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April 29, 2021 02:13 PM

DOL working on additional ESG, lifetime income guidance, rules

Brian Croce
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    Sign for the Department of Labor in Washington
    Bloomberg

    More guidance and rule-making initiatives from the Department of Labor's Employee Benefits Security Administration are expected this year on a host of issues, including lifetime income, environmental, social and governance investing and fiduciary investment advice.

    Ali Khawar, acting assistant secretary for EBSA, provided an overview of the work taking place under the new administration during a webinar Thursday hosted by American Savings Education Council — the Employee Benefit Research Institute's non-profit foundation.

    In March, the Labor Department said it would not enforce two rules — one called "Financial Factors in Selecting Plan Investments," which stipulates that ERISA plan fiduciaries cannot invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk; and the other, "Fiduciary Duties Regarding Proxy Voting and Shareholder Rights," which outlines the process a fiduciary must undertake when making decisions on casting a proxy vote — promulgated under the Trump administration.

    Mr. Khawar said Thursday that the rules had a chilling effect on investment behavior because stakeholders were fearful of additional liability.

    Now, additional rule-making is expected, Mr. Khawar said. "We are continuing our stakeholder outreach on that, which ultimately will lead to additional rule-making in the not-too-distant future, I believe," he said. "This is one of our high-priority areas."

    On lifetime income, the Labor Department has a September deadline to issue a final rule outlining how plan sponsors would convert participants' account balances into an estimated monthly income stream at retirement, Mr. Khawar said. The department was directed to do so under the Setting Every Community up for Retirement Enhancement Act, or SECURE Act, which Congress passed in late 2019. The department issued an interim final rule in August 2020. "We're intending to make sure the rule is out ahead of that" September deadline, Mr. Khawar said.

    After allowing a Trump-era investment-advice exemption to take effect in February, the Labor Department on April 13 issued two pieces of guidance. The first detailed questions a retirement investor might ask potential investment advice providers and the second was directed toward investment-advice providers who are relying on, or are planning to rely on, the exemption. The exemption permits investment-advice fiduciaries to receive compensation for more types of guidance, including advice to roll over assets to an individual retirement account from a retirement plan.

    Those using the exemption must be in compliance by mid-December, Mr. Khawar noted, so EBSA will be issuing guidance in this area in the coming months. "The goal really is to do this as soon as possible because as people are standing up systems and taking steps to come into compliance and fully implement that exemption," he said. "We want to make sure that they have the benefit of our thinking earlier in the process."

    He also reiterated that the Labor Department's work on the fiduciary investment advice issue is not done after the exemption goes into effect and said defining "who is a fiduciary?" — a long debated question — is "another area of focus for us."

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