Action Steps for Managers of Private Investment Funds Subject to ERISA Prior to December 1, 2023 to Address the DOL’s Rule Regarding Proxy Voting

September 25, 2023

Key Takeaways

  • If you manage a private investment fund that is subject to Title I of ERISA and is not a feeder fund (an “ERISA Fund”), you should, before December 1, 2023, take the steps described below in order to comply with the DOL’s 2022 regulation addressing fiduciary responsibilities with regard to selecting plan investments and proxy voting.
  • Managers of an ERISA Fund (“Fiduciary Managers”) should review their own or, if employing a proxy voting service, the proxy services provider’s proxy voting policy/guidelines to assure the policy/guidelines conform to ERISA’s fiduciary standards.
  • Fiduciary Managers should review their ERISA Fund’s subscription agreements to confirm that the subscription representations have been updated to have ERISA investors adopt the Fiduciary Manager’s proxy voting policy.
  • Fiduciary Managers should review all side letters with ERISA investors to determine whether they have agreed to comply with the investing plan’s proxy voting policy or investment policy statement.
  • Managers with separately managed accounts for ERISA plans (“ERISA SMAs”) should review the management agreements for those accounts with respect to proxy voting obligations and, to the extent applicable, should review their own (or, if employing a proxy voting service, the proxy services provider’s) proxy voting policy/guidelines to assure the policy/guidelines conform to ERISA’s fiduciary standards.

On December 1, 2022, the U.S. Department of Labor (the “DOL”) published a final rule titled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (the “Rule”). The Rule’s proxy voting provisions become effective December 1, 2023.

The Rule provides:

Where the authority to manage plan assets has been delegated to an investment manager pursuant to ERISA section 403(a)(2), the investment manager has exclusive authority to vote proxies or exercise other shareholder rights appurtenant to such plan assets in accordance with this section, except to the extent the plan, trust document, or investment management agreement expressly provides that the responsible named fiduciary has reserved to itself (or to another named fiduciary so authorized by the plan document) the right to direct a plan trustee regarding the exercise or management of some or all of such shareholder rights.

The Rule further provides:

An investment manager of a pooled investment vehicle that holds assets of more than one employee benefit plan may be subject to an investment policy statement that conflicts with the policy of another plan. Compliance with ERISA section 404(a)(1)(D) requires the investment manager to reconcile, insofar as possible, the conflicting policies (assuming compliance with each policy would be consistent with ERISA section 404(a)(1)(D)). In the case of proxy voting, to the extent permitted by applicable law, the investment manager must vote (or abstain from voting) the relevant proxies to reflect such policies in proportion to each plan’s economic interest in the pooled investment vehicle. Such an investment manager may, however, develop an investment policy statement consistent with Title I of ERISA and this section, and require participating plans to accept the investment manager’s investment policy statement, including any proxy voting policy, before they are allowed to invest.

A statement of investment policy is defined as a document that “provides general instructions or guidelines to be applied in all applicable situations, such as identification of acceptable classes or types of investments, limitations on investment categories as a percentage of the plan’s portfolio, or generally applicable guidelines regarding voting positions in proxy contests (for example, criteria regarding the support of or opposition to recurring issues, such as proposals to create classified boards of directors or to provide for cumulative voting for board members), rather than specific instructions as to the purchase or sale of a specific investment at a specific time or specific instructions to vote specific plan proxies a certain way.”

Review the Fiduciary Manager’s Proxy Voting Policy and Guidelines

A Fiduciary Manager should confirm and document that its proxy voting policy and any proxy voting guidelines conform to the ERISA standards. The ERISA standards applicable (i) to deciding whether to exercise shareholder rights and (ii) how to exercise such rights require that a Fiduciary Manager act prudently and solely in the interests of, and for the exclusive purpose of providing benefits to, the ERISA plan’s participants and beneficiaries and defraying the reasonable expenses of administering the plan. Specifically, the Rule requires that fiduciaries:

  1. act solely in accordance with the economic interest of the ERISA plan and its participants and beneficiaries, provided that a fiduciary’s determination may be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis, using appropriate investment horizons consistent with the plan’s investment objectives. Risk and return factors may include the economic effects of climate change and other environmental, social, or governance (ESG) factors on the particular investment or shareholder right at issue. Whether any particular consideration is a risk-return factor depends on the individual facts and circumstances. The weight given to any factor by a fiduciary should appropriately reflect a reasonable assessment of its impact on risk-return;
  2. consider any costs involved in voting the proxy;
  3. not subordinate the interests of the ERISA plan participants and beneficiaries in their retirement income or financial benefits under the plan to any other objective; and
  4. evaluate relevant facts that form the basis for any particular proxy vote or other exercise of shareholder rights.

Review any Proxy Service Provider Policies and Guidelines

If the Fiduciary Manager has retained a proxy voting service to exercise shareholder rights or otherwise advise on, or assist with, exercises of shareholder rights for an ERISA Fund, the Fiduciary Manager must make a determination and document that the service provider’s proxy voting guidelines adopted by the Fiduciary Manger are consistent with the fiduciary’s obligations described above.

Review the Plan Asset Fund’s Subscription Agreements

Fiduciary Managers should review the subscription agreements completed by current ERISA investors in their ERISA Funds and update their subscription agreements to the extent necessary.

Seward & Kissel’s standard subscription agreements for ERISA Funds, since 2020, have generally included a representation by an ERISA investor to the effect that the investor “accepts the Manager’s proxy voting policy.” In addition, since at least 2002, our standard subscription agreements have generally included a representation by an ERISA investor to the effect that “the investment program described in the Offering Memorandum is permitted under the laws, rules and documents governing the investor.” If those provisions are included in an ERISA Fund’s subscription agreement, they should be sufficient to demonstrate that the investor has adopted the Fiduciary Manager’s proxy voting policy and/or the ERISA Fund’s investment policy statement as permitted by the Rule.

Review Side Letters with ERISA Investors

Fiduciary Managers should review all their side letters with ERISA investors to determine whether the manager has agreed to comply with an ERISA plan investor’s investment policy statement or proxy voting policy.  If a Fiduciary Manager has entered into such an agreement, then the Fiduciary Manager must determine whether its proxy voting policy conforms to the plan’s investment policy statement regarding proxy voting or the plan’s proxy voting policy. If they conflict, the Fiduciary Manager must obtain written approval to use its own proxy voting policy from the plan fiduciary or bifurcate the vote of the ERISA Fund between the plan investor and the rest of the ERISA Fund.


If a manager has any ERISA SMAs, the manager should review the investment management agreements for those accounts to confirm their proxy voting obligations and the application of the Rule to their execution.  To the extent applicable, the manager should review its own (or, if employing a proxy voting service, the proxy services provider’s) proxy voting policy/guidelines to assure the policy/guidelines conform to ERISA’s fiduciary standards.

For further information regarding this Rule, please contact S. John Ryan at (212) 574-1679, Michael O’Brien at (212) 574-1505, or Bradley Fay at (212) 574-1429.


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