PSCA Submits Comment Letter on Proxy Voting Rule

In response to the Department of Labor’s (DOL) proposed rule addressing fiduciary duties, PSCA submitted a comment letter, stating our primary concern is that the rule is not needed.

Existing guidance regarding fiduciaries’ duties relating to securities held in portfolios of ERISA retirement plans, including proxy voting policy and other legal rights of a shareholder, provides clear principles informing fiduciaries’ understanding of their obligations.

The DOL’s proposed proxy voting rule released Aug. 31 says that fiduciaries should “refrain from spending workers’ retirement savings to research and vote on matters that are not expected to have an economic impact on the plan.” The proposed regulation seeks to amend the department’s 1979 Investment duties regulation to specify that – in voting proxies and in exercising other shareholder rights—plan fiduciaries must consider factors that may affect the value of the plan’s investment and not subordinate the interest of participants and beneficiaries in their retirement income to unrelated objectives. 

PSCA submits, however, that the experience of its members does not comport with the DOL’s assertion that aspects of guidance and letters may have led to some confusion or misunderstandings regarding the voting of proxies by fiduciaries. PSCA members generally believe that ERISA plan fiduciaries consistently execute their ERISA duties in an appropriate and cost-efficient manner when exercising shareholder rights.

Importantly, we believe that DOL’s “concerns” and “reasons to believe” that the Proposal is warranted merit reconsideration as a basis for its promulgation. By the DOL’s own description it does not have supporting data for some key assumptions and estimates of the proposal. Moreover, the department’s economic assessment is subject to uncertainty because it lacks complete data on plans’ exercise of shareholder rights appurtenant to stock holdings, including proxy voting activities, and the attendant costs and benefits.

We are also concerned that giving fiduciaries clear directions on matters related to carrying out their duties with respect to proxy votes contravenes ERISA principles. It is well-established that whether the actions of plan fiduciaries meet ERISA’s general fiduciary requirements is an “inherently factual” determination in almost any situation.

PSCA is also concerned that the proposal’s prescriptive approach increases litigation risks for plan sponsors and plans themselves. While specifying the considerations fiduciaries must make while considering exercises of shareholder rights to meet their duties of prudence and loyalty, the proposal does not address the increased risks of second-guessing by participants. We believe that a straightforward principles-based process for evaluating whether to exercise shareholder rights is more consistent with ERISA prudence.