Biden Official Touts ESG Rule on Retirements As Congress Pushes Back

A Biden administration official touted a controversial rule that would let retirement plan fiduciaries consider environmental, social, and governance (ESG) factors when choosing investments—days before Congress voted to overturn the plan and the president said he’d veto the move.

The Labor Department’s priorities this year include implementing the ESG rule, Lisa Gomez, assistant secretary of labor for the Employee Benefits Security Administration (EBSA), said Tuesday at a conference in Washington sponsored by the National Institute on Retirement Security.

“The purpose of that rule is to just make it clear that fiduciaries can take ESG factors into consideration when they’re making retirement decisions, just like they would prudently consider any other factors,” Gomez said.

The ESG proposal has met with pushback from some state attorneys general and Republican legislators. Republican state attorneys general filed suit against the rule in January, saying it “undermines key protections for retirement savers, oversteps the department’s authority, and is arbitrary and capricious.”

The House of Representatives voted after Gomez’s comments Tuesday, largely along party lines, to kill the rule. The Senate followed suit a day later in a 50-46 vote. Biden has said he’d veto those decisions.

Another push this year for the Department of Labor is the SECURE 2.0 retirement security package that Congress passed as part of the Consolidated Appropriations Act (CAA) of 2023.

SECURE directs the Labor Department to help implement measures to get people to save more for retirement, improve retirement rules, and lower the employer cost of setting up a retirement plan. It also calls for the codification of the auto-portability of retirement plans and the creation of a lost-and-found database for workers who have lost track of them.

“We are working hard on determining how to establish the lost-and-found participant retirement database and the regulatory work that is going to be tied to that database, as far as collecting the information to populate that,” Gomez said.

Reopening Defined Benefit Pension Plans

Among the questions brought up at the NIRS Conference, perhaps none was more intriguing than the one asked by Jared Gross, head of institutional portfolio strategy at JP Morgan Asset Management: “Is it time to reopen DB pension plans?”

Gross said U.S. corporate sponsors of private defined benefit (DB) pension plans don’t seem to appreciate the value of maintaining a well-funded pension. He said many defined benefit plans are fully funded thanks to sponsors who have developed the expertise to manage assets to out-earn liabilities and, at the same time, impose minimal financial risk.

A more forgiving regulatory environment, Gross said, has led to a reduction in the number of large mandatory recovery contributions of the past that resulted from previous pension funding drawdowns. Gross encouraged pension fund sponsors to reconsider the numerous reasons for keeping defined benefit plans open or even reopening them if closed.