How an ERISA Fiduciary May Try to Save the World

48 Comp. Plan. J. 271

9 Pages Posted: 16 Dec 2020

Date Written: December 4, 2020

Abstract

On November 13, 2020, the U.S. Department of Labor (DOL) promulgated a final regulation regarding the investment duties of an ERISA fiduciary in selecting either direct plan investments or investment alternatives to make available to participants and beneficiaries of self-directed plans (the “Investment Duties Regulation”). The Regulation, like the proposed form of the Regulation, which provoked more than 8,000 public comments which were overwhelming critical, was intended to discourage what the DOL called ESG or sustainable investing. Such investing is often described as seeking to save the world.
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The Investment Duties Regulation, like prior DOL regulations, correctly permits ERISA fiduciaries to consider ethical factors, such as a business enterprise’s policies regarding social/economic/health/environmental justice, sustainability, climate change, or corporate governance to make investment decisions. The Regulation permits this as long as those considerations do not reduce an investment’s expected economic performance. Moreover, an ERISA fiduciary may overtly use its investment policies to try to save, or, at least improve the world. The Regulation, unlike the earlier DOL regulations, however, prohibits the managers of a Qualified Default Investment Alternative (QDIA) for a self-directed plan, such as many 401(k) plans, from being too overt in pursuing ethical factor investing. In particular, it appears an S&P Index fund may not be a permissible component of a QDIA because such a fund must exclude any new corporation with multiple class share structure, such as Zoom.

Keywords: fiduciary, ethics, ESG, asset management, sustainable investing, ethical-factor investing, ERISA, 401(k) plans, IRAs, self-directed plans, retirement plans, savings plans, pension plans

JEL Classification: G11, J32, K19, K22, K34, Q01, Q56

Suggested Citation

Feuer, Albert, How an ERISA Fiduciary May Try to Save the World (December 4, 2020). 48 Comp. Plan. J. 271 , Available at SSRN: https://ssrn.com/abstract=3750318

Albert Feuer (Contact Author)

Law Offices of Albert Feuer ( email )

New York, NY
United States
718-263-9874 (Phone)

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