• The U.S. Department of Labor (DOL) has issued Interpretive Bulletin (IB) 2016-1 regarding the exercise of shareholder rights and proxy voting policies or guidelines.
  • Specifically, IB 2016-1 replaces IB 2008-2 and reverts back to the standards set forth in IB 1994-02, with some modifications.
  • As a result of the new guidance, investment managers and plan fiduciaries should review their plan documents and procedures relating to proxy voting policies and guidelines as soon as possible.

The Employee Benefits Security Administration (EBSA) published Interpretive Bulletin (IB) 2016-1 on Dec. 29, 2016, relating to the exercise of shareholder rights and written statements of investment policy, including proxy voting policies or guidelines.

IB 2016-1 replaces the most recent bulletin on this topic, IB 2008-2, with the standards set forth previously in IB 1994-02, with some modifications, in order to clarify the obligations and rights of ERISA fiduciaries' exercise of shareholder rights under the Employee Retirement Income Security Act of 1974 (ERISA).

The new bulletin spells out that fiduciaries are not required to engage in a cost-benefit analysis to find that the proxy vote or other exercise of shareholder rights would more likely than not result in an increase in the economic value of the plan. Rather, the U.S. Department of Labor (DOL) wanted to reiterate the essential point of IB 94-2 instead that "a fiduciary's obligation to manage plan assets prudently extends to proxy voting."

Proxy Voting

In IB 2016-1, the DOL made clear that the "fiduciary act of managing plan assets that are shares of corporate stock includes the voting of proxies appurtenant to those shares of stock." Thus, the DOL emphasized that the responsibility of voting proxies remains exclusively with the plan trustee except in two situations: 1) the trustee is subject to the directions of a named fiduciary pursuant to ERISA section 403(A)(1), or 2) the power to manage, acquire or dispose of the relevant assets has been delegated by a named fiduciary to one or more investment managers pursuant to ERISA section 403(a)(2).

The DOL also emphasized that the fiduciary duties defined in ERISA section 404(a)(1)(A) and (B) require that "in voting proxies, the responsible fiduciary consider those factors that may affect the value of the plan's investment and not subordinate the interests of the participants and beneficiaries in their retirement income to unrelated objectives."

Investment Policy Statements and Shareholder Engagement

IB 2016-1 states that an investment policy statement (IPS) crafted to "further the purposes of the plan and its funding policy is consistent with the fiduciary obligations set forth in ERISA section 404(a)(1)(A) and (B)." Additionally, the bulletin states that a vital part of an IPS would be a clear statement of proxy voting policy as well as guidelines governing environment, social, or governance (ESG) factors and economically targeted investments.

The DOL utilized IB 2016-1 to reinstate the notion set forth in IB 1994-02 that plan fiduciaries may engage in other shareholder activities intended to monitor or influence the management of corporations in which the plan owns stock when the responsible fiduciary concludes that there is a reasonable expectation that those activities are likely to enhance the value of the plan's investment in the corporation, after taking into consideration the costs involved. The new bulletin takes IB 1994-02 one step further by defining additional examples of shareholder engagement, including "... the independence and expertise of candidates for the corporation's board of directors and assuring that the board has sufficient information to carry out its responsibility to monitor management ... governance structures and practices."


As a result of IB 2016-1, it is recommended that investment managers and plan fiduciaries review their proxy voting policies and investment policy statements as soon as possible to ensure compliance with the new bulletin.