Compliance March 1, 2023

Senate Joins House in Refuting DOL’s ESG Rule

A resolution to nullify the DOL's rule permitting ESG investing in retirement plans will now go to President Joe Biden, who has said he will veto.

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The U.S. Senate followed the House of Representatives in approving a resolution that overturns the Department of Labor rule paving the way for the consideration, but not the requirement, of environmental, social and governance investing in retirement plans.

The Senate vote on House Joint Resolution 30, overturning the rule, passed with a 50-46 vote, with all Senate Republicans voting yes, as well as Senator Joe Manchin, D-West Virginia, and Senator Jon Tester, D-Montana. Three Democrats where absent. The act will now move to President Joe Biden’s desk, where he said Monday he will veto it in order to keep the DOL rule intact.

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The vote follows a House vote yesterday in which the resolution passed along party lines with a tally of 216 to 204. The DOL rule was finalized in November 2022 after more than a year of public comment and review. The rule removed what was essentially a chilling effect on recommending ESG-focused investment in retirement plans governed by the Employee Retirement Income Security Act that was enacted under the administration of President Donald Trump. That rule said that plan fiduciaries should only consider “pecuniary” factors in investment decisions. 

The Congressional move comes amid a national Republican-led movement against ESG-focused investing that has included lawsuits, both state and federal, seeking the removal of the DOL retirement investing rule. It also comes on the same day that Biden officially nominated Julie Su to be the new Secretary of Labor, with a Senate confirmation hearing to come. In his remarks about the nomination, Biden urged a swift vote, saying: “I asked the United States Senate to move this nomination quickly, so we … can continue the progress to build this economy that works for everyone.”

The debate over ESG investing may extend that confirmation hearing, according to some experts. The Biden Administration argued in its statement on Monday that permitting incorporation ofESG in investing does serve a fiduciary purpose, as “there is an extensive body of evidence that environmental, social and governance factors can have material impacts on certain markets, industries and companies.”

Dissenters, such as Tester, have said the potential to use ESG factors in plan investing will jeopardize the investments of everyday retirement savers.

“At a time when working families are dealing with higher costs, from health care to housing, we need to be focused on ensuring Montanans’ retirement savings are on the strongest footing possible,” Tester said in a statement on Wednesday. “I’m opposing this Biden administration rule because I believe it undermines retirement accounts for working Montanans and is wrong for my state.”

Senator Patty Murray, D-Washington, spoke in favor of the rule on the Senate floor, arguing that her colleagues misunderstand the DOL’s position regarding ESG investing in plans.

“This is a really important point I think folks are missing: the Biden rule is fundamentally neutral on how ESG factors are taken into consideration so long as the investment fund is meeting its fiduciary obligations to its beneficiaries,” she wrote in a statement. “The rule we are talking about is neutral on whether a fiduciary is considering these factors from a particular perspective.”

A February post by two legal scholars on the Harvard Law School Forum on Corporate Governance agreed with that assessment, noting that “the 2022 Biden Rule largely reaffirms the Department of Labor’s longstanding position, compelled by binding Supreme Court precedent, that an ERISA fiduciary may use ESG investing to improve risk-adjusted returns but not to obtain collateral benefits. Subject to a few nuanced changes of limited practical import, the Biden Rule is largely consistent with the 2020 Trump Rule and earlier regulatory guidance.”

Compliance March 1, 2023

What Resumption of Student Loan Payments Would Mean for Employers

With pundits saying the Supreme Court will likely strike down student debt forgiveness, employers and providers are getting ready to do their part.

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The moratorium on student loan debt payments to the Department of Education will end 60 days after the resolution of the litigation surrounding President Joe Biden’s debt forgiveness program or 60 days after June 30, whichever comes later. When those payments resume, the importance of employee financial wellness programs, especially as they relate to student loan debt management, will come into greater focus.

Edward Gottfried, director of product management at Betterment at Work, says the moratorium on debt payments has created a “false sense of complacency” for employers. Regardless of the Supreme Court’s decision, there will be an “updated push for help with student loan management.” Since any outcome will still leave more than a trillion dollars in outstanding student debt, the end of the moratorium is arguably more meaningful than the debt forgiveness itself.

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The timing should also increase the value of the SECURE 2.0 Act of 2022’s student loan matching provision, which is authorized to begin in 2024. Permitting plan participants to receive a 401(k) employer match for making payments on their student loans during important early-saving years could be a great way to attract talent, given debt payments will be at the front of many young workers’ minds, says Gottfried.

Though the survival of the debt cancellation program seems unlikely, based on the questions asked by justices during Tuesday’s oral arguments in two different cases challenging the program, even if the program does survive the review of the Supreme Court, a majority of outstanding student debt will remain outstanding.

Gottfried explains that since many employers already have budget estimates for matching contributions, bringing a student loan match provision online should not be prohibitively expensive for most sponsors. The Biden debt forgiveness program also caps student loan repayment obligations at 5% of monthly income, which is a percentage strikingly similar to the matching contributions that many employers already make. The 5% cap provision was not challenged by the ongoing litigation.

Gottfried adds that more sponsors are monitoring the timing of the moratorium’s end than are tracking the litigation itself. He says the beginning of the first student loan matching programs, which could start as early as four months after the resumption of loan payments—barring another extension—“seems very timely.”

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