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<< Older News  |  January 24, 2021

News

All News > Retirement Plan Investments - ESG

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White House Halts Pending Regs, Requests Delay in Effective Date of Published Regs That Have Not Yet Become Effective
American Retirement Association [ARA] Link to more items from this source
[Guidance Overview]
Jan. 21, 2021

"In a Jan. 20 memo, White House Chief of Staff Ron Klain instructed the heads of executive departments and agencies to place a hold on all recently issued rules and regulations.... With respect to rules that have been sent to the Office of the Federal Register but not published, the memo advises agency heads to immediately withdraw them pending review and approval. And with respect to rules that have been published in the Federal Register or that have been issued in any manner, but have not taken effect, Klain advises that department heads should consider postponing the rules' effective dates for 60 days."

Tags: Fiduciary Duties  •  Retirement Plan Design  •  Retirement Plan Investments  •  Retirement Plan Investments - ESG  •  Retirement Plan Policy

Ethics, Earnings, and ERISA: Ethical-Factor Investing of Savings and Retirement Benefits
Law Offices of Albert Feuer, via SSRN Link to more items from this source
Jan. 19, 2021

"Two fiduciary and tax-qualification questions arise in the retirement/savings plan realm with respect to ethical factor investing. Fiduciaries of non-ERISA plans, such as many government plans, often must satisfy tax-qualification rules similar to fiduciary rules governing ERISA plans. To what extent may fiduciaries make available ethical-factor investment options to participants and beneficiaries, who self-direct their investments, such as those for 401(k) plans or 403(b) plans? To what extent may plan fiduciaries, make ethical-factor investments on behalf of participants and beneficiaries, such as those for defined benefit plans?"

Tags: Fiduciary Duties  •  Retirement Plan Investments - ESG

DOL’s Final Rule on Investment Duties of ERISA Fiduciaries and Its Impact on Retirement Plan ESG Investing
Epstein Becker Green, via National Law Review Link to more items from this source
[Guidance Overview]
Jan. 11, 2021

"The Final Rule clarifies that ERISA's duty of loyalty, which requires a fiduciary to act solely in the interest of plan participants and beneficiaries for the exclusive purpose of providing benefits and defraying expenses, applies to the evaluation of investments and investment courses of action. The Final Rule therefore states that the duty of loyalty forbids ERISA fiduciaries from sacrificing investment returns or taking additional risks to promote non-pecuniary goals. Thus, ERISA fiduciaries may not select ESG investments to promote any goal other than ensuring financial benefits for plan participants."

Tags: Fiduciary Duties  •  Retirement Plan Investments - ESG

How an ERISA Fiduciary May Try to Save the World
Law Offices of Albert Feuer, via SSRN Link to more items from this source
[Opinion]
Dec. 21, 2020

"The Investment Duties Regulation, like prior DOL regulations, correctly permits ERISA fiduciaries to consider ethical factors ... to make investment decisions ... as long as those considerations do not reduce an investment's expected economic performance.... 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."

Tags: Retirement Plan Investments - ESG

Proposed Legislation Would Mandate ESG Policies Among Retirement Plans, Advisors
American Retirement Association [ARA] Link to more items from this source
Dec. 18, 2020

"Unhappy with the [DOL's] regulatory efforts to curtail environmental, social and governance investing, a group of House Democrats introduced two bills requiring retirement plan fiduciaries and investment advisors to adopt sustainable investment policies."

Tags: Retirement Plan Investments - ESG

DOL Finalizes Regs Imposing New Obligations for Plan Sponsors and Asset Managers in Connection with Proxy Voting and Other Exercises of Shareholder Rights by ERISA Plans
Ropes & Gray LLP Link to more items from this source
[Guidance Overview]
Dec. 17, 2020

"Together with the ESG rule the agency finalized at the end of October, this latest rulemaking reinforces the principle that financial factors impacting plans and their participants and beneficiaries should be the only considerations driving fiduciary decision-making. While the final rule moves away from the prescriptive approach the agency proposed in September in favor of a more principles-based design, it still imposes new mandates that will likely have the practical effect of discouraging both proxy voting by ERISA plan fiduciaries as well as the use of proxy advisers and other service providers to assist them with exercising their shareholder rights. The final rule also imposes additional obligations on asset managers who manage ERISA plan assets."

