The US Department of Labor (DOL) released on Wednesday, October 13, a Notice of Proposed Rulemaking on Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights (the proposed rule), which would amend a prior regulation (the 2020 rule).

In addition to revising the regulation of how environmental, social, and governance (ESG) factors may be considered in making investment decisions for ERISA plans (discussed in an earlier blog post), the proposed rule also reverses some of the 2020 rule’s requirements for proxy voting. In particular, the proposed rule would rescind two key requirements relating to proxy voting that were established in the 2020 rule: (1) the requirement to maintain records of proxy voting activities; and (2) the two “safe harbor” policy options that, per the DOL, could have encouraged plan fiduciaries to refrain from voting certain proxies. Further, the proposal would specifically delete language stating that ERISA does not require the voting of every proxy or the exercise of every shareholder right, on the basis, as explained by the DOL, that fiduciaries should “take their rights as shareholders seriously” and should “conscientiously exercise those rights” to protect plan participants, unless they determine that voting proxies in particular instances may not be in the plan’s best interest (e.g., if there are significant costs involved). Instead, the proposed rule would, as a general matter, merely reiterate the longstanding principle that ERISA plan fiduciaries voting proxies must act “solely in accordance with the economic interest of the plan and its participants and beneficiaries.”

But in addition, the proposed rule would open the door for consideration of ESG factors in connection with such voting by noting that such factors could be economically material. 

Otherwise, the proposed rule retains much of what was included in the 2020 rule relating to proxy voting, including requirements with respect to delegation of proxy voting authority (which generally codified prior guidance) and a special rule on the application of the proxy voting standards to pooled investment vehicles.

The proposed rule, if adopted, would remove some of the burdens imposed on plan fiduciaries by the 2020 rule with regard to their proxy voting procedures, and would (in conjunction with the ESG changes discussed in our previous blog post on the proposed rule) appear to open the door to more consideration of economically material ESG factors in determining how to vote proxies.

Of course, our study and analysis of the proposed rule will continue, and we hope to publish a more in-depth analysis in the coming days.

Law clerk Rachel Mann contributed to this post.