The Teamsters comment on the DOL/EBSA is attached in full below. An excerpt:
The Proposal offers a solution in search of a problem. For almost 30 years ESBA has issued a series of bulletins providing guidance to fiduciaries regarding their obligations when it comes to selecting investment options for plan participants. That guidance has emphasized ERISA’s goal that pension funds be managed with an “eye singular” to maximizing funds available to pay retirement benefits. That guidance has also addressed issues raised by what were termed “economically targeted investments” or “ETIs,” stating in Interpretive Bulletin 94-1 that ETIs were not necessary incompatible with ERISA’s fiduciary obligations if the investment has an expected rate of return commensurate with the rates of return or available alternative investments with similar characteristics.
This became known as the “all things being equal” or “tie-breaker” test. ESBA provided further guidance in Interpretative Bulletins 2008-01 and 2015-01, the latter cautioning that fiduciaries would violate ERISA if they administer the “all things being equal test” in a manner that accepts reduced returns or greater risks in order to secure social, environmental or other policy goals.
Where then is the problem? The Proposal offers no examples that existing guidance, as refined and clarified over the years, is inadequate. There are no examples of enforcement actions in which ESBA believes it has identified any clear examples of fiduciaries pursuing an agenda unrelated to the best interest of plan participants. The most that the Proposal offers is that there “may” be a problem. (85 FR at 39116)
The Proposal says that its goal is “to assist ERISA fiduciaries in navigating these ESG investment trends and to separate the legitimate use of risk-return factors from inappropriate investments . . .” Id. Of course, it is difficult to navigate without a compass and EBSA has provided none.
In addition, the text of the proposed rule is contradictory. Paragraph (c)(1) states: “A fiduciary’s evaluation of an investment must be focused only on pecuniary factors.” Paragraph (c)(3)(iii), in prescribing rules for constructing a Qualified Default Investment Alternative (“QDIA”) for direct contribution plans, states that “environmental, social, corporate governance, or similarly oriented investment mandate alternatives is not added as, or is a component of” such as QDIA.
This makes no sense. As noted, the Proposal acknowledges that some forms of ESG investing may benefit participants in terms of risk/return calculations. Indeed, they may be superior to some non-ESG investments that qualify for inclusion in the QDIA. However, fiduciaries would be forbidden from including these funds in the default investment option for DC participants.