Voting on Principle – ERISA Proxy Regulation Finalized

December 18, 2020
  • The U.S. Department of Labor (the “DOL”) on December 11, 2020 released a final regulation (the “Final Rule”) that addresses the application of the prudence and exclusive purpose duties under the Employee Retirement Income Security Act of 1974 (“ERISA”) to the exercise of shareholder rights, including proxy voting, the use of written proxy voting policies and guidelines and the selection and monitoring of proxy advisory firms. 
  • The Final Rule requires plan fiduciaries, when deciding whether to exercise shareholder rights and when exercising such rights (including the voting of proxies), prudently to carry out their duties solely in the interests of the plan participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying the reasonable expenses of administering the plan.
  • A significant conceptual difference from the proposal of the Final Rule to its final form is to make the rule more principles-based as opposed to prescriptive. The Final Rule focuses on whether a fiduciary has a prudent process for proxy voting and other exercises of shareholder rights. 
  • The Final Rule includes specific language to make clear that plan fiduciaries do not have an obligation to vote all proxies, as well as a safe harbor provision pursuant to which fiduciaries may adopt proxy voting policies and parameters prudently designed to serve the plan’s economic interest. The safe harbor provides an optional means for the satisfaction of fiduciary responsibilities under ERISA regarding the determination of whether to vote.
  •  Although the Final Rule contains potentially new significant compliance burdens in connection with the exercise of shareholder rights, the DOL’s move to a more principles-based approach, and the provision of safe harbors, should facilitate the efforts of fiduciaries to comply with the rule.

Read More >>>

Subscribe to Dechert Updates