Three key Senate Republicans want the Department of Labor to reverse course on its recently announced decision to not enforce two Trump-era rules for ERISA fiduciaries on selecting investments and exercising voting rights.
"DOL's refusal to enforce these rules will harm Americans' retirement savings by allowing plan fiduciaries to sacrifice investment returns to promote non-pecuniary policy objectives like social justice, diversity quotas and lower carbon emissions," wrote the senators — Richard Burr, R-N.C., ranking member of the Senate Health, Education, Labor and Pensions Committee; Mike Crapo, R-Idaho, ranking member of the Senate Finance Committee; and Pat Toomey, R-Pa., ranking member of the Senate Banking Committee — in a March 18 letter to Al Stewart, acting secretary of labor.
The Labor Department on March 10 said it's adopting a non-enforcement policy pertaining to two rules — which remain on the books — that went into effect just days before the Biden administration took office.
One rule, called "Financial Factors in Selecting Plan Investments," stipulates that ERISA plan fiduciaries cannot invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk. It's often referred to as the "ESG rule" because the initial proposal, which was unveiled in June, focused on ESG investment factors, but the final rule walked back the ESG language.
The other rule — "Fiduciary Duties Regarding Proxy Voting and Shareholder Rights" — underscores that fiduciaries are not required to vote every proxy and notes that they must act solely in accordance with the economic interest of the plan and maintain records on proxy-voting activities and other exercises of shareholder rights.
"Since DOL is allowing plan fiduciaries to put non-pecuniary policy objectives above the financial interests of plan participants and beneficiaries, fiduciaries are now free to include ESG funds in their plans even if they have lower returns, higher costs, and/or higher risks," the senators said in their letter.
Moreover, the senators said the existing rules are based on sound policy and described several concerns with the new Labor Department directive, including plaintiffs' lawyers bringing a class-action lawsuit under ERISA against plan fiduciaries who make investment decisions based on non-pecuniary policy objectives.
The Biden administration has signaled that it will revisit these rules entirely. Ali Khawar, principal deputy assistant secretary for the Employee Benefits Security Administration, said in a March 10 news release that the Labor Department intends "to conduct significantly more stakeholder outreach to determine how to craft rules that better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations."