Proxy advisors are back in the crosshairs, as a follow-up to the executive order that Dave blogged about in December. Earlier this month, in response to the executive order, the Department of Labor published a technical release – TR 2026-01 – that says that certain services that proxy advisors provide may cause them to be “fiduciaries” with respect to ERISA plans.

I don’t claim to know a whole lot about ERISA, but one thing I do know is that being deemed a plan fiduciary is a pretty onerous prospect. This Sidley memo summarizes key takeaways from the new guidance:

– Proxy Advisory Firms May Be Functional Fiduciaries. The DOL cautions that proxy advisory firms may be considered “functional fiduciaries” under ERISA sections 3(21)(A)(i) and (ii) if they exercise authority or control of the exercise of shareholder rights attributable to shares that constitute “plan assets” under ERISA or provide advice on how to exercise proxy rights attributable to shares owned by ERISA plans.

– Proxy Advisory Firms That Exercise Control or Authority Over the Exercise of Shareholder Rights Will Be Functional Fiduciaries. The DOL confirmed that proxy advisory firms that have discretion or control over shareholder rights attributable to ERISA plans (e.g., proxy advisory firms that control voting policies or the casting of votes) will be considered functional fiduciaries under ERISA section 3(21)(A)(i).

– Proxy Advisory Firms Generally Are Investment Advice Fiduciaries Under the Five-Part Test. The DOL confirmed that proxy advisory firms will likely be considered investment advice fiduciaries under the DOL’s five-part test (discussed in more detail in our prior Update). Under the five-part test, a person is a fiduciary only if (1) they render advice to a plan as to the value of securities or other property or make recommendations as to investing in, purchasing, or selling securities or other property; (2) on a regular basis; (3) pursuant to a mutual agreement, arrangement, or understanding with the plan that (4) the advice will serve as a primary basis for investment decisions with respect to the plan’s assets; and (5) the advice will be individualized based on the particular needs of the plan. With the caveat that the ultimate analysis depends on the specific facts and circumstances, the DOL takes the position that proxy advisory firms that provide individualized advice to ERISA plans as to how to exercise shareholder rights on a regular basis will generally satisfy the five-part test.

– State Law Preemption. In light of a number of recent state laws seeking to regulate proxy advisory firms, the DOL provided guidance on the application of ERISA’s preemption clause to state laws mandating disclosure by proxy advisory firms when they make recommendations for reasons other than maximizing returns. The release provides that a requirement that proxy advisory firms disclose when their research or recommendations take nonfinancial factors into consideration would not sufficiently affect ERISA plan administration because proxy advisors are already precluded from taking actions with respect to ERISA plans that would require such disclosures. As such, the DOL concludes that such a law would not be preempted.

This Ropes & Gray memo is recommending that asset managers and ERISA plan fiduciaries consider taking the following steps:

1. Audit existing proxy advisor arrangements against each prong of the DOL’s five-part investment advice test as interpreted under TR 2026-01 to determine whether the arrangement may create an inadvertent fiduciary relationship — and whether restructuring to avoid fiduciary status is appropriate;

2. Assess potential exposure under ERISA § 405 (as a co-fiduciary) where the proxy advisor may be deemed to be a fiduciary; and

3. Monitor for future rulemakings that may amend the regulations to take a harderline on the use of non-pecuniary factors and the tiebreaker test.

I can’t say whether this will cause investment managers to rely less on proxy advisors or affect the broader voting advice ecosystem – but it does seem like another instance of tightening the screws. The Ropes & Gray memo notes that the guidance could be a prelude to a rule proposal.

– Liz Dunshee