September 22, 2021

Volume XI, Number 265

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September 20, 2021

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U.S. Department of Labor Issues Final Rule on Proxy Voting and Shareholder Rights by Employee Benefit Plans

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.

© 2021 Foley & Lardner LLPNational Law Review, Volume X, Number 349
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About this Author

Peter D. Fetzer, Securities Lawyer, Foley Lardner, Mergers Attorney
Partner

Peter Fetzer is a partner and business lawyer with Foley & Lardner LLP. His practice focuses primarily in the areas of securities regulation, mergers and acquisitions, corporate governance and general corporate counseling to mutual funds, exchange traded funds, publicly traded investment advisers and public companies.

414.297.5596
Stuart E. Fross, Foley Lardner, Securities lawyer, Finance Attorney
Partner

Stuart Fross is a partner and business lawyer with Foley & Lardner LLP where he concentrates his practice on securities laws and regulations, as part of the Private Equity & Venture Capital, Transactional & Securities and International Practices.

Mr. Fross’ main focus is investment managers and pooled investment vehicles, including U.S. registered open-end, closed end and exchange traded funds, bank collective investment funds (with an emphasis a stable value funds), UCITS funds, as well as private funds, organized in the US and...

617-50-3382
Stephen M. Meli Business Attorney Foley & Lardner Boston, MA
Partner

Stephen M. Meli is a partner and business lawyer with Foley & Lardner LLP. Steve is based in the firm’s Boston office where he is a member of the Transactions Practice and focuses on fund formation, emerging and spin-out fund sponsors and institutional investor representation.

Fund Formation Experience

Steve focuses his practice on lower and middle market buyout, venture capital, growth equity, credit and similar private funds, including funds-of-funds and secondary funds.

With an emphasis on commercial sense and practicality, Steve advises sponsors on every...

617-226-3107
Margaret Nelson Financial Attorney Foley & Lardner
Of Counsel

Margaret Gembala Nelson is of counsel with Foley & Lardner LLP, where she represents accounting firms, financial service entities, corporations and their professionals in auditor liability matters, government enforcement investigations and examinations, and complex securities and business litigation. She also conducts internal investigations on behalf of clients and advises on regulatory compliance and risk management issues.

Margaret has more than 15 years of experience as a regulatory and litigation lawyer focusing on complex securities, accounting, compliance, and commercial...

312.832.4376
Thomas J. Krysa Litigation Attorney Foley & Lardner Denver, CO
Partner

Thomas J. Krysa is a partner and litigation lawyer with Foley & Lardner LLP. Tom is based in the firm’s Denver office where he is a member of the Securities Enforcement & Litigation Practice. His practice focuses on advising clients in securities enforcement and litigation matters, government investigations, and complex commercial disputes. Tom, a former SEC senior officer and federal prosecutor, brings extensive government experience to the forefront to solve his clients’ problems short of government action, while at the same time preserving their interests should litigation and...

720-437-2010
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