In the continuing saga of the (possible) use of Environmental Social and Governance (“ESG”) factors by retirement plan fiduciaries under the Employee Retirement Income Security Act (“ERISA”), on Thursday, March 23, 2023, the House in a 219-200 vote failed to reach the two-thirds majority required to overturn a presidential veto regarding a joint resolution of the House and Senate that had overturned a Department of Labor (“DOL”) final rule permitting ERISA retirement plan fiduciaries to consider ESG factors when selecting investments and exercising certain shareholder rights. See our prior posts concerning this subject Update: DOL Regulations–Retirement Plan Investments and ESG Factors and DOL Finalizes New Regulations –Retirement Plan Fiduciaries May—But Are Not Required To –Take Into Account Environmental, Social, and Governance Factors When Making Investment Decisions and Exercising Shareholder Rights.
The final DOL rule had supplanted prior rules promulgated under the Trump administration that prohibited ERISA retirement plan fiduciaries from considering ESG factors. The view under the Trump administration was that the use of ESG factors in making retirement plan investment decisions or casting proxy votes ostensibly sacrificed investment returns or took on additional unnecessary risk.
The final DOL rule had gone into effect on January 30, 2023, and the House and Senate passed their joint resolution disapproving the DOL rule on February 28, 2023 and March 1, 2023, respectively. (Under the Congressional Review Act, Congress can disapprove of a final rule issued by a federal agency within the first 60 legislative days that the rule has been in effect.) The joint resolution was then forwarded to President Biden who, on Monday, March 20, 2023, vetoed the joint resolution.
Critics of the final DOL rule believe that ERISA plan fiduciaries should focus on financial or pecuniary factors with regard to ERISA retirement plan investments and avoid taking into account non-pecuniary ESG factors. The failure by the House to overturn President Biden’s veto should mean that ERISA plan fiduciaries may rely on the final DOL rule and, as such, under ERISA, should be permitted (but not required) to consider ESG factors when selecting investments and exercising certain shareholder rights. That said, given the current 401(k) plan litigation environment, the best course of action for ERISA retirement plan fiduciaries is to be cautious if utilizing ESG factors when making investment decisions and to otherwise continue applying traditional fiduciary principles, such as, prudence, acting solely in the interest of plan participants, exclusive purpose of providing benefits, defraying expenses, and diversification, when making these decisions.
Disclaimer: This Blog/Web Site is made available by the law firm of Liskow & Lewis, APLC (“Liskow & Lewis”) and the individual Liskow & Lewis lawyers posting to this site for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice as to an identified problem or issue. By using this blog site you understand and acknowledge that there is no attorney client relationship formed between you and Liskow & Lewis and/or the individual Liskow & Lewis lawyers posting to this site by virtue of your using this site. The Blog/Web Site should not be used as a substitute for legal advice from a licensed professional attorney in your state regarding a particular matter.
Privacy Policy: By subscribing to Liskow & Lewis’ E-Communications, you will receive articles and blogs with insight and analysis of legal issues that may impact your industry. Communications include firm news, insights, and events. To receive information from Liskow & Lewis, your information will be kept in a secured contact database. If at any time you would like to unsubscribe, please use the link located at the bottom of every email that you receive.