Financial Factors in Selecting Plan Investments

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1

Donovan v. Mazzola, 716 F.2d 1226, 1238 (9th

Cir. 1983) (quoting Freund v. Marshall & Ilsley

Bank, 485 F. Supp. 629, 639 (W.D. Wis. 1979)).

2

Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.

1982).

3

Fifth Third Bancorp v. Dudenhoeffer, 573 U.S.

409, 421 (2014) (the ‘‘benefits’’ to be pursued by

ERISA fiduciaries as their ‘‘exclusive purpose’’ does

not include ‘‘nonpecuniary benefits’’) (emphasis in

original).

4

See, e.g., Tibble v. Edison Int’l, 843 F.3d 1187,

1197 (9th Cir. 2016).

5

For a concise history of the current ESG

movement and the evolving terminology, see Max

Schanzenbach & Robert Sitkoff, Reconciling

Fiduciary Duty and Social Conscience: The Law

and Economics of ESG Investing by a Trustee, 72

Stan. L. Rev. 381, 392–97 (2020).

6

59 FR 32606 (June 23, 1994) (appeared in Code

of Federal Regulations as 29 CFR 2509.94–1).

Interpretive Bulletins are a form of sub-regulatory

guidance that are published in the Federal Register

and included in the Code of Federal Regulations.

Prior to issuing IB 94–1, the Department had issued

a number of letters concerning a fiduciary’s ability

to consider the non-pecuniary effects of an

investment and granted a variety of prohibited

transaction exemptions to both individual plans

and pooled investment vehicles involving

investments that produce non-pecuniary benefits.

See Advisory Opinions 80–33A, 85–36A and 88–

16A; Information Letters to Mr. George Cox, dated

Jan. 16, 1981; to Mr. Theodore Groom, dated Jan.

16, 1981; to The Trustees of the Twin City

Carpenters and Joiners Pension Plan, dated May 19,

1981; to Mr. William Chadwick, dated July 21,

1982; to Mr. Daniel O’Sullivan, dated Aug. 2, 1982;

to Mr. Ralph Katz, dated Mar. 15, 1982; to Mr.

William Ecklund, dated Dec. 18, 1985, and Jan. 16,

1986; to Mr. Reed Larson, dated July 14, 1986; to

Mr. James Ray, dated July 8, 1988; to the Honorable

Jack Kemp, dated Nov. 23, 1990; and to Mr. Stuart

Cohen, dated May 14, 1993; PTE 76–1, part B,

concerning construction loans by multiemployer

plans; PTE 84–25, issued to the Pacific Coast

Roofers Pension Plan; PTE 85–58, issued to the

Northwestern Ohio Building Trades and Employer

Construction Industry Investment Plan; PTE 87–20,

issued to the Racine Construction Industry Pension

Fund; PTE 87–70, issued to the Dayton Area

Building and Construction Industry Investment

Plan; PTE 88–96, issued to the Real Estate for

American Labor A Balcor Group Trust; PTE 89–37,

issued to the Union Bank; and PTE 93–16, issued

to the Toledo Roofers Local No. 134 Pension Plan

and Trust, et al. In addition, one of the first

directors of the Department’s benefits office

authored an influential article on this topic in 1980.

See Ian D. Lanoff, The Social Investment of Private

Pension Plan Assets: May It Be Done Lawfully

Under ERISA?, 31 Labor L.J. 387, 391–92 (1980)

(stating that ‘‘[t]he Labor Department has concluded

that economic considerations are the only ones

which can be taken into account in determining

which investments are consistent with ERISA

standards,’’ and warning that fiduciaries who

exclude investment options for non-economic

reasons would be ‘‘acting at their peril’’).

7

IB 94–1 used the terms ETI and economically

targeted investments to broadly refer to any

investment or investment course of action that is

selected, in part, for its expected non-pecuniary

benefits, apart from the investment return to the

employee benefit plan investor.

DEPARTMENT OF LABOR

Employee Benefits Security

Administration

29 CFR Parts 2509 and 2550

RIN 1210–AB95

Financial Factors in Selecting Plan

Investments

AGENCY

: Employee Benefits Security

Administration, Department of Labor.

ACTION

: Final rule.

SUMMARY

: The Department of Labor

(Department) is adopting amendments

to the ‘‘investment duties’’ regulation

under Title I of the Employee

Retirement Income Security Act of 1974,

as amended (ERISA). The amendments

require plan fiduciaries to select

investments and investment courses of

action based solely on financial

considerations relevant to the risk-

adjusted economic value of a particular

investment or investment course of

action.

DATES

: The final rule is effective on

January 12, 2021.

FOR FURTHER INFORMATION CONTACT

:

Jason A. DeWitt, Office of Regulations

and Interpretations, Employee Benefits

Security Administration, (202) 693–

8500. This is not a toll-free number.

Customer Service Information:

Individuals interested in obtaining

information from the Department of

Labor concerning ERISA and employee

benefit plans may call the Employee

Benefits Security Administration

(EBSA) Toll-Free Hotline, at 1–866–

444–EBSA (3272) or visit the

Department of Labor’s website

(www.dol.gov/ebsa).

SUPPLEMENTARY INFORMATION

:

A. Background

Title I of the Employee Retirement

Income Security Act of 1974 (ERISA)

establishes minimum standards that

govern the operation of private-sector

employee benefit plans, including

fiduciary responsibility rules. Section

404 of ERISA, in part, requires that plan

fiduciaries act prudently and diversify

plan investments so as to minimize the

risk of large losses, unless under the

circumstances it is clearly prudent not

to do so. Sections 403(c) and 404(a) also

require fiduciaries to act solely in the

interest of the plan’s participants and

beneficiaries, and for the exclusive

purpose of providing benefits to

participants and beneficiaries and

defraying reasonable expenses of

administering the plan.

Courts have interpreted the exclusive

purpose rule of ERISA section

404(a)(1)(A) to require fiduciaries to act

with ‘‘complete and undivided loyalty

to the beneficiaries,’’

1

observing that

their decisions must ‘‘be made with an

eye single to the interests of the

participants and beneficiaries.’’

2

The

Supreme Court as recently as 2014

unanimously held in the context of

ERISA retirement plans that such

interests must be understood to refer to

‘‘financial’’ rather than ‘‘nonpecuniary’’

benefits,

3

and Federal appellate courts

have described ERISA’s fiduciary duties

as ‘‘the highest known to the law.’’

4

The

Department’s longstanding and

consistent position, reiterated in

multiple forms of sub-regulatory

guidance, is that when making decisions

on investments and investment courses

of action, plan fiduciaries must be

focused solely on the plan’s financial

returns, and the interests of plan

participants and beneficiaries in their

benefits must be paramount.

The Department has been asked

periodically over the last 30 years to

consider the application of these

principles to pension plan investments

selected because of the non-pecuniary

benefits they may further, such as those

relating to environmental, social, and

corporate governance considerations.

Various terms have been used to

describe this and related investment

behaviors, such as socially responsible

investing, sustainable and responsible

investing, environmental, social, and

corporate governance (ESG) investing,

impact investing, and economically

targeted investing. The terms do not

have a uniform meaning and the

terminology is evolving.

5

The Department’s first comprehensive

guidance addressing these types of

investment issues was in Interpretive

Bulletin 94–1 (IB 94–1).

6

There, the

term used was ‘‘economically targeted

investments’’ (ETIs). The Department’s

objective in issuing IB 94–1 was to state

that ETIs

7

are not inherently

incompatible with ERISA’s fiduciary

obligations. The preamble to IB 94–1

explained that the requirements of

sections 403 and 404 of ERISA do not

prevent plan fiduciaries from investing

plan assets in ETIs if the investment has

an expected rate of return

commensurate to rates of return of

available alternative investments with

similar risk characteristics, and if the

investment vehicle is otherwise an

appropriate investment for the plan in

terms of such factors as diversification

and the investment policy of the plan.

Some commentators have referred to

this as the ‘‘all things being equal’’ test

or the ‘‘tie-breaker’’ standard. The

Department stated in the preamble to IB

94–1 that when competing investments

serve the plan’s economic interests

equally well, plan fiduciaries can use

such non-pecuniary considerations as

the deciding factor for an investment

decision.

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8

73 FR 61734 (Oct. 17, 2008).

9

80 FR 65135 (Oct. 26, 2015).

10

Field Assistance Bulletin 2018–01 (Apr. 23,

2018).

11

Id.

12

See Jon Hale, The ESG Fund Universe Is

Rapidly Expanding (March 19, 2020),

www.morningstar.com/articles/972860/the-esg-

fund-universe-is-rapidly-expanding. This trend is

most pronounced in Europe, where authorities are

actively promoting consideration of ESG factors in

investing. See, e.g., Principles for Responsible

Investment (PRI), Fiduciary Duty in the 21st

Century (Oct. 2019), www.unpri.org/

download?ac=9792, at 34–35 (quoting official from

EU securities regulator that ‘‘ESG is part of [their]

core mandate.’’); Emre Peker, What Qualifies as a

Green Investment? EU Sets Rules, Wall Street

Journal (Dec. 17, 2019), www.wsj.com/articles/eu-

seals-deal-to-create-regulatory-benchmark-for-

green-finance-11576595600 (‘‘European officials

have been racing to set the global benchmark for

green finance’’); Principles for Responsible

Investment, Investor priorities for the EU Green

Deal (April 30, 2020), www.unpri.org/sustainable-

markets/investor-priorities-for-the-eu-green-deal/

5710.article (discussing proposal to require ESG

data to be disclosed alongside traditional elements

of corporate and financial reporting, including a

core set of mandatory ESG key performance

indicators).

