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Frequent Contributor

DOL Rules Will Make ESG Funds Harder in 401k/403b

https://www.bloomberg.com/amp/news/articles/2020-06-25/trump-administration-targets-esg-funds-with-p...

.....On June 23, the Labor Department led by Secretary Eugene Scalia proposed an update to the Employee Retirement Income Security Act of 1974 (ERISA) that would require those overseeing pension and 401(k) plans to always put economic interests ahead of “non-pecuniary” goals. The agency specifically called out ESG investing in its proposal.

“After years of the Department of Labor having varying degrees of guidelines about if you can consider ESG factors, they are coming out definitively to say it’s not appropriate to consider,” said attorney Josh Lichtenstein, a partner in Ropes & Gray’s ERISA practice. That means that fiduciaries of pension and 401(k) plans could be forced to prove they selected investments based only on economic criteria. “This could actually make it harder for a fund that is advertising as an ESG fund to be selected by these types of plans, even when the selection is truly based on investment performance,” Lichtenstein said.....

More - DOL says private-equity is OK, but ESG is not. https://www.financial-planning.com/news/department-of-labor-guidance-on-retirement-plans-celebrates-...

YBB
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6 Replies
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Explorer ○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

If the proposed change is implemented, and stays implemented (a big "if"), I suspect that the manager of an ESG fund will be able to get around it simply by changing the description of the fund so as to replace any language to the effect that the intention is to "subordinate return or increase risk for the purpose of non-financial objectives" with language saying that the fund's strategy is based on the (seemingly defensible) view that consumers and investors are increasingly preferring companies that subscribe to ESG. 

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Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

ESG is so nebulous.

I don't look to my investments for virtue.

Bob

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Highlighted
Explorer ○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

@GLI2019  I don't either, but finally bought one in March, on the theory that other investors increasingly do!

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Frequent Contributor

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

Hope it works for you, Tibbles.

Bob

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Contributor ○○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b


@GLI2019 wrote:

ESG is so nebulous.

I don't look to my investments for virtue.

Bob


You're right. Virtue signaling is what sells those funds. Here's a notice I just received on the proposed DOL policy change

“Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan,” Scalia says. “Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal—providing for the retirement security of American workers.”

The underlying problem is employee education. On the surface, as is the case with so many things sold on appearance, it seems right and proper to exclude from one's 401(k) the stock of any company who sells products or services that may cause illness or injury or are simply undesirable for socially acceptable behavior, whatever that might be. 'But stop and think' I have mentioned to some family members who take this view. Holding or not holding PM stock has absolutely NOTHING to do with PM's profitability. Buying or advocating others NOT buy PM's products will do that.

BruceM

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Explorer ○○○

Re: DOL Rules Will Make ESG Funds Harder in 401k/403b

401K Funds should be forced to invest only in TOTAL MARKET INDEX funds so there is no conflict.

I have Fidelity brokeragelink in my 401K so I invest on my own in investments I like, 

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