Anti-ESG 401(k) Investing Measures Advanced by House Committee

A House panel has advanced a suite of private-sector retirement bills that would amend decades-old workplace benefit law in order to curb socially conscious and environmentally friendly retirement investing.

Party-line votes of 23-19 on Thursday in the House Committee on Education and the Workforce moved four Republican-backed bills targeting environmental, social, and corporate governance investing to the House floor.

It’s the latest attempt by House Republicans to chip away at a Biden administration regulation that permits employers to consider ESG factors when selecting or monitoring worker investment options. The rule (87 Fed. Reg. 73822) finalized late last year undid a pair of anti-ESG Trump regulations and unleashed a firestorm of political controversy from conservatives lashing out at so-called “woke” investments threatening workers’ financial security.

Biden’s ESG rule has been the focus of a series of legal challenges, including one high-profile case involving more than two dozen red-state attorneys general who claim the department is allowing employers to subvert their workers’ financial interests in favor of ulterior green or socially conscious goals. Biden was forced to use his first presidential veto earlier this year defending the rule against a GOP resolution that attracted the support of two moderate Democratic senators.

The Republican-backed bills before the committee Thursday, H.R. 5337, 5338, 5339, and 5340, would amend the Employee Retirement Income Security Act of 1974 (Pub. L. No. 93-406) to codify the Trump-era policies instead by putting restrictions on pension proxy voting, upping the penalties employers can face for under-performing ESG securities, and warning investors about “do-good” investments.

“When folks are saving and investing for retirement, the most important thing on their minds isn’t gender ideology or other ‘woke’ ideas,” said Rep. Virginia Foxx (R-N.C.), who chairs the Education and Workforce Committee. “It’s ensuring their retirement plans maximize returns, especially in an uncertain economy.”

Only Pecuniary Interests

The Roll back ESG To Increase Retirement Earnings (RETIRE) Act (H.R. 5339) would reintroduce language from a prior Trump-era rule that requires fiduciaries to select and monitor investments based solely on pecuniary, or financial, interests. It would bar fiduciaries from any non-pecuniary investment options unless they can justify how the securities enhance workers’ portfolios and eliminate non-pecuniary investment factors in automatic default investments for employees.

ERISA already requires fiduciaries to put participants’ financial interests above all else in the investment management process. Biden Labor Department officials have repeatedly said their latest rule is being misinterpreted. It doesn’t force fiduciaries to consider ESG factors, they say, but allows them to consider them when they are financially relevant.

An amendment to H.R. 5339, introduced by Rep. Mark DeSaulnier (D-Calif.), that would replace the text of the bill with language that mirrors that of the Biden administration’s ESG permissible rule failed on a subsequent vote of 19-23.

“My substitute amendment does not put its finger on the scale against ESG investing,” DeSaulnier said. “There’s no sound policy reason for Congress to be doing that. Instead, my amendment essentially codifies the Biden administration’s ESG rule, which is neutral when it comes to ESG investing and leaves these investing decisions to the plan fiduciaries and their clients, who are bound by current law to act in the best economic interests of plan participants.”

Proxy Voting

The Retirement Proxy Protection Act (H.R. 5337), would reassert limits on retirement plan decision makers held to a strict fiduciary standard of care who vote proxy for investments held on behalf of their participants. The bill explicitly states that fiduciaries aren’t required to vote proxy on all matters, especially if they don’t pertain to their participants’ financial interests or retirement goals.

It would also require fiduciaries to maintain clear records and closely monitor proxy voting activities for compliance with ERISA.

An amendment introduced by the committee’s ranking member, Rep. Bobby Scott (D-Va.), to align the proxy voting policy with the Biden rule also failed 19-23.

Brokerage Windows

The Providing Complete Information to Retirement Investors Act (H.R. 5340) would strip the DOL from regulatory authority it has hinted at exercising with respect to brokerage windows, investment options 401(k) participants can access outside the suite of mutual and exchange-traded funds carefully vetted by their employers.

The bill would require employers to explicitly notify investors of the risks associated with outside investments and bar brokerage windows from becoming default investments. It would also require employers to prepare illustrations showing employees 4, 6, and 8% returns on investments under brokerage window securities.

DEI and Investment Managers

The No Discrimination In My Benefits Act (H.R. 5338) would apply the same duties fiduciaries face when selecting and monitoring investments to their choice of 401(k) service providers such as outside counsel and investment managers. The bill would also require fiduciaries to select service providers “without regard to race, color, religion, sex, or national origin.”

The bill’s author, Rep. Bob Good (R-Va.), said it was intended to ensure that investment managers stay focused solely on providing maximized returns for retirement savers, rather than focusing on diversity, equity, and inclusion metrics.

Earlier this year, a handful of Senate Democrats sent a letter to 25 large companies requesting information about the diversity of the asset managers they’ve hired to oversee their pension plans.

“Working Americans want the most competent and knowlegeable person to do the job of managing benefits,” Good said. “They want to know that their assets are safe and that they’ll have a good return on their investments. Simply put, financial management should stay focused on finances.”