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DOL/EBSA | RIN: 1210-AB95 | Publication ID: Fall 2020 |
Title: Financial Factors in Selecting Plan Investments | |
Abstract:
This regulatory action supersedes and replaces the Department of Labor’s prior Interpretive Bulletins on the application of the fiduciary rules in the Employee Retirement Income Security Act of 1974 (ERISA) to pension plan investments selected because they may further collateral economic or social benefits in addition to their investment returns. The rule protects participant and beneficiary interests by requiring that plan fiduciaries select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action. |
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Agency: Department of Labor(DOL) | Priority: Economically Significant |
RIN Status: Previously published in the Unified Agenda | Agenda Stage of Rulemaking: Final Rule Stage |
Major: Yes | Unfunded Mandates: No |
EO 13771 Designation: Regulatory | |
CFR Citation: 29 CFR 2550.404a-1 | |
Legal Authority: 29 U.S.C. 1102-1104 29 U.S.C. 1135 |
Legal Deadline:
None |
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Statement of Need: Recently, there has been an increased emphasis in the marketplace on investments and investment courses of action that further non-pecuniary objectives, particularly what have been termed environmental, social, and corporate governance (ESG) investing. The Department is concerned that the growing emphasis on ESG investing may prompt ERISA plan fiduciaries to make investment decisions for purposes distinct from their responsibility to provide benefits to participants and beneficiaries and defraying reasonable plan administration expenses. The Department is also concerned that some investment products may be marketed to ERISA fiduciaries on the basis of purported benefits and goals unrelated to financial performance. The Department believes that confusion with respect to these investment requirements persists, perhaps due in part to varied statements the Department has made on the use of non-pecuniary or non-financial factors over the years in sub-regulatory guidance. Accordingly, the Department intends, by this final regulation, to promulgate principles of fiduciary standards for selecting and monitoring investments, and set forth the scope of fiduciary duties surrounding nonpecuniary issues. Under the final rule, plan fiduciaries, when making decisions on investments and investment courses of action, must focus solely on the plan’s financial risks and returns and keep the interests of plan participants and beneficiaries in their plan benefits paramount. The fundamental principle is that an ERISA fiduciary’s evaluation of plan investments must be focused solely on economic considerations that have a material effect on the risk and return of an investment based on appropriate investment horizons, consistent with the plan’s funding policy and investment policy objectives. |
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Summary of the Legal Basis: This regulation is promulgated under ERISA section 404 Fiduciary duties (29 USC 1104). Other bases of authority include section 505 of ERISA (Public Law 93-406, 88 Stat. 894; 29 U.S.C. 1135) and section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978), effective December 31, 1978 (44 FR 1065, January 3, 1979), 3 CFR 1978 Comp. 332, and under Secretary of Labor's Order No. 1-2011, 77 FR 1088 (January 9, 2012). |
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Alternatives: The regulatory alternatives are set forth in section 3.4 of the Regulatory Impact Analysis in the preamble to the final rule. See 85 FR 72882. |
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Anticipated Costs and Benefits: The anticipated costs and benefits are set forth in the Regulatory Impact Analysis in section E of the preamble to the final rule. See 85 FR 72872. |
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Risks: The risks of not pursuing this rulemaking is that the growing emphasis on ESG investing may be prompting ERISA plan fiduciaries to make investment decisions for purposes distinct from their responsibility to provide benefits to participants and beneficiaries and defraying reasonable plan administration expenses. |
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Timetable:
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Regulatory Flexibility Analysis Required: Yes | Government Levels Affected: Undetermined |
Small Entities Affected: Businesses, Organizations | Federalism: No |
Included in the Regulatory Plan: Yes | |
RIN Data Printed in the FR: Yes | |
Agency Contact: Jeffrey J. Turner Deputy Director, Office of Regulations and Interpretations Department of Labor Employee Benefits Security Administration N 5669, 200 Constitution Avenue NW, FP Building, Room N-5655, Washington, DC 20210 Phone:202 693-8500 |