New DOL guidance confirms climate change can be considered when choosing 401(k) and 403(b) investment options

We got wonderful news from the Department of Labor yesterday: It is now clear that fiduciaries are not violating any laws if they give employees the option to align their investments with their values.

November 23, 2022
Shlomo Bernartzi

When 401(k) and 403(b) plan fiduciaries do a risk and return analysis to choose investment options for their retirement plans, that analysis “may include the economic effects of climate change and other ESG considerations.”

As the Secretary of the Department of Labor Martin Walsh said in a webinar on the new guidance yesterday: This is about giving investment advisors the *freedom* to make the best decisions they can to protect the retirement savings of investors, including considering environmental and social risks and opportunities.  

Other important things from the DOL did with this new guidance: 

  1. Remove the (confusing) pecuniary rule created by the 2020 DOL guidance
  2. Stop treating QDIAs differently - clarify that default investment options are treated the same as other investment options in the plan menu
  3. Remove the tiebreaker test and in particular remove the special documentation requirement that was burdensome to fiduciaries
  4. Remove the recommendation to abstain from proxy voting - clarify that the right to vote on shareholder proposals is an important component of improving returns and avoiding risks

As Secretary Walsh said this morning, “We are charged with making sure retirement savings are safeguarded,” and giving employers, advisors, and investment managers the option to consider the very real risks and opportunities associated with climate change helps accomplish that goal.

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