DOL Updates Regarding ESG, Fiduciary Role, and Retirement Plans

Recent Department of Labor guidance on environmental, social, and corporate governance (ESG) fiduciary role and self-correction of retirement plans.

The Department of Labor DOL has issued guidance in the past few weeks on two notable items involving ESG, fiduciary role and retirement plans. We are pleased to share with you the following comments from the law offices of Smith & Downey, PA, a firm specializing in matters of employee benefits, executive compensation, and human resources law.

DOL Updates Regarding ESG and Fiduciary Responsibilities

FIRST, the DOL issued a final rule with respect to environmental, social, and corporate governance (ESG) factors and impacts to ERISA retirement plans and the fiduciaries that oversee them.

Fortunately, the DOL walked back what appeared to be a mandate in its earlier-issued proposed rule that fiduciaries consider ESG factors when selecting and managing investment options available to participants. The final rule clarifies that is not the case, but it does reinforce protection for fiduciaries, allowing them to consider ESG factors when evaluating risk and return factors of a particular investment or investment course of action. It also reminds fiduciaries that the weight given to any such factor should appropriately reflect an assessment of its impact on risk and return.

Fiduciaries considering any ESG investment options should proceed with caution and take advantage of all possible fiduciary protections, particularly in light of the recent Supreme Court decision (Hughes v. Northwestern University) reinforcing that each investment option in a retirement plan’s lineup must stand on its own as a prudent investment option. Fiduciaries also should take into account the fact that the new DOL guidelines have not been tested in litigation and may not offer full protection for fiduciaries from participant lawsuits.

DOL Updates on Plan Sponsors’ Latitude to Self-Correct Certain Late Deposits

SECOND, the DOL proposed a rule in late November that, if finalized, would allow plan sponsors to “self-correct” certain “late deposits” of participant salary reduction contributions/loan repayments to retirement plans that have resulted in $1,000 or less in lost earnings.

This is very welcome guidance as it was becoming commonplace for plan sponsors to have to submit a written application through the DOL’s Voluntary Fiduciary Correction Program (VFCP) when it had made late deposits of these contributions/loan repayments.

Plan sponsors should consider this a good reminder to make sure that all participant salary reduction contributions/loan repayments are deposited in the Plan’s trust immediately after they are withheld from salary and to consider corrective action if there are late deposits.