DOL Guidance Creates New ERISA Risks for Proxy Advisory Arrangements

Key Takeaways

• TR 2026‑01 presumes typical proxy‑advisor services meet fiduciary test
• Fiduciaries must audit engagement letters for five‑part test compliance
• Co‑fiduciary liability may arise under ERISA § 405 if advisors are fiduciaries
• State disclosure laws likely remain non‑preempted, adding compliance layers
• Upcoming DOL rulemaking may eliminate the tiebreaker standard

Pulse Analysis

The Department of Labor’s Technical Release 2026‑01 arrives amid a turbulent regulatory backdrop. After the Trump administration’s 2020 proxy‑voting amendments were softened by the Biden‑era 2022 rule, the agency now leans back toward a stricter, pecuniary‑only approach. By invoking the five‑part fiduciary test—advice, regularity, mutual agreement, primary basis, and plan‑specificity—the DOL effectively treats most fee‑based proxy‑advisor recommendations as fiduciary acts, even when the advice is limited to voting guidance. This shift reflects the executive order’s push to curb ESG and DEI influences and foreshadows a possible repeal of the tiebreaker provision that previously allowed non‑financial considerations when financial outcomes were equal.

For plan sponsors and asset managers, the practical impact is immediate. Engagement letters that merely disclose a “recommendation‑only” role may no longer shield parties from fiduciary status if the advice is used as a primary voting basis. Consequently, fiduciaries must conduct a thorough audit of existing contracts against each prong of the test, paying particular attention to language that creates a mutual understanding or delegates discretion. Where advisors are deemed fiduciaries, ERISA § 405 imposes co‑fiduciary duties, demanding robust monitoring, documentation, and certification of voting decisions. Failure to meet these heightened standards could trigger enforcement actions, as illustrated by the Spence v. American Airlines decision, which highlighted the importance of diligent oversight.

Looking ahead, fiduciaries should treat TR 2026‑01 as a warning sign of imminent rulemaking that may codify a pecuniary‑only regime and further restrict the use of non‑financial factors. Simultaneously, the guidance’s stance that state proxy‑advisor disclosure statutes are generally not pre‑empted adds another compliance layer, especially as more states enact transparency requirements. Proactive steps—restructuring advisory relationships to recommendation‑only models, enhancing monitoring frameworks, and maintaining detailed voting records—will position plans to navigate both federal scrutiny and evolving state mandates while awaiting the DOL’s next regulatory move.