13

See, e.g., OECD Business and Finance Outlook

2020 (Sept. 2020), www.oecd.org/daf/oecd-

business-and-finance-outlook-26172577.htm, at 29

(‘‘The review of academic and industry literature

reveals a wide range of approaches and results,

which are largely inconsistent with one another.

The research highlights the difficulty of identifying

the real impact of ESG on investment

performance.’’); Scarlet Letters: Remarks of SEC

Commissioner Hester M. Peirce before the American

Enterprise Institute (June 18, 2019), www.sec.gov/

news/speech/speech-peirce-061819; Paul Brest,

Ronald J. Gilson, & Mark A. Wolfson, How Investors

Can (and Can’t) Create Social Value, European

Corporate Governance Institute, Law Working Paper

No. 394 (Mar. 29, 2018), https://papers.ssrn.com/

sol3/papers.cfm?abstract_id=3150347, at 5;

Ogechukwu Ezeokoli et al., Environmental, Social,

and Governance (ESG) Investment Tools: A Review

of the Current Field (Dec. 2017), www.dol.gov/sites/

dolgov/files/OASP/legacy/files/ESG-Investment-

Tools-Review-of-the-Current-Field.pdf, at 11–13.

14

See, e.g., OECD Business and Finance Outlook

2020 (Sept. 2020), at 26–33, 47–58; Feifei Li & Ari

Polychronopoulos, What a Difference an ESG

Ratings Provider Makes! (Jan. 2020),

www.researchaffiliates.com/documents/770-what-a-

difference-an-esg-ratings-provider-makes.pdf;

Florian Berg, Julian Ko

¨lbel, & Roberto Rigobon,

Aggregate Confusion: The Divergence of ESG

Ratings (Aug. 2019), MIT Sloan Research Paper No.

5822–19, https://ssrn.com/abstract=3438533;

Schroders, 2018 Annual Sustainable Investment

Report (March 2019), www.schroders.com/en/

insights/economics/annual-sustainable-investment-

report-2018, at 22–23 (majority of passive ESG

funds rely on a single third party ESG rating

provider that ‘‘typically emphasize tick-the-box

policies and disclosure levels, data points unrelated

to investment performance and/or backward-

looking negative events with little predictive

power’’).

Since 1994, the Department’s sub-

regulatory guidance has gone through an

iterative process, but the Department’s

emphasis on the primacy of plan

participants’ economic interests has

stayed constant. In 2008, the

Department replaced IB 94–1 with

Interpretive Bulletin 2008–01 (IB 2008–

01).

8

In 2015, the Department replaced

IB 2008–01 with Interpretive Bulletin

2015–01 (IB 2015–01),

9

which is

codified at 29 CFR 2509.2015–01. Each

Interpretive Bulletin has consistently

stated that the paramount focus of plan

fiduciaries must be the plan’s financial

returns and providing promised benefits

to participants and beneficiaries. The

Department has construed the

requirements that a fiduciary act solely

in the interest of, and for the exclusive

purpose of providing benefits to,

participants and beneficiaries as

prohibiting a fiduciary from

subordinating the interests of

participants and beneficiaries in their

retirement income to unrelated

objectives. Thus, each Interpretive

Bulletin, while restating the ‘‘all things

being equal’’ test, also cautioned that

fiduciaries violate ERISA if they accept

reduced expected returns or greater

risks to secure social, environmental, or

other policy goals.

The preamble to IB 2015–01

explained that if a fiduciary prudently

determines that an investment is

appropriate based solely on economic

considerations, including those that

may derive from ESG factors, the

fiduciary may make the investment

without regard to any collateral benefits

the investment may also promote. In

2018, the Department clarified in Field

Assistance Bulletin 2018–01 (FAB

2018–01) that IB 2015–01 had merely

recognized that there could be instances

when ESG issues present material

business risk or opportunities to

companies that company officers and

directors need to manage as part of the

company’s business plan, and that

qualified investment professionals

would treat the issues as material

economic considerations under

generally accepted investment theories.

As appropriate economic

considerations, they should be

considered by a prudent fiduciary along

with other relevant economic factors to

evaluate the risk and return profiles of

alternative investments. In other words,

in these instances the factors are not

‘‘tie-breakers,’’ but pecuniary (or ‘‘risk-

return’’) factors affecting the economic

merits of the investment.

The Department cautioned, however,

that ‘‘[t]o the extent ESG factors, in fact,

involve business risks or opportunities

that are properly treated as economic

considerations themselves in evaluating

alternative investments, the weight

given to those factors should also be

appropriate to the relative level of risk

and return involved compared to other

relevant economic factors.’’

10

The

Department further emphasized in FAB

2018–01 that fiduciaries ‘‘must not too

readily treat ESG factors as

economically relevant to the particular

investment choices at issue when

making a decision,’’ as ‘‘[i]t does not

ineluctably follow from the fact that an

investment promotes ESG factors, or

that it arguably promotes positive

general market trends or industry

growth, that the investment is a prudent

choice for retirement or other

investors.’’ Rather, ERISA fiduciaries

must always put first the economic

interests of the plan in providing

retirement benefits and ‘‘[a] fiduciary’s

evaluation of the economics of an

investment should be focused on

financial factors that have a material

effect on the return and risk of an

investment based on appropriate

investment horizons consistent with the

plan’s articulated funding and

investment objectives.’’

11

B. Purpose of Regulatory Action

Available research and data show a

steady upward trend in use of the term

‘‘ESG’’ among institutional asset

managers, an increase in the array of

ESG-focused investment vehicles

available, a proliferation of ESG metrics,

services, and ratings offered by third-

party service providers, and an increase

in asset flows into ESG funds. This

trend has been underway for many

years, but recent studies indicate the

trajectory is accelerating. For example,

according to Morningstar, the assets

invested in sustainable funds was nearly

four times larger in 2019 than in 2018.

12

As ESG investing has increased, it has

engendered important and substantial

questions with numerous observers

identifying a lack of precision and

consistency in the marketplace with

respect to defining ESG investments and

strategies, as well as shortcomings in the

rigor of the prudence and loyalty

analysis by some participating in the

ESG investment marketplace.

13

There is

no consensus about what constitutes a

genuine ‘‘ESG’’ investment, and ESG

rating systems are often vague and

inconsistent, despite featuring

prominently in marketing efforts.

14

The

use of terms such as ESG, impact

investing, sustainability, and non-

financial performance metrics, among

others, encompass a wide variety of

considerations without a common nexus

and can take on different meanings to

different people. In part, the confusion

stems from the fact that, from its

beginning, the ESG investing movement

has had multiple goals, both pecuniary

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15

See, e.g., Who Cares Wins: Connecting

Financial Markets to a Changing World (2004),

www.unepfi.org/fileadmin/events/2004/stocks/

who_cares_wins_global_compact_2004.pdf, at v.

(‘‘Overall goals’’ include ‘‘[s]tronger and more

resilient financial markets’’ and ‘‘[c]ontribution to

sustainable development’’).

16

See, e.g., Principles for Responsible

Investment, How Can a Passive Investor Be a

Responsible Investor? (Aug. 2019), www.unpri.org/

download?ac=6729, at 15 (ESG passive investing

strategies likely result in higher fees compared to

standard passive funds); Wayne Winegarden, ESG

Investing: An Evaluation of the Evidence, Pacific

Research Institute (May 2019),

www.pacificresearch.org/wp-content/uploads/2019/

05/ESG_Funds_F_web.pdf, at 11–12 (finding

average expense ratio of 69 basis points for ESG

funds compared to 9 basis points for broad-based

S&P 500 index fund). In recent years, the asset-

weighted expense ratio for ESG funds has decreased

as ESG funds with lower expense ratios have

attracted more fund flows than ESG funds with

higher expense ratios. See Elisabeth Kashner, ETF

Fee War Hits ESG and Active Management (Jan. 22,

2020), https://insight.factset.com/etf-fee-war-hits-

esg-and-active-management.

17

See Office of Compliance Inspections and

Examinations, U.S. Securities and Exchange

Commission, 2020 Examination Priorities, at 15,

www.sec.gov/about/offices/ocie/national-

examination-program-priorities-2020.pdf.

18

See Request for Comment on Fund Names,

Release No. IC–33809 (Mar. 2, 2020) (85 FR 13221

(Mar. 6, 2020)).

19

Donovan v. Bierwirth, supra note 2, 680 F.2d

at 271.

20

See, e.g., James MacKintosh, A User’s Guide to

the ESG Confusion, Wall Street Journal (Nov. 12,

2019), www.wsj.com/articles/a-users-guide-to-the-

esg-confusion-11573563604 (‘‘It’s hard to move in

the world of investment without being bombarded

by sales pitches for running money based on

‘ESG’’’); Mark Miller, Bit by Bit, Socially Conscious

Investors Are Influencing 401(k)’s, New York Times

(Sept. 27, 2019), www.nytimes.com/2019/09/27/

business/esg-401k-investing-retirement.html.

21

See Unif. Prudent Inv. Act section 5 cmt. (1995)

(‘‘The duty of loyalty is perhaps the most

characteristic rule of trust law.’’); see also Susan N.

Gary, George G. Bogert, & George T. Bogert, The Law

of Trusts and Trustees: A Treatise Covering the Law

Relating to Trusts and Allied Subjects Affecting

Trust Creation and Administration section 543 (3d

ed. 2019) (quoting Justice Cardozo’s classic

statement in Meinhard v. Salmon, 249 N.Y. 458,

464 (1928) that ‘‘[a] trustee is held to something

stricter than morals of the market place....

