The Technical Release was issued in response to a December 2025 Executive Order titled “Protecting American Investors From Foreign-Owned and Politically-Motivated Proxy Advisors” (the “Proxy Advisory Executive Order”), which directed the Department to update its guidance and regulations covering proxy advisors and proxy voting for ERISA-covered plans.
The Technical Release is notable for its dual thrust: it reinforces federal fiduciary obligations on proxy advisory firms serving ERISA-covered plans and, simultaneously, clears a path for state-level regulation of those firms.
Background
The DOL has long held the view that shareholder rights attributable to shares held by ERISA-governed employee benefit plans, including the right to vote proxies, are plan assets in their own right, and that the management of those rights are subject to ERISA’s fiduciary duties of prudence and loyalty. This position dates back to at least 1988, when the Department issued the so-called “Avon Letter,” stating that, “the decision as to how proxies should be voted . . . are fiduciary acts of plan asset management.”1
Since then, the Department has issued a series of interpretive bulletins and regulatory amendments refining its position. In 2008, Interpretive Bulletin 2008-02 emphasized that fiduciaries must consider only factors relating to the economic value of the plan’s investments when voting proxies and warned that fiduciaries “risk violating the exclusive purpose rule when they exercise their fiduciary authority in an attempt to further legislative, regulatory or public policy issues through the proxy process.”2 In 2020 and again in 2022, the Department amended its Investment Duties Regulation at 29 C.F.R. § 2550.404a-1 to address the duties of ERISA fiduciaries with respect to the exercise of shareholder rights, including the selection and monitoring of proxy advisory firms.
Proxy Advisors as Functional Fiduciaries
Under ERISA, there are two types of fiduciaries: a “named fiduciary,” who is expressly identified in the plan document (or otherwise designated by the plan) as having authority to control and manage the plan’s operation and administration, and a “functional fiduciary,” who, regardless of formal title, becomes a fiduciary by exercising discretionary authority or control over plan management, managing plan assets, or rendering investment advice for a fee. The Technical Release explains that there are two circumstances under which a proxy advisor may be a functional fiduciary under ERISA.
First, to the extent a proxy advisor exercises any authority or control over the exercise of shareholder rights attributable to shares owned by an ERISA-covered plan, including the voting of proxies, the proxy advisor will be a functional fiduciary under ERISA. The Department noted that some proxy advisory firms retain ultimate discretion and control over voting policies and the casting of votes, which would bring them squarely within this provision.
Second, proxy advisors may be functional fiduciaries under ERISA by providing investment advice for a fee to ERISA-covered plans with respect to their shareholder rights. The Department applies the traditional five-part test from its 1975 regulation, which asks whether the advisor:
- renders advice as to the value of securities or makes recommendations as to the advisability of investing in, purchasing, or selling securities
- on a regular basis
- pursuant to a mutual agreement or understanding with the plan that
- the advice will serve as a primary basis for investment decisions and
- the advice will be individualized based on the particular needs of the plan.
The DOL view, set forth in the Technical Release, is that, “in general, proxy advisory services concerning how to exercise shareholder rights based on the particular needs of an ERISA-covered plan on an ongoing basis, if rendered for a fee pursuant to a mutual understanding, will ordinarily” result in the proxy advisor being a functional fiduciary under ERISA, though it ultimately depends on the facts and circumstances. One key fact, driven by the fifth prong of the test above, is whether advice is provided under a generalized, non-tailored policy, or whether advice is specific to the individual plan.
The practical impact of the DOL view is that, to the extent a proxy advisor is a functional fiduciary under ERISA, it must ensure that it is complying with ERISA’s fiduciary duties when providing proxy advisory services to an ERISA-covered plan. Plan sponsors and plan fiduciaries must also ensure they are complying with ERISA’s fiduciary duties when engaging with proxy advisors.
State Law Preemption
The second major component of the Technical Release addresses the interplay between ERISA preemption and emerging state laws regulating proxy advisory firms, in particular with respect to the role that non-financial environmental, social, or governance (“ESG”) considerations play in shaping voting advice. For instance, a 2025 Texas law (currently subject to litigation challenge) regulates proxy advice related to public companies incorporated or headquartered in Texas. This has led to a question as to whether ERISA’s broad preemption rules would displace such state laws.
Acknowledging the existence of these state laws and that this is an evolving area of state regulation, the Technical Release states that, “a mere requirement to include disclosures to all of its investor clients when a firm’s research or recommendations take non-financial factors into consideration that covers only proxy advisory firms” included in a state law would not cause the state law to be preempted by ERISA. In support of this position, the Department stated: “ERISA’s fiduciary duties require that actions be taken with respect to a plan investor only for the purpose of maximizing risk-adjusted financial return. For that reason, no plan governed by ERISA should ever receive a disclosure under such a state disclosure law, and, accordingly, no relationship between that law and any ERISA plan would be created. Consequently, such a state law neither has an impermissible connection with, nor makes a prohibited reference to, ERISA plans, and it generally would not be preempted by ERISA.”
