The Department of Labor’s environmental, social, and corporate governance (ESG) rule has been challenged in court ever since it took effect during the Biden administration. Now Representative Rick W. Allen (R-Ga.), Chairman of the Health, Employment, Labor, and Pensions Subcommittee, has introduced the Protecting Prudent Investment of Retirement Savings Act, which would enforce the requirement that Employee Retirement Income Security Act (ERISA) retirement plan fiduciaries prioritize maximizing returns for a secure retirement, rather than political or social impact as indicated by ESG factors.
This legislation, which was reintroduced last week, would codify that retirement plan fiduciaries must protect the $14 trillion in assets of retirement plans for 156 million workers, retirees, and dependents, said Allen. “Americans’ hard-earned retirement savings should never be jeopardized by politically motivated mismanagement,” he said. “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.”
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The new legislation seeks to repeal the Biden-era Department of Labor (DOL) rule issued in December 2022 that allowed plan fiduciaries to consider climate change and other ESG factors when they select retirement investments. Under the ESG rule, achieving the highest rate of return needs to be the main consideration for plan fiduciaries when making investment decisions, but when two options offer equivalent return rates, a plan sponsor can use ESG considerations as a “tiebreaker.”
Rep. Mark DeSaulnier (D-Calif.), who is the subcommittee’s ranking Democrat, contended that plan sponsors should be able to give ESG factors more weight when choosing investments. “If a company is exposed to certain risks—such as sea level rise because of climate change, child labor violations, a record of poor corporate governance or mistreating workers—its stock could suffer over time,” Rep. DeSaulnier said. “Retirement plan professionals must consider a long-term horizon when making investment decisions, as workers often contribute for decades before drawing down on what they save.”
The DOL’s ESG rule has been challenged ever since it took effect on January 30, 2023. Shortly after the DOL’s Employee Benefits Security Administration (EBSA) finalized the rule, GOP attorneys general filed a lawsuit alleging that it “undermines key protections for retirement savings of 152 million workers—approximately two-thirds of the U.S. adult population and totaling $12 trillion in assets—in the name of promoting ... ESG factors in investing, including the Biden Administration’s stated desire to address climate change.
The challenges were denied twice, most recently in February. In March 2023, the U.S. House and Senate voted to block the sustainable investing rule; vetoing that bill was the first veto of Joe Biden’s presidency.
In March of this year, the Securities and Exchange Commission (SEC) voted to stop defending its climate risk disclosure rule, which required companies to disclose certain climate-related risks. Last month, the Trump-led DOL asked the Fifth Circuit Court overseeing the litigation challenging the ESG rule to suspend the ongoing proceedings.
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From: BenefitsPRO
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
