Americans for Tax Reform applauds Congress for passing Senator Mike Braun (R-Ind.) and Representative Andy Barr’s (R-Ky.) joint resolution of disapproval (H.J. Res. 30) to nullify the Department of Labor’s (DOL) final rule (“Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights”) permitting plan fiduciaries to consider environmental, social, and governance (ESG) factors when managing private employee retirement plans.
H.J. Res. 30 passed the House of Representatives on Tuesday by a margin of 216-204. One Democrat, Rep. Jared Golden (D-Maine), supported the resolution along with Republicans.
On Wednesday, the Senate passed H.J. Res. 30 by a margin of 50-46. Two Democrats, Senators Joe Manchin (D-W.Va.) and Jon Tester (D-Mont.) voted in favor of the resolution along with Republicans.
President Biden stated his intent to veto the bipartisan resolution. He has made it abundantly clear that he is willing to deflect policy supported by both Congressional Republicans and Democrats to preserve the politicization of private employees’ 401(k)s and stock ownership plans.
With thin margins in both the House and the Senate, the chances of Congress garnering the two-thirds majority needed to override President Biden’s veto looks slim.
If the rule stays in place, plan fiduciaries for the retirement plans of 152 million workers, retirees, and dependents will be affected. According to the Bureau of Labor Statistics, “As of March 2022, 69 percent of private industry workers had access to retirement benefits (either defined benefit or defined contribution plans).” Of the 69 percent, 52 percent of private industry workers participated in their retirement plan. Over 47.3 million private-sector workers (actively working) participate in a defined contribution (DC) of defined benefit (DB) plan and are affected by DOL’s rule.
Additionally, based on a Congressional Research Service analysis of the 2019 Survey of Consumer Finances, about 19 percent of households with a net worth less than $6,370 have DC savings, 29 percent of households with a net worth between $6,370 and $67,650 have DC savings, and 41 percent of households with a net worth between $67,650 and $200,950 have DC savings.
The rule would allow managers of private employee retirement plans to consider non-pecuniary factors, thus subordinating retirees’ financial interests and putting the managers in conflict with their fiduciary duty. Retirement plan managers could be in violation of their fiduciary duty if a “mixed motive” is involved in investment decision-making and proxy voting. Even if the ESG investment “did not harm the beneficiaries” or was “laudable,” plan managers would still be in violation of the law.
ATR opposes consideration of non-pecuniary factors and advocates for policies that will ensure plan fiduciaries are focusing solely on pecuniary interests.
In January, twenty-five state attorneys general filed a lawsuit seeking a preliminary injunction and permanent relief from implementation of DOL’s rule. The complaint argues that the rule is “arbitrary and capricious” and “violates” the Administrative Procedure Act and the Employee Retirement Income Security Act (ERISA). Plaintiffs filed the complaint in the Northern District of Texas, which is in the Fifth Circuit. In the past, the Fifth Circuit has ruled against agencies promulgating rulemakings beyond their remit. For example, in October 2022, the United States Court of Appeals for the Fifth Circuit ruled that the Consumer Financial Protection Bureau’s (CFPB) funding structure is unconstitutional because it violates the separation of powers.
The plaintiffs’ chosen venue could result in successful litigation and give workers and retirees the relief they need from politicized investing.