Compliance February 28, 2023

House Votes to Overturn Rule Allowing ESG Investing in Retirement Plans

The resolution next moves to the Democratic-majority Senate.

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The U.S. House of Representatives approved a resolution to overturn a Department of Labor rule passed in November 2022 allowing for, but not mandating, environmental, social and governance investing in retirement plans.

The Congressional Review Act resolution passed by a party-line vote of 216 to 204 on Tuesday, with one Democrat voting with Republican lawmakers. Representative Andy Barr, R-Kentucky, offered the resolution amid calls by Republican House and Senate members in recent months for a repeal of the DOL guidance, saying it would harm everyday retirement savers.

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“Proud to join @HouseGOP in passing @RepAndy401Barr’s resolution today to STOP the left from pushing woke, ESG policies upon retirees without their consent,” Debbie Lesko, R-Arizona, wrote on Twitter after the vote.

The resolution now advances to the Senate, which has a 51-49 Democratic majority, though Senator Joe Manchin, D-West Virginia, has publicly sided with Republicans against the rule and called for its repeal. Vice President Kamala Harris can serve as a tiebreaker.

Both national and state Republican lawmakers have publicly opposed ESG investing in recent months, including 25 state attorneys general, fossil fuel-linked companies, and academics filing a complaint in a Texas court against the DOL’s rule in January. Last week, a conservative nonprofit law firm filed another complaint in the U.S. District Court for the Eastern District of Wisconsin, which was quickly followed by new legislation by House Democrats to codify the rule.

Immediately following Tuesday’s House vote, the Congressional Sustainable Investment Caucus led by Representatives Sean Casten, D-Illinois, and Juan Vargas, D-California, came out against the resolution.

“Retirement plan fiduciaries should be free to consider climate change and other ESG factors without regulatory barriers or the threat of litigation,” they wrote in a statement. “The rule from the Department of Labor does not require fiduciaries to consider ESG factors, it merely allows them to do so if it is in the best interest of their plan participants. This CRA resolution is the latest dangerous move in Republican’s (sic) anti-worker and anti-free market agenda.”

On Monday, a group led by organization US SIF: The Forum for Sustainable and Responsible Investment called for House members to vote against the resolution. The organization, backed by asset management firms focused on ESG investing, noted that the rule does not mandate use of ESG, but instead provides it as an option for retirement plan fiduciaries and sponsors governed by the Employee Retirement Income Security Act.

“The rule re-affirms ERISA’s longstanding principle that the duties of prudence and loyalty require ERISA plan fiduciaries to focus on relevant risk-return factors and not subordinate the interests of participants and beneficiaries such as by sacrificing investment returns or taking on additional investment risk,” the organization wrote.

The DOL rule was passed under the administration of President Joe Biden after more than a year of deliberation and public comment. Ultimately, the department decided to allow workplace retirement plan providers and their advisers to consider ESG factors when designing plan investments, saying at the time the rule would “make workers’ retirement savings and pensions more resilient by removing needless barriers, and ending the chilling effect created by the prior administration on considering environmental, social and governance factors in investments.”

The DOL’s 2022 rule overturned a rule from the administration of President Donald Trump that plan fiduciaries could only consider “pecuniary” factors, leaving many fiduciaries to question whether ESG-focused investments could be added to retirement plans as a qualified default investment alternative.

Compliance February 28, 2023

Julie Su Nominated to Replace Walsh at DOL

Biden tapped the deputy secretary of labor to take over as head of the DOL, with a Senate confirmation hearing to come.

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Julie Su

President Joe Biden announced his intent to nominate Deputy Secretary of Labor Julie Su to replace the outgoing secretary, Marty Walsh, who is leaving to lead the National Hockey League Players‘ Association.

Su was appointed deputy secretary in July 2021 and still faces a Senate confirmation hearing. Biden called Su a “champion for workers” and touted her work in California on Wage Theft is a Crime, a multilingual, state-wide campaign to reach low-wage workers and their employers and help them understand their rights around pay and labor abuses.

“Over several decades, Julie has led the largest state labor department in the nation, cracked down on wage theft, fought to protect trafficked workers, increased the minimum wage, created good-paying, high-quality jobs, and established and enforced workplace safety standards,” Biden wrote.

During the hearing for her current position, Republican lawmakers questioned her about fraudulent unemployment payments made during the COVID-19 pandemic that occurred when she was the secretary of the California Labor and Workforce Development Agency.

Retirement Focus

If Su is confirmed by the Senate, she will take over a DOL that has been active in both creating and clarifying retirement savings rules and regulations. This year, it is working to enact, as well as clarify, retirement reform passed in the SECURE 2.0 Act of 2022, while also facing a legal challenge of its rule that environment, social and governance investment vehicles can be included in retirement plans.

Senator Bernie Sanders, I-Vermont, will preside over Su’s hearing as chair of the Senate Committee on Health, Education, Labor and Pensions. He supported the nomination in a statement, saying, “I am confident Julie Su will be an excellent Secretary of Labor. I look forward to working with her to protect workers’ rights and build the trade union movement in this country.”

From a retirement policy perspective, Su’s tenure at the DOL is likely to mean few changes to ongoing projects, says Joshua Lichtenstein, who leads the ERISA and fiduciary practice at Ropes & Gray LLP.

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Senate ESG Roadblock

Lichtenstein does, however, see a potentially difficult confirmation hearing for Su, particularly around the DOL’s ESG rule, which has faced pushback from many Republicans and a lawsuit last week from a conservative law firm.

“That has become such a flashpoint that, given the makeup in Congress, I would not be surprised if this isn’t a quick and smooth confirmation process,” Lichtenstein says.

Lichtenstein points to the long confirmation process in September 2022 for Employee Benefits Security Administration head Lisa Gomez.

Walsh announced his departure on February 16, noting that he would leave in mid-March to take a post as executive director of the union representing NHL players. The Department of Labor said Su would serve as acting secretary, and Walsh praised her leadership.

Biden said in Tuesday’s announcement that Su has been a “critical partner” in working with Walsh.

“She helped avert a national rail shutdown, improved access to good jobs free from discrimination through my Good Jobs Initiative, and is ensuring that the jobs we create in critical sectors like semiconductor manufacturing, broadband and healthcare are good-paying, stable and accessible jobs for all,” he wrote.

Su earned a MacArthur Foundation “genius” award for her work as a civil rights attorney representing undocumented immigrant garment workers.

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