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On October 14, 2021, the U.S. Department of Labor (the “DOL”) published a proposed regulation entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (the “Proposed Rule”).  The Proposed Rule is the latest in a series of DOL guidance and regulations regarding a plan fiduciary’s consideration of environmental, social and governance (“ESG”) factors when making investment decisions for ERISA plans and the exercise of shareholder rights by such plans. The Proposed Rule follows prior regulations issued by the DOL under President Trump in 2020 regarding both ESG (the “2020 ESG Rule”) and proxy voting (the “2020 Proxy Rule,” together with the 2020 ESG Rule, the “2020 Rules”). The 2020 Rules themselves followed a series of sub-regulatory guidance by the DOL, which issued guidance on these topics under each of the Clinton[1], Bush[2], Obama[3] and Trump[4] administrations. While the bedrock principals under the guidance largely remained unchanged, the gloss and tenor of the guidance has shifted, depending upon the political views of the White House’s then-current occupant.

ESG investing is increasingly popular and the importance that the Biden administration places on the topic is evident. In fact, on President Biden’s first day in office, he signed an executive order which
Continue Reading DOL Shifts Toward Favorable View on ESG Investing and the Exercise of Shareholder Rights in New Regulation

On March 10, 2021 the U.S. Department of Labor (“DOL”) released a policy statement that it will not enforce or otherwise pursue enforcement actions against a fiduciary for failing to comply with the “Financial Factors in Selecting Plan Investments” regulation published on November 13, 2020 (the “ESG Rule”) and the “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” regulation, published on December 16, 2020 (the “Proxy Voting Rule”). Both regulations were promulgated by the DOL shortly before the Biden administration took office. In the recent policy statement, the DOL stated that certain stakeholders, including asset managers, plan sponsors and consumer groups have expressed concern over whether these rules accurately reflect a fiduciary’s duties under ERISA and appropriately consider the utility of environmental, social and governance (“ESG”) factors in making investment decisions. As a result, the DOL intends to “revisit” each of these rules.
Continue Reading DOL Announces Non-Enforcement Policy of Recent ESG and Proxy Voting Rules

Plan sponsors and fiduciaries may have spent 2020 scrambling to amend their plans and operating procedures to accommodate breaking COVID-19 guidance, but the Department of Labor’s (“DOL”) and federal courts’ wheels continued to turn, churning out decisions and guidance on a variety of ERISA issues—and plan sponsors and fiduciaries should take note. Included in recent DOL guidance are rules for reviewing and selecting retirement plan investments, voting proxies, and distributing retirement plan notices. Meanwhile, various federal appellate court decisions should lead fiduciaries to review summary plan descriptions (“SPDs”) and the inclusion of single-stock fund investment options in defined contribution plan lineups. The following checklist sets out 2020 developments for plan sponsors and fiduciaries to consider in the new year.
Continue Reading 2021 Plan Sponsor/Fiduciary Compliance Checklist

The longstanding view of the Department of Labor (the “DOL”) has been that proxy voting and other shareholder rights held by an ERISA plan are subject to ERISA’s fiduciary duties of prudence and loyalty. Previously, this view was expressed by the DOL in sub-regulatory guidance, such as interpretive and field assistance bulletins. In September of 2020, the DOL published a proposed rule (the “Proposal”) regarding an ERISA fiduciary’s duties with respect to shareholder rights. On December 16, 2020, the Department of Labor published the final regulation (the “Regulation”). Much like the Proposal, the Regulation requires that when a fiduciary decides whether and when to exercise plan shareholder rights, it must act prudently and solely in the interests of participants and beneficiaries and for the exclusive purpose of providing them benefits and defraying the reasonable expenses of administering the plan. However, in the Regulation, the DOL took an approach that is less prescriptive and more principles-based than the Proposal.
Continue Reading Final ERISA Regulations Describe Fiduciary Duties Related to Plan Proxy Voting

