Sen. Tina Smith (D-MN) reintroduced last week new legislation that would protect employers offering environmental, social, and governance (ESG) factors in workplace 401(k) plans, providing legal certainty to those who offer sustainable options to participants.
“Sustainable investment options are good for retirees and good for our environment—that’s a win-win,” said Sen. Smith, a member of the Senate Banking Committee. “I’m putting forth this legislation because we know there’s a growing demand for sustainable investing, and Congress should act now to provide the legal certainty necessary to make sure workplace retirement plans are able to offer these options to workers across the country.”
According to a fact sheet, the The Freedom to Invest in a Sustainable Future Act would amend the Employee Retirement Income Security Act of 1974 (ERISA) by:
- Make clear that plans may consider ESG factors in their investment decisions when
they are expected to have an impact on investment outcomes, provided plans
consider them in a prudent manner consistent with their fiduciary obligations. This
is the same legal standard that ERISA already applies to non-ESG investment factors
a plan would typically consider; and
- Provide that plans may consider ESG factors as tie-breakers when deciding between
otherwise comparable options.
While the bill allows plan fiduciaries to consider ESG factors when making investment decisions for workplace retirement plans, Smith makes it very clear that it does not mandate fiduciaries to invest in ESG factors. “This bill codifies neutrality to investments – a tenet that has existed since ERISA was adopted,” wrote Smith in the fact sheet.
Smith adds that while there is a demand for ESG factors in employer-sponsored 401(k) plans, the Trump Administration had previously created an uncertain legal environment by imposing limits on ESG factors in retirement plans.
The bill is currently cosponsored by Senators Patty Murray (D-WA), Dianne Feinstein (D-CA), Richard Blumenthal (D-CT), Dick Durbin (D-IL), Elizabeth Warren (D-MA), Bernie Sanders (I-VT), Ron Wyden (D-OR), and Ed Markey (D-MA).
Even though the Biden Administration rescinded and replaced the rule with more leniency last year, several legal challenges and attempted blockages have deterred plan sponsors from implementing sustainability in their plans. Most recently, Congressman Andy Barr (R-KY) along with Sen. Mike Braun (R-IN) reintroduced a Congressional Review Act (CRA) in attempts to nullify the Department of Labor’s (DOL) new rule. The chamber is set to vote on the measure any day now, with Bloomberg reporting it is just one shy vote away from passing. The CRA currently has the support of all Republican senators.
Even if the measure does pass the Senate and House, it’s very likely that President Biden would use his first veto on it.
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