U.S. DOL Tightens Reins on Proxy Advisory Firms Under ERISA

On April 1, 2026, the U.S. Department of Labor (DOL) Employee Benefit Security Administration published new guidance applicable to administrators and other fiduciaries of plans subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), that rely on proxy advisory services or proxy advisory firms and to state legislatures seeking to regulate proxy advisory firms in the form of a technical release. The release follows an executive order issued in December 2025 that directed the DOL to consider treating proxy advisory firms as ERISA investment advice fiduciaries.

The guidance addresses previous rules published by the DOL in 2020 and 2022 (described in more detail in our prior Update), regarding the application of the fiduciary duties of loyalty and prudence to the selection of investments and exercise of shareholder rights (including proxy rights) and the ability of fiduciaries to consider the economic effects of climate change and other environmental, social, and governance factors as risk and return factors when making investment decisions and exercising shareholder rights. The DOL confirms that nothing in the 2020 or 2022 final rules undermines its “longstanding view that the management of proxy rights is fiduciary in nature,” and therefore proxy rights must be managed with the sole focus of maximizing returns on investment.

The following is an overview of DOL guidance.

• Proxy Advisory Firms May Be Functional Fiduciaries. The DOL cautions that proxy advisory firms may be considered “functional fiduciaries” under ERISA sections 3(21)(A)(i) and (ii) if they exercise authority or control of the exercise of shareholder rights attributable to shares that constitute “plan assets” under ERISA or provide advice on how to exercise proxy rights attributable to shares owned by ERISA plans.
  • Proxy Advisory Firms That Exercise Control or Authority Over the Exercise of Shareholder Rights Will Be Functional Fiduciaries. The DOL confirmed that proxy advisory firms that have discretion or control over shareholder rights attributable to ERISA plans (e.g., proxy advisory firms that control voting policies or the casting of votes) will be considered functional fiduciaries under ERISA section 3(21)(A)(i).
  • Proxy Advisory Firms Generally Are Investment Advice Fiduciaries Under the Five-Part Test. The DOL confirmed that proxy advisory firms will likely be considered investment advice fiduciaries under the DOL’s five-part test (discussed in more detail in our prior Update). Under the five-part test, a person is a fiduciary only if (1) they render advice to a plan as to the value of securities or other property or make recommendations as to investing in, purchasing, or selling securities or other property; (2) on a regular basis; (3) pursuant to a mutual agreement, arrangement, or understanding with the plan that (4) the advice will serve as a primary basis for investment decisions with respect to the plan’s assets; and (5) the advice will be individualized based on the particular needs of the plan. With the caveat that the ultimate analysis depends on the specific facts and circumstances, the DOL takes the position that proxy advisory firms that provide individualized advice to ERISA plans as to how to exercise shareholder rights on a regular basis will generally satisfy the five-part test.
• State Law Preemption. In light of a number of recent state laws seeking to regulate proxy advisory firms, the DOL provided guidance on the application of ERISA’s preemption clause to state laws mandating disclosure by proxy advisory firms when they make recommendations for reasons other than maximizing returns. The release provides that a requirement that proxy advisory firms disclose when their research or recommendations take nonfinancial factors into consideration would not sufficiently affect ERISA plan administration because proxy advisors are already precluded from taking actions with respect to ERISA plans that would require such disclosures. As such, the DOL concludes that such a law would not be preempted.

This new guidance pulls proxy advisory firms into ERISA’s fiduciary framework, a move that will have cascading effects for retirement plan sponsors and investment managers who will have to apply greater scrutiny when engaging with proxy advisory firms to ensure compliance with fiduciary obligations.