Without fanfare, the Labor Department proposed a rule last week that seeks to add left-wing political objectives to retirement savings accounts even as Democrats in Congress have so far been unable to pass legislation seeking similar results.
According to the Biden administration, the rule makes it less difficult for retirement plans to offer 401(k) funds that are focused on environmental, social, and governance (ESG) objectives, but in reality, “the rule will coerce workers and businesses into supporting progressive policies,” The Wall Street Journal reported Thursday.
The paper went on to report that last fall, the Trump administration implemented a Labor Dept. rule strengthening the impetus behind the Employee Retirement Income Security Act (ERISA), which stipulates that fiduciaries of retirement plans behave “solely in the interest” of participants.
The Trump-era rule barred pension plans and asset managers “from considering ESG factors like climate, workforce diversity and political donations unless they had a ‘material effect on the return and risk of an investment,'” the WSJ reported, citing the rule, which essentially banned plans from putting workers who don’t specify a 401(k) fund option into an ESG fund by default.
The proposed change seeks to ditch the Trump-era rule while also notifying retirement fund sponsors they will have a fiduciary duty to include ESG factors in decisions regarding investments. The proposed rule change “makes clear that climate change and other ESG factors are often material” and therefore, in many cases, ought to be considered “in the assessment of investment risks and returns.”
The rule states that a fiduciary’s role may “often require an evaluation of the effect of climate change and/or government policy changes” like electric vehicle mandates in terms of investments. What’s more, sponsors of retirement plans will not only be permitted to prioritize climate and social factors regarding investments, they could be subjected to lawsuits if they don’t, the paper reported.
What’s more, the worker contributing to their fund will not get much input because plans will not be required “to solicit preferences” on ESG-related factors.
Biden’s Labor Department argues that ESG factors will result in higher returns.
“Many compelling studies show the material financial benefits of diverse and inclusive workplaces,” the Labor Dept. noted. However, the department also notes that “findings vary” and that theoretical returns on ESG investments do not necessarily mean they will perform better financially.
“Many positive ESG studies confuse correlation with causation. Some ESG funds have recently performed better than broader stock indexes because they are weighted heavily toward Big Tech companies whose stock values have soared,” the WSJ reported. “But these funds may also carry more financial risk.”
Also, asset fund managers like Blackrock are also pushing for ESG 401(k) plans because they are permitted to charge higher fees.
“The Biden rule would let plan sponsors enroll workers in ESG 401(k) funds as the default, so workers could unknowingly end up paying higher fees,” the WSJ reported.
“It also threatens retirement plan sponsors with legal liability if they don’t support progressive shareholder resolutions, such as those requiring companies to reduce CO2 emissions or disclose political donations,” the paper added.
In essence, WSJ notes that the overall effort is a backdoor attempt to rewrite ERISA, “one of the better laws of the last 50 years.” It’s also part of an effort by leftists throughout the Biden administration to move private capital in a way that implements their progressive agendas that cannot pass in Congress.
“Your savings will be conscripted to advance the progressive agenda, whether you like it or note,” the paper concluded.
Jon has over 30 years' worth of reporting experience, as well as an author and U.S. Army veteran. He has a BA in political science from Ashford University and an MA in national security studies/intelligence analysis from American Military University.
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