DOL Final Rule on ESG Investments in 401(k) Plans
On October 30, 2020, the U.S. Department of Labor issued its final rule on Financial Factors in Selecting Plan Investments (“Final Rule”). The Final Rule restricts retirement plan fiduciaries from considering non-pecuniary environmental, social and governance (“ESG”) factors when selecting the investments to be offered to plan participants.
The Final Rule became effective January 12, 2021, however, plan fiduciaries are not required to immediately divest their ESG investment offerings.
The Biden Administration has stated that the DOL will not enforce this rule and has directed the DOL to consider a new rule that would encourage ESG investments in retirement plans.
DOL stated in the Final Rule that fiduciaries have an ongoing duty to monitor ESG investment offerings, and to consider whether investments featuring non-pecuniary factors continue to be viable under the fiduciary standards of the Final Rule, sufficient to be retained. ESG investments in QDIAs, target date funds, must be divested by April 30, 2022 to comply with the Final Rule.
Source: Department of Labor, Employee Benefits Security Administration, 29 CFR Parts 2509 and 2550, Financial Factors in Selecting Plan Investments, 88 Fed. Red. 72846 (November 13, 2020).