On December 11, 2020, the U.S. Department of Labor (“DOL”) announced a final rule establishing a regulatory framework for private employee benefit plans’ fiduciaries to follow when they exercise shareholder rights, including proxy voting, and select and monitor proxy advisory firms.

The DOL stated that the final rule is intended to protect the interests of participants and beneficiaries by: (1) confirming that proxy voting decisions and other exercises of shareholder rights must be solely in the interest of, and for the exclusive purpose of, providing plan benefits to participants and beneficiaries considering the impact of any costs involved; (2) ensuring that plan fiduciaries not subordinate the interests of 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; and (3) improving fiduciary practices relating to the selection and monitoring of proxy advisory firms.

In essence, the final rule bans retirement plan fiduciaries from casting proxy votes that advance social or political goals unless that vote aligns with retirees' financial best interests.  It also makes clear that fiduciaries are not required to vote all proxies and, in some cases, have an obligation to refrain from voting.  Namely, if a responsible fiduciary reasonably determines that the cost of voting (including the cost of research, if necessary, to determine how to vote) is likely to exceed the expected economic benefits of voting, the fiduciary has an obligation to refrain from voting.

The final rule faces opposition from a coalition of Democratic lawmakers, who announced they'd introduce legislation in January to roll back the regulations.

The final rule is effective 30 days after the rule is published in the Federal Register and applies to exercises of shareholder rights after such date. The final rule includes delayed compliance dates to January 31, 2022, for certain recordkeeping and proxy voting policy requirements, subject to conditions set forth in the rule.