A Republican senator says a Biden administration rule “plays politics with Americans’ retirement savings,” even as some Democrats push legislation seeking to codify that same Labor Department rule into law.
President Joe Biden’s environmental, social, and governance rule would allow “fiduciaries to select a fund with a lower rate of return if it supports a progressive political agenda,” Sen. Mike Braun, R-Ind., told The Daily Signal in an emailed statement.
Braun was referring to a Labor Department rule announced in November known as “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.”
“When you consider that my challenge to this Biden rule has earned bipartisan support, half of our states are currently suing the administration over this rule, and statehouses around the country are taking action on this issue, it’s clear that there is widespread disapproval for injecting a political agenda into Americans’ retirement savings,” the Indiana lawmaker said.
According to the Labor Department, the rule specifically “allows plan fiduciaries to consider climate change and other environmental, social and governance factors when they select retirement investments and exercise shareholder rights, such as proxy voting,” and “follows Executive Order 14030, which was signed by President Biden on May 20, 2021.”
“The Department of Labor … is adopting amendments to the Investment Duties regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended,” a Federal Register summary of the rule said. The 1974 law is commonly referred to as ERISA.
“The amendments clarify the application of ERISA’s fiduciary duties of prudence and loyalty to selecting investments and investment courses of action, including selecting qualified default investment alternatives, exercising shareholder rights, such as proxy voting, and the use of written proxy voting policies and guidelines,” the summary continued. The rule went into effect on Jan. 30, according to the same Federal Register source.
Braun has been at the forefront of efforts to counter the Labor Department rule. Braun and Rep. Andy Barr, R-Ky., introduced measures to challenge the rule earlier this month in the Senate and the House, respectively.
A spokesman for Braun’s office told The Daily Signal a vote on the measure could take place anytime in the next 60 days, beginning Sunday, but will likely happen over the next two weeks.
“ERISA does not allow fiduciaries to sacrifice investment returns or assume greater investment risks in order to promote collateral social policy goals,” a Labor Department spokesperson told The Daily Signal in an emailed statement, disputing critics’ claims.
“In the Final Rule, [the Employee Benefits Security Administration] unequivocally reinforced this long-standing approach in express and unambiguous language: ‘A fiduciary may not subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan to other objectives, and may not sacrifice investment return or take on additional investment risk to promote benefits or goals unrelated to interests of the participants and beneficiaries in their retirement income or financial benefits under the plan,’” the Labor Department spokesperson said. The spokesperson added:
Any claims suggesting that fiduciaries are required to promote a political agenda or to subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits to other objectives because of this rule are simply false, as demonstrated by simply reading the actual text of the rule.
Sen. Tina Smith, D-Minn., reintroduced the Freedom to Invest in a Sustainable Future Act on Feb. 16. Seven other Senate Democrats—Patty Murray of Washington, Dianne Feinstein of California, Richard Blumenthal of Connecticut, Dick Durbin of Illinois, Elizabeth Warren and Ed Markey of Massachusetts, and Ron Wyden of Oregon, along with Sen. Bernie Sanders, I-Vt.—are co-sponsors of the bill.
“Sustainable investment options are good for retirees and good for our environment—that’s a win-win,” Smith said in a press release. “I’m putting forth this legislation because we know there’s a growing demand for sustainable investing, and Congress should act now to provide the legal certainty necessary to make sure workplace retirement plans are able to offer these options to workers across the country.”
Specifically, the legislation would “amend the Employee Retirement Income Security Act of 1974 to permit retirement plans to consider certain factors in investment decisions.”
In the House, Democratic Reps. Suzan DelBene of Washington, Juan Vargas of California, Dean Phillips of Minnesota, and Sean Casten of Illinois introduced the Freedom to Invest in a Sustainable Future Act on Thursday, according to a press release.
The Senate bill “is trying … to codify the Biden administration’s new Department of Labor rule because a bipartisan group of U.S. senators, actually, is standing up an effort to make that rule not go into effect,” according to Justin Danhof, head of corporate governance for Strive Asset Management.
Vivek Ramaswamy, co-founder of Strive, previously told The Daily Signal that ESG is a “terrifying” prospect for American investors and even for society more generally.
“I guess we have to take a couple of steps backwards when we’re looking at this. What happened in the Trump administration under Secretary [Eugene] Scalia at the Department of Labor is, they took a look at what is the true essence of ERISA, which, by the way, as we know, has about $12 trillion worth of pension investments for lots of Americans,” Danhof told The Daily Signal in a phone interview. “The essence of ERISA was that fund managers, those responsible for looking out for pensioners, they’re supposed to have [a single focus] on maximized returns.”
“When I talk about, ‘What does it mean to be a ‘fiduciary?’, what a fiduciary really is, is a steward, and a steward in the true biblical sense of stewardship, over other people’s capital, because once you take on that responsibility, that’s kind of an awesome responsibility, right?” Danhof said.
Danhof further discussed what Scalia and his team did during the Trump administration.
“They said, ‘Look, when you manage a pension fund in ERISA, you cannot consider non-pecuniary factors that are factors that are irrelevant to the financial performance of the investment selection,’” he said. “And so, in most instances these days, but not all, those fall under the banner of ESG—environmental, social, and corporate governance—which we could also have a debate about whether those three terms even belong together. It’s like saying elephant, car, ocean. What’s the common theme here?”
Danhof said the Trump administration rule “made a lot of sense, because it got back to the essence of what ERISA meant.”
However, he said, the Biden administration’s “rule is written a little bit clumsy,” which he claims was done “on purpose.”
“A fund manager of an ERISA fund could look at the [Department of Labor’s] rule that this Senate bill aims to codify into law, and it’s written so clumsy that you might think you have to invest in ESG. Not only that it’s permissible, but that you might get in trouble if you don’t, that the [Department of Labor] might come after you,” Danhof said.
“I think it’s inartfully written that way on purpose, because they’re trying to advance a policy agenda that they’re otherwise having a difficult time legislatively achieving, and they’re doing it at the expense of everyday Americans who rely on ERISA funds,” he said.
Jessica Anderson, executive director of Heritage Action for America, the grassroots arm of The Heritage Foundation, labeled the legislation both “anti-growth” and “anti-freedom.” (The Daily Signal is the news outlet of The Heritage Foundation.)
“The ESG policies pushed in [the Democrats’] bill would punish businesses for not complying with the Left’s radical social agenda, threaten American workers’ retirement funds, and raise production costs,” Anderson told The Daily Signal in an emailed statement.
“Workers deserve to have their savings invested in companies that will provide them the highest returns, not fund a political agenda. This bill shows how Democrats are using ESG standards and investing to prioritize their woke agenda over the best interests of the American people,” Anderson added.
The White House and Smith’s office did not respond to The Daily Signal’s request for comment.
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