Congress Votes to Keep Politics Out of Pensions
On February 28, the U.S. House of Representatives passed H.J. RES. 30, and on March 1, the U.S. Senate passed S.J. Res. 8. These identical resolutions state that Congress disapproves of a new Department of Labor rule that allows pension plan managers to incorporate politics into their investment decisions. This effort closely follows one of ALEC’s Essential Policy Solutions for 2023 to protect retirees by keeping politics out of pensions: the ALEC model State Government Employee Retirement Protection Act. The resolutions were spearheaded by Senator Mike Braun of Indiana and Representative Andy Barr of Kentucky and received bipartisan support in both the House and Senate.
The Department of Labor rule, finalized in December of last year, would allow private pension plan managers to incorporate non-pecuniary factors, such as ESG investing, into investment decisions under the Employee Retirement Income Security Act (ERISA). This rule overturns a 2020 rule that strengthened fiduciary requirements under ERISA.
This Joint Resolution of the House and Senate states that “Congress disapproves the rule submitted by the Department of Labor relating to ‘Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights’ (87 Fed. Reg. 73822 (December 1, 2022)), and such rule shall have no force or effect.”
ALEC alumnus, U.S. Senator Joe Manchin of West Virginia voted in favor of the resolution. In his words, “The ESG rule…is just another example of how our Administration prioritizes a liberal policy agenda over protecting and growing the retirement accounts of 150 million Americans that will be in jeopardy.”
ALEC submitted public comments to the Department of Labor in support of the 2020 rule and in opposition to the 2021 rule change. In both public comments, ALEC stated that the Department of Labor got it right in 2020: if a fiduciary wants to incorporate non-pecuniary factors into investment decisions, the fiduciary must prove that investment returns will be as good as or better than an investment strategy without those non-pecuniary factors.
In those public comments, ALEC also showed that public pensions, which are exempt from ERISA rules, offer a natural experiment of what can occur without strong fiduciary rules. When no strong fiduciary rule exists, politics can creep into pension investments. Politically motivated investing has been proven time and again to yield lower investment returns and have no impact on social change. Years of ALEC research show that when politics is allowed to creep into pension investments, investment returns suffer and retirement benefits are put into jeopardy.
In response to the lack of ERISA rules for public pensions, members of the ALEC Tax and Fiscal Policy Task Force passed the State Government Employee Retirement Protection Act model policy. This model is an educational tool that demonstrates how strong fiduciary rules for public pensions are structured. Several state legislatures are considering bills that strengthen fiduciary rules for public pensions based on the standards discussed in ALEC model policy.
President Biden has pledged to veto, but the ESG movement appears to be on shaky ground. Days ago, Vanguard CEO Tim Buckley stated, “Our research indicates that ESG investing does not have any advantage over broad-based investing.”
ALEC applauds Senator Braun, Representative Barr, and the other members of Congress for protecting retirees and keeping politics out of pensions.