Pennsylvania residents may have heard that there is a new rule in the works to help clarify the Department of Labor’s investment duties regulation. For over 30 years, people have asked the Department of Labor to consider how they should apply fiduciary duties towards the Employee Retirement Income Security Act, or ERISA. The new proposal will help clarify why the ERISA fiduciaries cannot invest in ESG vehicles as a means for furthering social goals that are not backed by a financially sound investment.
The ultimate purpose for the ERISA plan is for giving Americans a secure retirement. This new proposal can shed some light on all responsibilities that ESG investing must uphold in order to protect the delicate interests of both participants of ESG investing and the beneficiaries.
The new proposal requires that fiduciaries must choose investments with considerations for the potential risk of an investment in mind. The new provision states that complying with the duty in section 404(a)(1)(A) prevents fiduciaries from choosing the interests of participants and beneficiaries that could result in emotional or hard-to-quantify damages. New fiduciaries to ERISA will need to look closely at other investments that are available on the market in order to be considered loyal. The new proposal to the Department of Labor does acknowledge that certain ESG factors have the potential to be pecuniary; however, these factors would need to present as either economic risks or certain economic considerations.
There will also be new regulations regarding investment documentation for rarer circumstances involving investments that are difficult to distinguish. Individuals who want to learn more about the proposal for ERISA in regards to investments and how current regulations affect them may want to speak with an attorney.