According to a new proposed rule from the Labor Department, ERISA plan fiduciaries are not allowed to invest in ESG vehicles that take on more risk and sacrifice investment returns. The rule, published Tuesday night, adds regulatory text that amplifies how ERISA requirements push plan fiduciaries to select investments “based on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action.”
“Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan,” Labor Secretary Eugene Scalia declared. “Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.”
Subsequently, the proposal requires fiduciaries to consider other investment options to meet their loyalty and prudence duties under ERISA law and outlines the requirements for selecting investments alternatives for 410(k) plans that ostensibly pursue one or more ESG-oriented measures in their investment mandates or that encompass such parameters in the name of the fund.
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