Compliance February 28, 2023

House Passes Resolution to Repeal DOL 401(k) ESG Rule

The resolution catalyzes the debate over whether to allow ESG investing considerations in retirement savings plans, with the Senate next to weigh in.

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The U.S. House of Representatives approved a resolution to overturn a Department of Labor rule passed in November 2022 allowing for, but not mandating, environmental, social and governance investing in retirement plans.

The Congressional Review Act resolution passed by a party-line vote of 216 to 204 on Tuesday, with one Democrat voting with Republican lawmakers. Representative Andy Barr, R-Kentucky, offered the resolution amid calls by Republican House and Senate members in recent months for a repeal of the DOL guidance, saying it would harm everyday retirement savers.

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“Proud to join @HouseGOP in passing @RepAndy401Barr’s resolution today to STOP the left from pushing woke, ESG policies upon retirees without their consent,” Debbie Lesko, R-Arizona, wrote on Twitter after the vote.

The resolution now advances to the Senate, which has a 51-49 Democratic majority, though Senator Joe Manchin, D-West Virginia, has publicly sided with Republicans against the rule and called for its repeal. Vice President Kamala Harris can serve as a tiebreaker.

National and state Republican lawmakers have publicly opposed ESG investing in recent months, including 25 state attorneys general, fossil fuel-linked companies and academics filing a complaint in a Texas court against the DOL’s rule in January. Last week, a conservative nonprofit law firm filed another complaint in the U.S. District Court for the Eastern District of Wisconsin, which was quickly followed by new legislation by House Democrats to codify the rule.

Immediately following Tuesday’s House vote, the Congressional Sustainable Investment Caucus led by Representatives Sean Casten, D-Illinois, and Juan Vargas, D-California, came out against the resolution.

“Retirement plan fiduciaries should be free to consider climate change and other ESG factors without regulatory barriers or the threat of litigation,” they wrote in a statement. “The rule from the Department of Labor does not require fiduciaries to consider ESG factors, it merely allows them to do so if it is in the best interest of their plan participants. This CRA resolution is the latest dangerous move in Republican’s (sic) anti-worker and anti-free market agenda.”

The DOL rule was passed under the administration of President Joe Biden after more than a year of deliberation and public comment. Ultimately, the department decided to allow workplace retirement plan providers and their advisers to consider ESG factors when designing plan investments, saying at the time the rule would “make workers’ retirement savings and pensions more resilient by removing needless barriers, and ending the chilling effect created by the prior administration on considering environmental, social and governance factors in investments.”

The DOL’s 2022 rule overturned a rule from the administration of President Donald Trump that plan fiduciaries could only consider “pecuniary” factors, leaving many fiduciaries to question whether ESG-focused investments could be added to retirement plans as a qualified default investment alternative.

Data & Research February 28, 2023

Inflation Hitting Millennials Hardest as They Seek to Meet Needs

Millennials are most likely to reduce insurance and retirement contributions due to inflation, but financial wellness can help with more generational focus, according to recent research.

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In response to inflation, 19% of Millennials have cut their insurance and retirement contributions, more than any other generation, according to a recent survey.

Whereas 10% of Gen Z, 9% of Gen X and 5% of Baby Boomers have reduced allocations to retirement and insurance, according to new research from firms TalentLMS, Enrich Financial Wellness, and Tapcheck. The report surveyed 1,000 full-time employees in the U.S. from October 3 to 5, 2022.

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“As an elder Millennial myself, I think there are just so many competing priorities,” says Kerry Woods, vice president of participant education and engagement at SageView Advisory Group, who is not associated with the survey but covers financial wellness. “With the cost of living going up so significantly, over a short period of time, [and] higher interest rates, it’s tougher to purchase a home. … It’s a tough time to meet all the needs.”

The desired age for retirement also differs between generations. For Baby Boomers, 65% of employees want to retire when between 60 and 70 years old, while only 20% of Gen Zs selected that range. The majority of Gen Zs and Millennials, approximately one in three, want to retire between the ages of 50 and 60. Gen Zs were most likely to indicate the desire to retire before turning 40, at 20% of respondents.

“It’s such a cultural shift in priorities that we are seeing play out in real time; it’s really interesting to watch,” Woods says.

Woods thinks companies should recognize the differences between generations to help employees reach their financial goals.

“Recognizing those generational differences is going to be the bedrock of realizing how to help their employees,” says Woods.

Nearly half of employees (41%) reported that they do not receive financial wellness training from their companies, while 8% said they are unsure if they do.

On the topic of retirement savings, 64% of respondents said they received training on retirement planning, which is the training most offered by employers. Seventy-nine percent of employees said it was important to receive resources from their employers for retirement planning.

Nearly one in three employees, however, do not feel they are on track to meet their financial goals and retire by the desired age. To combat inflation, 11% of employees have reduced their spending on insurance and retirement contributions.

Across the board, Woods thinks foundational financial training remains important across all age groups. “But on top of that, giving them resources to be able to educate themselves [and] providing financial education, as it relates to multiple topics, even outside of retirement,” says Woods.

“I think that, depending on your financial acumen, there’s this general sense of uneasiness regarding finances. I know when I get a bill in the mail, I don’t always want to open it right away,” Woods says, advising how companies should approach employees. “I think addressing that, first and foremost, being able to say, ‘These are the tools, and resources are here, and your financial situation doesn’t have to be a scary topic.’”

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