The Department of Labor wants to limit retirement plan fiduciaries from voting on shareholder issues that don’t have a direct economic impact on their plans, according to news reports.

On Monday, the DOL issued proposed rulemaking that would apply to retirement plans governed by the Employee Retirement Income Security Act, with a particular emphasis on environmental, social and governance issues, FA-IQ sister publication FundFire writes. 

“The Department’s concerns about plans’ voting costs sometimes exceeding attendant benefits has been amplified by the recent increase in the number of environmental and social shareholder proposals introduced. It is likely that many of these proposals have little bearing on share value or other relation to plan interests,” the DOL wrote, according to FundFire.

The latest proposal comes a little more than two months after the DOL proposed requiring retirement plans to justify their selection of ESG funds as well as to demonstrate that such funds are not “economically indistinguishable” from other investments. 

Michael Weddell, an attorney and retirement director at Willis Towers Watson, tells FundFire that the DOL’s recent proposal and the one about ESG investing have “a common philosophical overlap.”

But the DOL says there is some flexibility for plan fiduciaries: for example, they can create a proxy voting policy that would account for instances when the vote share controlled by the plan could change the outcome and the result could have an economic impact on the plan, the publication writes.

Lawyers, however, say the DOL’s most recent proposal will force plan sponsors to boost oversight of proxy voting, according to FA-IQ sister publication Ignites.

At the same time, the proposal may lead plans to rely less often on proxy advisors, according to the publication. 

On the other hand, because of the added oversight, plans are also more likely to cut down on the frequency of their proxy voting, says Josh Lichtenstein, partner at Ropes & Gray, according to Ignites. 

Reports emerged last month that the DOL has been targeting not just plan sponsors but also RIAs, asking them for information about their ESG fund selection in letters sent out in July. 

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