DOL Completes Fiduciary Rule, Actions on Proxy Voting and ESG Investing
The DOL released its version of the best interest rule, which observers say, largely tracks the SEC’s Reg BI and is likely to be revised by the incoming Biden Administration. According to the Wall Street Journal, the DOL rule includes a broad definition of “fiduciary” and allows brokers and advisers an exemption from a prohibition against earning certain commissions provided they pledge to act in clients’ best interests. An article from Think Advisor presents various early views on the DOL rule from consumer and industry groups. The Department of Labor also announced a final rule establishing a regulatory framework for employee benefit plans’ fiduciaries to follow when they exercise shareholder rights, including proxy voting, and select and monitor proxy advisory firms. The DOL said 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 November, the DOL finalized amendments regarding the investment duties of a fiduciary under ERISA, according to a client alert from lawyers at Stradley Ronon. The rule amendments were aimed at ERISA fiduciaries that utilize products and strategies that incorporate ESG factors, the lawyers write. “Though the DOL opted not to let the final rule get bogged down in the ESG-lexicon quagmire by removing all express references to ‘ESG,’ the final rule clearly and directly applies to fiduciaries that consider ESG factors when investing on behalf of ERISA plans and funds that hold “plan assets”. Indeed, all ERISA fiduciaries that make investment decisions (including the selection of investment funds for participant-directed plan lineups), regardless of whether ESG is even implicated, should review this rule carefully,” the lawyers advise.