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One of the issues for Senate control in 2021 is the fate of the Trump administration’s deregulation plan. A GOP Senate could prevent Democrats from using the Congressional Review Act to overturn important rules. An interesting example is the Department of Labor’s new rule requiring pension plan managers to invest in the best financial interests of their beneficiaries.
Last month, DOL finalized a rule stressing that the Employee Retirement Income Security Act (Erisa) requires plan trustees to act “solely in the best interests” of plan members “for the sole purpose of providing benefits” and ” to defray reasonable expenses ”. In other words, managers cannot prioritize their own pecuniary or political interests.
It shouldn’t be controversial. The Supreme Court ruled unanimously in Fifth third Bancorp v. Dudenhoeffer (2014) that Erisa’s reference to benefits means “financial” rather than “non-monetary” benefits. For example, a trustee cannot invest employee pensions exclusively in the stocks of his own employer if “financial goals require otherwise,” the judges explained.
Nor can a trustee invest pension assets only in low-carbon companies or racially diverse workforce when these are unrelated to financial returns. The labor rule specifies that financial factors are those which have a “significant effect on the return and the risk of an investment”.
Asset managers like BlackRock, Fidelity and Vanguard say ESG funds work better over the long term, but the evidence is patchy. A Pacific Research Institute study last year found that the S&P 500 outperformed a large basket of ESG funds by almost 44% over a decade. One reason is that many ESG funds have excluded companies like Amazon, Netflix, and Mastercard.
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