On April 23, 2018, the US Department of Labor (DOL) issued Field Assistance Bulletin (FAB) 2018-01 regarding proxy voting, shareholder engagement and economically targeted investments (ETIs) under the Employee Retirement Income Security Act of 1974 (ERISA).

The FAB elaborates DOL’s most recent guidance in Interpretive Bulletins (IB) 2016-01 and 2015-01. IB 2016-01 discusses the exercise of shareholder rights and written statements of investment policy. IB 2015-01 considers employee benefit plan investments in ETIs (the terminology adopted by DOL in 1994). Specifically, the FAB is framed as a “clarification” of DOL’s earlier guidance with respect to compliance with the following matters under ERISA’s fiduciary standards.

  • Reflecting DOL’s longstanding position that plan fiduciaries may not sacrifice investment return or take on additional investment risk to promote collateral social policy goals, the FAB reiterates that ERISA fiduciaries must always put the economic interests of the plan first.
  • According to the FAB, fiduciaries must avoid too readily treating environmental, social and governance (ESG) factors as being economically relevant to any particular investment choice. DOL acknowledged that ESG factors may be economically relevant in certain circumstances. The FAB instructs, however, that a fiduciary’s economic evaluation of plan investments should be “focused on financial factors that have a material effect on the return and risk of an investment…consistent with the plan’s articulated funding and investment objectives.” This language appears to walk back positions taken in IB 2015-01.
  • The FAB also argues that ERISA plans are not required to adopt investment policy statements with express guidelines on ESG factors. While IB 2016-01 noted DOL’s position that investment policy statements may include guidelines regarding economically targeted investments or the use of ESG factors, the FAB clarifies that plans are not required to do so. The FAB further observes that even where an investment policy statement contains such guidelines, insofar as compliance would be imprudent, fiduciaries and/or investment managers would be obligated to disregard them.
  • The FAB also addresses issues that arise in the use of ESG-themed investment alternatives in 401(k)-type plans and as qualified default investment alternatives (QDIAs). DOL recognized that based on the structure of 401(k)-type investment platforms, plans may provide ESG-themed investment alternatives without forgoing other non-ESG-themed investment alternatives. However, pointing to the nature of QDIAs, DOL took the position that the complexity of reconciling the use of ESG factors with the need to balance potentially competing policy interests of plan participants and beneficiaries would inherently give rise to questions regarding compliance with the fiduciary duty of loyalty. The FAB thus raises the fiduciary stakes for selecting an ESG investment option as a QDIA.
  • Finally, the FAB states that plan fiduciaries (including investment managers) may not routinely incur significant plan expenses for the costs of proxy voting and other shareholder engagement activities. DOL explained that its views on this point in IB 2016-01—that shareholder engagement activities are justified if there is a reasonable expectation of enhancing the value of plan investments—presumed that such activities typically do not involve a significant expenditure of funds (because the activities are generally handled at the institutional investment manager level as opposed to the individual plan investor level). Thus, the FAB declares that DOL’s interpretation of reasonable shareholder engagement activities under IB 2016-01 should be read with that underlying context in mind.

Eversheds Sutherland Observations

  • These issues have become the hardy perennials of DOL guidance. As shown in the chart below outlining a selection of sub-regulatory ERISA guidance, DOL has made a pronouncement on one or both of these issues during each Presidential Administration starting with President Carter’s. The last three Administrations produced dueling Interpretive Bulletins that revoked prior guidance and substituted their own perspective. While the FAB does not explicitly revoke the Obama Administration Interpretive Bulletins, its clarifications plainly change the direction of some of that guidance


  • This meandering guidance both reflects and channels the ongoing debate in broader investment, corporate governance and political circles about shareholder activism and ESG investing generally, and more specifically on whether ERISA fiduciaries should take into account only conventional risk/return factors, or may also consider, or even put a thumb on the scale in favor of, additional factors.
  • In principle, guidance that changes with the occupancy of the White House is hard on the rule of law and hard on the fiduciaries charged with the investment of US private retirement plans. In practice, the absence of enforcement or private litigation on these matters suggests that plan fiduciaries are managing substantially to meet their obligations under ERISA.