On December 29, 2016, the US Department of Labor (DOL) issued Interpretive Bulletin 2016-1 (IB 2016-1) addressing how ERISA’s fiduciary responsibility rules apply to proxy voting, maintenance and compliance with investment policy statements, and shareholder engagement with corporate management. IB 2016-1 replaces Interpretive Bulletin 2008-2 (IB 2008-2) and returns in several respects to the positions described in the predecessor to IB 2008-2—Interpretive Bulletin 94-2—with some notable modifications.

In the DOL’s view, IB 2008-2 has been misunderstood in a way that has discouraged ERISA plan fiduciaries from voting proxies or engaging in shareholder activism because it has been read to require that a plan perform a cost-benefit analysis and conclude, in each instance, that a proxy vote or shareholder engagement is more likely than not to increase the economic value of the plan’s investment. According to the most recent guidance in IB 2016-1, except in special circumstances such as voting proxies on shares of foreign corporations, such a cost-benefit analysis should not be necessary, as it is the DOL’s understanding that many proxy votes involve very little (if any) additional expense to plans.

Consistent with other recent guidance, IB 2016-1 further provides that a statement of investment policy can include policies concerning economically targeted investments or incorporating environmental, social, or governance (ESG) factors. IB 2016-1 states that if a fiduciary concludes that there is a reasonable expectation that shareholder engagement on ESG issues is likely to enhance shareholder value (after taking the costs involved into account), a fiduciary can—consistent with under ERISA—take into account ESG impacts in proxy voting and shareholder engagement. IB 2016-1 also lowers the threshold for shareholder engagement activities by changing the standard from the plan fiduciary having a reasonable expectation that such activities will enhance the plan’s economic value to being likely to enhance the value of the investment to the plan—consistent with the DOL’s original 1994 position.

Key Takeaways

In light of these changes and subject to possible future changes (given the past history), investment managers of ERISA plan assets and other ERISA plan fiduciaries should assess how these changes impact their oversight and implementation of proxy voting for plan assets they manage, as well as their approach to shareholder activism. It also may be a good time to review and update proxy voting policies to ensure that they are consistent with current practices.