The Biden administration approved a number of sweeping new rules in late November that fundamentally change the way asset managers and retirement plan administrators may use funds under their control from American workers’ 401(k) investment accounts.
The federal labor department finalized changes before the Thanksgiving holiday that will impact roughly 150 million workers and about $10 trillion in assets covered by the Employee Retirement Income Security Act (ERISA) of 1974.
ERISA is a federal law establishing “minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.”
Central to the new regulations is the hot-button issue of so-called “ESG investing,” or environmental, social, and governance investing.
According to NerdWallet, “Environmental factors look at the conservation of the natural world, social factors examine how a company treats people both inside and outside the company, and governance factors consider how a company is run.”
These “non-financial” factors are used to measure a company’s “sustainability.”
For example, an ESG investor may look at a company’s carbon emissions footprint, the ethnicity and gender makeup of its workforce, or even what kind of political contributions and lobbying activities the company participates in.
Assets in the United States under management using ESG investing strategies swelled to over $17 trillion at the beginning of 2020, which is a 42% increase from the same time period in 2018.
However, even as ESG investing generally has rapidly increased, it has not seen the same appetite or growth in the retirement investing sector.
Now, with the Biden labor department’s latest rule change, that may change, and ESG investing in retirement accounts is likely to increase.
The new rules terminated two Trump-era regulations that essentially limited asset managers and retirement plan administrators from considering “climate change and other environmental, social, and governance factors when selecting investments or exercising proxy voting rights.”
Claiming protection of a worker’s future retirement income, Biden’s new rules expressly encourage fiduciaries to consider climate change and other factors when making investment decisions.
In the initial language of this rule change, the labor department argued, “Climate change is particularly pertinent to the projected returns of pension plan portfolios that, because of the nature of their obligations to their participants and beneficiaries, typically have long-term investment horizons.”
“The effects of climate change such as sea level rise, changing rainfall patterns, and more severe droughts, wildfires, and flooding are expected to continue to pose a threat to investments far into the future,” they argued.
The initial language also contained what some commenters claimed was a backdoor mandate for widescale ESG investing. The proposed rule read that a fiduciary’s assessment of a potential retirement plan investment “may often require” consideration of ESG factors.
A senior labor department official said the agency agreed with commenters who feared the word “often,” without further guidance, was tantamount to a mandate for ESG investing.
Republicans have begun to take up the mantle of limiting ESG investing in recent years. Earlier this year, Senator Ted Cruz (R-TX) famously chided the CEO of the world’s largest asset manager, Larry Fink, for what the Texas lawmaker called “woke” investment decisions.
Cruz accused Fink of utilizing proxy voting, which is essentially a ballot cast by one person or firm on behalf of another, to make investments in social causes that would not return the highest possible profit for investors.
“Larry Fink is not using his own money to vote as a shareholder,” Cruz remarked on CNBC. “What Larry Fink is doing is taking your shares and my shares and [those of] millions of little old ladies who’ve invested in funds, and he’s aggregating that vast amount of capital and he’s decided to vote not to maximize their returns because apparently, his fiduciary duty to customers is not a top priority. He’s voting instead on his politics.”
With Biden’s latest rule change, this fight is set to escalate further.
put your money in a piggy bank,it’s safer there
No kidding. Social security should have just gone into a savings account under the individual’s name. Same with retirement funds. Letting the government handle your money is always a big mistake. Having ordinary citizens play the stock markets, etc. is ludicrous. The average citizen doesn’t have the mathematical mind to understand all that and can be cheated. Hell, I came across a 20 year old at a Whataburger that had a hard time with simple arithmetic. The total was $19.50. I set down a $20 bill and 2 quarters. She looked at me and said, “I owe you a dollar, right?”. Well, duh. Think she would know if the retirement company was cheating her? Should she put her money in stocks, bonds or money market, etc.?
And pre-tax dollars is a scam. You do realize that when you start collecting your retirement 40 years later, that the tax on that money will be significantly higher than when you earned it? No one should have gone for that. And the government was well aware of it, while making it sound like a good deal.
Pre-tax dollar investing makes sense for those who earn higher tax bracket money and can scale way back into a lower bracket when withdrawing the money in retirement.
Scaling way back may include delaying possibly taxable social security income while drawing down pre-tax investments during the initial retirement years.
Just another source they can “borrow/use” money from without anyone saying no or even having to pay it back or pay interest on the money “borrowed/used”. The keeper is probably just another “yes” person so no problem getting the money.
Another way to spend more useless money on the climate change hoax. Doctors and scientists will say whatever you want them to say if you give them enough money. I worked with doctors for over 25 years and have seen a lot.
Plus he’s routing retirement funds to bend toward their liberal agenda. The evil in this country is without end.