ABA Letter to DOL on ESG Investments in Plans Proposal

Office of Regulations and Interpretations
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Avenue, NW Washington, DC 20210

Dear Ladies and Gentlemen:

The American Bankers Association (ABA) appreciates this opportunity to comment on the Department of Labor’s proposal, Financial Factors in Selecting Plan Investments, that amends existing regulations governing the investment duties of fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA). According to the release, the Department seeks to “confirm that ERISA requires plan fiduciaries to select investments and investment course of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action.”

Our member banks, savings associations, and trust companies (collectively, “banks”) have an interest in the proposal both as providers of products and services to third-party ERISA retirement plans, as well as sponsors of plans for their own employees. Although the intent to confirm the duties of plan fiduciaries under ERISA section 404 is understandable, we believe the proposal as written is not only unnecessary, but also potentially inconsistent with the statute and burdensome to affected parties in ways not addressed in the required regulatory impact analysis. We, therefore, urge the Department to withdraw its proposal and engage the industry to seek substantive public input on these matters.

Summary of the Proposal

For the first time since first promulgated in 1979, the Department proposes amending 29 CFR 2550.404a-1, Investment duties, to add new provisions that more than double its length. While acknowledging that there is no current problem to solve, the Department states that guidance is necessary because of questions the Department has received on the application of fiduciary principles to the selection of investments based on “non-pecuniary benefits they may further, such as those related to environmental, social, and corporate governance considerations.”4 Under the proposal, the regulation would be amended to:

• Incorporate a reference to the duty of loyalty found in ERISA section 404(a)(1)(A).
• Require that a fiduciary evaluate investments based solely on pecuniary factors that have material effect on the risk and return and not subordinate the interests of the plan participants to “unrelated objectives.”
• Require fiduciaries to compare investments with alternatives based on the consideration of factors in 2550.404a-1 (b)(2)(ii)(A)-(C) (e.g., diversification of the portfolio, liquidity and current return of the portfolio relative to the anticipated cash flow requirements of the plan; and projected return of the portfolio relative to the funding objectives of the plan).
• Impose a rebuttable presumption that “environmental, social, corporate governance, or other similarly oriented considerations” (ESG) are not pecuniary unless “they present economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories.”
  Impose additional requirements on fiduciaries when selecting investments based on ESG factors, including an analysis and documentation that the investment is “economically indistinguishable” from alternatives.
• Impose additional requirements for fiduciaries of defined contribution plans with “investment alternatives that include one or more environmental, social, corporate governance, or similarly oriented assessments or judgements in their investment mandates, or that include these parameters in the fund name.”
• Prohibit the ESG investment mandate alternatives from being “added as, or as a component of, a qualified default alternative (QDIA) subject to 29 CFR 2550.404c-5.

Download the comment letter to read the full text.