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Summary of Biden Administration changes to Trump ESG/Proxy Voting Rules

The following is a brief summary of the main changes made by the Biden Department of Labor to the Trump Department of Labor ESG/Proxy Voting Rules.


With respect to the fiduciary duty prudence:

  • Changed the 2020 rule’s “pecuniary/non-pecuniary” terminology to “risk-return” terminology: “[A] fiduciary’s determination with respect to an investment … must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis.”
  • Changed language in the 2021 proposal stating that prudence “may often require” evaluation of “climate change and other ESG factors” to “may include the economic effects of climate change and other [ESG] factors.”
  • Eliminated the 2020 rules’ prohibition of ESG funds in qualified default investment alternatives (QDIAs) (e.g., a 401(k) plan’s default target date fund) – “the same standards apply to QDIAs as to investments generally.”

With respect to the fiduciary duty of loyalty:

  • A more flexible tie-breaker rule, “require[ing] the fiduciary to conclude prudently that competing investments … equally serve the financial interests of the plan over the appropriate time horizon.”
  • Eliminates the 2020 rule’s elaborate documentation and disclosure requirements for tie-breaker decisions.
  • Clarifies that fiduciaries may take into account participant preferences (including, e.g., demand for an ESG fund) in constructing a participant directed DC plan fund menu. Prudence requirements would, however, still apply to fund selection.

Takeaways – ESG in two bullets

  • An ESG investment meets ERISA’s prudence requirement in the same way as any other investment, based on risk/return.
  • “Collateral” (non-financial) factors may be considered where competing investments both serve the financial interests of the plan.

Proxy voting –

  • Language in the 2020 Rule stating that ERISA’s fiduciary rule “does not require the voting of every proxy or the exercise of every shareholder right,” was eliminated because of concern that it could be “misread as suggesting that plan fiduciaries should be indifferent to the exercise of their rights … even if the cost is minimal.”
  • The 2022 Rule eliminates the two “proxy non-voting” safe harbors that would have allowed sponsors to adopt an explicit non-voting position with respect to non-business/investment related proposals or where the plan’s investment was “below a quantitative threshold.”
  • The 2022 Rule eliminates the 2020 Rule’s special monitoring obligations with respect to investment managers and proxy voting firms and specific records requirements with respect to proxy voting/exercises of shareholder rights. Instead, the general fiduciary duty to monitor applies.
  • The 2022 Rule eliminates language in the 2020 Rule that prohibited fiduciaries from exercising shareholder rights to “promote non-pecuniary benefits or goals unrelated to those financial interests of the plan’s participants and beneficiaries.”

Takeaways – proxy voting in four bullets

  • When deciding whether to exercise shareholder rights/vote a proxy, the fiduciary must consider the cost of doing so, may not “subordinate the interests of the participants and beneficiaries … to any other objective,” must evaluate relevant facts, and must exercise prudence and diligence in selecting and monitoring, e.g., agents to exercise or advise on the exercise of those rights.
  • The fiduciary may not automatically follow such an advice firm’s recommendations without determining that its guidelines meet regulatory requirements.
  • The fiduciary may adopt “proxy voting policies providing that the authority to vote a proxy shall be exercised pursuant to specific parameters prudently designed to serve the plan’s interests.” These policies must be periodically reviewed, and appropriate exceptions may be made to them.
  • Generally, the plan trustee is responsible for exercising shareholder rights, except where it is subject to the directions of a named fiduciary or an investment manager has been appointed. Special rules apply where the investment manager of a pooled vehicle holds assets of more than one (unrelated) plan.
This is a publication of O3 Plan Advisory Services. If you have any comments, or have questions about regulatory developments, please contact your relationship manager or Mike Barry at    The information, analyses and opinions set out herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. Nothing herein constitutes or should be construed as a legal opinion or advice. You should consult your own attorney, accountant, financial or tax advisor or other planner or consultant with regard to your own situation or that of any entity which you represent or advise.   Information set out or referred to above has been obtained from sources believed to be reliable. However, neither O3 Plan Advisory Services nor any of its affiliates has verified the accuracy or completeness of any such information. All information is provided “as is” and O3 Plan Advisory Services and its affiliates expressly disclaim all express and implied warranties regarding the information. Neither O3 Plan Advisory Services nor any of its affiliates shall have any liability for any use of the information set out or referred to herein.