Tags: Fiduciary Duties  •  Retirement Plan Investments  •  Retirement Plan Investments - ESG

Final Rule for Selecting Retirement Plan Investments Leaves ESG Behind
McDermott Will & Emery Link to more items from this source
[Guidance Overview]
Dec. 11, 2020

"Due to complaints from commentators about a lack of industry consensus about what constitutes an 'ESG' investment, the DOL dropped the 'ESG' terminology from the Financial Factors Rule. Instead, the Financial Factors Rule concentrates on whether a factor involved in selecting plan investments is 'pecuniary.' "

Tags: Fiduciary Duties  •  Retirement Plan Investments - ESG

Choosing a QDIA Under the Final Rule Governing the Selection of Plan Investments (PDF)
Boutwell Fay LLP Link to more items from this source
[Guidance Overview]
Dec. 9, 2020

"The DOL has made clear its position that investment funds whose objectives include non-pecuniary goals -- even if selected only on the basis of objective risk-return criteria -- should not be the default investment alternative in an ERISA plan. The prohibition, according to the DOL, is intended to help ensure that the financial interests of plan participants remain paramount by removing non-pecuniary considerations where participants' savings are being automatically invested through a QDIA. But how does one determine whether a fund's objectives, goals, or strategies use non-pecuniary factors?"

Tags: Retirement Plan Investments - ESG

Research Concludes ESG Investments Do Not Belong in Retirement Plans
Jean-Pierre Aubry in Fiduciary News; free registration required Link to more items from this source
[Opinion]
Dec. 8, 2020

"The [Center for Retirement Research at Boston College] study investigates ESG investing in two ways: [1] by comparing the overall investment performance of pension funds that use ESG to those that do not; and [2] by comparing the investment performance of ESG mutual funds to passively managed index funds. The results show that, on average, [1] plans that use ESG criteria have lower returns than those that do not, and [2] ESG mutual funds produce lower returns than passively managed indexed funds -- in part because they charge much higher fees."

Tags: Retirement Plan Investments - ESG

The Conflict Between BlackRock's Shareholder Activism and ERISA's Fiduciary Duties
Bernard S. Sharfman, via SSRN Link to more items from this source
Dec. 7, 2020

"The focus of this Article is on the agency costs that may be created by the empty voting of investment advisers to index funds and how they can be mitigated so as to protect the value of private employee pension benefit plans. This Article focuses on BlackRock because it has taken a leadership role in the leveraging of its delegated voting authority. Therefore, the issue [addressed] in this white paper is whether the fiduciary duties of a plan manager of an 'employee pension benefit plan,' as authorized under [ERISA], requires it to investigate BlackRock's shareholder activism. This indirect approach is required as the fiduciary duties of ERISA do not generally extend to mutual funds and ETFs and their investment advisors."

Tags: Fiduciary Duties  •  Retirement Plan Investments  •  Retirement Plan Investments - ESG

DOL Final Rule for Financial Factors in Selecting Plan Investments
Thompson Hine Link to more items from this source
[Guidance Overview]
Dec. 3, 2020

"[T]he Rule clarifies that plan fiduciaries must base their investment decisions solely on pecuniary factors -- those that have a material effect on an investment's risk and return based on appropriate time horizons consistent with the plan's investment objectives and funding policy."

Tags: Fiduciary Duties  •  Retirement Plan Investments - ESG

'Sustainable Investment Policy Act' Would Mandate Consideration of ESG Factors
Heartland Capital Strategies Link to more items from this source
Dec. 1, 2020

"The purpose of the Sustainable Investment Policy Act [to be introduced in the House by Rep. Andy Levin (D-Mich.), vice-chair of the House Education & Labor Committee] is to require retirement investors and fiduciaries to consider environmental, social, and governance -- or 'ESG' -- factors when making investments that are covered by [ERISA] and the Investment Advisers Act of 1940.... The bill outlines six categories of ESG factors investors must consider and make clear to retirement plan beneficiaries."

