On March 23, 2023, the House of Representatives failed to achieve the two-thirds majority required to override a veto by President Biden of a bill allowing retirement fund managers to consider specific factors in investments.
A Labor Department ruling in 2020 required retirement fund managers to base investments only on factors that brought in the highest financial returns. This excluded ESG (environmental, social and governance) factors. As a result of the recent vote, financial advisors can still consider ESG investments in 401(k) and other employer-sponsored plans.
Labor Department ruling defines “best” investment returns
In November 2022, the Biden administration reversed the ruling that had left fund managers, who under the Employee Retirement Income Security Act (ERISA) have fiduciary duties to investors, more limited in their options for investment.
The prior ruling equated “best” with “best performing.” Sustaining President Biden’s veto permits “best” to include, but not require, ESG factors for consideration.
Proponents contend the present rule expands considerations for the marketplace. Opponents counter that ESG effectively replaces investors’ fiduciary duties of sustaining and building retirement savings.
According to the Department of Labor, approximately 2.2 million ERISA-covered plans cover approximately 136 million people.
Texas proposed bills counter federal rule
The Texas state legislature has taken legislation in opposition to ESG factors for insurers and pensions. A legislator has filed two separate bills that would, respectively, limit the types of investments state pension managers could use and restrict proposals by shareholders that would determine interactions between insurance companies and oil and gas firms.
The first bill would allow the pensions that manage billions of dollars for state employees to work with asset managers on the condition that the companies make investment decisions solely on financial factors. In a second bill, insurers could not act on shareholder proposals that would put limits on insuring risks to fossil fuels or prohibit the insurance of a legal activity “for the purpose of achieving environmental, social or political goals.”
Retirements savings plans through ERISA hold the future for millions of workers seeking financial comfort and stability after their working lives.