Final ERISA Proxy Voting Rule Largely Changed to Principles-Based Approach

December 22, 2020

The US Department of Labor (DOL) has released its final rule on the application of ERISA fiduciary duties—specifically the duties of prudence and loyalty—to proxy voting and the exercise of shareholder rights. It takes effect on January 15, 2021, with delayed applicability dates for certain provisions. It adds an additional subsection to the DOL’s final “financial factors” regulation that was published in the Federal Register in November.

The proposed regulation, published in September 2020, had been controversial in a number of respects, with much of the criticism focused on what were considered to be overly prescriptive rules requiring fiduciaries to undertake, and document, a specific cost-benefit analysis before voting any proxies or exercising shareholder rights. In response to the comments, the DOL has eliminated many of those prescriptive requirements, resulting in what the DOL describes as a principles-based rule designed to provide certainty on fiduciaries’ responsibilities under ERISA with respect to proxy voting while offering more flexibility on how those responsibilities may be met. Some of the required steps in the proposal have been effectively replaced by safe harbors. The result, while still possibly requiring changes to existing practices to ensure compliance, should be viewed as more consistent with those practices developed in the wake of the DOL’s previous guidance in this area.