In just a few days, the Department of Labor will be set to satisfy its obligations under the President’s April Executive Order by “complet[ing] a review of existing Department of Labor guidance on the fiduciary responsibilities for proxy voting to determine whether any such guidance should be rescinded, replaced, or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets.” In an op-ed I wrote for Pensions & Investments, I put the EO into context and highlighted some possible paths the DOL could take. As we await any guidance, I would like to highlight this point that I made several months ago:
“…it is possible the DOL could adhere to the executive order by issuing new guidance that raises the perceived costs of proxy voting and other forms of shareholder engagement and/or demands a more rigorous analysis on the part of fiduciaries that such engagement is “clearly connected to” shareholder value. Any new test could not be so onerous as to make divestment preferable to engagement, as that would seem to undermine the executive order’s very purpose.”
We will, of course, conduct a full analysis of new DOL guidance, which we will post to this blog.
Speaking to Fund Intelligence, George Michael Gerstein expressed skepticism that Eugene Scalia, the next Secretary of Labor, would have to recuse himself from rulemaking the DOL is expected to soon announce related to its vacated 2016 Fiduciary Rule. Gerstein also spoke about what he expects from the DOL over the coming months.
Yesterday, the U.S. Senate confirmed Eugene Scalia to succeed Alex Acosta as the Secretary of Labor. Scalia was confirmed along party lines on a vote of 53-44. Last week, Scalia told lawmakers that he may have to recuse himself from the work involved in fiduciary rulemaking due to his involvement in litigation pertaining to the 2016 Fiduciary Rule. Scalia stated that he would seek guidance from the Department of Labor’s (DOL) designated agency ethics official with respect to his ability to participate in such work. However, if Scalia were to be required to recuse himself, political decisions regarding the final rule would likely fall to Patrick Pizzella, the deputy labor secretary who has been the acting head since Acosta stepped down earlier this year.
As early as this fall, we may see the DOL issue new guidance on rollovers (a significant and uncertain issue in the wake of the Fiduciary Rule’s demise) and, in all likelihood, a proposed class exemption applicable to broker-dealers, which, at its heart, could condition relief on adherence to new Regulation Best Interest. We do not anticipate the DOL to reformulate the ways in which one becomes an investment advice fiduciary under ERISA (i.e., expanding the ways in which one becomes a fiduciary).
Finally, we are keeping a close eye on new guidance from the DOL on proxy voting over the next few weeks. You may recall that the President issued an Executive Order in April that, in part, required the DOL to examine if new guidance in this area was necessary. The DOL could decline to issue new guidance, since Field Assistance Bulletin 2018-01 addressed proxy voting. We will provide an update as soon as any new guidance on these issues becomes available.
Senator Lamar Alexander (R – TN), chair of the Health, Education, Labor and Pensions Committee, announced that there will be a final panel vote on September 24 re. Eugene Scalia’s nomination to be the next DOL Secretary.