Biden administration proposes reversal of Trump-era rules


The Department of Labor will propose rule changes Wednesday that will make it easier to add environmental and socially-based investment options to retirement plans, and make these options the default setting for enrollees.

With a reversal of Trump-era policy, the Biden administration’s proposal makes clear that not only are pension plan managers allowed to consider environmental and social factors, it may be their job to do so, especially as the economic consequences of climate change continue. to appear.

Labor secretary Martin J. Walsh said the department consulted with consumer groups, asset managers and others before writing the proposed rule, and that the change was deemed necessary because the old rule had a “deterrent effect” on environmental use. social and governance factors when evaluating investments.

“If these legal concerns keep trustees on the sidelines, it could mean worse consequences for workers and retirees,” Mr Walsh said in an interview.

The new regulations will also make it possible for funds with environmental and other focuses to default. investment option in retirement plans Like the 401(k)s that the previous administration’s rules forbade. But Labor Department officials said the rule would not allow plan supervisors to sacrifice returns or take greater risks when analyzing potential investments by focusing on environmental, social and governance factors known as ESGs.

Under the Employee Retirement Income Security Act of 1974, known as ERISA, retirement plan managers must act only in the interests of the plan’s participants. Investments focusing on environmental, social and governance issues are permitted only if they are expected to perform at least as well as alternatives that take on a similar level of risk.

This became known as the “vintage” or “all-equal” standard, a guiding principle that remains effectively the same, although interpreted differently by Republican and Democratic administrations.

The proposed change shows that plan managers are allowed to consider ESG factors in their initial analysis, not just their final analysis of investments – a change that Labor Department officials claim still maintains this principle because managers are still not allowed to sacrifice returns for them. kinds of fringe benefits.

For example, the proposed rule said that taking climate change into account, “such as assessing the financial risks of investments where government climate policies will affect performance,” could benefit pension portfolios by reducing long-term risks.

If an ESG factor is important to a risk-return analysis, this is something we think trustees should consider. departmentsaid in an interview. “This carries a different weight than it was five, 10 or 15 years ago,” he said, given the increase in data measuring the risks of ignoring the ESG and the benefits of considering them.

The investment category has grown significantly in recent years. Total assets in ESG funds rose 42 percent from early 2018 to $17.1 trillion in early 2020, according to the US SIF, a nonprofit focused on sustainable investment. This investment sum represents one in three dollars under professional management.

Only a small fraction of these investments are held by pension plan investors, according to a US SIF report, but interest is growing, especially among younger investors.

The Biden administration has also proposed changes to reverse another Trump-era rule that requires retirement plan executives to consider a complex list of principles before casting proxy votes on shareholder proposals. If the trustees have decided to vote, and the rule clearly states that this is not necessary, they must only support causes and goals that are in the financial interest of the plan.

Labor Department officials said the proposal would remove that language and largely allow plan trustees to decide “when it’s appropriate to take action or not.” Mr. Khawar.

The Biden administration had signaled its plans: just two months after the Trump-era rules went into effect in January, the Biden administration said it would not enforce them and a new proposal would come.

Stakeholders will have 60 days to comment after the proposal is published on the Federal Register. A final edit is usually issued after the department reviews the comments.



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