House Republicans are looking to repeal a DOL rule allowing ESG in retirement plans
Republicans on the House Education and Workforce Committee introduced four new bills on Tuesday that they say “ensure financial institutions focus on maximizing returns in retirement plans rather than on environmental, social and corporate governance (ESG) factors.”
The four bills add to the drumbeat by Republicans against plan sponsors offering workplace retirement plans that include ESG factors in the investment strategy. The Labor Department allows environmental, social and governance (ESG) considerations under its final rule as of November, but House Republicans have sought to overturn that rule.
Of the four bills released this week, only two directly mentioned ESG considerations, but all were announced via a committee press release as intended to “combat (President Joe) Biden’s harmful ESG rule.” .
The Rolling Back ESG Factors to Increase Retirement Earnings (RETIRE) Act, proposed by Rep. Rick Wilson, R-Ga., would essentially repeal the Department of Labor’s current final rule on ESG in retirement plans. The Department of Labor allows fiduciaries to use ESG considerations in their decision-making process and consider “collateral factors” as a deciding factor when two courses of action “equally serve the financial interests of the plan over the appropriate time horizon.”
Wilson’s bill requires fiduciaries to act “based solely on financial factors.” Additionally, the bill would reinstate the watershed test from the administration of former President Donald Trump, seen as less favorable to ESG funds, by replacing the phrase “the financial interests of the plan are equally served” with the phrase “if the fiduciary is not Able to distinguish between or among investment alternatives or investment courses of action on the basis of financial factors alone, a fiduciary may use non-financial factors as a deciding factor.
The House Appropriations Committee’s July budget proposal would also block the Labor Department’s ESG fiduciary rule if it passes, though it would have to be reconciled with the Senate’s budget proposal, which would not block the rule.
Retirement Agent Protection Act
Another bill, the Retirement Fiduciary Protection Act, proposed by Rep. Erin Houchin, R-Indiana, would require fiduciaries to consider only “financial factors” when voting shares on behalf of plan participants. This is intended to ensure that creditors do not “develop radical policies”.
The bill states that a fiduciary “shall not subordinate the interests of participants and beneficiaries in retirement income or financial benefits under the plan to any nonfinancial purpose or promote nonfinancial benefits or goals that are unrelated to those financial interests of plan participants and beneficiaries.”
Houchin’s bill clarifies that failure to vote each share is not in itself a breach of fiduciary duty, and that fiduciaries are required to monitor third parties who advise them on the exercise of shareholder rights, such as proxy voting advisors.
There is no discrimination in my benefits law
The third bill, the My Benefits Nondiscrimination Act, proposed by Rep. Rob Good, R-Va., addresses governance by stating that “race, color, religion, sex, or national origin shall not be taken into consideration in selecting a fiduciary.” , the advisor, employee, or service provider of an ERISA plan.
Providing complete information for retirement investors law
Finally, the Retirement Investors’ Complete Information Provision Act requires defined contribution plans to explain to participants the difference between the selection of investments chosen by ERISA fiduciaries and those chosen through the brokerage window.
Specifically, plans will be required to notify participants each time a participant “directs an investment into, out of, or into” a brokerage window that those investments have not been selected by a fiduciary and may have lower returns than investments offered within the plans.