The Biden administration is “going after 401(k) retirement accounts, risking millions of workers’ comfortable retirements,” notes former New York Lieutenant Governor Betsy McCaughey:
If you put money into a 401(k), beware. Until now, the law always required fund managers entrusted with your savings to invest the money where it’s expected to get the top return for you. Period. But on Nov. 22, Biden’s Labor Department announced a rule change that…will allow fund managers to invest your money in the stocks of companies that favor left-wing policies, even if they earn a lower return.
It’s legalized theft. The future return on your retirement nest egg is being sacrificed to advance a woke agenda.
A lower return means you’ll have to work more years before retiring or start putting more into your 401(k). Or settle for a lesser standard of living in the final years of your life.
Biden’s new rule paves the way for your 401(k) savings to be put into what are called ESG funds. But you can stop it from happening to you if you’re vigilant.
What is ESG? “E” stands for environment, “S” for social and “G” for governance, meaning who gets hired or put on the company board. ESG funds generally invest in companies that oppose fossil fuels, support unionization and stress gender and racial diversity over merit.
From the worker’s point of view, ESG stands for Expect Slower Growth. These funds charge higher fees and often produce lower returns, especially now when oil company profits and stocks are soaring while the tech companies ESG funds tend to favor are doing poorly.
Two aspects of the Labor Department’s rule should cause you to worry. Both reverse worker safeguards adopted by the Trump administration.
First, Trump’s Labor Department stated that fund managers are obliged to put “pecuniary” considerations above other issues, such as politics. They could consider “non-pecuniary” issues only as a tiebreaker when two companies pose the same risks and opportunities for investors. Biden’s Labor Department eliminated that standard, saying it had a “chilling effect” on ESG sales.
The Biden rule says 401(k) managers are “not prohibited from selecting the investment, or investment course of action, based on collateral benefits other than investment returns.” Politics can take priority. The new rule cites Biden’s goal to “prioritize both environmental justice and the creation of well-paying union jobs.”…..Biden makes ESG funds eligible to be the “default” fund when a worker doesn’t choose a fund. The Trump administration banned that. Biden’s rule will push more workers unwittingly into these funds.
Biden’s doing an end run around democracy, trying to change corporate America without having to pass laws in Congress. Companies need investment capital. The more 401(k) money is controlled by ESG funds, the more pressure can be put on companies to adopt the ESG agenda — climate change, diversity and unionization — whether they like it or not….Biden’s new rule eventually will be challenged in court…[a] 1974 law enacted by Congress — the Employee Retirement Income Security Act …. requires 401(k) retirement plan sponsors to act “solely in the interest” of savers….the new rule [effectively] reverses ERISA [without admitting it].
ESG funds have badly underperformed the market, including the very sectors they shunned: oil, gas and coal. But now Joe Biden is coming to their rescue by changing the rules, pressuring the managers of America’s retirement funds to double down on ESG. (ESG stands for “Environmental, Social, and Governance” standards favored by progressives).
It’s been called “Biden’s ESG Tax on Your Retirement Fund.” A Labor Department rule would push fiduciaries to favor climate policies and other political goals over the financial interests of investors, altering the behavior of ERISA fund managers for the worse. An article in the Wall Street Journal by former Labor Secretary Alex Acosta, and asset manager Vivek Ramaswamy, explains this:
Last year the U.S. Labor Department proposed a regulation that would tell retirement-fund managers to consider ESG factors such as “climate change” and “collateral benefits other than investment returns” when investing employees’ money.
This would encourage America’s perpetually underfunded pension plans to invest in politically correct but unproven ESG strategies. It would also violate retirees’ basic right to have their money invested solely to advance their financial interests.
Retirement and pension-fund managers are fiduciaries, legally required to make every investment decision with one purpose—maximizing retirees’ financial interests….[But] The new rule suggests that fund managers weigh factors such as “climate change,” “board composition” and “workforce practices.”…..
The new regulation may also expose fiduciaries who don’t consider ESG factors to lawsuits. Already, activist shareholders are pursuing litigation against public companies that don’t take ESG-approved steps. NortonLifeLock was sued for allegedly breaching its fiduciary duties by telling investors it was committed to “diversity” when it had no racial minorities on its board. Exxon was sued for allegedly misleading investors by failing to disclose the likely effect of climate change on its bottom line. To date, courts have generally found that no reasonable investor would make investment decisions based on board diversity or, as one judge put it, “speculative assumptions of costs that may be incurred 20+ or 30+ years in the future.”
But the Biden administration’s proposed rule, and the supplementary guidance provided with it, claims otherwise: “Climate change and other ESG factors are material economic considerations” and can play an “important role . . . in the evaluation and management of plan investments.” This language will give fresh ammunition to plaintiff lawyers seeking to wage wasteful litigation against not only American businesses but also plan fiduciaries….the result is a plain violation of fiduciary duty, allowing politicians and fund managers to substitute their investment goals for those of American retirees…
Congressional Republicans hope to prevent fund managers from sacrificing the interests of investors in the name of ESG, and eliminate any federal pressure for ESG if they retake control of Congress, reports the Daily Caller:
Members of the Republican Study Committee (RSC) detailed steps to combat Environmental, Social and Governance (ESG) investing, which critics refer to as “woke capital,” during a Monday round-table discussion.
The Republicans are stressing the economic consequences of ESG-focused investing, arguing that it contributes to inflation and harms small retail investors, pensions and college funds….Reps. Andy Barr of Kentucky, French Hill of Arkansas, and Blaine Luetkemeyer of Missouri criticized the impact of ESG investing on the U.S. and worldwide economies…ESG investing and woke capital will be likely legislative targets if Republicans take back one or both chambers of Congress in the November midterms. All three members sit on the House Financial Service Committee, which regulates banking and investment firms.
Barr introduced the Ensuring Sound Guidance Act in March 2022 to require investment firms to consider only “pecuniary factors” when acting in “the best interest of the customer.” Although the legislation has not passed out of the House Financial Services Committee, Republicans plan to reintroduce it should they take over the lower chamber in the November midterms…
“ESG fees have higher fees and lower returns,” he continued, noting a Wall Street Journal report that ESG funds charge 43% more for investor fees than non-ESG funds. “When asset managers like Blackrock are selling to the retail investor community ESG, they’re making money at the expense of those retail investors. Those higher fees are cutting into returns.” RSC chairman Jim Banks of Indiana put it more simply. “It’s a scam,” he said.
