In something of a Friday afternoon news dump, the Department of Labor announced a final rule for fiduciaries of private-sector retirement plans regarding environmental, social and governance (ESG) investing.
The DOL issued a proposed rule in June, which took a stricter stance on the inclusion of ESG investments in retirement plans, that quickly drew condemnation from ESG advocates, consumer groups, and high-profile politicians.
Appearing on the 401(k) Specialist Pod(k)ast in mid-October, former EBSA head Preston Rutledge predicted the rule’s passage.
The final rule amends the department’s longstanding investment duties regulation, first issued in 1979, to codify a clear regulatory structure for considering investments for ERISA plans.
The amendments require plan fiduciaries to select investments based on “pecuniary factors,” or those that the fiduciary determines is expected to have a material effect on risk and/or return of an investment, not its social and environmental impact.
“Protecting retirement savings is a core mission of the U.S. Department of Labor and a chief public policy goal for our nation,” Secretary of Labor Eugene Scalia said in a statement. “This rule will ensure that retirement plan fiduciaries are focused on the financial interests of plan participants and beneficiaries, rather than on other, non-pecuniary goals or policy objectives.”
THE FINAL RULE CAN BE FOUND HERE
The DOL expects the final rule will result in higher returns by preventing fiduciaries from selecting investments based on non-pecuniary considerations and requiring them to base investment decisions on financial factors.
The rule will be effective 60 days after publication in the Federal Register, but plans will have until April 30, 2022, to make any changes to certain qualified default investment alternatives, where necessary to comply with the final rule.
“Our goal is to ensure that retirement security remains the top priority of those who manage the retirement assets that millions of Americans have worked so hard to earn,” added Acting Assistant Secretary for EBSA Jeanne Klinefelter Wilson. “Retirement plan fiduciaries vindicate the public policy behind ERISA – and comply with the law – when they manage plan assets with a clear and determined focus on participants’ financial interests in receiving secure and valuable retirement benefits. Plan fiduciaries should never sacrifice participants’ interests in their benefits to promote other non-financial goals.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
