Tag Archives: ESG

Things I Worry About (14): ESG and the Political Back-and-Forth at the DOL


General
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Key Takeaways

  • The Trump administration is dropping its defense of the Biden-era ESG regulation on prudence for investment selection for fiduciaries of ERISA-governed retirement plans.
  • In turn, the Biden era regulation reversed a regulation from the first Trump administration that was, in parts, anti-ESG.
  • The Trump administration is expected to reinstate a regulation similar to the one from its first administration.
  • Fiduciaries of ERISA-governed retirement plans manage the risk of  the conflicting political views by focusing (i) on selecting and retaining investments with superior risk and return profiles and (ii) on the criteria used by the investment managers of their funds.

This article is, in large part, an unfortunate story about the perils of politicians and their use of the regulatory system to accomplish political objectives.

For decades, Republican and Democratic administrations engaged in a tug-of-war on the use of certain factors for the selection and monitoring of plan investments. Think of ETI—economically targeted investments; SRI—socially responsible investments; and ESG—environmental, social and governance factors.

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The New Fiduciary Rule (51): The Loper Bright Decision and What it Means for DOL Regulations (1)


DOL, fiduciary, reg BI
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Key Takeaways

  • The lawsuits against the DOL’s new regulation on fiduciary advice and the related exemptions—and the likely appeals—will probably last for years.
  • A key issue in the lawsuits and appeals is the authority of the DOL to amend its existing regulation—the 5-part test—to cover one-time recommendations (subject to specified limits).
  • The DOL will argue that circumstances have change since 1975, for example, the enactment of Code section 401(k) and the post-ERISA growth in the importance of those plans. As a part of that, the DOL asserts that rollover recommendations should be fiduciary advice.
  • On the other hand, some financial industries, and particularly the insurance industry, will argue that a one-time recommendation associated with a rollover is a sales transaction that should not be held to a fiduciary standard.
  • A critical question for the courts is whether the DOL has authority to issue a new fiduciary recommendation that, among other things, says that a rollover recommendation, explicit or implicit, is fiduciary advice. The Supreme Court’s decision in the Loper Bright case establishes the standard for the courts to evaluate an agency’s authority.

I have been asked whether the Supreme Court’s decision in Loper Bright Enterprises et al. v. Raimondo, Secretary of Commerce et al. could affect the outcome of the litigation about the validity of the DOL’s fiduciary regulation and related exemptions. The answer is “yes”, but perhaps not in the way you might think. This article discusses the Loper Bright decision in the context of a review of the DOL’s fiduciary regulation.

To be fair, I am not an expert on constitutional law and I don’t want to create the impression that this is an authoritative article. Instead, my goal is to highlight the issues for consideration by the courts.

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