Uncompromising rigidity has been the attitude of

the courts of equity when petitioned to undermine

the rule of undivided loyalty.’’).

and non-pecuniary.

15

Moreover, ESG

funds often come with higher fees,

because additional investigation and

monitoring are necessary to assess an

investment from an ESG perspective.

16

The Securities and Exchange

Commission (SEC) has also undertaken

initiatives related to ESG. The

examination priorities of the Securities

and Exchange Commission (SEC) for

2020 include a particular interest in the

accuracy and adequacy of disclosures

provided by registered investment

advisers offering clients new types or

emerging investment strategies, such as

strategies focused on sustainable and

responsible investing, which

incorporate ESG criteria.

17

The SEC also

solicited public comment on the

appropriate treatment for funds that use

terms such as ‘‘ESG’’ in their name and

whether these terms are likely to

mislead investors.

18

ESG investing raises heightened

concerns under ERISA. Public

companies and their investors may

legitimately pursue a broad range of

objectives, subject to the disclosure

requirements and other requirements of

the securities laws. Pension plans and

other benefit plans covered by ERISA,

however, are bound by statute to a

narrower objective: Prudent

management with an ‘‘eye single’’ to

maximizing the funds available to pay

benefits under the plan.

19

Providing a

secure retirement for American workers

is the paramount, and eminently

worthy, ‘‘social’’ goal of ERISA plans;

plan assets may never be enlisted in

pursuit of other social or environmental

objectives at the expense of ERISA’s

fundamental purpose of providing

secure and valuable retirement benefits.

Section 404(a)(1)(A) of ERISA

expressly requires that plan fiduciaries

act ‘‘for the exclusive purpose of: (i)

Providing benefits to participants and

their beneficiaries; and (ii) defraying

reasonable expenses of administering

the plan.’’ The Department is

concerned, however, that the growing

emphasis on ESG investing may prompt

ERISA plan fiduciaries to make

investment decisions for purposes

distinct from providing benefits to

participants and beneficiaries and

defraying reasonable expenses of

administering the plan. The Department

is also concerned that some investment

products may be marketed to ERISA

fiduciaries on the basis of purported

benefits and goals unrelated to financial

performance.

20

For example, the

Department understands that the fund

managers of some ESG investment funds

offered to ERISA defined contribution

plans represent that the fund is

appropriate for ERISA plan investment

platforms, while acknowledging in

disclosure materials that the fund may

perform differently, forgo investment

opportunities, or accept different

investment risks, in order to pursue the

ESG objectives.

This regulatory project was

undertaken in part to make clear that

ERISA plan fiduciaries may not

subordinate return or increase risks to

promote non-pecuniary objectives. The

duty of loyalty—a bedrock principle of

ERISA, with deep roots in the common

law of trusts—requires those serving as

fiduciaries to act with a single-minded

focus on the interests of beneficiaries.

21

The duty of prudence prevents a

fiduciary from choosing an investment

alternative that is financially less

beneficial than reasonably available

alternatives. These fiduciary standards

are the same no matter the investment

vehicle or category.

The Department believes that

confusion with respect to these

investment requirements persists,

perhaps due in part to varied statements

the Department has made on the use of

non-pecuniary or non-financial factors

over the years in sub-regulatory

guidance. Accordingly, the Department

intends, by this final regulation, to

promulgate principles of fiduciary

standards for selecting and monitoring

investments, and set forth the scope of

fiduciary duties surrounding non-

pecuniary issues. Under the final rule,

plan fiduciaries, when making decisions

on investments and investment courses

of action, must focus solely on the

plan’s financial risks and returns and

keep the interests of plan participants

and beneficiaries in their plan benefits

paramount. The fundamental principle

is that an ERISA fiduciary’s evaluation

of plan investments must be focused

solely on economic considerations that

have a material effect on the risk and

return of an investment based on

appropriate investment horizons,

consistent with the plan’s funding

policy and investment policy objectives.

The corollary principle is that ERISA

fiduciaries must never sacrifice

investment returns, take on additional

investment risk, or pay higher fees to

promote non-pecuniary benefits or

goals.

The final rule recognizes that there

are instances where one or more

environmental, social, or governance

factors will present an economic

business risk or opportunity that

corporate officers, directors, and

qualified investment professionals

would appropriately treat as material

economic considerations under

generally accepted investment theories.

For example, a company’s improper

disposal of hazardous waste would

likely implicate business risks and

opportunities, litigation exposure, and

regulatory obligations. Dysfunctional

corporate governance can likewise

present pecuniary risk that a qualified

investment professional would

appropriately consider on a fact-specific

basis.

The purpose of this action is to set

forth a regulatory structure to assist

ERISA fiduciaries in navigating these

ESG investment trends and to separate

the legitimate use of risk-return factors

from inappropriate investments that

sacrifice investment return, increase

costs, or assume additional investment

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22

See www.dol.gov/agencies/ebsa/laws-and-

regulations/rules-and-regulations/public-

comments/1210-AB95. The Department received

some comment letters on the proposed rule that

were submitted after the close of the comment

period. Those late comments were not considered

or posted on the Department’s website.

risk to promote non-pecuniary benefits

or objectives. The Department believes

that addressing these issues in the form

of a notice and comment regulation will

help safeguard the interests of

participants and beneficiaries in the

plan benefits.

C. June 2020 Proposed Rule

In June 2020 (85 FR 39113 (June 30,

2020)), the Department published in the

Federal Register a proposed rule to

amend the ‘‘investment duties’’

regulation under Title I of the Employee

Retirement Income Security Act of 1974,

as amended (ERISA), to confirm that

ERISA requires plan fiduciaries to select

investments and investment courses of

action based solely on financial

considerations relevant to the risk-

adjusted economic value of a particular

investment or investment course of

action. The proposal was intended to

provide regulatory guideposts for plan

fiduciaries in light of recent trends

involving ESG investing that the

Department is concerned may lead

ERISA plan fiduciaries to choose

investments or investment courses of

action to promote environmental, social,

and other public policy goals unrelated

to the interests of plan participants and

beneficiaries in receiving financial

benefits from the plan, and expose plan

participants and beneficiaries to

inappropriate investment risks or lower

returns than reasonably available

investment alternatives. The proposal

retained the core principles in the

current regulation that set forth

requirements for satisfying the prudence

duty under ERISA section 404(a)(1)(B)

when deciding on plan investments and

investment courses of action.

The proposal suggested five major

additions to the investment duties

regulation. First, the proposal included

new regulatory text that would require

plan fiduciaries to select investments

and investment courses of action based

on financial considerations relevant to

the risk-adjusted economic value of a

particular investment or investment

course of action. Second, the proposal

added an express statement that

compliance with the exclusive purpose

(loyalty) duty in ERISA section

404(a)(1)(A) prohibits fiduciaries from

subordinating the interests of plan

participants and beneficiaries in

retirement income and financial benefits

to non-pecuniary goals. Third, a

proposed new provision required

fiduciaries to consider other available

investments to meet their prudence and

loyalty duties under ERISA. Fourth, the

proposal acknowledged that ESG factors

can be pecuniary factors, but only if

they present economic risks or

opportunities that qualified investment

professionals would treat as material

economic considerations under

generally accepted investment theories.

The proposal added new regulatory text,

setting forth required investment

analysis and documentation

requirements in the rare circumstances

when fiduciaries are choosing among

truly ‘‘indistinguishable’’ investments

(related to the so-called ‘‘tie breaker

rule’’). The documentation requirement

was intended to prevent fiduciaries

from improperly finding economic

equivalence and making decisions based

on non-pecuniary benefits without a

proper analysis and evaluation.

Fiduciaries already commonly

document and maintain records about

their investment selections. The

provision in the proposal would have

made that general practice required

where a fiduciary determines that

alternative investment options are

economically indistinguishable and

where the fiduciary chooses one of the

investments on the basis of a non-

pecuniary factor. Fifth, the proposal

added a new provision on selecting

designated investment alternatives for a

defined contribution individual account

plan (commonly referred to as 401(k)-

type plans). The proposal reiterated the

Department’s view that the prudence

and loyalty standards set forth in ERISA

apply to a fiduciary’s selection of an

investment alternative to be offered to

plan participants and beneficiaries in a

defined contribution individual account

plan. The proposal described the

requirements for the selection of

investment alternatives for such plans

that purport to pursue one or more

environmental, social, and corporate

governance-oriented objectives in their

investment mandates or that include

such parameters in the fund name.

Overall, the proposed rule was

designed to assist fiduciaries in carrying

out their responsibilities, while

promoting the financial interests of

current and future retirees. The

Department acknowledged in the

proposal that some plans would have to

modify their processes for selecting and

monitoring investments—in particular,

plans whose current document and

recordkeeping practices were

insufficient to meet the proposal’s

requirements.

The Department invited interested

persons to submit comments on the

proposed rule. In response to this

invitation, the Department received

more than 1,100 written comments

submitted during the open comment

period, and more than 7,600

submissions made as part of six separate

petitions (i.e., form letters). These

comments and petitions came from a

variety of parties, including plan

sponsors and other plan fiduciaries,

individual plan participants and

beneficiaries, financial services

companies, academics, elected

government officials, trade and industry

associations, and others, both in support

of and in opposition to the proposed

rule. These comments were available for

public review on the ‘‘Public

Comments’’ page under the ‘‘Laws and

Regulations’’ tab of the Department’s

Employee Benefits Security

Administration website.

