Do solely financial factors, as opposed to incorporating ESG factors, improve retirement plans?
The Protecting Prudent Investment of Retirement Savings Act would amend the Employee Retirement Income Security Act to alter the current requirements for employer-sponsored retirement plans. The bill requires that fiduciaries involved in employer-sponsored retirement plans must act in the financial interest of the plan participants rather than taking on additional investment risk to promote other financial goals. Additionally, the bill bans discrimination based on race, color, religion, sex, or national origin by plan fiduciaries and requires that plan fiduciaries provide pension plans with designated investment alternatives. Sponsor: Rep. Rick Allen (Republican, Georgia, District 12)
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Opponents say
• "This bill would block retirement plan fiduciaries from adequately considering relevant investment factors that include environmental, social, and governance ("ESG") risks. Pension plans represent the deferred wages of hard working Americans, and ERISA requires plan fiduciaries to invest plan assets according to the duties of prudence and loyalty in order to maximize benefits. Congress should not hinder these duties by rendering plan fiduciaries blind to ESG risks." Source: AFL-CIO
• "H.R. 2988 would chill the consideration of important financial risks and opportunities necessary to protect workers’ deferred wages by creating an ill-defined and deeply flawed distinction between “pecuniary” factors that ERISA fiduciaries can take into account and “non-pecuniary” factors they cannot. More specifically, the concern is that fiduciaries may not consider relevant environmental and social risks and opportunities even though it would be prudent to do so. Environmental and social factors are relevant in evaluating investment risk and return and it is entirely appropriate — and in many cases necessary — for fiduciaries to consider these factors when making investment decisions." Source: Americans for Financial Reform
Proponents say
• "Americans' hard-earned retirement savings should never be jeopardized by politically-motivated mismanagement. Unfortunately, the Biden-Harris Administration made this possible with an overreaching rule that allows fiduciaries to aggressively invest retirees' money in ESG funds - which often charge steeper fees, carry higher risk, and have lower returns. The Protecting Prudent Investment of Retirement Savings Act would codify that retirement plan sponsors must make investment decisions solely based on financial returns - ensuring Americans' hard-earned savings are invested sensibly." Source: Rep. Rick Allen (Republican, Georgia, District 12)
• "Americans invest and depend on their retirement savings for their future and their family’s future – not to fund radical Democrats pushing their political Green New Deal ideology on the American people. The last thing the federal government should do is encourage retirement plan managers to make decisions that put left-wing environmental and social issues ahead of retirees’ financial security, especially since many ESG funds are high-risk and well-known underperformers. Let’s be clear: Retirement plan managers should be solely focused on delivering maximum returns for the men and women who rely on them, not advancing a political agenda." Source: Rep. Steve Scalise (Republican, Louisiana, District 1), Majority Leader of the U.S. House of Representatives
- Rep. Allen Introduces Legislation to Protect Americans’ Retirement Savings (Press Release)
- Cost Estimate for the Protecting Prudent Investment of Retirement Savings Act (Congressional Budget Office)
- Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights (Federal Register)
- Introduction to ESG (Harvard Law School Forum on Corporate Governance)
- Rep. Rick Allen’s Largest Donors (OpenSecrets)
