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Case of the Week: Proxy Voting on Securities Held in Qualified Plans

Case of the Week

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Texas is representative of a common inquiry related to stock or securities held in an employer-sponsored retirement plan. The advisor asked: “Who or what entity is responsible for proxy voting on securities held in a qualified retirement plan?”

Highlights of the Discussion

The first place to look for the answer as to who/what entity has voting rights for securities held in a qualified retirement plan is in the language of the governing plan document. For example, there generally will be a section entitled “Voting Rights” or “Voting.” The responsible party will be likely be either 1) the plan participant or 2) another plan fiduciary (such as the trustee or investment manager).

In plans where investments are participant-directed, a plan participant has the responsibility to direct the trustee as to the manner in which any voting rights should be exercised, assuming the plan participant timely received all notices, prospectuses, financial statements and proxy solicitation. When participants fail to give instructions, the plan document should address who or what entity assumes the voting responsibility. For example, many plan documents will specify the plan trustee as the entity to vote in lieu of receiving participant instructions. Alternatively, the plan may specify another fiduciary such as an investment manager.

In circumstances where a plan fiduciary has been given proxy voting responsibility under the terms of the plan, responsible individuals must turn to Department of Labor (DOL) regulations for guidance. On December 1, 2022, the DOL published final regulations dealing with Environmental, Social, and Corporate Governance (ESG) investing and proxy voting entitled, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.” The new rules took effect January 30, 2023, while certain provisions related to proxy voting will not apply until December 1, 2023.

The final rule amends the prior regulation to be clear that plan fiduciaries should vote proxies as part of the process of managing a plan’s investments, unless they determine that voting proxies may not be in the plan’s best interest. Plan fiduciaries should not be indifferent to the exercise of shareholder rights.

The final rule amends the current regulation to remove the two ‘‘safe harbor’’ examples for proxy voting policies because the DOL believes these safe harbors do not adequately safeguard the interests of plans and their participants and beneficiaries. What remains is the requirement to prudently manage shareholder rights to enhance the value of plan assets or protect plan assets from risk.

The final rule eliminates the prior rule’s specific monitoring obligations related to the use of investment managers or proxy voting firms. Consequently, the statutory obligations of prudence and loyalty apply to monitoring the work of service providers.

The final rule removes from the current regulation a specific requirement to maintain records on proxy voting activities and other exercises of shareholder rights. The replaced provision was widely perceived as treating proxy voting and other exercises of shareholder rights differently from other fiduciary activities and, in that respect, had the potential to create a misperception that proxy voting and other exercises of shareholder rights are disfavored or carry greater fiduciary obligations than other fiduciary activities.

In the end, the long-standing standards of prudence and loyalty should prevail with respect to proxy voting. Plan fiduciaries should vote proxies as part of the process of managing a plan’s investments, unless they determine that voting proxies may not be in the plan’s best interest.


For guidance on the individual or entity responsible for the voting of proxies for securities held in a qualified retirement plan—turn to the governing plan documents. The authority for proxy voting should be addressed in the plan document and the process and procedures should comply with DOL regulations that emphasize prudence and loyalty.

Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2023, Retirement Learning Center, LLC. Used with permission.


All comments
Joshua Sivers
1 month 1 week ago
Is the word "employer" in the first sentence of the Highlights there on purpose, or is the commentary limited to employer securities?
Joshua Sivers
1 month 1 week ago
I should say, "...there on purpose? Is the commentary..."
1 month 1 week ago
Hello Mr. Sivers -- I confirmed with the author that the commentary isn't just limited to employer securities. We've updated the piece and thanks for your question.