A new ESG rule continues political back and forth over retirement plans.
For over 28 years, Democrat and Republican administrations have used retirement plans as political ping pong balls in the fight over economically targeted investments (ETIs) and using environmental, social, or governance (ESG) factors. On November 22, 2022, the Department of Labor (DOL) continued this trend by issuing a final rule on investment duties and ESG factors. Like a January 2021 rule (since repealed) on the same subject, this rule muddies the waters for fiduciaries subject to the Employee Retirement Income Security Act (ERISA), although the final rule removed a number of the most troubling provisions from the original proposal. While ERISA fiduciaries can likely live with it, it would be best to drop the back and forth and just let them do their jobs.
The big picture
To understand why none of this has been necessary, we probably should understand the actual law. Among other requirements, ERISA requires private sector plan fiduciaries act solely in the interest of plan participants for the exclusive purpose of providing benefits and to administer plans “with the care, skill, prudence, and diligence under the circumstances” that a prudent person in similar circumstance would use. These are known as the duty of loyalty and the duty of prudence. But what does that really mean?
The duty of loyalty means that the fiduciary must act solely in the interest of plan participants - not the fiduciary’s...
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