The practical impact of this DOL guidance is that states may continue to address proxy advisors in state laws that are not preempted by ERISA. By opining that state disclosure requirements targeting non-financial advice by proxy advisory firms are generally not preempted by ERISA, the Department has signaled that there is room for a complementary state and federal regulatory framework over proxy advisory firms in this area.
Other Proxy Advisor Developments
This guidance comes in the context of an evolving and rapidly developing proxy advisor landscape where there have been recent regulatory actions at the federal and state levels, and in the courts, aimed at increasing oversight of proxy advisory firms and, more broadly, addressing the role of ESG considerations in investment decision-making.
The Securities and Exchange Commission (“SEC”) issued rules in 2020 treating proxy voting advice as “solicitation” under Section 14(a) of the Securities Exchange Act of 1934. These rules would have required proxy advisory firms to comply with certain Section 14(a) requirements applicable to persons soliciting proxies. In 2022, in a partial rule reversal, the SEC rescinded several key requirements of the 2020 rules, while leaving intact the classification of proxy voting advice as a solicitation. ISS, a major proxy advisor, challenged that remaining classification in litigation, and ultimately prevailed when the D.C. Circuit held in July 2025 that proxy voting advice does not constitute a “solicitation” under Section 14(a).3
Yet, several draft bills for federal regulation of the proxy advisor industry have also been proposed. These bills include proposals that would prohibit proxy advisors from providing voting advice while facing a conflict of interest, as well as proposals that would require institutional investment managers using proxy advisors to make certain disclosures, including disclosures regarding the percentage of votes on shareholder proposals that align with proxy advisor recommendations and how such recommendations are considered in voting decisions. While none of these proposed bills have been enacted, they indicate the potential for upcoming federal proxy advisor regulation or legislation specifically focused on the activities of proxy advisory firms.
The federal courts have also addressed ERISA preemption in the proxy advisory context, with decisions examining whether state anti-ESG laws are preempted when applied to ERISA-covered plans. The DOL’s Technical Release provides the Department’s own view on this question but is not binding on courts, which will ultimately determine the preemptive reach of ERISA on a case-by-case basis.
In the Proxy Advisory Executive Order, the SEC was directed to undertake a coordinated review of the regulatory framework governing proxy advisors, with a particular focus on the role of DEI and ESG considerations in proxy voting recommendations. The order's directives to the SEC are the most extensive and include considering revisions to existing rules and guidance relating to proxy advisors; enforcing the anti-fraud provisions of the federal securities laws against material misstatements or omissions in proxy voting recommendations; assessing whether proxy advisors should be required to register as registered investment advisers; requiring greater transparency regarding voting methodologies and conflicts of interest; and examining whether investment advisers’ reliance on proxy advice is consistent with their fiduciary duties. The Proxy Advisory Executive Order does not itself amend any rule, and its practical impact will depend on agency implementation through notice-and-comment rulemaking over the course of 2026.
States have also been actively involved in proxy advisor regulation. As noted above, in 2025, Texas enacted Senate Bill 2337 (currently subject to litigation challenge), which focuses on the extent to which ESG factors drive proxy advisor recommendations and requires proxy advisors to make certain disclosures when providing advice that is not “solely in the financial interest of the shareholders” of covered companies. Other states have similarly been focused on ESG issues: In 2023, 21 state attorneys general sent a letter to major proxy advisor firms requesting information regarding the role that ESG issues play in proxy advice, and in 2025 Florida and Missouri announced investigations into major proxy advisors under their respective consumer protection laws.
Conclusion
The Technical Release represents a meaningful development in the regulation of proxy advisory services under ERISA. By clarifying that proxy advisory firms may frequently qualify as functional fiduciaries under ERISA when conducting what may be considered customary activities and by endorsing the view that certain state disclosure laws are not preempted, the Department has established a framework that enables both federal and state regulation to operate in tandem. Plan sponsors, fiduciaries, and proxy advisory firms should carefully evaluate their existing arrangements and practices to ensure compliance with the Department's guidance.
Footnotes
1 Letter to Helmuth Fandl, Chairman of the Retirement Board, Avon Products, Inc. 1988 WL 897696 (Feb. 23, 1988).
2 DOL Interpretive Bulletin 2008-02, 73 FR 61731 (October 17, 2008). The exclusive purpose rule requires that an ERISA plan fiduciary discharge their duties solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the plan.
3 Institutional Shareholder Services, Inc. v. SEC, 142 F.4th 757 (D.C. Cir. 2025).
