Invoice would permit retirement plans to make use of ESG investments

The US Senators Tina Smith (D-Minnesota) and Patty Murray (D-Washington) and the US Representative Suzan DelBene (D-Washington) have introduced laws in both chambers of Congress that they believe offer legal certainty for company pension plans, who consider environmental, social and governance (ESG) factors in their investment decisions or offer ESG investment options.

The bill, known as the Financial Factors in Selecting Retirement Plan Investments Act, would amend the Employee Retirement Income Security Act (ERISA) to make it clear that plans can consider ESG factors in their investment decisions – provided they consider such investments prudently as consistent with their fiduciary obligations. Legislators note that this is the same legal standard that ERISA already applies for non-ESG investment factors.

The bill would also amend ERISA to codify the long-standing principle that plans can take ESG factors into account as tiebreakers when deciding between comparable options. Legislators note that the Department of Labor (DOL) under former President Donald Trump largely repealed this tiebreaker rule.

Under the Trump administration, the DOL proposed a rule that would have made it difficult for retirement plans to use ESG investments. This proposal received extensive feedback and the majority of public comments identified the rule-making as unnecessary and out of date in their hostile views on ESG investing. In the final rule of the DOL, any mention of the ESG has been deleted. Instead, plan trustees must focus solely on financial or performance factors when selecting funds for a retirement plan.

After President Joe Biden took office, DOL’s Employee Benefits Security Administration (EBSA) announced that it would not enforce the final regulation until further guidelines are published.

The new bill would formally repeal the Trump-era DOL rule and “limit future regulatory measures that impose unfair regulatory burdens to prevent ERISA plans from investing in ESG,” the legislature said.

Legislators note that while the demand for ESG and sustainable investing is increasing, few company pension plans offer such options. They say one of the main reasons companies don’t offer these options is because the laws that govern them are constantly changing.

“Sustainable investment options are good for retirees and good for the environment – it’s a win-win,” said Smith, a member of the Senate Banking Committee. “We are bringing this legislation because we know that there is a growing demand for sustainable investing and because we believe that Congress should act now to ensure the legal certainty needed to ensure that company pension plans meet Offer these options to workers across the country. ”

Adds DelBene, “Americans deserve a safe retirement, and investing in ESG is a key component to achieving that goal. This bill promises retirees a way not only to achieve that safe retirement, but also a way to live in a world where retirement is worthwhile. “

“Retirement planning is all about planning for the future, and you can’t really do that if you can’t take into account the environmental, social and governance factors that will shape the future,” said Murray, chairman of the Senate for Health. Committee on Education, Labor and Pensions. “Allowing this approach is not just common sense, it is a win for workers, retirees, investors, businesses, communities, the environment and more. So Senator Smith, Congressman DelBene, and I are putting legislation in place to ensure people can invest in a future that is not only more financially secure for their families, but more equitable, diverse, and sustainable for all. “

A number of industry groups support the bill, including the Securities Industry and Financial Markets Association (SIFMA).

“SIFMA believes it is important for financial institutions to be able to consider all factors, including ESG factors, as part of an investment and risk management strategy,” said Kenneth Bentsen Jr., President and CEO of SIFMA. “ESG factors should still be valid considerations.” for investment decisions – also for qualified standard investment alternatives [QDIAs] and their components – as long as they are assessed in a manner consistent with a prudent process. We strongly believe that the emphasis should be on the caution of the analysis as opposed to the details of the investments. “

US SIF: The Forum for Sustainable and Responsible Investing supports legislation as well as the CFA Institute and the American Retirement Association (ARA). “The bill makes it clear that ESG criteria can be incorporated into ERISA-regulated pension plans and will end the political pendulum of regulatory interpretations on this issue in the Department of Labor,” said Lisa Woll, CEO of US SIF.

Aron Szapiro, director of policy research at Morningstar, says his organization supports the bill “because it would help leverage the use of this analysis as part of retirement plan investment selection, which will benefit participants.”

And Smart, a retirement technology company, also spoke out in favor of it. “We believe this is an appropriate framework as it allows trustees to incorporate ESG factors into their investment decisions, including those that apply to the QDIA, while prioritizing the trustees’ commitment to delivering investment returns for the beneficiaries,” says Catherine Reilly, director of retirement solutions at Smart.

You can find a summary of the invoice here. You can find the full text of the invoice here.

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