Biden used first veto to save a 401(k) investment rule. Here’s what it does
Photographer: Samuel Corum/Bloomberg via Getty Images
Biden veto preserves Labor Department’s ESG rule
Biden’s veto on Monday preserves his administration’s stance.
It doesn’t appear there are enough congressional votes to override the veto. Doing so would require a two-thirds vote in both the House and Senate.
ESG investing has grown more popular in recent years, occurring against the backdrop of growing political backlash, largely from Republican lawmakers who deride it as “woke” investing.
Investors poured about $69 billion into the funds in 2021, an annual record and about triple the amount in 2019, according to Morningstar. However, inflows fell significantly in 2022 — to $3.1 billion — in a year when stocks and bonds got pummeled and the broad U.S. fund universe saw the largest investor exodus on record, Morningstar reported.
Few 401(k) plans — about 5% — offer an ESG fund, according to PSCA survey data. Employers cited lack of regulatory clarity as one of the top reasons they haven’t offered one to workers.
The Trump-era Labor Department rule doesn’t explicitly call out or forbid ESG funds in 401(k) plans. But experts say the rule stymied uptake due to a general requirement that employers only use “pecuniary factors” when choosing 401(k) funds for workers.
Those factors restrict fund analysis to purely financial measures, such as fund fees, return and risk, experts said. Environmental, social and governance factors are generally “non-pecuniary,” however.
“The Trump rule made it so harsh, so difficult, that it put a cold blanket over E, S and G factors,” said Philip Chao, founder and chief investment officer of Experiential Wealth, based in Cabin John, Maryland. “Whereas this one doesn’t really talk about ESG factors being right or wrong.
“It returns power back to the fiduciary,” he added.
The [Biden] rule doesn’t force you to consider ESG. It says ‘you may’ do that.
chief investment officer of Experiential Wealth
Employers serve as a fiduciary to their company 401(k) plans under the Employee Retirement Income Security Act of 1974.
Broadly, that fiduciary duty means they must operate the plan — including investment choice — solely in workers’ best interests. Under the Biden rule, employers must still consider ESG factors within the context of what is in investors’ best interests.
The Labor Department in November clarified that employers wouldn’t breach their legal duties by considering workers’ non-financial preferences in their final fund choice. Accommodating those preferences might encourage more plan participation and boost retirement security, for example, the agency said.
“The [Biden] rule doesn’t force you to consider ESG,” Chao said. “It says ‘you may’ do that.”
The veto may not change behavior much
The Republican-controlled House of Representatives voted to kill the rule on Feb. 28. It did so using the Congressional Review Act, a mechanism that gives lawmakers a chance to overturn any regulations issued near the end of a congressional session.
The Biden administration issued the final text of its investment rule in November, shortly before Republicans assumed control of the House.
The Senate voted to undo the Biden-era rule on March 1. Two Democrats — Jon Tester of Montana and Joe Manchin of West Virginia — joined the Republican opposition.
While the Biden administration’s rule is poised to remain intact, it’s unclear whether it will give employers peace of mind.
The issue has been a political whiplash, subject to whims of new presidential administrations, and employers remain afraid of getting sued for their investment choices against the backdrop of regulatory uncertainty, Hansen said.
“If anything, the CRA vote, the veto, made things more uncertain as to what they can do or should do,” Hansen said.
3-month-old Genevieve Comager found dead in wooded area of the Bronx
UAE: How will end-of-service benefits, gratuity be calculated if I take up part-time job?
‘A second job covered in glitter’: Meet the LGBT+ drag nuns who beat the LA Dodgers
Study: NYC is sinking from weight of skyscrapers
Leonardo DiCaprio, 48, goes shirtless as he joins bikini babe on a superyacht in sun-soaked Sardinia
Earth Will Receive an ‘Alien’ Transmission From Mars This Week
This Queer Running Society Wants to Make the Sport More Inclusive
Maria Sharapova Shares the Workouts That Help Her Feel Energized as a New Mom
What’s Up With Mouth Taping as a Sleep Hack?
American women’s secret war in Afghanistan
Duggars at Work: Joy-Anna Forsyth’s Birth Video May Have Revealed Abbie Duggar’s New Job
7 Reasons You Might Not Want To Contribute To Your State’s 529 Plan
Below Deck Sailing Yacht’s Chase Lemacks on Gary King – ‘He Can Be a Real a**Hole’ and Was ‘Intimidated’
Debt Ceiling Agreement Lifts Student Loan Pause, Cuts Some IRS Funding
The Lenovo Yoga 9i Is a Stylish, Powerful 2-in-1 Laptop
Finance23 hours ago
XRP to Exceed All Expectations In 2023? Latest New Value Report Boosts Altcoin Forecast 100x
Finance23 hours ago
Scotland’s Latest Attempt To Kill Its Own Economy
News12 hours ago
GOP Senate Candidates Who Want You to Forget About Their Past Trump Criticism
Lifestyle4 hours ago
Martin Scorsese Meets Pope Francis, Announces Film About Jesus – Report
Finance23 hours ago
Beijing Unveils ‘Web3 White Paper’ to Foster Innovation and Advancing the Industry
Tech24 hours ago
Week in Review: Most popular stories on GeekWire for the week of May 21, 2023
Travel4 hours ago
China’s Travel & Tourism sector forecast to see swift post-pandemic recovery
News6 hours ago
Prince William and Kate Middleton’s ‘Flirtiest’ Moment, According to a Body Language Expert: ‘Hard to Beat’