Skip to main content

Must-See Episode of "Between Two Daves" on the Topic of Tariffs Available Now!

ESG Upload to Insights

Department of Labor takes a 180 Degree Turn on ESG Investing

Photo of author, Monica Garver, CFP®, AIFA®, CPA (Retired).
Monica Garver, CFP®, AIFA®, CPA (Retired)
Director of Retirement Plan Services and Financial Strategist
  • Proposed regulations published in December allow plan fiduciaries, when evaluating investments, to consider climate change and other environmental, social and governance (ESG) issues as risk factors affecting workers' financial security.
  • At the very end of the Trump administration, the Department issued final regulations on ESG investing. Practically speaking, these regulations made it difficult for plan fiduciaries to add ESG options. Nonfinancial factors such as climate change and racial diversity could only be considered as a tie breaker. In March of last year, the Biden Administration announced that it would walk back these rules.
  • The Department has gone back and forth for many years on its position regarding ESG investing. Democrats endorse the concept while Republicans are more skeptical. The fact that the latest proposed regulations are such a radical departure from the Trump rules suggests that this back and forth will only continue.
  • These proposed regulations seem to go beyond just permitting consideration of ESG factors. Comments from administrative officials accompanying the publication of these regulations indicate that the current thinking of the Department is that ESG factors, and climate change issues in particular, pose financial risks that plan sponsors should consider as prudent fiduciaries in evaluating investments.
  • Significantly, the proposed regulations would permit the use of ESG investments as the qualified default investment alternative (“QDIA”).
  • Over 200 comments have been submitted regarding these proposed regulations. The majority are favorable. However, some comments express concern that these proposed regulations may be interpreted as not only permitting but requiring plan fiduciaries to consider ESG factors in making prudent investment decisions.
  • The Securities and Exchange Commission has not issued any rules regarding ESG investments and comments from the Commissioner indicate there are no plans to do so.
  • When voting proxies, the proposed regulations also make it clear that, in contrast to the Trump rules, plan fiduciaries may take into consideration climate change, environmental and social concerns.
  • Two things to ponder. Promulgating a regulation that contains specific criteria for evaluating investments is unprecedented. While the Securities & Exchange Commission and other financial regulators have promulgated many rules over the years, there are none that establish specific criteria that must be applied to evaluate a particular investment. Also, one has to wonder how Department officials think they are helping plan fiduciaries with the never-ending back and forth on ESG investing.
Related Insights
I Stock 2202941886 IRS Building copy 800px

IRS Publishes Proposed Regulations on SECURE 2.0 Catch-Up Contribution Rules

On January 13, 2025, the IRS published proposed regulations on two SECURE Act 2.0 changes to 401(k) catch-up contribution rules: 1.) increasing the catch-up contribution limit for taxpayers aged 60, 61, 62, or 63 and 2.) requiring Roth treatment of catch-up contributions made by taxpayers who, for the preceding calendar year, receive more than $145,000 in wages from the employer sponsoring the plan. The IRS’s proposal addresses certain issues with respect to these two changes. Learn more.

Read More
I Stock 1980590886 DOL copy 800px

DOL Temporary 'Non-Enforcement Policy' for Small-Balance Transfers to State Unclaimed Property Funds

On January 14, 2024, the Department of Labor (DOL) published a Field Assistance Bulletin (FAB) 2025-01 announcing a “non-enforcement” policy with respect to the transfer of small defined contribution (DC) plan balances ($1,000 or less) belonging to missing participants to a state unclaimed property fund. Plan sponsors, on occasion, must deal with missing plan participants and beneficiaries, and what to do with their plan balances. Find out more.

Read More
Image1 Market Turmoil

Market Turmoil Spurs Trading, But Staying Put Pays Off

The U.S. stock market suffered its worst day in five years on Friday, April 4, following President Donald Trump's announcement of sweeping tariffs. The S&P 500, Nasdaq, and Dow Jones Industrial Average all posted significant losses.

Despite the turbulence, financial experts continue to advise retirement plan investors to “stay the course” rather than react impulsively.

According to Alight Solutions, stock market volatility has already driven a surge in retirement plan trading in early 2025. In the first quarter alone, 0.77% of plan balances were traded—the highest rate since Q3 of 2020. Trading was particularly elevated in March, exceeding the activity seen in the entire fourth quarter of 2024. Despite increased activity, one Alight expert notes that less than 1% of participant assets were actually traded, indicating that most investors are sticking with their long-term strategies. Read more

Read More
Play