25 Republicans are suing the Biden administration over the ESG retirement plan rule
Republican attorneys general from 25 US states have filed a lawsuit challenging the Biden administration’s plan to allow pension fund managers to make “socially conscious” investment decisions.
A federal lawsuit filed Thursday in North Texas U.S. District Court seeks to stop enforcement of a Department of Labor law, which allows private benefit plans to invest in funds focused on environmental, social, or governance (ESG) issues.
The lawsuit claims The new rule “undermines key protections for the retirement savings of 152 million workers… totaling $12 trillion in assets” in the name of social policies, including addressing climate change.
The rule, which is set to go into effect Jan. 30, reflects restrictions imposed during the Trump administration that require retirement plans to consider only financial factors in making investment decisions and exercising shareholder rights.
“The Biden administration promotes its climate change agenda by putting people’s daily retirement funds at risk,” Utah Attorney General Sean Reyes, who is leading the lawsuit, said in a statement to DailyMail.com.
Utah Attorney General Sean Reyes is leading 24 other GOP attorneys general in a lawsuit challenging a Biden administration rule that eases restrictions on ESG investments.
Biden’s Department of Labor and Labor Secretary Marty Walsh (above) are named defendants in the suit, which was filed Thursday in the US District Court for North Texas.
“Allowing asset managers to channel hard-working Americans’ money into ESG investments puts trillions of dollars in retirement savings at risk for someone else’s political agenda,” he added.
We are taking urgent action on this issue because this illegal rule is set to go into effect next week. It has to stop, Reyes said.
The Department of Labor and Biden’s Secretary of Labor Marty Walsh are defendants in the suit. A spokesman for Walsh referred requests for comment to the Justice Department, which did not immediately respond to a message late Thursday night.
The final rule at the heart of the dispute is known as “Prudence and Loyalty in Determining Plan Investments and Exercising Shareholders’ Rights” and it occupied 65 pages in the Federal Register when it was published Dec. 1.
If it goes into effect as planned on Monday, it will overturn a 2020 rule under Trump that has been criticized by some business and financial industry groups.
The Labor Department has argued that the Trump-era rule restricting investments in ESG funds fails to explain the positive impact that ESG considerations can have on investment returns over the long term.
The new rule also allows plan trustees to consider ESG factors when voting by proxy on behalf of shareholders.
The Labor Department argued that the repealed Trump-era rule failed to account for the positive impact that ESG considerations could have on long-term investment returns (file photo)
The plaintiffs in the lawsuit are 25 Republican attorneys general, as well as several private employers with benefit plans, and one individual enrolled in an ERISA plan.
Lisa Gomez, who heads the Department of Labor office that issued the law, previously told Reuters the new policy would remove undue barriers to investment based on environmental, social and corporate governance principles and end “the apocalyptic impact of the previous administration.”
The Department of Labor argues that the rule, which applies only to private retirement plans governed by the Employee Income Security Act of 1974 (ERISA), does not allow retirement plans to pursue social goals at the expense of financial returns.
“Outside of the context of ERISA, investors may choose to invest in funds that further the objectives of the guarantees, and even choose to sacrifice return or increase risk to achieve those objectives,” according to the section’s commentary on the rule.
He adds: “Such conduct, however, would be impermissible to the ERISA plan trustees, who cannot sacrifice return or increase risk for the purpose of furthering side objectives unrelated to the plan participants’ economic interests in their benefits.”
The ERISA Industry Committee, which represents employee benefit plans, has been cautiously supportive of the new Biden administration rule, after opposing certain language in previous drafts.
“[T]The final rule does not establish a mandate to consider any specific factor in each circumstance or to place a thumb on the scale when selecting investments, leaving the trustees to administer the plans in the best interests of workers and retirees,” Andy Panducci, group senior vice president said in a statement in November.
“This rule is an insult to every American who is concerned about their retirement account,” said Texas Attorney General Ken Paxton, the plaintiff in the lawsuit.
But the rule change has angered Republicans, who argue it would free up activist pension plan administrators to squander workers’ savings.
“This rule is an insult to every American who is concerned about their retirement account,” Texas Attorney General Ken Paxton, the attorney general in the lawsuit, said in a statement Thursday.
“The fact that the Biden administration now chooses to risk the financial security of working-class Americans to advance a sober political agenda is insulting and illegal,” he added.
The lawsuit comes amid growing debates about ESG investing, as investment industry leaders such as BlackRock face backlash over their ESG goals.
Meanwhile, some public companies have faced increasing pressure from activist shareholders to address ESG issues that could pose threats to the value of their shares, such as carbon emissions and diversity in the workplace.
Funds that adhere to ESG principles oversee an estimated $6.5 trillion in assets, according to Reuters, although they saw an unprecedented drop in investments last year amid a market downturn.
Case 2: 23-cv-00016-Z in the United States District Court for the Northern District of Texas.