Proxy Advisors: New DOL Guidance Creates ERISA Fiduciary Risk

Key Takeaways

• DOL may label proxy advisors as functional fiduciaries under ERISA
• Five‑part test could classify advisory services as investment advice fiduciaries
• State disclosure laws likely preempted by ERISA under new guidance
• Asset managers urged to audit proxy advisor contracts for fiduciary risk
• Monitoring future rulemakings is recommended to avoid co‑fiduciary liability

Pulse Analysis

The Department of Labor’s Technical Release 2026-01 builds on a December executive order targeting proxy advisory firms, signaling a regulatory shift that could redefine the fiduciary landscape for retirement plans. By interpreting ERISA’s functional‑fiduciary language to include entities that influence how plan assets vote, the DOL is extending the scope of fiduciary responsibility beyond traditional investment managers. This move aligns with broader federal efforts to increase transparency and accountability in corporate governance, especially as proxy advisors wield significant influence over shareholder voting outcomes.

For proxy advisory firms, the new guidance introduces a practical test: the five‑part investment‑advice framework. Firms that regularly provide plan‑specific voting recommendations, exercise discretion over voting policies, or tailor advice to individual plan needs are likely to be deemed fiduciaries. This classification triggers heightened duties, including the duty of loyalty and prudence, and exposes both the advisors and the plan sponsors to potential ERISA §405 co‑fiduciary liability. Legal counsel is already urging asset managers to conduct thorough audits of existing proxy‑advisor contracts, assess exposure, and consider restructuring arrangements to mitigate risk.

The industry impact could be profound. If firms restructure or reduce reliance on external advisors, voting‑recommendation ecosystems may see consolidation or a shift toward in‑house capabilities. Moreover, the DOL’s pre‑emptive stance on state disclosure mandates suggests future rulemaking could further tighten permissible non‑financial considerations in proxy advice. Plan sponsors should therefore stay vigilant, integrate compliance checks into governance processes, and prepare for possible rule proposals that could reshape how proxy advice is delivered and disclosed.