Americans for Tax Reform supports Senator Mike Braun (R-Ind.) and Representative Andy Barr’s (R-Ky.) joint resolution of disapproval 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.
The joint resolution of disapproval, which is authorized under the Congressional Review Act (CRA), will be voted on in the House of Representatives this week.
The rule would allow managers of private employee retirement plans (e.g., defined contribution 401(k) 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.
The rule also allows qualified default investment alternatives (QDIAs), such as target date funds, to invest in ESG funds that include the consideration of non-pecuniary factors.
The Employee Retirement Income Security Act (ERISA) clearly states that plan managers are obligated to make decisions “solely in the interest” of retirees.
ERISA governs about 747,000 private-sector employee benefit plans, 673,000 welfare benefit plans, and 2.5 million health plans for 152 million workers totaling $12 trillion in assets.
DOL’s rule is in contravention of Supreme Court precedent that clearly states that managers of ERISA plans must make investment decisions solely in the interest of providing retirees with “financial benefits”, not “collateral benefits” that are promoted in ESG products.
ATR opposes consideration of non-pecuniary factors and advocates for policies that will ensure plan fiduciaries are focusing solely on pecuniary interests.
“There is no room for ESG when considering how to invest retirees’ lifesavings. Retirement plan managers should only consider pecuniary factors when making investment decisions,” said Grover Norquist, President of Americans for Tax Reform. “Sen. Braun and Rep. Barr’s joint resolution of disapproval should be swiftly passed to overturn the Biden Administration’s rule, which is an imprimatur for special interest groups to reap large fees on ESG products that offer subpar returns for retirees.”
The joint resolution of disapproval is bolstered by a lawsuit filed last week by twenty-five state attorneys general seeking a preliminary injunction and permanent relief from implementation of the rule. The complaint argues that the rule is “arbitrary and capricious” and “violates” the Administrative Procedure Act and ERISA.
The complaint states that the rule “eliminates the objective pecuniary/nonpecuniary standard in the 2020 rule and instead formally incorporates ill-defined, subjective ESG concepts into the ERISA regulations.” The complaint goes on to state that the rule “injects collateral, nonfinancial [ESG] factors into the investment and shareholder proxy voting decisions of plan fiduciaries in a manner that is not supported by” ERISA or “legal precedent.”
Sen. Braun and Rep. Barr are leading the charge to ensure that millions of workers’ lifesavings are being invested based on pecuniary factors alone.
Congress should immediately pass their joint resolution of disapproval.