On April 1, 2026, the U.S. Department of Labor (DOL) published a technical release indicating that proxy advisory firms may meet the definition of an investment fiduciary and fall subject to the Employee Retirement Income Security Act (ERISA).
Quick Hits
- New DOL guidance indicates that state laws relating to ESG investments would avoid ERISA preemption, creating additional legal risk to plans that offer ESG investments.
- The guidance sets forth the DOL’s position that proxy advisors can be fiduciaries subject to ERISA.
- Management of shareholder rights exercises discretion over plan assets and meets ERISA’s definition of a fiduciary.
- The DOL is following the DOL’s 1975 five-part test for determining whether providing investment advice for a fee renders a person a fiduciary. The existence of a contract between a plan and a proxy advisory firm for investment advice services may be a relevant factor in determining whether this test is met.
This guidance represents the latest chapter in the Trump administration’s movements against environmental, social, and governance (ESG) investments, and it could increase employers’ legal exposure under state laws relating to plan investments.
Risk for ESG Investments
The guidance, released by the DOL’s Employee Benefits Security Administration (EBSA), follows a December 2025 executive order from President Donald Trump, which directed federal agencies to strengthen fiduciary standards and increase transparency around proxy advisory firms. That order called out practices that considered diversity, equity, and inclusion (DEI) and ESG factors. Most recently, the DOL also issued guidance addressing the extent to which ERISA-covered retirement plans may consider nonpecuniary factors in investment decisions.
For employers, perhaps more significant than the headline focus on proxy advisory firms is the language addressing the risk of regulatory fragmentation, particularly as a direct response to state-level actions that seek to limit consideration of ESG or DEI factors and impose additional disclosure requirements on such investments. Historically, the impact of these state laws on ERISA-covered benefit plans has been relatively limited due to the expectation that they would be preempted by ERISA.
The new guidance clarifies that a state law is not preempted by ERISA when the state law requires proxy advisory firms to disclose to plan investors when they make recommendations for any purpose other than maximizing risk-adjusted return. In a notable departure from prior assumptions, and against the backdrop of gradual judicial narrowing of ERISA preemption, the guidance expressly states that these types of state laws would generally not be preempted. This position places retirement plans in a precarious position, increasing potential exposure to claims and other liability to the extent their investment lineups include ESG investments.
ERISA Fiduciaries Subject to High Standards
ERISA imposes fiduciary duties of prudence and loyalty on fiduciaries of retirement, health, and welfare plans. Under a five-part test established in 1975, a person is a fiduciary when he or she provides individualized investment advice on a regular basis under a mutual understanding that the plan will rely on that advice as a primary basis for investment decisions.
The fiduciary status has two key practical consequences for employers and plan sponsors. First, all actions taken on behalf of the plan must satisfy ERISA’s prudence and loyalty standards. Second, fiduciaries face potential liability for engaging in prohibited transactions with respect to plan assets. The new guidance specifies that shareholder rights, including proxy voting for shares held by ERISA-governed plans, are plan assets. Accordingly, the exercise of those rights is subject to fiduciary standards, meaning fiduciaries must manage proxy voting decisions with the same care and loyalty required for any other plan asset.
Limited Role of Proxy Advisors
Proxy advisory firms are third-party entities that provide research, data, and voting recommendations to institutional investors, often addressing corporate governance issues like director elections, executive compensation, and mergers.
The DOL has indicated that, depending on the facts and circumstances, a proxy advisory firm could satisfy the five-part fiduciary test. Proxy advisory firms may be ERISA fiduciaries when they exercise control over proxy voting for plan-held shares or provide fee-based proxy voting advice to ERISA plans.
However, this part of the guidance is likely to have minimal practical impact on most plan sponsors.
In practice, this issue is most relevant to defined benefit pension plans. Large corporate and union pension funds hold diversified equity portfolios, spanning hundreds or thousands of companies, making it impractical to independently analyze every proxy ballot. It is common to hire proxy advisors responsible for overseeing their votes to protect participants’ interests. However, the Supreme Court of the United States’ decision in Thole v. U.S. Bank, N.A., limits exposure for these plans, as plan participants likely lack standing to sue over proxy voting decisions.
Defined contribution plans, such as 401(k)s, more often invest in mutual funds or trusts, where fund managers, not the plans, hold shares and vote proxies. Consequently, most 401(k) plans don’t vote proxies directly and rarely need proxy advisory firms.
There is a risk, however, that the DOL will scrutinize proxy advisory services to employer plans to attack whether the voting recommendations violate the DOL’s view that ERISA fiduciaries’ duty of loyalty requires a singular focus on maximizing risk-adjusted financial returns for the plan and not on ESG or DEI interests.
Next Steps
In light of this guidance, to the extent a plan offers ESG or similar investments, it may wish to consider reviewing compliance with applicable state proxy-voting or investment-related rules to assess potential legal exposure. Plans also might consider reviewing their investment policy statements, particularly the sections addressing proxy voting, to ensure the language does not create fiduciary exposure under the new guidance.
Additionally, plans that hire proxy advisors may want to review their service agreements to assess fiduciary status under the five-part test and, assuming the test is met, ensure the agreements appropriately address fiduciary status and related responsibilities, such as fee disclosures.
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