The Department of Labor proposed a rule Monday that would require ERISA-governed fiduciaries to cast proxy votes only when they would have an economic impact on the retirement plan.
The proposed rule, which will have a 30-day comment period, would ensure that ERISA plan fiduciaries "keep their eyes properly focused on the interests of ERISA plan participants," a senior Labor Department official said on a call with reporters.
The proposal includes provisions that articulate general duties requiring fiduciaries to vote any proxy where the fiduciary “prudently determines that the matter being voted upon would have an economic impact on the plan,” the Labor Department said in a news release. Moreover, the rule would prohibit fiduciaries from voting any proxy unless the fiduciary “prudently determines that the matter has an economic impact on the plan.”
In its proposal, the Labor Department outlined permitted practices under which a plan fiduciary can adopt certain proxy voting policies and parameters reasonably designed to serve the plan’s economic interest.
“The proposed proxy rule would ensure that individuals responsible for the retirement savings of millions of American workers are voting proxies only where it is financially in the interest of the plan to do so,” Secretary of Labor Eugene Scalia said in the news release. “The proposal would provide clarity and further the prudent management of plan assets and resources.”
George Michael Gerstein, co-chairman of the fiduciary governance group at Stradley Ronon Stevens & Young, said the proposal was not surprising following an April 2019 executive order from President Donald Trump that called on the Labor Department to review its proxy guidance.
However, Mr. Gerstein said the proposal “could present real practical challenges in that benefits from shareholder engagement are often long term in nature. So we’ll have to look at the rule carefully in order to see if this is remotely workable in the real world.”