Oroville Mercury-Register

Advisers expect Labor Department rules to boost ESG options

- By Keith Lewis

As the Labor Department mulls a proposed rulemaking on environmen­tal, social and governance investment options by retirement plans, advisers say the rules are likely to temper a “chilling effect” caused by the prior administra­tion’s guidance.

Advisers say more retirement savers are asking about ESG investing and that the forthcomin­g rules could place them on equal footing with many retail and institutio­nal investors who examine factors such as environmen­tal sustainabi­lity and corporate responsibi­lity on social issues alongside traditiona­l financial metrics.

“I don’t know if DOL is going to go as far as requiring plan sponsors to think about ESG investment­s as part of a plan menu, but I am pretty confident we’re going to get a level playing field,” National Associatio­n of Plan Advisors Executive Director Brian Graff told attendees as he led a panel discussion of experts during the NAPA 401(k) Summit this week.

Retirement plan fiduciarie­s haven’t had that much leeway in directing investment­s into ESG options. Experts are hoping that will change with updated Labor guidance. In December, the department’s Employee Benefits Security Administra­tion issued a final rule that required retirement plan advisers to select investment­s based on “pecuniary factors.”

That policy limited ESG options for retirement plans, and many stakeholde­rs reported a “chilling effect,” according to the Labor Department, which said in March it wouldn’t enforce that policy and would draft new rules.

President Joe Biden also issued an executive order that directed federal agencies to consider financial risks tied to climate change. The order specifical­ly asked the Labor Department to consider rescinding the previous administra­tion’s rule while taking steps to protect worker pensions and retirement savings.

Senate Democrats introduced legislatio­n to amend a law known as the Employee Retirement Income Security Act to specifical­ly allow fiduciarie­s to consider ESG factors in selecting investment strategies for employer-sponsored plans.

“Retirement plan sponsors and participan­ts deserve the freedom to choose the 401(k) investment that best suits their needs,” Graff, who is also CEO of the American Retirement Associatio­n, said in a prior statement in support of proposed legislatio­n.

ERISA governs a broad range of retirement and health benefit plans. This includes defined benefit plans, such as pensions; defined contributi­on plans, such as 401(k)s for private sector employees and 403(b)s for public educators and employees of nonprofits and government entities; and many other variations.

These plans contain more than $10 trillion in assets and cover more than 150 million American workers and their dependents, according to Labor Department data. Retirement accounts are also the vehicle through which the vast majority of Americans invest in capital markets.

While more than half of Americans are in the market, less than 15 percent hold stocks directly, according to the Pew Research Center. Most stock market holdings are indirect, through retirement accounts.

Labor regulation­s may have so far kept many ESG options away from retirement savers despite a rapidly growing interest in those investment strategies.

The total assets under management at funds focused on ESG last year surged to more than $40 trillion, almost twice the size of the U.S. economy, from $22.9 trillion in 2016, according to Opimas LLC, a management consultanc­y focused on global capital markets.

 ?? BRENDAN SMIALOWSKI — AFP VIA GETTY IMAGES ?? US Secretary of Labor Marty Walsh speaks about Labor Unions during an event in the East Room of the White House in Washington, DC.
BRENDAN SMIALOWSKI — AFP VIA GETTY IMAGES US Secretary of Labor Marty Walsh speaks about Labor Unions during an event in the East Room of the White House in Washington, DC.

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