22

Many comments submitted on the

proposal offered general support for, or

opposition to, the Department’s

proposal. These comments did not

contain specific or detailed arguments

on provisions of the proposal or

otherwise include relevant, empirical

information in the form of data or cited

studies. As such, the Department does

not separately identify or discuss these

general comments in this document,

although the preamble, in its entirety,

addresses the reasons for undertaking

this regulatory initiative and the

rationales for the Department’s specific

regulatory choices.

Some commenters asserted that the

proposal was ‘‘unsupported by

substantial evidence’’ and was

‘‘unwarranted by the facts,’’ does not

meet the minimum requirements of the

Administrative Procedure Act, the

Paperwork Reduction Act, or Executive

order and Office of Management and

Budget guidelines on cost-benefit

analysis, and argued that the proposal

could not withstand legal challenge in

court. Several commenters argued for

withdrawal of the proposed rule stating

that the proposal neither demonstrated

a compelling need for regulatory action

nor demonstrated any fiduciary action

that was injurious to plans. Some

additionally argued that the Department

had failed to employ the least

burdensome method to effect any

necessary change or to present any

empirical data or evidence of a problem

that justified the regulation. The

Department, the commenters asserted,

failed to provide a single example of any

ERISA fiduciary allocating any

investment on the basis of non-

pecuniary criteria or any investigations

or enforcement activity based on these

concerns.

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See Executive Order 13891, 84 FR 55235 (Oct.

15, 2019) promoting notice and comment regulation

for guidance.

24

Executive Order 13868 on Promoting Energy

Infrastructure and Economic Growth directed the

Department to complete a review of available data

filed with the Department in order to identify

whether there are discernible trends with respect to

plan investments in the energy sector. The order

also required the Department to provide an update

to the Assistant to the President for Economic

Policy on any discernible trends in energy

investments by such plans and to complete a review

of existing Department of Labor guidance on the

fiduciary responsibilities for proxy voting. Nothing

in the order dealt with investing for non-pecuniary

purposes. As a result, no reports related to the

proposal were required by the Executive order.

25

See 85 FR 53163 (Aug. 28, 2020) (promulgating

the Department’s rule on promoting regulatory

openness through good guidance).

26

Further, the Department has also considered

this subject in the context of specific questions

submitted by stakeholders since the 1980s. See, e.g.,

DOL Inf. Ltr to George Cox (Jan. 16, 1981); DOL

Adv. Op. to Theodore R. Groom (Jan. 16, 1981);

DOL Adv. Op. to Daniel E. O’Sullivan, Union Labor

Life Ins. Co (Aug. 2, 1982); Ltr from Ass’t Sec.

Dennis Kass to Sen. Howard Metzenbuam (May 27,

1985); DOL Adv. Op to James Ray, Union Labor Life

Ins. Co. (July 8, 1988); DOL Inf. Ltr. to Stuart Cohen,

General Motors Corp. (May 14, 1993).

Other commenters indicated that

current guidance is sufficient to enable

the Department to bring enforcement

actions against fiduciaries who fail to

meet their responsibilities. Further, they

asserted, the regulation was not

proposed pursuant to either an explicit

statutory mandate or evidence of an

actual documented problem. Some

commenters responded to the

Department’s observation of the growing

emphasis on ESG in the marketplace by

arguing that the more frequent use of the

term ‘‘ESG’’ does not indicate any

improper fiduciary decision making.

Some also argued that the Department’s

approach is incongruent with that of

other regulators who require

consideration of financially material

ESG factors and focus on the importance

of disclosure of those factors.

With respect to the arguments of

commenters concerning the

Administrative Procedure Act, the

Department believes that there are

sufficient reasons to justify the

promulgation of this final rule,

including the lack of precision and

consistency in the marketplace with

respect to defining ESG investments and

strategies, shortcomings in the rigor of

the prudence and loyalty analysis by

some participating in the ESG

investment marketplace, and perceived

variation in some aspects of the

Department’s past guidance on the

extent a fiduciary may consider non-

pecuniary factors in making investment

decisions. Further, the iterative

Interpretive Bulletins since 1994,

followed by the Field Assistance

Bulletin issued in 2018, and the number

of advisory opinions and information

letters historically issued on this topic

demonstrate the need for notice and

comment guidance issued under the

Administrative Procedure Act.

23

The

Department does not believe that there

needs to be specific evidence of

fiduciary misbehavior or demonstrated

injury to plans and plan participants in

order to issue a regulation addressing

the application of ERISA’s fiduciary

duties to the issue of investing for non-

pecuniary benefits. The need for this

regulation was also demonstrated by

some commenters who indicated their

intention to make, or current practice in

making, plan investment decisions

based on non-pecuniary factors, rather

than based on investment risk and

return. For example, some commenters

claimed that ERISA fiduciaries must

prioritize the long-term, absolute returns

for ‘‘universal owners,’’ and that

collective investor action to manage

social and environmental systems is

necessary. As another example, other

commenters argued that fiduciaries

should be permitted to consider the

potential for an investment to create

jobs for workers who in turn would

participate in the plan. These comments

signal that the Department needs to

address the use of non-pecuniary factors

by fiduciaries when making decisions

about ERISA plan investments and

investment courses of action. Under the

Department’s authority to administer

ERISA, the Department may promulgate

rules that are preemptive in nature and

is not required to wait for widespread

harm to occur. The Department can

ensure that demonstrated injury to plans

and plan participants and beneficiaries

are protected prospectively. Investing

for non-pecuniary objectives raises

heightened concerns under ERISA.

As the Department noted in the

proposal, public companies and their

investors may legitimately and properly

pursue a broad range of objectives,

subject to the disclosure requirements

and other requirements of the securities

laws. However, fiduciaries of pension

and other benefit plans covered by

ERISA are statutorily bound to manage

those plans with a singular goal of

maximizing the funds available to pay

benefits under the plan. Indeed, the

final rule furthers the paramount goal of

ERISA plans to provide a secure

retirement for American workers, and

states that plans may not forego

investment opportunities or assume

investment risk to promote other non-

financial goals.

24

In response to

comments stating that the current

guidance is sufficient, the Department

believes that there is a reasonable need

for this rulemaking, for the reasons

explained earlier. The Department also

believes that proceeding through notice-

and-comment rulemaking rather than

promulgating further interpretive

guidance has other benefits, including

the benefit of public input and the

greater stability of codified rules.

Proceeding in this manner is also

consistent with the principles of

Executive Order 13891 and the

Department’s recently issued PRO Good

Guidance rule, which emphasize the

importance of public participation, fair

notice, and compliance with the

Administrative Procedure Act.

25

Some commenters complained that

the 30-day comment period was too

short given the complexity of the

proposed changes, the magnitude of

such changes to the retirement

marketplace, and the need to prepare

supporting data. They stated that those

challenges were exacerbated by the

present COVID–19 pandemic. Many

commenters requested an extension of

the comment period and that the

Department schedule a public hearing

on the proposal and allow the public

record to remain open for post-hearing

comments from interested parties. The

Department has considered these

requests, but has determined that it is

neither necessary nor appropriate to

extend the public comment period, hold

a public hearing, or withdraw or

republish the proposed regulation. A

substantial and comprehensive public

comment record was developed on the

proposal sufficient to substantiate

promulgating a final rule. The scope and

depth of the public record that has been

developed itself belies arguments that a

30-day comment period was

insufficient. In addition, most issues

relevant to the proposal have been

analyzed and reviewed by the

Department and the public in the

context of three separate Interpretive

Bulletins issued in 1994, 2008, and 2015

and the public feedback that resulted.

26

Finally, public hearings are not required

under the Department’s general

rulemaking authority under section 505

of ERISA, nor under the Administrative

Procedure Act’s procedures for

rulemaking at 5 U.S.C. 553(c). In this

case, a public hearing is not necessary

to supplement an already

comprehensive public record.

Thus, this final rulemaking follows

the notice and comment process

required by the Administrative

Procedure Act, and fulfills the

Department’s mission to protect,

educate, and empower retirement

investors as they face important choices

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27

44 FR 37221, 37225 (June 26, 1979).

in saving for retirement in their

employee benefit plans. This rule is

considered to be an Executive Order

(E.O.) 13771 regulatory action. Details

on the estimated costs of this rule can

be found in the final rule’s economic

analysis. The Department concluded

that the additions to § 2550.404a–1

(404a–1 regulation) and the rule’s

improvements to the Department’s

previous sub-regulatory guidance are

appropriate and warranted.

Accordingly, after consideration of the

written comments received, the

Department has determined to adopt the

proposed regulation as modified and set

forth below.

D. The Final Rule

The final regulation sets forth

fiduciary standards for selecting and

monitoring investments held by ERISA

plans, and addresses the scope of

fiduciary duties surrounding non-

pecuniary issues. The final regulation

contains several important changes from

the proposal in response to public

comments. The fact that the loyalty

principles of section 404(a)(1)(A) of

ERISA are now coupled with the

previous prudence regulation under

section 404(a)(1)(B) confirms that, in

making investment decisions of any

kind, ERISA requires that both the

principles of loyalty and of prudence

must be considered. The final rule

expressly applies these principles not

just to investments and investment

courses of action, but also to the

selection of available investment

options for plan participants in

individual account plans.