On October 30, 2020, the U.S. Department of Labor (“DOL”) released its final regulation (“Final Rule”) relating to a fiduciary’s consideration of environmental, social and governance (“ESG”) factors when making investment decisions for plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). In response to the proposed rule (the “Proposal”), the DOL received several thousand comments, the vast majority of which opposed the new rule. Many plan sponsors and investment professionals voiced objection to the Proposal’s antipathy towards the consideration of ESG factors. In the Final Rule, the DOL generally softened its stance toward the consideration of economic ESG factors, but
Continue Reading The Department of Labor’s ESG-less Final ESG Rule

On September 4, 2020, the U.S. Department of Labor (the “DOL”) issued a proposed rule regarding a plan fiduciary’s duties with respect to shareholder rights appurtenant to shares of stock held by an ERISA plan (the “Proposal”). ERISA requires that a plan fiduciary carry out its duties prudently and solely in the interests of participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying the reasonable expenses of administering the plan.

The DOL originally articulated its position that ERISA’s fiduciary duties extend to the voting rights of stock in an opinion letter published in 1988 (commonly known as the “Avon Letter”). Since that time, the DOL has provided additional sub-regulatory guidance in the form of Interpretive Bulletins and Field Assistance Bulletins. Much like the DOL’s guidance on ESG investing, the DOL’s guidance in this area has shifted in focus with each presidential administration; however, a published regulation, subject to review and comment like the Proposal, would be more difficult to overturn by a future administration if finalized.

The DOL’s previous guidance issued in 2016 generally encouraged the voting of proxies by plan fiduciaries, other than in certain limited circumstances. In contrast, the Proposal warns that a fiduciary can only vote proxies that it prudently determines to have an “economic impact on the plan after the costs of research and voting are taken into account.”
Continue Reading To Vote, or Not to Vote, That is the Question

On June 22, 2020, the United States Department of Labor (the “DOL”) submitted a proposed regulation (the “Proposal”) regarding the use of Environmental, Social and Governance (“ESG”) factors in selecting investments for plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Proposal generally cautions plan fiduciaries against considering ESG factors when making investment decisions, unless such factors are relevant to the plan’s pecuniary goals.

Interest in ESG-themed investments has surged in popularity in recent years. One 2020 survey showed that nearly 74% of global investors intend to increase their allocation to ESG-oriented ETFs. However, ESG-themed investments have also captured the attention of regulators, including the DOL. The Securities and Exchange Commission recently listed ESG investments in its list of examination priorities with respect to the accuracy and adequacy of disclosures in the marketing of such investments. In addition, President Trump issued an Executive Order on April 10, 2019, which included a section on ESG investments. The Executive Order required the DOL Secretary to complete a review of trends with respect to ERISA plan investment in the energy sector.


Continue Reading DOL Proposed Rule Urges Caution Regarding the Use of ESG Factors for ERISA Plans

On April 23, 2018, the U.S. Department of Labor (“DOL”) issued Field Assistance Bulletin No. 2018-01 (the “FAB”), which revisits two important topics relating to ERISA plan investments: (1) whether and to what extent a fiduciary can consider environmental, social and governance (“ESG”) factors when deciding between different investment options and (2) the exercise of shareholder rights.

The FAB clarifies that while ESG factors can present economic risks or opportunities that can be appropriately considered as part of an economic analysis, prior guidance should not be read to suggest that an investment’s promotion of ESG factors or positive market trends means that the investment is automatically a prudent investment choice. Rather, fiduciaries must always focus on the economic interests of plan beneficiaries and must be careful not to put too much weight into ESG factors.
Continue Reading DOL Issues Guidance on the Use of Environmental, Social and Governance Factors in Evaluating Plan Investment Options and the Exercise of Shareholder Rights

The U.S. Department of Labor (“DOL”) has recently extended the relief previously granted to five financial institutions which allows these banks to continue to rely on the QPAM exemption (Prohibited Transaction Exemption 84-14). The QPAM exemption permits ERISA plans and comingled funds to engage in transactions with “parties in interest” to those ERISA clients without running afoul of ERISA’s prohibited transaction rules, provided that the ERISA plan or fund is managed by a qualified professional asset manager (“QPAM”) and certain other conditions are satisfied. 
Continue Reading DOL Extends QPAM Relief to Five Financial Institutions