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Americans for Tax Reform supports Rep. Greg Murphy’s (R-N.C.) Safeguarding Investment Options for Retirement Act (H.R. 7780) to prohibit tax-advantaged retirement plan trustees from considering factors other than financial risk and return when making investment decisions on behalf of beneficiaries.
The legislation currently has 3 Republican cosponsors, Rep. Mike Kelly (R-Pa.), Rep. Claudia Tenney (R-N.Y.), and Rep. Beth Van Duyne (R-Texas).
In recent years, there has been a movement toward retirement plans focusing on alternative investment criteria such as Environmental, Social, and Governance (ESG) factors rather than prioritizing fiduciary duty. This focus not only weakens the prevailing standard that trustees are obligated to maximize stockholder value but also directly weakens the beneficiaries’ investments. Research from Boston College compared the returns of ESG and Vanguard mutual funds and found that “Vanguard funds generally outperform their ESG counterparts, often by a considerable margin.”
The bill would prevent tax-advantaged retirement accounts from considering any factors beyond financial risk and return when making investment decisions by amending Section 401(a) of the Internal Revenue Code to clarify that the ‘exclusive benefit’ standard requires the management of assets by trustees solely to maximize financial returns. The legislation directly clarifies that all investment decisions can only be made on financial risk and return factors, any other arbitrary factors cannot be considered.
The bill also amends Sections 403 and 457, which cover certain non-profit organizations and state and local retirement plans respectively, similarly requiring these plans to use financial risk and return as the only legitimate criterion for investments.
If tax-advantaged retirement plans fail to focus solely on financial risk and return and continue to prioritize other arbitrary factors, they risk losing their tax-advantaged status altogether.
Amending these sections will help to reprioritize trustees’ fiduciary duty to focus solely on providing financial returns for retirees, and legally prevent trustees from focusing on the interests of outside stakeholders such as environmental groups, political activists, and unions. Trustees should focus on providing the greatest financial return to beneficiaries, not on addressing political goals.
Allowing trustees to divert retirement savings for other goals also diminishes faith in the financial system and discourages saving, a key component necessary to a strong economy. Why save your money at all if the trustees will just peddle the money to investments that are focused on political goals rather than getting the greatest financial return?
Trustees must remember that beneficiaries should always be at the forefront of their minds. Their duty is to provide beneficiaries with the greatest return possible, not to use their investments to funnel money towards alternative goals that can harm retirees’ savings.
Americans for Tax Reform strongly supports the Safeguarding Investment Options for Retirement Act (H.R. 7780) and encourages all members of Congress to support this legislation.