Lawmakers spar on DOL ESG proposal, discuss retirement security

Lawmakers on both sides of the aisle Tuesday discussed the merits of bipartisan retirement security bills but their opinions diverged greatly on a Department of Labor proposal that would explicitly permit retirement plan fiduciaries to consider climate change and other environmental, social and governance factors when selecting investments and exercising shareholder rights.

Members of the House Committee on Education and Labor's Health, Employment, Labor, and Pensions Subcommittee spent a lot of time discussing the Labor Department's ESG proposal during a hearing Tuesday called, "Improving Retirement Security and Access to Mental Health Benefits."

"Retirement plan fiduciaries are caretakers of retirement accounts, not social justice warriors," said Rep. Rick Allen, R-Ga., the subcommittee's ranking member. "Putting the Biden administration's radical green and social agendas above the interest of retirees is unacceptable."

Mr. Allen has called on the DOL to rescind its proposal, which was unveiled in October and had a comment period that closed in December.

The proposal — which has garnered mostly positive feedback, including from a majority of institutions — states "that climate change and other ESG factors are often material and that in many instances fiduciaries … should consider climate change and other ESG factors in the assessment of investment risks and returns."

Rep. Andy Levin, D-Mich., who in May reintroduced two bills that would require retirement plan fiduciaries and investment advisers to take ESG factors into account and explain how they consider those factors when making investment decisions, supported the Labor Department proposal at Tuesday's hearing.

"If a company has negative practices such as high liability risks, poor treatment of workers even in their supply chains or carbon-intensive business practices, their stock could suffer in the long term," he said. "Retirement plan fiduciaries should be able to consider such factors when making investment decisions for their participants."

Mr. Levin and other Democrats directed most of their ESG-related questions to Aron Szapiro, head of retirement studies and public policy at Morningstar, who was one of four witnesses at the hearing.

"We believe proposals to encourage plan sponsors to consider ESG information as part of a prudent process for selecting plan investments, such as the Department of Labor's proposal from last fall, are consistent with common practices that asset managers use to integrate ESG considerations into their investment processes and selections," Mr. Szapiro said.

Republicans on the committee directed most of their questions to Andrew Biggs, a senior fellow at the conservative think tank the American Enterprise Institute, who criticized the Labor Department proposal and said that if ESG criteria do not make sense from a purely financial standpoint, then implicitly promoting them via regulation violates the fiduciary standards set out in ERISA.

"I do not oppose fiduciaries considering any factors that would affect the value an investment offers, including ESG, but we should consider carefully either regulations or legislation that would push fiduciaries beyond that," Mr. Biggs said.

Also at the hearing, Amy Matsui, director of income security and senior counsel at the National Women's Law Center, testified on the plight many women face when saving for retirement.

"Women faced a retirement crisis well before the pandemic and are likely to experience an even more uncertain retirement in its wake," she said. "Strengthening spousal rights in defined contribution plans would help ensure that women who rely on their spouse's retirement savings because they have fewer of their own, do not bear the risk of their spouse depleting or giving those savings away."

Subcommittee Democrats also on Tuesday circulated draft legislation that Rep. Lucy McBath, D-Ga., said she intends to file in the coming weeks. The draft legislation encompasses a host of ideas previously floated, including added DC plan fee disclosures, increasing spousal protections in DC plans and encouraging employers to automatically re-enroll employees who previously opted out of plans.

In November, the Education and Labor Committee leaders introduced and then advanced the Retirement Improvement and Savings Enhancement Act, or RISE Act. The bill includes several ideas that have been introduced as stand-alone bills and as parts of larger retirement security bills, including the creation of a national online lost-and-found database for retirement accounts at the Labor Department and enabling 403(b) plans to participate in multiple employer plans and pooled employer plans.

The RISE Act is similar in scope to the Securing a Strong Retirement Act, a bipartisan bill introduced and advanced by leaders of the House Ways and Means Committee in May.

Both those bills will likely form the basis for a SECURE 2.0 package, but have yet to come before the full House for a vote.