DOL Releases Non-Enforcement Policy on ESG Final Rules

On March 10, 2021, the DOL issued a policy statement regarding enforcement of its final rules on ESG investments and proxy voting by employee benefit plans. In the statement, the DOL said that until it issues further guidance, it will not enforce the “Financial Factors in Selecting Plan Investments” regulation published on November 13, 2020 (the “ESG Rule”) and the “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” regulation, published on December 16, 2020 (the “Proxy Voting Rule”).

The ESG Rule requires ERISA plan fiduciaries to make “selected investments and/or investment courses of action based solely on their pecuniary factors and not on the basis of any non-pecuniary factor.” The Proxy Voting Rule requires ERISA fiduciaries to assess the costs and benefits of voting plan proxies or exercising the plan’s shareholder rights.

In a press release issued in conjunction with the policy statement, the DOL stated that it had heard from a “wide variety of stakeholders” that have questioned whether the two final rules “properly reflect the scope of fiduciaries’ duties under ERISA to act prudently and solely in the interest of plan participants and beneficiaries.” These stakeholders have informed the DOL that the two final rules have had a “chilling effect” on the inclusion of ESG factors in plan investment decisions, even when the inclusion of ESG factors may be warranted. 

“These rules have created a perception that fiduciaries are at risk if they include any environmental, social and governance factors in the financial evaluation of plan investments, and that they may need to have special justifications for even ordinary exercises of shareholder rights,” said Principal Deputy Assistant Secretary for the Employee Benefits Security Administration Ali Khawar. “We intend to conduct significantly more stakeholder outreach to determine how to craft rules that better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments, while continuing to uphold fundamental fiduciary obligations.”

While the DOL is not enforcing the ESG Rule or Proxy Voting Rule until further guidance is issued, these rules are still technically in effect. ERISA plan fiduciaries should be aware that failure to adhere to these rules may result in private litigation.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment legal compliance needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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