As more fully described below, the

final rule makes five major amendments

to the investment duties regulation

under Title I of ERISA at 29 CFR

2550.404a–1. First, the final rule adds

provisions to confirm that ERISA

fiduciaries must evaluate investments

and investment courses of action based

solely on pecuniary factors—financial

considerations that have a material

effect on the risk and/or return of an

investment based on appropriate

investment horizons consistent with the

plan’s investment objectives and

funding policy. The term ‘‘investment

course of action’’ is defined in

paragraph (f)(2) of the final rule to mean

‘‘any series or program of investments or

actions related to a fiduciary’s

performance of the fiduciary’s

investment duties, and includes the

selection of an investment fund as a

plan investment, or in the case of an

individual account plan, a designated

investment alternative under the plan.’’

Second, the final rule includes an

express regulatory provision stating that

compliance with the exclusive purpose

(loyalty) duty in ERISA section

404(a)(1)(A) prohibits fiduciaries from

subordinating the interests of

participants to unrelated objectives, and

bars them from sacrificing investment

return or taking on additional

investment risk to promote non-

pecuniary goals. Third, the final rule

includes a provision that requires

fiduciaries to consider reasonably

available alternatives to meet their

prudence and loyalty duties under

ERISA. Fourth, new regulatory text sets

forth required investment analysis and

documentation requirements for those

circumstances in which plan fiduciaries

use non-pecuniary factors when

choosing between or among investments

that the fiduciary is unable to

distinguish on the basis of pecuniary

factors alone. The final rule includes a

related documentation requirement for

such decisions intended to prevent

fiduciaries from improperly finding

economic equivalence or making

investment decisions based on non-

pecuniary benefits without

appropriately careful analysis and

evaluation. Fifth, the final rule states

that the prudence and loyalty standards

set forth in ERISA apply to a fiduciary’s

selection of designated investment

alternatives to be offered to plan

participants and beneficiaries in a

participant-directed individual account

plan. The final rule expressly provides

that, in the case of selecting investment

alternatives for an individual account

plan that allows plan participants and

beneficiaries to choose from a broad

range of investment alternatives, as

defined in 29 CFR 2550.404c–1(b)(3), a

fiduciary is not prohibited from

considering or including an investment

fund, product, or model portfolio

merely because the fund, product, or

model portfolio promotes, seeks, or

supports one or more non-pecuniary

goals, provided that the fiduciary

satisfies the prudence and loyalty

provisions in ERISA and the final rule,

including the requirement to evaluate

solely on pecuniary factors, in selecting

any such investment fund, product, or

model portfolio. However, the provision

prohibits plans from adding any

investment fund, product, or model

portfolio as a qualified default

investment alternative described in 29

CFR 2550.404c–5, or as a component of

such an investment alternative, if the

fund, product, or model portfolio’s

investment objectives or goals or its

principal investment strategies include,

consider, or indicate the use of one or

more non-pecuniary factors.

The provisions of the final rule are

discussed below along with relevant

public comments.

1. Section 2550.404a–1(a) and (b)—

General Prudence and Loyalty

Investment Duties

The final rule builds upon the core

principles provided by the original

investment duties regulation on the

issue of prudence under section

404(a)(1)(B) of ERISA, at 29 CFR

2550.404a–1, which the regulated

community has been relying upon for

more than 40 years.

27

For example, as

stated in the preamble to the 1979

regulation, it remains the Department’s

view that (1) generally the relative

riskiness of a specific investment or

investment course of action does not

render such investment or investment

course of action either per se prudent or

per se imprudent, and (2) the prudence

of an investment decision should not be

judged without regard to the role that

the proposed investment or investment

course of action plays within the overall

plan portfolio. It also remains the

Department’s view that an investment

reasonably designed—as part of the

portfolio—to further the purposes of the

plan, and that is made with appropriate

consideration of the relevant facts and

circumstances, should not be deemed to

be imprudent merely because the

investment, standing alone, would have

a relatively high degree of risk. The

Department also continues to believe

that appropriate consideration of an

investment to further the purposes of

the plan must include consideration of

the characteristics of the investment

itself and how it relates to the plan

portfolio.

Paragraph (a) of the final rule is

unchanged from the proposal and

includes a restatement of the statutory

language of the exclusive purpose

requirements of ERISA section

404(a)(1)(A) and the prudence duty of

ERISA section 404(a)(1)(B). The existing

404a–1 regulation already included a

restatement of the prudence duties that

apply to fiduciary investment decisions

under ERISA section 404(a)(1)(B). The

final rule thus reinforces the core

principles provided in the investment

duties regulation by expressly

referencing the separate loyalty duty

imposed on fiduciary investment

decisions under ERISA section

404(a)(1)(A). In effect, paragraph (a) of

this final rule amends paragraph (a) in

the 1979 investment duties regulation

by adding the exclusive purpose

requirements to the existing duty of

prudence. That application of these

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44 FR at 37222 (June 26, 1979) (emphasis

added).

prudence and loyalty requirements is

context-specific and depends on the

facts and circumstances as made clear

by the rest of the provisions of the rule.

Some commenters asserted that the

combination of prudence and loyalty in

paragraph (a) of the proposal, together

with the requirements of paragraph (b)

as to how to satisfy those joint

requirements when evaluating

investments, were not simple

clarifications of the existing investment

duties regulation. Rather, in their view,

that combination of amendments would

have constituted the development of a

new theory of loyalty beyond the

Department’s stated objective to address

ESG investment developments, and

which would have resulted in confusion

regarding investment duties more

generally. Some commenters, moreover,

argued that the proposal’s combination

of amendments could violate

established principles of statutory

construction by establishing a regulation

under which compliance with a single

set of objective requirements would be

sufficient to satisfy the requirements of

both section 404(a)(1)(A)’s duty of

loyalty and (B)’s duty of prudence.

Unlike ERISA’s duty of prudence, the

duty of loyalty has not been interpreted

by the courts to be an objective test

requiring compliance with appropriate

procedures, but has instead been

measured by the subjective intent or

motivation of the fiduciaries, according

to the commenters. Nor have the courts

extended the duty of loyalty to prohibit

a fiduciary from considering

implications external to the fiduciary’s

self-interest, so long as the fiduciary was

focused on benefiting participants and

beneficiaries and defraying reasonable

plan expenses, according to the

commenters. And finally, some

commenters asserted that at least some

authority interprets ERISA section

404(a)(1)(A) to permit some incidental

benefits to others’ interests as long as

the primary purpose and effect of the

action is to benefit the plan.

As to the interplay between

paragraphs (a), (b), and (c) of the

proposal, one commenter requested

clarification that paragraph (b) of the

proposal was intended to continue as a

safe harbor, and was not the exclusive

means for satisfying prudence. This

commenter observed that the

Department originally described

paragraph (b) as a safe harbor in 1979

when the investment duties regulation

was originally published. This

commenter was concerned that the

specific requirements of paragraph (c) of

the proposal did not appear to

constitute a safe harbor. This

commenter argued that if the

Department’s intent is to transform

paragraph (b) from a safe harbor into

minimum requirements, the Department

must provide specific notice of this fact

and solicit comments from the public

while also assessing the costs and

benefits of such a change.

Some commenters also raised

concerns that the Department should

not have multiple prongs in the

regulation variously stating that a

fiduciary ‘‘should not subordinate’’ and

‘‘should not otherwise subordinate.’’

Similarly, one commenter argued that

the phrase in the proposal ‘‘and has

otherwise complied with the duty of

loyalty’’ is circular because it includes

compliance with the duty of loyalty as

an element of complying with the duty

of loyalty. Commenters argued that the

addition of the phrase ‘‘the duty of

loyalty’’ inside the definition of the duty

of loyalty creates an invitation for courts

to graft on additional responsibilities

not included within either the

Department’s rule or section

404(a)(1)(A) of ERISA.

One commenter asked the Department

to replace its multi-part articulation of

the duty of loyalty in the proposal with

a simple clarification stating that ‘‘a

fiduciary may not subordinate the

interests of participants and

beneficiaries as retirement savers to any

other interests of the participants,

beneficiaries, the fiduciary itself or any

other party.’’ This commenter also

proposed eliminating paragraph (c)

regarding pecuniary factors in

investment decisions altogether. The

commenter argued that the advantage

would be an easily understood, one-part

test that captures both elements of the

proposal without the need for special

rules for ‘‘pecuniary factors’’ and other

rules for ‘‘non-pecuniary factors.’’

Other commenters argued that the

prohibition in paragraph (b) against

subordinating the interest of the

participants and beneficiaries to the

fiduciary’s or another’s interest is

unnecessary in light of ERISA’s

prohibited transaction provisions, and,

moreover, would likely have

unintended consequences by making

many common, accepted, and generally

beneficial practices suspect, such as the

use of proprietary products, fee sharing,

and fee aggregation.

The principles of loyalty under

section 404(a)(1)(A) of ERISA prohibit a

fiduciary from subordinating the

interests of the participants and

beneficiaries in their retirement income

or other financial benefits under the

plan to unrelated objectives. No

commenter suggested to the contrary.

Thus, the Department believes that

including the duty of loyalty in a

regulatory provision regarding

investment activity should not be the

surprise nor innovation some

commenters alleged.

The Department is persuaded by the

comments that there is a better way than

presented in the proposal to express the

view that a fiduciary engaged in

investments and investment courses of

action may not subordinate the interests

of the plan to unrelated objectives and

that the fiduciary needs to focus on the

pecuniary interests of the plan in

complying with its prudence obligation

under the plan. The Department is

persuaded by the comments that it

would be preferable to retain paragraph

(b) as a provision addressing only the

ERISA section 404(a)(1)(B) prudence

duty and revising paragraphs (c) and (d)

to more specifically address the element

of the duty of loyalty that requires

fiduciaries to focus investment decision-

making on providing financial benefits

to participants under the plan and

prohibits fiduciaries from subordinating

the interests of participants and

beneficiaries in their retirement income

or financial benefits under the plan to

unrelated objectives. This approach

incorporates the duty of loyalty into the

regulation while recognizing that the

statute sets forth the duty of prudence

and the duty of loyalty as separate

fiduciary obligations.

