Feedback from investment advisors has helped persuade the US Department of Labor to apply the brakes to two late 2020 final rules, including one that some have interpreted as discouraging ESG investments in ERISA plans.
One of the first acts of the new Biden administration was the issuance of an executive order directing federal agencies to “review existing regulations” established during the Trump administration, as reported by affiliate title Regulatory Compliance Watch. The DoL is using that order to basically suspend the two final rules, each of which took effect in the last week of President Trump’s term.
One, Financial Factors in Selecting Plan Investments, attracted criticism for allegations that it could quell ESG investment in plans. The second offered new rules around the use of proxy voting in ERISA plans.
“The Department has heard from a wide variety of stakeholders, including asset managers, labour organisations and other plan sponsors, consumer groups, service providers and investment advisors, who have asked whether these two final rules properly reflect the scope of fiduciaries’ duties under ERISA to act prudently and solely in the interest of plan participants and beneficiaries,” the DoL now states. It also cited investor confusion caused by the Trump-era rules and the view that they have “already had a chilling effect on appropriate integration of ESG factors in investment decisions”.
The DoL promises that it won’t “pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules”. The statement indicates it will provide “further guidance” on the issue at a later date.