ESGPension and BenefitsTalking Shop

Talking Shop: How to Respond to a New Rule on ESG Funds in 401(k) Plans?

By November 3, 2020 No Comments

Context:  On Friday, Oct. 30, the Department of Labor (DOL) issued a final rule clarifying the use by fiduciaries of investments in environmental, social and governance (ESG) funds. The regulation, according to some analysts, will end up limiting the use of ESG funds by some 401(k) and pension plans.

  • Proposed in June, the change was opposed by many asset managers and investment advisors; DOL says the final rule was changed in response to comments.

Member question: “Has anyone thought about this DOL regulation that effectively limits adding ESG funds to a 401(k) plan?”

Peer answer 1: “Yes, working on adding ESG in some form to our plans while not tripping the reg. More to come. Also pending election outcome.”

Peer answer 2: “Yes, in our fiduciary capacity we and our advisors are looking at this carefully, especially with regard to trying to balance the DOL’s stance against the requests of the vocal subset of our employees who would like more ESG choices beyond the self-directed brokerage option.”

Peer answer 3: “Yes, at our last 401(k) committee meeting this was presented and discussed. We think the ESG funds could show stronger performance than non-ESG peers, so that would pass the test in the reg.”

Peer answer 4: “Yes we’re very focused on exploring this, but conscious of the guardrails. Curious to hear how others are navigating.”

Peer answer 5: “Even before the reg announcement, our committee considered whether addition of ESG fund choices made sense and we decided against it, based mainly on limited employee demand.

  • “We felt that given the risks, it made more sense to allow employees to go the self-directed brokerage route if they felt that strongly about ESG. I’m not aware of any significant pushback from our employees since. Now with this DOL reg being issued, I doubt our position will change and probably only reinforces the decision we made earlier.”
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Justin Jones

Author Justin Jones

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