The Department of Labor is preparing to issue regulations on proxy voting by retirement plans that will likely resemble the requirements proposed by the SEC.
The Office of Management and Budget’s Office of Information and Regulatory Affairs recently published a “Proxy Voting Update” notice about a “deregulatory action” by the DOL to “modernize fiduciary practices related to the voting rights associated with ERISA plan investments and harmonize those regulations with the requirements of other regulators.” The OMB office reviews significant regulatory actions before they are officially proposed and subject to public review.
Marcia Wagner, founder of the Wagner Law Group, which specializes in ERISA and other labor law issues, said she was a bit surprised by the DOL announcement given that the agency had addressed proxy voting policies and 2015 and 2016 interpretive bulletins but understood that the announcement related to regulations proposed since then by the SEC.
The latest SEC proposal, issued in November, includes stricter requirements for shareholders to submit and resubmit proxy proposals, which are common, and requires that proxy advisors thoroughly disclose potential conflicts of interest and allow companies to review proxy voting advice before it’s issued.
(Related: SEC Approves Proposed Proxy Rule Changes)
“The principles of DOL guidance should be substantially the same as the SEC guidance, and would be equally applicable to defined benefit plans and defined contribution plans,” said Wagner. She added however, that a final DOL rule could differ from SEC’s guidance because, unlike the SEC, DOL guidance requires an economic analysis and any possible differing impacts on small and large retirement plans.
The DOL proxy proposal is expected to be published sometime in the next 30 to 90 days following OMB’s review, after which it will be subject to public comment.
Meanwhile, the Labor Department has still not published a revised fiduciary rule for broker-dealers, which has been expected during the current quarter. It, too, will follow a related proposal from the SEC, the SEC’s best interest rule for broker-dealers. That rule took effect in September but full compliance is not required until June 30, 2020 and lawsuits challenging the rule have been filed by several state securities regulators and the XY Planning Network.
The DOL’s new fiduciary rule “will need to address issues that are outside the scope of the SEC’s jurisdiction, such as advice to a retirement plan committee, and it may differ from the SEC’s position on whether on certain issues, such as whether “best interests “ should be defined,” says Wagner. The SEC’s best interest rule does not specifically define the term.