Just as the Department of Labor (DOL) gets set to release a final regulation allowing the use of environmental, social and governance (ESG) factors by fiduciaries when selecting plan investments, another bill has been introduced in Congress that seeks to dial that back.
The Safeguarding Investment Options for Retirement Act (H.R. 9198) [INSERT PDF] introduced Oct. 18 by Rep. Greg Murphy, M.D. (R-NC), along with Reps. Carol Miller (R-WV), David Schweikert (R-AZ) and Lloyd Smucker (R-PA), would amend ERISA and the Internal Revenue Code to limit fiduciary consideration of so-called “non-pecuniary factors” in investment decision-making for defined contribution plans.
“Our commonsense legislation would impose strict enforcement measures to ensure that ‘woke’ Biden policies do not hinder Americans’ retirement savings,” Rep. Murphy said in a statement. “I am grateful to Republican Attorney Generals across the nation who are fighting back against the Biden administration’s radical policies and leading the charge against ESG at the state level.”
In general, the legislation would amend Title I of ERISA to require plan fiduciaries to act solely in the interest of the participants and beneficiaries of the plan, such that the plan’s investment or investment course of action must be based only on pecuniary factors.
Under the legislation, “pecuniary factor” is defined as any factor that a fiduciary prudently determines is expected to have a material effect on the risk or return of an investment based on appropriate investment horizons and the plan’s funding policy.
The legislation also specifies, however, that when selecting investment options for participant-directed plans, a fiduciary is not prohibited from considering an option on the basis that the option promotes non-pecuniary goals, provided that the fiduciary otherwise satisfies the pecuniary duties of the legislation and does not include such an investment as a default investment.
In addition, if the plan does not offer an option that is not based on non-pecuniary factors, the bill calls for using the Internal Revenue Code to classify it as a prohibited transaction.
DOL Activity
This latest bill comes as the DOL appears poised to release a final regulation in the coming days (or weeks). The DOL on Oct. 6 submitted a final rule for review—Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights—to the White House’s Office of Management and Budget (OMB). The OMB’s regulatory dashboard still shows that the final rule is pending review. Under the rulemaking process, the OMB could take up to 90 days to review the rule, but that is not expected at this point.
The DOL in October 2021 released a proposed regulation that sets aside the Trump administration’s final rules on the use of ESG factors in selecting plan investments and fiduciary duties regarding proxy voting to replace it with one that explicitly allows a consideration of those factors.
At this point, several bills have been introduced in both the House of Representatives and the U.S. Senate that seek, for example, to either curb ESG investing in retirement plans or endorse the concept.
While it’s highly unlikely these bills will be acted on this year, they provide a snapshot of what congressional priorities in this area could be in the next Congress—particularly if Republicans take over one or both chambers.
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