DOL Proposes Clarifying Amendments to Fiduciary Investment Duties

The U.S. Department of Labor ("DOL") proposed amending the "Investment duties" requirement under the Employee Retirement Income Security Act ("ERISA") of 1974 to clarify that fiduciaries must make investment decisions based solely on risk-adjusted economic value. The DOL stated that the proposal is intended to prevent fiduciaries from investing in environmental, social and governance ("ESG") vehicles if the vehicle’s investment strategy subordinates financial returns or increases risk for the purpose of non-pecuniary objectives.

According to the DOL, the proposal expands upon the current core principles under the ERISA Investment duties requirement. The proposal builds upon the principles by:

• providing that a fiduciary satisfies its duties of prudence and loyalty under ERISA only if the fiduciary has selected investments solely on the basis of pecuniary factors;
• including a new provision mandating that fiduciaries consider alternative investment options in order to satisfy their prudence and loyalty duties;
• stating that ESG factors qualify as "pecuniary factors" only if they present economic risks or opportunities that investment professionals would consider to be material economic considerations under generally accepted investment theories; and
• outlining selection requirements for a designated investment alternative for a 401(k)-type plan if such plan purports to include one or more ESG-related investment mandates.

Comments on the proposal must be submitted by July 30, 2020.