Tags: Retirement Plan Investments - ESG

Financial Factors in Selecting Plan Investments: Final Rule
Schneider Downs Link to more items from this source
[Guidance Overview]
Dec. 1, 2020

"The final rule ... prohibits fiduciaries from selecting investments based solely on non-pecuniary considerations. However, in the case of participant-directed plans ... plan fiduciaries may in some circumstances offer ESG or other investment options that focus on non-pecuniary interests as one of the plan's available investment alternatives, provided that generally applicable fiduciary duties are otherwise satisfied in connection with the investment."

Tags: Retirement Plan Investments - ESG

The ESG Rule That Wasn't
Cammack Retirement Group Link to more items from this source
[Guidance Overview]
Nov. 23, 2020

"The watering down of the Final Rule is welcome news to many retirement plan sponsors and those who work with them, as the Proposed Rule was generally viewed as a heavy-handed solution to a problem that barely existed in the DC retirement plan marketplace ... However, one aspect plan fiduciaries should consider in regard to the removal of all ESG references from the Final Rule is that the provisions of the Rule now apply in the context of any investment."

Tags: Fiduciary Duties  •  Retirement Plan Investments - ESG

DOL Now Requires Plan Investments Based Only on Pecuniary Factors
Davis Wright Tremaine LLP Link to more items from this source
[Guidance Overview]
Nov. 20, 2020

"[1] Follow the prudence safe harbor in the regulations ... [2] Use pecuniary factors only ... [3] Follow tie-breaker rules only if pecuniary factors create deadlock ... [4] No additional rules for choosing investment alternatives in account-based plan ... [5] Prohibition on non-pecuniary factors for QDIA."

Tags: Fiduciary Duties  •  Retirement Plan Investments - ESG

DOL Finalizes Rule Adopting Amendments to the 'Investment Duties' Regulation
Cadwalader, Wickersham & Taft LLP Link to more items from this source
[Guidance Overview]
Nov. 19, 2020

"The DOL indicated that the fiduciary is only required to compare alternatives that are reasonably available under the circumstances. The DOL noted that this new provision does not require a fiduciary to 'scour the market' or consider every possible alternative, and also allows for the possibility that the characteristics of a given investment may be sufficiently rare such that a fiduciary could prudently determine (and document) that there were no reasonably available alternatives."

Tags: Retirement Plan Investments - ESG

Collected Comment Letters to EBSA on Proposed Regs for Pension Benefit Statements: Lifetime Income Illustrations
Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL] Link to more items from this source
[Opinion]
Nov. 19, 2020

Published comment letters submitted in response to EBSA's September 18 interim final regs on Lifetime Income Illustrations to be provided to participants with annual pension benefit statements. Deadline for comments was November 17, 2020. (36 letters are online as of Nov. 18.)

Tags: Fiduciary Duties  •  Retirement Plan Investments - ESG

DOL Finalizes ‘Financial Factors’ Regs
Morgan Lewis Link to more items from this source
[Guidance Overview]
Nov. 18, 2020

"The final rule alleviates some of the more serious concerns raised by the proposal, by eliminating the prospect of a presumption that any ESG-based investments are non-pecuniary in nature and thus require additional justification to be retained by an ERISA plan. Also, the changes provide for greater flexibility in applying the duty of loyalty standard, including as to offering what the notice refers to as 'ESG-themed funds' as available investments (including QDIAs) in participant-directed plans."

