As ERISA fiduciary law continues to develop, it is useful to think about areas involving fiduciary decision-making and a decision-making method that provides liability insulation.  Some areas involving fiduciary decision-making include plan investments in general, the decision to include revenue sharing funds in a plan, the payment of plan expenses, and as Department of Labor Bulletin 2016-1 reminds us, investment policy statement preparation, proxy voting, and investments involving environmental, social and governance (“ESG”) factors.

Case law has developed to the point where it is fairly safe to say that a court would likely not second guess a decision in one of the areas above (or any fiduciary decision for that matter) as long as it is deliberated and well-reasoned by knowledgeable fiduciaries.  In other words, courts are more concerned with process than outcomes.  Thus, to all fiduciaries reading this, a good conversation may not only be enjoyable, but it could be a great insurance policy.  Join in on the conversation at meetings, ask questions to gain an understanding of the topics discussed, and don’t be afraid to disagree if something doesn’t sound right to you.  Committee meeting minutes should reflect this type of well-reasoned decision-making process.

Department of Labor Bulletin 2016-1 acknowledges that an investment policy statement may contain provisions on proxy voting and policies regarding ESG factors.  Regarding proxies, the Bulletin states that a responsible fiduciary must vote proxies on issues that may affect the value of the plan’s investments.  The Department has withdrawn prior guidance suggesting that a fiduciary should perform a cost-benefit analysis in every circumstance and not vote a proxy unless the expected economic benefits of voting exceed the cost of voting.

The Bulletin also seeks to further clarify the degree to which fiduciaries should consider non-economic factors in their decision-making. Department of Labor Bulletin 2008-2 essentially stated that a fiduciary should never consider non-economic factors.  The Department now rejects that approach.  Bulletin 2016-1 states that “plan fiduciaries may not increase expenses, sacrifice investment returns, or reduce the security of plan benefits in order to promote collateral goals.”  However, a fiduciary is not prohibited from recognizing the possible financial benefits that may be associated with considering ESG issues.

Based on the foregoing, fiduciaries should examine and revise their investment policy statements as needed, update proxy voting policies to be consistent with the Bulletin, and remove any language that suggests a fiduciary cannot consider the potential economic benefits involved with considering ESG issues in the investment decision-making process. Feel free to call Tomasek Law Office if you need help with this exercise.