As the Department of Labor weighs several high-profile rule-making initiatives on subjects like ESG investing, proxy voting and fiduciary investment advice, Preston Rutledge said the proposals that he helped craft will help retirement savers and clear up confusion for ERISA fiduciaries.
Mr. Rutledge, who stepped down as the assistant secretary of labor for the Labor Department's Employee Benefits Security Administration on May 31 and has since launched a Washington-based government consultancy firm called the Rutledge Policy Group, spoke with Pensions & Investments during the DCW Virtual Series on Oct. 29. A flurry of Labor Department proposals have come out in recent months, and have broadly received criticism from investor groups and applause from the business community.
Perhaps the most debated proposal, unveiled in June, stipulates that ERISA plan fiduciaries cannot invest in ESG vehicles that sacrifice investment returns or take on additional risk. The proposal garnered thousands of comments and a final rule was sent to the White House's Office of Management and Budget for review in mid-October.
Mr. Rutledge said the ESG proposal reminds fiduciaries that there are two kinds of ESG: "The ESG where the factors are financially material, and that kind of ESG is allowed and always has been, but where the ESG factor might be non-financial, I think that the proposal uses the term 'non-pecuniary' ... that is where it's problematic," he said.
Fiduciaries that wish to "invest for multiple purposes," — as in anything other than the highest possible returns — run afoul of ERISA, Mr. Rutledge said, despite any "laudable" intentions.
With respect to a Labor Department proposal from August that would require ERISA-governed fiduciaries to cast proxy votes only when they would have an economic impact on the retirement plan, Mr. Rutledge said retirement income security for participants must always come first. And when retirement income security is prioritized, "plan fiduciaries will be very reluctant to expend plan resources that are not reasonably expected to expand the value of plan assets," he said.
Following a 2018 court decision in which the Obama-era Labor Department's fiduciary rule was struck down due to regulatory overreach, Mr. Rutledge said it made sense for the Securities and Exchange Commission to take the lead on investment advice regulation. The SEC's best-interest standard, known as Reg BI, went into effect June 30.