Further, the Department is persuaded

by the comments that the ‘‘safe harbor’’

nature of paragraph (b) in the original

investment duties regulation should be

preserved. However, the Department

does not agree that its safe-harbor

characterization of the 404a–1

regulation in 1979 can fairly be read to

suggest an unrestricted open field.

Rather, in describing the regulation as a

safe harbor, the Department cautioned

that it was expressing no view on

whether the prudence duty could be

satisfied outside of the ‘‘safe harbor’’

provisions in the regulation: ‘‘It should

also be noted that the Department does

not view compliance with the

provisions of the regulation as

necessarily constituting the exclusive

method for satisfying the requirements

of the ‘prudence’ rule. Rather, the

regulation is in the nature of a ‘safe

harbor’ provision; it is the opinion of

the Department that fiduciaries who

comply with the provisions of the

regulation will have satisfied the

requirements of the ‘prudence’ rule, but

no opinion is expressed in the

regulation as to the status of activities

undertaken or performed that do not so

comply.’’

28

Although there may be

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See 29 CFR 2509.94–1 and 2509.2015–01.

distinct circumstances where some

other process would be prudent, in

every case, ERISA fiduciaries are

required to have a soundly reasoned and

supported investment decision or

strategy to satisfy the ERISA prudence

requirement.

As a result, proposed paragraph (b)(1)

is modified in the final rule to remove

the general references to the duty of

loyalty under section 404(a)(1)(A) of

ERISA, such as those contained in

paragraphs (b)(1)(iii) and (iv) of the

proposal, and to maintain its character

as a safe harbor for prudent investment

and investment courses of action as

described in the original 1979

investment duties regulation. However,

the safe harbor in paragraph (b) applies

only to the duty of prudence under

section 404(a)(1)(B) of ERISA. Under the

final rule, the provisions set forth in

paragraphs (c) and (d) are set forth as

minimum requirements with respect to

the aspects of the duty of loyalty

addressed in those paragraphs,

including the obligation to focus on

pecuniary factors when making

investment decisions. Thus, the final

rule does not revise the current

requirements that the fiduciary give

appropriate consideration to a number

of factors concerning the composition of

the plan portfolio with respect to

diversification, the liquidity and current

return of the portfolio relative to the

anticipated cash flow needs of the plan,

and the projected return of the portfolio

relative to the funding objectives of the

plan. Paragraph (b)(1) of the final rule

continues to provide that with regard to

the consideration of an investment or

investment course of action taken by a

fiduciary of an employee benefit plan

pursuant to the fiduciary’s investment

duties, the requirements of section

404(a)(1)(B) of the Act set forth in

paragraph (a) are satisfied if the

fiduciary (i) has given appropriate

consideration to those facts and

circumstances that, given the scope of

such fiduciary’s investment duties, the

fiduciary knows or should know are

relevant to the particular investment or

investment course of action involved,

including the role the investment or

investment course of action plays in that

portion of the plan’s investment

portfolio with respect to which the

fiduciary has investment duties, and (ii)

has acted accordingly.

Paragraph (b)(2) of the proposal

provided that for purposes of paragraph

(b)(1) of the proposal, ‘‘appropriate

consideration’’ shall include, but is not

necessarily limited to (i) a

determination by the fiduciary that the

particular investment or investment

course of action is reasonably designed,

as part of the portfolio (or, where

applicable, that portion of the plan

portfolio with respect to which the

fiduciary has investment duties), to

further the purposes of the plan, taking

into consideration the risk of loss and

the opportunity for gain (or other return)

associated with the investment or

investment course of action, and (ii)

consideration of the composition of the

portfolio with regard to diversification,

the liquidity and current return of the

portfolio relative to the anticipated cash

flow requirements of the plan, the

projected return of the portfolio relative

to the funding objectives of the plan as

those factors relate to such portion of

the portfolio, and how the investment or

investment course of action compares to

available alternative investments or

investment courses of action with regard

to those factors listed.

Paragraph (b)(2) of the proposal was

essentially the same as the provision in

the 1979 investment duties regulation

except for proposed paragraph

(b)(2)(ii)(D) which required the

consideration of how the investment or

investment course of action compares to

available alternative investments or

investment courses of action with regard

to those factors listed in paragraphs

(b)(2)(ii)(A) through (C). Thus, most

related comments concerned proposed

paragraph (b)(2)(ii)(D). Commenters

assert that this provision is unclear as to

extent of the requirement to evaluate

alternatives. In some cases, commenters

alleged, there may be no true alternative

to a particular investment, because the

opportunity is so unique. In other cases,

the opportunity may lapse if a thorough

undertaking of all alternatives is

pursued. In yet other situations, the

number of potential alternatives might

be so numerous that consideration of

every alternative is impossible. This

lack of clarity may give rise to

inappropriate second-guessing in which

questions are raised as to whether a

particular alternative (selected with the

benefit of hindsight) should have been

considered. Similarly, some

commenters complained that the

requirement does not necessarily take

into account the complexities involved

in defined benefit plan investment,

which varies, among other items, by

plan design, participant census, the

sponsor’s risk tolerance and a

company’s cash, and whether a

proposed investment adds litigation

risk. Commenters also argued the

proposed provision may be at odds with

the ERISA section 404(c) regulation

because it is unclear what ‘‘available

alternative investments’’ means in the

context of satisfying the 404(c)

regulation’s requirement to make

available at least three investment

alternatives meant to provide a broad-

based selection. Further, commenters

asked how to apply the obligation to

consider alternative investments applies

in situations where company stock is

purchased for a plan through a plan

provision that mandates such purchase.

Commenters were concerned that the

proposed rule provides no guidance as

to how the relevant alternatives would

be determined and how many of those

alternatives the fiduciary is to use in

performing the newly required

comparison. For example, one

commenter posited that the proposal

might be read to require a fiduciary

making a decision on a diversified stock

fund that falls within Morningstar’s

large cap growth category to compare

that investment to all of the

approximately 1,350 mutual funds

within that category. Some commenters

suggested that the Department should

tell fiduciaries exactly how to conduct

such an analysis to make the best

prospective decision. Some expressed

concern that the requirement opened

fiduciaries to ‘‘20/20 hindsight’’ legal

attacks by class action lawyers.

The Department notes that the

concept of comparing available

investment alternatives is not new.

Interpretive Bulletins on ESG and ETI

investing issued by the Department

expressed the view that facts and

circumstances relevant to an investment

or investment course of action would, in

the view of the Department, include

consideration of the expected return on

alternative investments with similar

risks available to the plan. Specifically,

the Department observed that, because

every investment necessarily causes a

plan to forego other investment

opportunities, an investment would not

be prudent if it were expected to

provide a plan with a lower rate of

return than available investment

alternatives with commensurate degrees

of risk, or were riskier than available

investment alternatives with

commensurate rates of return.

29

Such an

analysis is similar to that required by

paragraph (b)(2)(ii)(D) of the proposal.

As a result, the concept of comparing

investment opportunities as set forth in

paragraph (b)(2)(ii)(D) cannot fairly be

cast as new to the retirement investing

community.

Furthermore, the proposal was not

intended to require fiduciaries to ‘‘scour

the market’’ and incur search costs on

a practically infinite number of

potential portfolios, nor could such a

requirement be consistent with the duty

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30

See Hecker v. Deere & Co., 556 F.3d 575, 586

(7th Cir. 2009) (‘‘nothing in ERISA requires every

fiduciary to scour the market’’).

31

See 44 FR at 37223 (June 26, 1979).

32

For similar reasons, the final rule does not

carry forward the reference to the parallel exclusive

purpose provision in ERISA section 403 that was

in the proposal. The Department also concluded

that the final rule should continue the focus of the

current 404a–1 regulation on section 404 of ERISA.

Section 403(c) of ERISA provides in relevant part

that the assets of the plan shall never inure to the

benefit of any employer and shall be held for the

exclusive purpose for providing benefits to

participants in the plan and their beneficiaries and

defraying reasonable expenses of the plan.

Although similar, the text of ERISA section 403 is

not identical to section 404(a)(1)(A) of ERISA, and

the Department wanted to avoid any possible

inference that compliance with the provisions of

the final rule would also necessarily satisfy all the

provisions of section 403 of ERISA.

of prudence.

30

Rather, as the

Department noted when it issued the

404a–1 regulation in 1979, the

Department recognizes that a fiduciary

should be required neither to expend

unreasonable efforts in discharging his

duties, nor to consider matters outside

the scope of those duties. Accordingly,

the regulation requires fiduciaries to

give consideration to those facts and

circumstances which, taking into

account the scope of his investment

duties, the fiduciary knows or should

know are relevant to the particular

investment decision involved.

31

The

scope of the fiduciary’s inquiry in this

respect, therefore, is limited to those

facts and circumstances that a prudent

person having similar duties and

familiar with such matters would

consider relevant. That same principle

applies to consideration of alternative

investment opportunities.

Accordingly, the Department has

determined to keep the general concept

of paragraph (b)(2)(ii)(D) in the final

rule. However, we believe a better

approach than the proposal is one that

incorporates the concept in a way that

is consistent with the Department’s

prior IB statements and at the same time

addresses the requests of commenters

for guidance as to the extent of the

requirement to evaluate alternatives.

