The Department of Labor (DOL) announced that it will not enforce the Financial Factors in Selecting Plan Investments rule (commonly known as the ESG rule) and the Fiduciary Duties Regarding Proxy Voting and Shareholder Rights rule, both of which were published in the final months of the Trump administration.
On March 10, the DOL’s Employee Benefits Security Administration (EBSA) released an enforcement statement noting that it will revisit both rules and will “not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules with respect to an investment, including a Qualified Default Investment Alternative, or investment course of action or with respect to an exercise of shareholder rights.”
Additionally, EBSA stated that it is responding to stakeholders, including plan sponsors and asset managers, that question whether the rules “properly reflect the scope of fiduciaries’ duties under ERISA to act prudently and solely in the interest of plan participants and beneficiaries,” and whether the “rulemakings were rushed unnecessarily and failed to adequately consider and address the substantial evidence submitted by public commenters on the use of environmental, social, and governance (ESG) considerations in improving investment value and long-term investment returns for retirement investors.” EBSA also noted that the new rules have had a “chilling effect” on appropriately integrating material ESG factors into investment decisions.
Ali Khawar, EBSA principal deputy assistant secretary, said that EBSA intends “to conduct significantly more stakeholder outreach to determine how to craft rules that better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations.”
These actions by the Biden administration do not come as a surprise since regulatory guidance on ESG topics has shifted depending on whether a Democratic or Republican administration is in power. There has been much speculation about how this administration would address these newly published rules. We now have more clarity that the administration will revisit the rules and not enforce the current rules in the meantime. Plan sponsors should continue to monitor these evolving regulatory requirements.
Read the full press release here.
Read the enforcement statement here.