House GOP members attempt to overturn DOL’s ESG rule, again

The election year is heating up, and so is the debate over the use of environmental, social and governance factors by fiduciaries when selecting plan investments.

A bill introduced in the U.S. House last month, the Safeguarding Investment Options for Retirement Act (H.R. 7780), would prohibit tax-advantaged retirement plan trustees from considering factors other than financial risk and return when making investment decisions on behalf of plan participants and their beneficiaries.

The Labor Department’s ESG rule, which took effect on Jan. 30, 2023, ended a Trump-era ban on retirement investment managers considering ESG factors. However, Congress acted to overturn the DOL rule, forcing Pres. Biden to veto the measure.

“Retirement plans, like 401(k)s, that are tax-advantaged to help individuals save for retirement should be managed to maximize return, not to invest in risky holdings like those propped up by ESG factors,” said Rep. Greg Murphy, R-N.C., who sponsored the bill. “Americans’ nest eggs should be built on a solid foundation that confers the greatest growth probability, not investments that are unstable and whitewashed with fake ethical and sustainability scores. Such an endeavor may be noble for those willing to pursue it independently, but not managed plans that millions rely on for retirement.”

Reps. Mike Kelly, R-Pa., Claudia Tenney, R-N.Y., and Beth Van Duyne, R-Texas, cosponsored the legislation, which was referred to the House Ways and Means Committee.

The bill would amend the Internal Revenue Code (but not ERISA) to specify that fiduciaries may consider only “risk and return” factors when making investment decisions for defined contribution plans, including 401(k), 403(b) and 457 plans. In addition, the bill specifies that the prohibited transaction provisions in the legislation would be “administered exclusively by the secretary of the treasury or the secretary’s designate.”

Rep. Jason Smith, R-Mo., chair of the Ways and Means Committee, supports the proposed legislation. “Built into our tax code are strict protections for seniors that require retirement plan trustees to make decisions for the exclusive benefit of retirees and beneficiaries,” he said. “Congress must examine ways to strengthen these safeguards to protect seniors from dubious ESG investments that put their retirement at risk.”

In the meantime, the Department of Labor in March filed a brief with the U.S. Court of Appeals for the Fifth Circuit in response to a lawsuit by more than two dozen Republican state attorneys general who are challenging a lower district court ruling that upheld the department’s rulemaking.

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“The rule reaffirms the department’s longstanding view that ERISA permits fiduciaries to consider collateral factors — that is, factors unrelated to the expected risk and return of an investment — only as a tiebreaker in choosing among investments that ‘equally serve the financial interests of the plan,’” the brief said.