The Department added new language to

paragraph (b)(2)(i) to state that the

consideration of risk and loss and the

opportunity for gain (or other return)

associated with the investment or

investment courses of action should

take place ‘‘compared to the opportunity

for gain (or other return) associated with

reasonably available alternatives with

similar risks.’’ Under the final rule, a

fiduciary is required only to compare

alternatives that are reasonably available

under the circumstances. The

Department used the phrase ‘‘reasonably

available alternatives’’ not only to

confirm that the rule does not require

fiduciaries to scour the market or to

consider every possible alternative, but

also to allow for the possibility that the

characteristics and purposes served by a

given investment or investment course

of action may be sufficiently rare that a

fiduciary could prudently determine,

and document, that there were no other

reasonably available alternatives for

purpose of this comparison

requirement. As a result, paragraph

(b)(2) of the final rule provides that for

purposes of paragraph (b)(1),

‘‘appropriate consideration’’ shall

include, but is not necessarily limited to

(i) a determination by the fiduciary that

the particular investment or investment

course of action is reasonably designed,

as part of the portfolio (or, where

applicable, that portion of the plan

portfolio with respect to which the

fiduciary has investment duties), to

further the purposes of the plan, taking

into consideration the risk of loss and

the opportunity for gain (or other return)

associated with the investment or

investment course of action compared to

the opportunity for gain (or other return)

associated with reasonably available

alternatives with similar risks, and (ii)

consideration of the composition of the

portfolio with regard to diversification,

the liquidity and current return of the

portfolio relative to the anticipated cash

flow requirements of the plan, the

projected return of the portfolio relative

to the funding objectives of the plan as

those factors relate to such portion of

the portfolio, and how the investment or

investment course of action compares to

alternative investments or investment

courses of action that were considered

with regard to those factors listed.

With respect to the comments arguing

that ERISA section 404(a)(1)(A) is

purely a subjective motivation test, the

Department does not believe that is a

viable analytical approach and is

concerned that such an interpretation

would raise substantial feasibility

questions about the application and

enforcement of such a requirement.

Rather, while motivation is undeniably

a proper focus in applying a loyalty

requirement under which fiduciary

action must be based solely on the

interests of participants and

beneficiaries and for their ‘‘exclusive

benefit,’’ the Department believes that

establishing regulatory guideposts, like

the requirement to focus on pecuniary

factors in investment decision-making,

is an appropriate way to establish

objective criteria that help fiduciaries

understand how to comply with their

duty of loyalty in the context of

evaluating financial factors when

selecting investments or investment

courses of action.

Since the scope of paragraph (b) in the

final rule has been revised from the

proposal to encompass only the

obligations set forth in ERISA section

404(a)(1)(B), the proposal’s inclusion in

paragraph (b)(1)(iv) of a specific

prohibition on a fiduciary subordinating

the interests of participants and

beneficiaries to the fiduciary’s or

another’s interest is unnecessary. The

Department further agrees that it is not

necessary to have multiple provisions of

the final rule contain the prohibition on

‘‘not subordinating’’ the interests of

participants and beneficiaries. Thus, the

Department eliminated paragraph

(b)(1)(iv) of the proposal from the final

rule, and, as described below, revised

the final rule to address the

Department’s concerns regarding a focus

in fiduciary investment activity on

‘‘pecuniary factors’’ through a revised

provision in paragraph (c).

32

Paragraph (b)(3) of the final rule

merely moves what was paragraph (d) of

the proposal to this new position in the

regulatory text. This move was judged

appropriate because the paragraph

concerns compliance with the

immediately preceding regulatory text

of paragraphs (b)(1) and (2). Paragraph

(d) of the proposal repeated a paragraph

in the current 404a–1 regulation which

states that an investment manager

appointed pursuant to the provisions of

section 402(c)(3) of the Act to manage

all or part of the assets of a plan may,

for purposes of compliance with the

provisions of paragraphs (b)(1) and (2)

of the proposal, rely on, and act upon

the basis of, information pertaining to

the plan provided by or at the direction

of the appointing fiduciary, if such

information is provided for the stated

purpose of assisting the manager in the

performance of the manager’s

investment duties, and the manager

does not know and has no reason to

know that the information is incorrect.

This provision was originally part of the

1979 regulation, has remained

unchanged since then, and no

commenter suggested that the substance

of the provision be changed. Paragraph

(b)(3) of the final rule is essentially the

same as the parallel provision in the

original 1979 investment duties

regulation.

2. Section 2550.404a–1(c)(1)—

Consideration of Pecuniary Factors

Paragraph (c)(1) of the proposed rule

required that a fiduciary’s evaluation of

an investment be focused only on

pecuniary factors. The proposal

expressly provided that it is unlawful

for a fiduciary to sacrifice return or

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accept additional risk to promote a

public policy, political, or any other

non-pecuniary goal. Paragraph (c)(1)

also expressly acknowledged that ESG

factors and other similar considerations

may be pecuniary factors and economic

considerations, but only if they present

economic risks or opportunities that

qualified investment professionals

would treat as material economic

considerations under generally accepted

investment theories. The proposal

emphasized that such factors, if

determined to be pecuniary, must be

considered alongside other relevant

economic factors to evaluate the risk

and return profiles of alternative

investments. The proposal further

provided that the weight given to

pecuniary ESG factors should reflect a

prudent assessment of their impact on

risk and return—that is, they cannot be

disproportionately weighted. The

proposal also emphasized that

fiduciaries’ consideration of ESG factors

must be focused on their potential

pecuniary elements by requiring

fiduciaries to examine the level of

diversification, degree of liquidity, and

the potential risk-return profile of the

investment in comparison with

available alternative investments that

would play a similar role in their plans’

portfolios.

A number of commenters offered

nearly unqualified support for the rule,

and endorsed the Department’s efforts

in moving forward with the proposal.

Although some commenters expressed

concern that the rule was complex and

posited possible attendant compliance

costs and uncertain legal liabilities, they

deemed these costs justified by the

protections offered by the proposal.

Commenters also shared the concern of

the Department that the growing

emphasis on ESG investing may be

prompting ERISA plan fiduciaries to

make investment decisions for purposes

distinct from providing benefits to

participants and beneficiaries and

defraying reasonable expenses of

administering the plan. They agreed that

the proposal was designed to make clear

that ERISA plan fiduciaries may not

invest in ESG vehicles when they

understand an underlying investment

strategy of the vehicle is to subordinate

return or increase risk for the purpose

of non-pecuniary objectives. They stated

that investments should be made based

on an evaluation of whether the

investments will improve the financial

performance of the plan. Other

commenters stated that while they

support individual investors’ ability to

pursue ESG investments that align with

their values, they support the proposal’s

focus on decisions made by ERISA

fiduciaries on plan participants’ behalf,

where enhancing financial returns is the

overriding legal obligation of ERISA

plan fiduciaries when making

investment decisions. Some

commenters supported the proposal’s

acknowledgement that ESG factors and

other similar considerations may be

economic considerations and the

proposal’s guidance to fiduciaries

regarding how to consider pecuniary

ESG factors when contemplating an

investment decision, such as the

importance of understanding the

‘‘economic risks or opportunities’’

attached to such considerations and

appropriately weighing pecuniary ESG

factors based on ‘‘a prudent assessment

of their impact on risk and return’’

alongside other relevant economic

factors necessary to make an investment

decision. These commenters said that

the proposed regulation would protect

plan participants by ensuring that

ERISA fiduciaries are making reasoned

investment decisions based on all

material information, including

pecuniary ESG factors, available to

them. Other commenters shared DOL’s

concern that the growing emphasis on

ESG investing may be prompting

fiduciaries to make investment

decisions for reasons other than

maximizing return to beneficiaries.

Some commenters asserted that some

ESG-focused funds have a stated goal of

subordinating investor return or

increasing investor risk for the purpose

of achieving political or social

objectives, citing ESG funds’ disclosures

that the commenters said highlighted

the potential for reduced returns,

increased risks, and heightened fees in

service of social goals. These

commenters asserted that the proposed

rule clarifies that ERISA plan fiduciaries

may not invest in ESG funds when the

investment strategy of the fund

subordinates return or takes on

additional investment risk or costs for

purposes of non-pecuniary objectives.

Many commenters, however,

expressed concern that the Department

did not classify ESG as material

financial factors that should be

considered by fiduciaries in their

investment evaluation and decision-

making. They pointed to evidence and

research that they asserted makes clear

that ESG factors are material economic

considerations that must be integrated

into fiduciary investment decisions.

Some commenters asserted that ESG

integration has been evolving and

growing for decades primarily to help

manage investment risks and to provide

a proxy for management quality, which,

they argued, were both pecuniary

factors. Other commenters stated that

the proposed rule appeared to be based

on a presumption that ESG funds

commonly select portfolio constituents

based on ‘‘non-pecuniary’’ factors,

without regard to risk and return. These

commenters stated that they were not

aware of any fund managers that select

portfolio constituents without regard to

financial performance, or risk and

return.

Some commenters acknowledged that

the proposal expressly provided that

ESG factors and other similar

considerations may be pecuniary factors

and economic considerations, but

argued that, if the purpose of the rule is

to establish a clear distinction between

ESG used for risk-return assessment and

ESG used for collateral benefits (e.g.

