ESG fund guidelines for retirement plans beneath overview
The rules for ESG funds for retirement plans are under review by the current administration. The fate of the use of environmental, social and governance (ESG) funds in retirement plans can be decided before the end of the year. A new ordinance from President Joe Biden requires the Secretary of Labor to submit a report within 180 days. This report should identify actions to be taken by the Ministry of Labor. Protecting US workers’ savings and pensions from climate-related financial risks has, according to a. priority current BenefitsPro article. The review is part of a larger presidential order regarding the government’s response to climate change.
Previous governments had agreed to use ESG as a tie-breaker when ESG funds and non-ESG funds got the same results. Biden’s Ministry of Labor repealed the rules in March and issued an announcement that they would not enforce this rule. They also agreed not to penalize pension plan committees and plan trustees if they fail to do so until the DOL could visit them again.
On the same day that President Biden passed the executive order, a bill was tabled in the House of Representatives that would allow pension committees and other plan trustees to consider ESG factors when investing in retirement plans. President Biden’s executive order reflects concerns about climate change and its potential impact on the country’s financial assets, including occupational pensions.
According to BenefitsPro, “Biden’s mandate is focused on the physical and transitional risks of climate change for financial assets, businesses, communities and employees.” “This threatens the competitiveness of US companies and markets, as well as the savings of workers and families.” ESG funds in retirement plans are considered because of their potential impact on retirees.
The implementing regulation also requires the finance minister and the members of the Financial Stability Oversight Council (FSOC) to assess the risks of climate change. The stability of the US financial system and the country as a whole could also affect regulation of ESG funds in retirement plans.
As government policies change, retirement plan committees and plan trustees should keep a close eye on developments for ESG funds in retirement plans. The implementing regulation requires action within four to six months, so plan trustees should expect additional information and instructions from the DOL. Other government agencies could also be involved in reviewing ESG funds in retirement plans before the end of the year.
Steff C. Chalk is Executive Director of The Retirement Advisor University, a partnership with the UCLA Anderson School of Management Executive Education. Steff also serves as the Executive Director of The Plan Sponsor University and is currently a lecturer at The Retirement Adviser University.