Thin(k) About Your 401(k) Plan: ESG Investing in Your 401(k) Account
It’s no surprise that with the change of presidential administrations that we would see regulations changing. Late in the Trump Administration there were two regulations that particularly affected ESG (environmental, social and governance) investing. Many were concerned about these policy shifts, but as you’ll see, it appears that these rule changes have been put on hold at least temporarily if not permanently.
In October of last year, the Department of Labor (DOL) issued a final rule for private-sector retirement plans regarding non-pecuniary factors like ESG ,which limited these factors, stating that, “retirement plan fiduciaries are focused on the financial interests of plan participants and beneficiaries, rather than on other, non-pecuniary goals or policy objectives.”
That was big news, and it didn’t stop there. Another policy was to limit ESG considerations in fiduciary proxy votes. Plan Sponsors serve as fiduciary to the plan and in the selection of investment options must, therefore, take into consideration how the funds they select vote proxies. 401k Specialist reported $7.9 trillion invested in all employer based defined contribution plans, of which $5.9 trillion were invested in 401k plans.* That is a lot of money under the watch of the DOL covered under ERISA Law.
The big news didn’t last long. On President Biden’s first day in office, he issued an executive order directing federal agencies to review existing regulations issued or adopted during the Trump administration “that are or may be inconsistent with, or present obstacles to, the policies” the new president set forth “to promote and protect public health and the environment.”+
Not long after the order, the DOL seemed to back away from its final rule from just a few months back. Here’s what it had to say about non-pecuniary factor consideration and proxy voting by fiduciaries: “Until the publication of further guidance, the department will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules.”+
So much for final rules. The possibility of adding ESG investment options to ERISA governed retirement plans without potentially violating fiduciary responsibility is back on the table. Stay tuned.
*401k Specialist, 401k Assets Totaled $5.6 Trillion in First Quarter 2020, by John Sullivan, Editor-in-Chief, June 17, 2020.
+ ThinkAdvisor, DOL Won’t Enforce New Rules on ESG in Retirement Plans, by Bernice Napach, March 10, 2021.
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