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ESG Comes to Your Retirement Plan

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About a year ago, the Trump Administration strengthened rules that treated ESG investments as “suspect” within retirement plans. The DOL added new language continuing to reinforce the idea that ESG blurs the line between acceptable and breaching the fiduciary standard.

However, that’s about to change.

Back in May, President Biden issued an executive order designed to reverse Trump’s rules from October and force the DOL to take a hard look at ESG and its suitability. The order also calls for the Federal Retirement Thrift Investment Board, which covers the retirement savings plans issued by the Fed’s for federal employees, to do the same thing. Similarly, a bill introduced by Democrats would directly bypass the DOL and allow ESG investments to be considered in ERISA-governed retirement plans.

And it looks like the DOL will deliver.

While the agency hasn’t officially released its rules to the public, The DOL did submit its proposed rules to the White House’s Office of Management and Budget back in August. Because of budget issues and the brinkmanship in Washington, those rules haven’t been made official. However, policy makers expect that the DOL and the White House expect to make those rules public by year end.

Additionally, several other groups and advisory boards have already begun incorporating those rules into their frameworks. For example, the US SIF Foundation, -which is an ESG focused group for investment sponsors, issued an updated version of its five-step guide for defined-contribution plan sponsors. This included the DOL’s pending regulations and what can be done by sponsors to add ESG to their plans and not run afoul of ERISA rules.

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