President Biden made his first presidential veto last week, denying a GOP-sponsored bill. Republican lawmakers sought to cement Trump-era changes to how retirement funds can be invested. The Employee Retirement Income Security Act (ERISA) of 1974 was introduced to keep fund managers accountable, requiring that maximizing financial returns be the main criteria for investments. The ERISA ruling covers retirement plans, health plans, and welfare benefit plans as well as more than $12 trillion in plan assets.
In the final days of his administration, President Trump made it harder for environmental, social, and governance (ESG) criteria to be considered when plans are weighing investment options. Under that ruling, members of pension funds would be able to sue fiduciaries for poorly performing ESG investments. But in 2021, President Biden took the brakes off, ruling by executive order that retirement plans were free to prioritize ESG investments.
President Biden’s veto means, “Plans may also consider “collateral benefits” as a tiebreaker if both investments in question would equally serve the interests of the plan, whereas the Trump-era rule required the investments to be economically indistinguishable, which is a higher standard.” The “interests of the plan” could be fairly broad at this point – renewable energy schemes, anti-racist programs or any number of progressive causes. And not at all fiscally rewarding! So keep an eye on your fund provider.
The Briefing podcast had a good explainer.