Another attempt at legislation to restrict the use of Environmental, Social, and Governance (ESG) factors in retirement plans was introduced in the House last week, this time by Congressman Greg Murphy, M.D. (R-NC).
The “Safeguarding Investment Options for Retirement Act” seeks to prohibit tax-advantaged retirement plan trustees from considering factors other than financial risk and return when making investment decisions on behalf of workers, retirees, and their beneficiaries.
“Retirement plans, like 401(k)s, that are tax-advantaged to help individuals save for retirement should be managed to maximize return, not to invest in risky holdings like those propped up by ESG factors,” Murphy said in a March 21 press release. “Americans’ nest eggs should be built on a solid foundation that confers the greatest growth probability, not investments that are unstable and whitewashed with fake ethical and sustainability scores. Such an endeavor may be noble for those willing to pursue it independently but not managed plans that millions rely on for retirement.”
Under this legislation (H.R. 7780), if plans are found to be using non-financial risk and return factors, they risk losing their tax-advantaged status. The bill, referred to the House Ways and Means Committee, was co-sponsored by fellow House Republicans Reps. Mike Kelly (R-PA), Claudia Tenney (R-NY) and Beth Van Duyne (R-TX).
Ways and Means Committee Chair Jason Smith (R-MO) expressed his support for the bill, criticizing “liberal policymakers” for favoring climate activism over seniors’ financial security.
“Retirement plan trustees should be focused on maximizing investment decisions for their beneficiaries instead of promoting environmental and social agendas.”
Rep. Mike Kelly (R-PA)
“Today’s inflation crisis has already been devastating to seniors and those living on fixed incomes, and now radical ESG proposals supported by President Biden and Washington Democrats threaten to wipe out what remains of seniors’ retirement savings,” Smith said. “Built into our tax code are strict protections for seniors that require retirement plan trustees to make decisions for the exclusive benefit of retirees and beneficiaries. What liberal policymakers are pushing amounts to little more than a license to gamble with seniors’ retirement savings by favoring climate activism over seniors’ financial security.”
Smith added that Congress must examine ways to strengthen these safeguards to protect seniors from “dubious ESG investments that put their retirement at risk.”
Ways and Means Subcommittee on Tax Chairman Mike Kelly (R-PA) also weighed in on the bill. “Retirement plan trustees should be focused on maximizing investment decisions for their beneficiaries instead of promoting environmental and social agendas,” Kelly said. “We have seen retirement plans steered by ESG guidelines perform worse than traditional investments. This legislation takes a stand for American retirees and investors whose investment plans are not a pawn in the left’s environmental and equity agendas.”
Bill latest GOP effort to curb ESG consideration
Murphy originally introduced a slightly different version of the bill back in 2022. In 2023, fellow House Republican Rick W. Allen (R-GA) introduced the “Roll back ESG to Increase Retirement Earnings (RETIRE) Act,” which would require ERISA fiduciaries to select investments based solely on pecuniary or financial factors rather than ESG criteria when making investment decisions on behalf of their clients. That bill also prohibits any ESG vehicles from being included in target-date funds offered as default investment selections for plan participants.
Chances of either bill becoming law are long, given Democrat control of the Senate and President Joe Biden’s 2023 veto of similar anti-ESG initiatives.
Biden issued the first and only veto of his presidency last March to block Republican-led efforts in Congress to overturn the DOL’s rule allowing retirement plans to consider ESG factors when making investment decisions.
The Labor Department’s rule, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” ended a Trump-era ban on retirement plan investment managers considering ESG factors. The rule took effect on Jan. 30, 2023.
On March 1, 2023, Congress acted to overturn the DOL rule, forcing Biden’s hand to veto the measure. The Senate voted 50-46 to pass the Congressional Review Act (CRA), seeking to block the DOL from enforcing the rule. While the Senate is largely Democratic, Sen. Jon Tester (D-MT) and Sen. Joe Manchin (D-WV) voted to pass the resolution. The House of Representatives had approved the CRA in a 216 to 204 vote.
Read the bill here.
SEE ALSO:
• Biden Veto Preserves Labor Department’s ESG Final Rule
• ESG Rule Survives Legal Challenge from Red State AGs
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
