A DOL Proxy Vote Against ESG? – New ERISA Proposal May Limit Plans’ Exercise of Shareholder Rights

September 14, 2020

Key Takeaways

  • The U.S. Department of Labor (the “DOL”) on August 31, 2020 proposed a regulation that would apply to how fiduciaries under the Employee Retirement Income Security Act of 1974 (“ERISA”) should consider decisions with respect to the voting of proxies and other exercises of shareholder rights associated with investments made by plans that are subject to ERISA. 
  • While there are aspects of the proposed regulation that could focus and, therefore, simplify a fiduciary’s duty regarding proxy voting, the proposal also contains potentially new significant compliance burdens in connection with the exercise of shareholder rights. Notably, the approach in the proposed regulation reflects an apparent emerging DOL general opposition to the use of plan assets to promote so-called "ESG" goals. 
  • If finalized as proposed, an effect of the new regulation could be that a manager or other plan fiduciary may find itself constrained regarding the exercise of shareholder rights, other than in limited cases involving a company’s business activities or certain other company-related topics where the plan's exposure to the stock is sufficiently large to justify an expenditure on voting.

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