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Biden Puts Your 401(k) to ESG Work
Summary
The Biden administration has finalized a rule that allows retirement plan sponsors to invest based on environmental, social, and governance (ESG) factors. The rule is a clarification of the 1974 Employee Retirement Income Security Act, which requires that retirement plan sponsors act in the best interests of participants and beneficiaries. The Trump administration had previously barred retirement managers from considering factors that weren't material to financial performance and risk.
Q&As
What does the Labor Department's new rule allow for retirement plan sponsors?
The Labor Department's new rule allows for retirement plan sponsors to invest based on environmental, social and governance (ESG) factors.
How does this differ from the Trump administration's rule?
The Trump administration's rule barred retirement managers from considering factors that weren't material to financial performance and risk.
What are the implications of this rule?
The implications of this rule are that retirement plan sponsors can now consider environmental, social and governance factors when making investment decisions.
How do retirement plan sponsors need to act under this rule?
Retirement plan sponsors need to act in the best interest of participants and beneficiaries under this rule.
What is the purpose of the rule?
The purpose of the rule is to clarify the 1974 Employee Retirement Income Security Act (Erisa), which requires that retirement plan sponsors act "solely in the interest" of participants and beneficiaries.
AI Comments
👍 This is a great way to ensure that people's retirement funds are being used in a way that is beneficial to society as a whole.
👎 This is a blatant abuse of power by the government and will only serve to line the pockets of those in power.
AI Discussion
Me: It's about how the new Labor Department rule allows retirement plan sponsors to invest based on environmental, social and governance (ESG) factors.
Friend: That's interesting. I didn't know that was an option.
Me: Yeah, it's a new thing. I think it's a good idea because it allows people to invest their money in things that they care about.
Friend: Yeah, I can see that. I'm not sure how I feel about the government telling people how to invest their money, but I guess if it's for the good of the environment and social issues, then it's a good thing.
Action items
- Research whether your retirement plan sponsor offers ESG investment options.
- If your retirement plan sponsor does not offer ESG investment options, consider whether you would be willing to switch to a different provider that does.
- Stay up to date on developments in the ESG investing landscape, including new products and regulations.
Technical terms
- ESG
- environmental, social and governance
- Erisa
- Employee Retirement Income Security Act
- 401(k)
- a retirement savings plan sponsored by an employer