Rep. Rick Allen, R-Ga., introduced a bill to restrict ERISA retirement plans from considering environmental, social and governance factors in their investment decisions.
The bill, titled the Protecting Prudent Investment of Retirement Savings Act, calls for amending ERISA to restrict plan fiduciaries’ use of nonpecuniary factors in making their investment decisions. The language mirrors that of a Trump-era Labor Department rule, which stated that fiduciaries cannot invest in nonpecuniary vehicles that sacrifice investment returns or take on additional risk.
Under the Biden administration, the DOL said it would not enforce that rule, and instead issued a rule of its own in late 2022 that allows fiduciaries to consider ESG factors in their investment decisions. Using the Congressional Review Act, Republicans passed a joint resolution in both the House and Senate to overturn that rule in early 2023. However, after President Joe Biden vetoed the resolution, House Republicans failed to override the veto.
"Americans' hard-earned retirement savings should never be jeopardized by politically motivated mismanagement,” said Allen, who chairs the House Health, Employment, Labor and Pensions Subcommittee, in an April 24 news release. “Unfortunately, the Biden-Harris administration made this possible with an overreaching rule that allows fiduciaries to aggressively invest retirees' money in ESG funds — which often charge steeper fees, carry higher risk, and have lower returns.”
Allen’s bill is also backed by Rep. Tim Walberg, R-Mich., who chairs the House Education and Workforce Committee.
“Americans don’t work to have their hard-earned savings funneled into higher-risk, lower-yield ESG investments,” Walberg said in the news release. “The Biden-Harris administration’s misguided ESG policies allowed fiduciaries to play politics and steer retirees’ savings into left-wing investments for political and social purposes.”
Despite pushback, officials at the DOL's Employee Benefits Security Administration in the Biden administration repeatedly contended the rule was neutral, with former EBSA chief Lisa Gomez calling the rule "a return to neutrality."
"The intent of the rule is to level the playing field so that plan fiduciaries can consider these ESG factors in investing in the same way they would consider any factors that would be relevant to a risk and return analysis," Gomez said at a webinar in early 2023.
Ali Khawar, former principal deputy assistant secretary at EBSA, said the political backlash to the rule was due to misinformation, as the rule "does not mandate the consideration of ESG," he noted at Pensions & Investments' Defined Contribution East Conference in March 2023.
The DOL is now considering rescinding the Biden-era rule, despite the rule previously being upheld in court, according to an April 21 filing in the 5th U.S. Circuit Court of Appeals in New Orleans.
Last Congress, the House passed a bill package that included similar legislation introduced by Allen, but the bill package never made it past the Senate, which Democrats controlled at the time.
