Biden administration will not apply Trump-era ESG rule to 401 (k) plans

The Biden administration said Wednesday it will not enforce a rule issued by the Trump administration that makes it more difficult to provide environmental, social and governance funding – or ESG – in the 401 (k) plans.

ESG funds can invest, for example, in energy companies that do not rely on fossil fuels or in companies that promote racial and gender diversity. Investors invested a record $ 51 billion in ESG funds last year.

The Trump Department of Labor rule, issued in 2020, does not explicitly require or directly prohibit ESG funding in 401 (k) plans.

According to experts, it may be difficult to adopt already weak by changing the requirements for employers to select them as 401 (k) investments.

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Indeed, the rule has already had a terrible effect on their inclusion, even in circumstances where the rules explicitly allow their use, Biden’s Labor Department said on Wednesday.

“Consequently, the Department intends to review the rules,” the agency said. Such an action could lead to a possible withdrawal or rewriting.

Until such guidance is issued, the Biden office will not enforce Trump-era rules, the department said.

The views of the Biden employment bureau were guided by input from stakeholders such as asset managers, labor organizations, plan sponsors, consumer groups, service providers and investment advisers, the agency said.

The Trump-era rule requires employers – who make decisions around 401 (k) investments – to consider only factors such as the risk and return on a fund (rather than features such as social or environmental assets) when choosing 401 funds ( k). Otherwise, employers may request more legal scrutiny.

The Department of Labor has also explicitly banned employers from automatically enrolling workers in an ESG-focused fund. Automatic enrollment has become an increasingly popular way to push workers to invest in a 401 (k).

The Labor Bureau is reviewing the Trump-era rule in an executive order issued by Biden in January, entitled “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.”

That order urges federal agencies to review regulations issued between January 2017 and 2021 that “are or may be incompatible with or present obstacles to” the administration’s environmental and climate policies. In such cases, agencies may suspend, revise or cancel the rules, according to the Department of Labor.