New Department of Labor Regulations Will Greenlight the Use of ESG…

Retirement Plans

November 10, 2021

New Department of Labor Regulations Will Greenlight the Use of ESG Funds in Retirement Plans

Photo of author, Monica Garver, CPA, CFP®, AIFA®.

Director of Retirement Plan Services and Financial Strategist

In August, the Department of Labor submitted new proposed ESG rules to the White House's Office of Management and Budget - the last step before publishing regulations. The proposed rules should be published before the end of this year. There is no doubt these rules will be favorable to ESG investing.

ESG investing, which considers environmental, social and corporate governance criteria, in addition to traditional financial criteria, has greatly increased in popularity in recent years. Money invested in ESG funds at the end of 2020 was estimated at about $17 trillion. Retirement plans have followed this trend and many now offer an ESG option.

For many years, the Department of Labor has gone back and forth in its position regarding ESG investing. Democratic administrations tend to favor ESG investing while Republican administrations have been skeptical. At the very end of the Trump Administration, in December of last year, the Department issued new ESG rules that make it difficult for retirement plans, subject to ERISA, to offer an ESG option. The essence of these rules is that nonpecuniary factors may not be considered in selecting investment options. In effect, the fact that a fund employs ESG criteria may only serve as a tie breaker.

Early this year the Biden administration announced that it would walk back these rules and promulgate regulations more favorable to ESG investing.

Related Insights

Retirement Plans

Boosting Lower Wage Earners’ Retirement Readiness

A recent Vanguard report sheds light on the pressing challenges faced by retirees across different income brackets. The findings reveal that lower income workers allocate a significantly larger portion of their pre-retirement income to meet their daily needs, leaving them with a substantial shortfall in retirement readiness — even when factoring in Social Security benefits.

Plan sponsors can take proactive steps to help participants better prepare for a secure retirement to ensure that all employees, regardless of income level, have a fighting chance at a comfortable retirement. Learn more about those key steps.

Retirement Plans

Balancing Competitive Benefits in Budget Constraints for Plan Sponsors

It is crucial for companies to regularly benchmark and compare their benefits packages to their industry peers in order to maintain their competitive advantage and status. Offering a competitive benefits package, however, can be challenging for plan sponsors due to budgetary constraints.

But one industry leader says a plan sponsor should ideally reflect the investment "necessary to attract and retain the talent needed to drive business success" in their
"total rewards budget," which includes both benefits and compensation. That "right" amount of budget, he says, will depend on a number of factors. Find out more.

Retirement Plans

DOL Releases New Fiduciary Advice Proposal

On October 31, 2023, the Department of Labor (DOL) released its “Proposed Retirement Security Rule: Definition of an Investment Advice Fiduciary.” If finalized, a new definition of an “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA) would apply, likely resulting in more individuals becoming fiduciaries. Learn more.