Green is Good. What the DOL’s New ESG Guidelines Do for Us

The new DOL rule on Environmental, Social, and Governance (ESG) investing and proxy voting removes the cumbersome weights that the prior rule imposed in considering ESG factors when selecting or monitoring plan investments. Plus, it’s a good thing that most active plans are of the defined contribution variety with participant-directed investment for all or some of a participant’s plan balance. Fiduciaries don’t violate their duty of loyalty to participants if they consider participant preferences for ESG-friendly investments in choosing to include such investment options in a prudently-selected plan menu, so, happy eco-investing!

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• ERISA Fiduciary Duties
  Learn more about the new ESG rules. Among other changes, the new rule eliminates two safe harbors under the prior-administration’s rule that would have restricted how fiduciaries could determine whether it was appropriate to vote proxies in a particular case. DOL expressed doubt that they were useful for protecting the interests of plan participants and beneficiaries, and concern that they could inappropriately promote abstention from proxy voting.

• Investment Committee Issues for Defined Contribution Plans
  See how the new ESG rule explicitly affirms that a fiduciary may determine that an evaluation of the economic effects of climate change and other ESG factors be included in its consideration of the economic risk and return factors relating to investments. The new rule also eliminates the prior rule’s special restriction on QDIAs (like target date retirement funds) that had prohibited QDIAs from having, at any level, an investment goal or principal investment strategy that used any nonpecuniary factor (like a pro-ESG focus).

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  • ERISA. DOL finalizes regulations reversing Trump-era rules that restricted ERISA retirement plan investment in view of environmental, social, and governance (ESG) factors, like climate change. The new rules allow ERISA plan fiduciaries to consider ESG factors in selecting retirement plan investments and exercising shareholder rights. 87 Fed. Reg. 73,822 (Dec. 1, 2022).
  • Health and Welfare Plans. Treasury and IRS issue final regulations providing that "minimum essential coverage" does not include Medicaid coverage that is limited to coronavirus (COVID-19) testing and diagnostic services. The regulations provide an automatic extension of time for providers of minimum essential coverage (including health insurance issuers, self-insured employers, and government agencies) to furnish individual statements regarding such coverage. 87 Fed. Reg. 76,569 (Dec. 15, 2022).
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