On March 20, President Joe Biden vetoed the US Senate’s vote to overturn the Environmental, Social, and Governance (ESG) rule, which allows retirement plan fiduciaries to consider ESG factors when selecting investments.
The Senate’s vote followed the US House of Representatives’ approval of an identical resolution on February 28.
The rule is firmly opposed by Republican lawmakers and state attorneys general. In late January, 25 states filed a lawsuit against the Biden administration, alleging that the ESG rule does not align with the Employee Retirement Income Security Act (ERISA) mandate, which covers approximately 2.5 million health plans, 747,000 retirement plans, and 673,000 other welfare benefit plans. ERISA requires fiduciaries of retirement plans to act solely in the best interests of their beneficiaries.
Opponents of the ESG rule argue that it imposes undue burdens on fiduciaries and may result in suboptimal investment decisions. They contend that the rule’s focus on ESG factors may cause fiduciaries to prioritize environmental and social concerns over the financial well-being of plan beneficiaries.
Lack of Clarity and its Controversy
The ESG rule aims to look beyond profit and loss to determine whether to make an investment. This lack of clarity makes it a rather controversial rule. As Joe McGowan says, writing in Forbes, “Conservatives, rightfully or wrongly, believe that ESG has become a tool for outside interests to impose their beliefs on private companies. Not just environmental concerns, but also political debates…. This has become a significant concern within the business sector, hence the congressional override by Republicans.”
Overriding the president’s veto is unlikely, as it would require a two-thirds majority in both chambers of Congress. However, even though the ERISA rule is going to stand for now, its implementation remains problematic, as the Department of Labor deals with how to write up clear guidelines on its implementation and the states continue to fight it.
For more Employee Benefits tips, contact INSURICA today.
Copyright © 2023 Smarts Publishing
This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
About the Author
Share This Story
Related Blogs
Cyberbullying: Prevention and Response
As technology becomes more embedded in students' daily lives, [...]
Closing the Savings Gap: Empowering Women for Retirement
A new generation of women is stepping up to take control of their financial futures, but some still face barriers to saving enough for a secure retirement. Employers have a vital role to play in providing the tools and resources women need to close the retirement savings gap.
Higher Confidence Drives Increased 401(k) and HSA Contributions
Americans are feeling more confident about their finances and retirement readiness, according to new data on 401(k) and health savings account (HSA) balances. Supported by greater savings rates and positive market performance, average account balances grew significantly from 2023 to 2024.