House Republicans Look to Repeal DOL Rule Permitting ESG in Retirement Plans

Republicans on the House Committee on Education and the Workforce introduced four new bills Tuesday that they say will “ensure financial institutions are focused on maximizing returns in retirement plans rather than on woke environmental, social, and corporate governance (ESG) factors.”

The four bills add to a drumbeat by Republicans against plan sponsors offering workplace retirement plans that include ESG factors in investment strategy. ESG considerations are allowed by the Department of Labor as per their final rule from November, but Republicans in the House have sought to repeal that rule.

Of the four bills issued this week, only two directly mention ESG, but all were announced by a committee press release as intended “to combat [President Joe] Biden’s Harmful ESG Rule.”

RETIRE Act

The Rollback ESG to Increase Retirement Earnings (RETIRE) Act, proposed by Representative Rick Wilson, R-Georgia, would essentially repeal the DOL’s current final rule on ESG in retirement plans. The DOL permits fiduciaries to use ESG considerations in their decision making and to consider “collateral factors” as a tiebreaker when two courses of action would “equally serve the financial interests of the plan over the appropriate time horizon.”

Wilson’s bill would require fiduciaries to act “based only on pecuniary factors.” Additionally, the bill would restore the tiebreaker test from the administration of former President Donald Trump, seen as less favorable to ESG funds, by replacing the wording “equally serve the financial interests of the plan” with “if a fiduciary is unable to distinguish between or among investment alternatives or investment courses of action on the basis of pecuniary factors alone, the fiduciary may use non-pecuniary factors as the deciding factor.”

The House Appropriations Committee’s July budget proposal would also block the DOL’s ESG fiduciary rule if passed, though it must be reconciled with the Senate’s budget proposal, which would not block the rule.

Retirement Proxy Protection Act

Another bill, the Retirement Proxy Protection Act, proposed by Representative Erin Houchin, R-Indiana, requires fiduciaries to only consider “pecuniary factors” when voting shares on behalf of plan participants. This is intended to ensure that fiduciaries do not “advance radical policies.”

The bill says that a fiduciary “shall not subordinate the interests of participants and beneficiaries in their retirement income or financial benefits under the plan to any non-pecuniary objective or promote non-pecuniary benefits or goals unrelated to those financial interests of the plan’s participants and beneficiaries.”

Houchin’s bill clarifies that not voting every share is not in itself a breach of fiduciary duty and that fiduciaries are required to monitor third parties that advise them on the exercise of shareholder rights, such as proxy voting advisers.

No Discrimination in My Benefits Act

A third bill, the No Discrimination in My Benefits Act, proposed by Representative Rob Good, R-Virginia, addresses governance by stating that “race, color, religion, sex, or national origin may not be taken into consideration when selecting a fiduciary, counsel, employee, or service provider of an ERISA plan.”

Providing Complete Information to Retirement Investors Act

Lastly, the Providing Complete Information to Retirement Investors Act requires defined contribution plans to explain to participants the difference between choosing investments selected by ERISA fiduciaries and those selected through a brokerage window.

Specifically, plans would be required to notify participants every time a participant “directs an investment into, out of, or within” a brokerage window that those investments were not selected by a fiduciary and that they may have lower returns than the investments offered within the plan.