DOL Announces Final Proxy Voting Rule

In December, the U.S. Department of Labor unveiled final regulations on fiduciary duties relating to proxy voting. The final rule states that plan fiduciaries should engage in proxy voting decisions only when it is determined that the decision could have a financial impact on the retirement plan. If deemed necessary to vote, the rule states that a plan fiduciary is required “to carry out their duties prudently and 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.”

One of the changes from the proposed rule is the shift from a rules-based approach to a principles-based approach. The decision was made to eliminate the specific rules that would require a vote or non-vote in certain instances and instead lead fiduciaries to adopt principles that focus on employing a prudent process when deciding whether and how to vote proxies. The DOL noted that this change avoids significant cost increases and potential liability for plan fiduciaries.

As part of the principles-based approach, the DOL produced a list of principles that fiduciaries should comply with when making decisions, in order to meet their prudence and loyalty duties. When a plan fiduciary decides whether to exercise shareholder rights, the plan fiduciary should comply with these six principles:

  1. The fiduciary must act solely in accordance with the economic interest of the plan, its participants, and beneficiaries.
  2. The fiduciary must consider any costs involved.
  3. The fiduciary may not subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan to any non-pecuniary objective, or promote non-pecuniary benefits or goals unrelated to those financial interests of the plan’s participants and beneficiaries or the purposes of the plan.
  4. The fiduciary must evaluate material facts that form the basis for any particular proxy vote or other exercise of shareholder rights.
  5. The fiduciary must maintain records on proxy voting activities and other exercises of shareholder rights.
  6. The fiduciary must exercise prudence and diligence in the selection and monitoring of persons, if any, selected to advise or otherwise assist with exercises of shareholder rights, such as providing research and analysis, recommendations regarding proxy votes, administrative services with voting proxies, and recordkeeping and reporting services.

Included in the final rule, a fiduciary may adopt two safe harbors to satisfy their proxy voting duties. The safe harbor provisions can be adopted, as long as they are created solely in the best interest of participants, and in following the six principles discussed above. Each would satisfy the fiduciary duties of prudence and loyalty in deciding to vote or not. Plan fiduciaries may adopt either or both of the following policies:

  1. A policy that limits voting only to specific types of proposals that the fiduciaries have prudently determined are “substantially related to the company’s business activities or are expected to have a material effect on the value of the plan’s investment.” 
  2. A policy to refrain from voting when the size of the plan’s holdings are below a certain threshold that the fiduciary prudently determines, resulting in the decision being immaterial to the investment performance of the plan.

The final rule on proxy voting will likely be reviewed by the Biden administration. Regardless, fiduciaries should be mindful of the rule’s effective date, January 15, 2021.



Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.

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