US Labor Department Finalizes Limits on Pension-Fund Voting on Corporate Proxies

December 14, 2020 Updated: December 14, 2020

NEW YORK—The U.S. Department of Labor on Dec. 11 finalized a rule requiring pension funds to vote on shareholder proposals only when there is an economic reason, a change that would curb investors from casting their ballots on many corporate proxies.

The new rule is the latest from the Trump administration targeting investments focusing on environmental, social, and governance (ESG) factors.

Last month, the Department of Labor finalized a rule clarifying that pensions must put retirees’ financial interests first when allocating investments, rather than other concerns such as climate change or racial justice.

The rule “makes clear” that pension fund managers don’t have to vote every corporate proxy, said Jeanne Klinefelter Wilson, acting assistant secretary at the Department of Labor, on a Dec. 11 call.

“This rule sets appropriate guidelines … to ensure that fiduciaries keep their eyes focused on the financial interest” of pension fund beneficiaries, Klinefelter Wilson said.

The Department of Labor’s move to rein in voting comes as shareholder initiatives on topics such as climate change have gained more backing.

Legislators are already gearing up to try to overturn the rules in January. U.S. Sen. Tammy Baldwin (D-Wis.) on Dec. 11 announced proposed legislation that would reverse it and give additional control to workers in how the shares in their retirement plans are voted.

Her office in prepared materials stated, “It is clear that the Department of Labor wrote this rule to prevent workers from using their voices to influence public companies.”

Senior Department of Labor officials said that the rule was substantially changed from the proposal in August to a more “principles-based approach” aimed to reduce the cost burden for fund managers.

Tom Quaadman, an executive at the U.S. Chamber of Commerce, applauded the rule, saying it will “ensure proxy voting follows a transparent and unconflicted process.”

By Jessica DiNapoli