401(K) Current Events: Presidential Veto Thwarts Congressional Attempt To Nix DOL Rule On ESG Investments

As we reported in our recent blog entitled “DOL Issues Final Regulations on Prudence and Loyalty in Selecting 401(k) Plan Investments – ESG Funds Get a Thumbs Up”, on November 22, 2022, the U. S. Department of Labor (DOL) issued its long-awaited final regulations (Final Regulations) on ERISA’s fiduciary duties of prudence and loyalty as it concerns retirement plan investing. In particular, the Final Regulations focused on the controversial matter of environmental, social and governance (ESG) investments in retirement plans, including 401(k) plans. The highly anticipated guidance represented the latest in an extended history of changing regulatory views and directives regarding ESG funds, often made in response to the political winds of change. (See the above-mentioned blog for a more detailed historical perspective.)

Congress Slams On the Brakes.

One might have thought that the Final Regulations, with their generally positive spin on ESG investing, would have been the final say in the long saga – but they would have been wrong. Earlier this month, both Houses of Congress — with heavy Republican support — passed a joint resolution, H.J. Res. 30, formally disapproving the Final Regulations. The resolution would have rendered the Final Regulations as having no force or effect – effectively blocking the DOL from enforcing them.

Supporters of the joint resolution cited much of the same rationale for opposing ESG investments as has been used to oppose such investments throughout the entire regulatory process – chiefly, that taking into account ESG considerations fails to focus solely on financial factors, thereby potentially jeopardizing retirement savings for participants and beneficiaries.

Presidential Veto Returns Green Light.

But on March 20, 2023, President Biden exercised his first-ever veto to block H.J. Res. 30. It is considered unlikely that Congress will have the votes to override the Presidential veto.

In his written message to the Republican-controlled House of Representatives, the President affirms his belief that plan fiduciaries should be permitted to take into account any and all factors, including ESG factors, that can help maximize returns for retirees. Since H.J. Res. 30 would prohibit fiduciaries from considering an entire class of factors that could potentially affect investment returns, it could jeopardize the life-savings of working families and retirees, and does not make common sense.

BOTTOM LINE: Accordingly, the Final Regulations, which became effective on January 30, 2023, remain in effect, assuming Congress does not muster enough votes to override the Presidential veto. As a reminder, under the Final Regulations, ERISA plan fiduciaries still must remain focused on all relevant risk-return factors, and may never subordinate the interests of participants and beneficiaries to objectives unrelated to the provision of retirement benefits.

DISCLAIMER: This article is intended only as a brief overview of the most receipt activity surrounding the DOL Final Regulations regarding ESG investments as they apply to most 401(k) plans. It is not intended to address the details of fiduciary duty under ERISA, 401(k) plan investments generally, prior DOL or other guidance having a potential effect on ESG investments, additional legal requirements for 401(k) plans, or similar topics. As always, please consult your own ERISA attorney or advisor for individualized advice concerning your own 401(k) plan.


The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice. As always, for specific questions concerning your 401(k) retirement plan, or for help in operating your plan during the current COVID-19 crisis, please consult your own ERISA attorney or professional advisor.


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