Union pension plans welcome DOL guidance

While some ESG investors feel like they are stuck in a game of pingpong with new guidance from the Department of Labor on ESG and economically targeted investing, North America building trades union pension fund officials welcome it.

Economically targeted investments bring investment returns and other benefits. In the case of the building trades unions, investing in real estate and infrastructure projects that are tied to union manpower can mean successful completion of those projects and more work hours and pension contributions for union members.

Sean McGarvey, president of the Washington-based North America's Building Trades Unions, promised at its April 17 gathering that the 14 affiliated unions that have $500 billion in pension fund assets among them would "recognize the value and power of our retirement funds" by making sure they are linked to projects that create union jobs.

More work hours also mean a healthy pipeline of contributions to their pension funds.

Days later, when the DOL guidance came out, the federation was one of the few groups to welcome it as authoritative guidance to plan trustees, fiduciaries and the multiemployer pension consulting community.

"Importantly, (it) notes that investments that generate real economic returns, such as infrastructure and real estate, are properly considered by prudent fiduciaries for their impact on the economic interests of the plan, its participants and beneficiaries," the NABTU said in a statement.

"Among defined benefit plans, multiemployer pensions are unique in that an asset allocation in infrastructure and real estate can be used to provide market returns while generating significant new plan assets. This furthers the economic interests of the plans as well as those of the participants and beneficiaries," it added.

Building trades officials also appreciate the timing, given the history of DOL guidance on economically targeted investing. Watershed moments came in 2015 and 2016, when the Labor Department under President Barack Obama clarified its views on environmental, social and governance issues through interpretive bulletins. More importantly, those bulletins retracted interpretive bulletins issued in 2008 that, in the mind of some fiduciaries and consultants, had chilled interest in targeted investing.

Fast-forward to 2018. The new field assistance bulletin keeps those Obama-era interpretive bulletins, while adding some cautionary wording about issues that have concerned Labor Department officials, such as having appropriate analysis for calling ESG factors economically relevant or for covering the costs of shareholder activism.

An internal AFL-CIO document stresses this latest DOL directive to Employee Benefits Security Administration staff "is subordinate to the Labor Department's prior interpretive bulletins. It does not replace or change the long-standing guidance that the Labor Department has previously issued to ERISA fiduciaries."

With Republicans in control of the White House and Congress, and business groups like the U.S. Chamber of Commerce lobbying to control increasing levels of shareholder activism, "we wanted to preserve the guidance around ETI," said a building trades official who declined to be identified.