Tags: Retirement Plan Investments - ESG

Final ERISA Regs Circle Back to Allow ESG Investing
Reinhart Boerner Van Deuren s.c. Link to more items from this source
[Guidance Overview]
Nov. 18, 2020

"Fiduciaries may want to consider whether there are new opportunities to capture improved returns or reduce risk exposures through carefully selected ESG investment approaches. Fiduciaries may also want to consider whether there are ESG investment alternatives that better serve the interests of defined contribution plan members. In addition, it may be appropriate to evaluate whether the plan's service providers have both the needed expertise and contractual duty to provide up-to-date advice on ESG investing."

Tags: Fiduciary Duties  •  Retirement Plan Investments - ESG

DOL Has Issued a Finalized Rule on ESG Investing in ERISA Pension Plans
Institute for Pension Fund Integrity [IPFI] Link to more items from this source
[Opinion]
Nov. 17, 2020

"These actions by the [DOL] further codify the most basic tenet of fiduciary duty: investment decisions should be governed by considering risk and returns, not any outside political agenda.... This modernization of ERISA will ensure that pension investment strategies remain focused on fiduciary duty and the best risk adjusted return."

Tags: Retirement Plan Investments - ESG

Pension Beneficiaries Should Celebrate the DOL’s New ESG Investment Rule to Restore Fiduciary Responsibility
Christopher Burnham, via Forbes Link to more items from this source
[Opinion]
Nov. 16, 2020

"Keeping politics out of the management of other people's pension plans is an essential part of our duty of loyalty and our fiduciary obligations. That is why the recent announcement by the [DOL] of a final rule laying out stringent guidelines for fiduciaries of retirement plans under [ERISA] is a welcome and much-needed step in the right direction."

Tags: Retirement Plan Investments - ESG

DOL Issues Final Regs on ESG Investment Considerations
Akin Gump Link to more items from this source
[Guidance Overview]
Nov. 16, 2020

"[T]he ERISA limitations on ESG investment could have (and already likely do have) a chilling effect on raising ERISA-based capital for any investment fund or product that has a purpose to focus on and/or promote ESG factors.... To the extent the [marketing] materials related to a product or a fund acknowledge that investment returns may be compromised and/or risk increased due to ESG factors, an ERISA fiduciary would need to disregard the DOL's view on these types of investments in deciding to make such an investment."

Tags: Retirement Plan Investments - ESG

The Final DOL ESG Rule
MFS Institutional Advisors, Inc. Link to more items from this source
Nov. 13, 2020

"[T]he final rule will change the subject of the ESG conversation from ESG-themed funds to the more holistic approach of ESG integration. The final rule is likely to create barriers to the further implementation and use of ESG-themed funds, particularly those with short track records, low assets under management, specific and narrow objectives or relatively higher fees compared to other non-ESG-related investment alternatives."

Tags: Retirement Plan Investments - ESG

Editor's Pick DOL Issues Final ESG Rule; Focuses on Pecuniary Factors
K&L Gates Link to more items from this source
[Guidance Overview]
Nov. 13, 2020

"[P]roduct manufacturers should [1] review how ESG factors are integrated into the investment process and whether such factors are pecuniary factors, ... [2] prepare to receive enhanced scrutiny ... from consultants and plan sponsors, and [3] consider whether any sub-advisers have been properly reviewed from an ERISA perspective.... Plan sponsors should ... [1] consider whether changes should be made to RFPs and RFIs used in connection with hiring consultants, and [2] consider whether they have the necessary tools and expertise to evaluate ESG matters in addition to more traditional investment matters."

Tags: Retirement Plan Investments - ESG

A Pecuniary Focus: DOL Issues Final Rule on Financial Factors in Selecting Plan Investments
Trucker Huss Link to more items from this source
[Guidance Overview]
Nov. 13, 2020

"By focusing on non-pecuniary factors, the DOL is able to more broadly address its concerns over subordinating financial interests for other motives, and it avoids having to define ESG. Nevertheless, given current industry trends and increased interest in ESG investing, the Final Rule should be understood to directly impact ESG investing. The DOL makes it clear in the preamble to the Final Rule that ESG investing was a primary motive behind the new regulatory framework, and it will continue to be an area of ongoing focus and review."

Tags: Retirement Plan Investments - ESG


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