ESG investing for moral or ethical

reasons or to benefit a third party), the

Department should better define ESG

risk-return factors to more clearly

distinguish between the permissible and

impermissible uses thereof, which are

the heart of this issue. Some

commenters similarly argued that the

proposal would cause confusion

because of its failure to distinguish ESG

integration and economically targeted

investing. ESG integration, the

commenters assert, is the consideration

of ESG factors as part of prudent risk

management and a strategy to take

investment actions aimed at responding

to those risks, whereas economically

targeted investing, by comparison, is

investing with the aim to provide

financial as well as collateral, non-

financial benefits. These commenters

argued that the proposal is aimed at

ETIs and problems associated with ETIs

rather than ESG integration into the

risk-return analysis of investments, and

raised concerns that the lack of a clearer

distinction between the two in the

proposal will discourage proper ESG

risk-return integration. Another

commenter raised a similar concern, but

in the specific context of selecting

investment funds for individual account

plans, by asking that the Department

distinguish between ESG-themed

investment funds, where the primary

investment strategy or principal purpose

is to promote impermissible collateral

benefits, and those investment funds

that are not primarily focused on ESG

factors, but instead use one or more ESG

factors as part of their overall

investment analysis.

Some commenters asserted that

instead of providing the needed

flexibility to consider all material

factors, the proposal would

unnecessarily limit the discretion of the

fiduciary to determine that ESG factors

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33

Government Accountability Office Report No.

18–398, Retirement Plan Investing: Clearer

Information on Consideration of Environmental,

Social, and Governance Factors Would Be Helpful

(2018).

may have a ‘‘material effect on the

return and risk of an investment’’ by

requiring ‘‘qualified investment

professionals’’ to treat the factor as

material economic considerations under

generally accepted investment theories.

They argued that the proposal, although

based on generally accepted investment

theories which by definition include

changes to reflect an evolving financial

marketplace, would still place restraints

on the discretion fiduciaries need to

adjust their investment practices to keep

pace with the constantly changing

investment landscape and emerging

theories that develop alongside. For

example, some commenters stated that

the Department should avoid a

regulatory structure that would require

the Department and plan fiduciaries to

referee references to ‘‘qualified

investment professionals,’’ ‘‘material,’’

and ‘‘generally accepted investment

theories.’’ The commenters expressed

concern that those terms invite

subjective interpretations. One

commenter expressed concern that some

parties will likely attempt to undermine

the rule’s intent with claims that ESG-

focused investing is already ‘‘generally

accepted.’’ Other commenters argued

that the proposal creates a heightened

level of scrutiny for investments that

involve ESG-integration that do not

apply to any other type of investment.

Many commenters stated that EBSA

ignored academic and financial studies

and papers showing that more

sustainable companies and funds do not

sacrifice performance compared with

less sustainable peers, and in fact are

somewhat more likely to outperform

than to underperform. They cite, for

example, a 2018 Government

Accountability Office study that

concluded the majority of asset

managers interviewed found that

incorporating ESG factors enhanced

retirement plans’ risk management.

33

The GAO also noted more than half of

the asset managers interviewed were

‘‘incorporating ESG factors to improve

the long-term performance of retirement

plan portfolios.’’ Another commenter

cited a study saying that sustainable

funds provided returns in line with

comparable traditional funds while

reducing downside risk. During a period

of extreme volatility, the commenters

assert that they saw strong statistical

evidence that sustainable funds are

more stable. A 2015 Harvard Business

School paper found that firms with

strong ratings on material sustainability

issues have better future performance

than firms with inferior ratings on the

same issues. In contrast, firms with

strong ratings on immaterial issues do

not outperform. Some commenters

stated that numerous sophisticated

investors have indicated that their ESG

investments, social benefits

notwithstanding, are fundamentally

driven by expected financial returns,

including considerations regarding long-

term value, opportunity, and risk, and

cited studies indicating that an ESG

perspective can improve performance,

including studies that purport to show,

according to the commenters, that ESG-

focused indexes have matched or

exceeded returns of their standard

counterparts, with comparable

volatility. They also cited studies

purporting to show that investors who

screened for ESG factors could have

avoided 90 percent of S&P 500

bankruptcies from 2005 to 2015 and that

S&P 500 companies in the top 25

percent by ESG ratings experienced

lower future earnings-per-share

volatility than those in the bottom 25

percent. A commenter observed, in its

view, that there was better risk-adjusted

performance across ‘‘sustainable’’

products globally under recent market

stress (including severe turmoil in the

first quarter of 2020).

Representatives of the multiemployer

plan community commented on the

proposal’s provisions requiring that the

focus of fiduciaries when making

investment decisions must be on

pecuniary interests of the plan, and

requested that the Department add a

particular consideration within the

meaning of ‘‘pecuniary’’ factor.

According to these commenters, the

proposal failed to consider and

distinguish between the different types

of defined benefit pension plans and

how relevant pecuniary factors might

differ between different types of ERISA

plans. They asserted that there are

several differences between

multiemployer and single employer

defined benefit pension plans relevant

for purposes of this regulation: The

source and nature of plan contributions;

the pecuniary impact of contributions

on the plan, its participants, and

beneficiaries; and the consequent ability

of the plan to make investments that

advance, promote, and support the

pecuniary interests of the plan, its

participants, and beneficiaries through

plan contributions. These commenters

argued that, unlike single employer

plans, multiemployer plans have a

significant track record of being able to

make investments that earn competitive

risk-adjusted returns and that directly

put plan participants to work, thereby

generating new contributions to the

plan. According to these commenters, if

a given investment results in a pension

fund receiving additional contributions,

such contributions are as much a

pecuniary factor as any gain or loss on

the investment. Some commenters made

a similar point with respect to defined

contribution plans. They asserted that

increased participation and

contributions should be recognized as

pecuniary factors for defined

contribution plans and pointed to

surveys demonstrating that including

ESG investment alternatives has a

positive effect on employees’ interest in

participating in and contributing to

retirement savings plans.

Some commenters questioned the

proposal’s requirement to consider only

pecuniary factors when ERISA

investment fiduciaries routinely

consider non-pecuniary interests as part

of their fiduciary process. They argued,

for example, that ERISA specifically

provides for plan investments in

qualifying employer securities. In the

case of employee stock ownership plans

(ESOPs), they noted that such plans are

designed for investment primarily in

employer securities. They said that the

proposal conflicted with statutory

authorization to invest in employer

securities by requiring plan fiduciaries

to justify the inclusion of company

stock based solely on ‘‘pecuniary’’

factors and by comparison to ‘‘available

alternative investments or investment

courses of action.’’ Other commenters

suggested that the proposal’s focus on

risk-return features of an investment or

investment course of action would

likely have unintended consequences

on many common, accepted, and

generally beneficial practices by

rendering them suspect, such as the use

of proprietary products, fee sharing, and

fee aggregation. Some comments

contended that investment managers

and fiduciaries routinely take into

consideration a variety of factors that do

not necessarily have a ‘‘material effect

on the risk and/or return’’ of a particular

investment. They cited, for example,

that a plan committee may consider a

fund manager’s brand or reputation

when determining whether to include

that fund in the plan’s menu. A

fiduciary might account for operational

considerations when selecting one

investment fund over another, where

those operational considerations may

have a bearing on the fees borne by

participants or the smooth operation of

the plan. A fiduciary also might decide

to choose an investment regulated in

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34

See Lockheed Corp. v. Spink, 517 U.S. 882

(1996); Hughes Aircraft Co. v. Jacobsen, 525 U.S.

432 (1999). See also Advisory Opinion 2011–05A

(noting that a fiduciary decision to use plan assets

to add a wellness benefit to plan benefits under

existing, supplemental or new insurance policies or

contracts would not violate ERISA because the

employer sponsoring the plan may receive

incidental benefits, such as lower plan costs, as a

result of the wellness benefits being added to the

plan).

one legal regime over another because of

the protection the fiduciary believes the

particular regulatory regime offers, or it

might find the disclosures produced by

one investment provider easier for

participants to understand. Another

commenter noted that reasonable and

necessary plan administrative expenses

are commonly offset with payments or

credits attributable to the plan’s

investment options, and asked whether

the focus on risk-return characteristics

would prohibit a fiduciary from

considering the administrative fee offset

the plan would receive when selecting

an investment option. Some

commenters expressed concern that the

proposal also could encourage litigation

by having the plaintiffs’ bar second-

guess whether a decision is solely for

the financial benefit of participants and

beneficiaries based on incidental

benefits that may accrue to plan

fiduciaries (even though case law and

Departmental guidance have approved

such benefits if they are merely

incidental and flow from a fiduciary

decision that satisfies ERISA’s prudence

and loyalty requirements).

34

One of

these commenters also expressed

concern about such litigation alleging

that the selection of one investment over

another sacrificed investment returns

even if the decision was justified by the

use of revenue sharing to obtain lower

administrative fees.

Some commenters argued that the

Department’s focus on risk and return

was not an appropriate approach for

addressing ESG considerations in

decisions regarding management of plan

investments. They argued that given the

critical importance of overall market

return, and the danger to that return

from company activities that damage

social and environmental systems, plan

beneficiaries need protection from

individual companies that focus on

their own performance in ways that

damage overall market return.

Commenters argued that in order to

protect the interest of plans and

beneficiaries, plan fiduciaries must

consider whether they can effectively

engage with companies to limit or

eliminate conduct that threatens the

social and economic systems that

diversified portfolios rely on over the

long term. They argued that fiduciary

investors must focus on and prioritize

outcomes at the economy or society-

wide scale, or ‘‘beta’’ issues such as

climate change and corruption, not just

on the risks and returns of individual

holdings. They contended that fiduciary

investment duties must prioritize the

long-term, absolute returns for

‘‘universal owners,’’ and that collective

investor action to manage social and

environmental systems is needed in

order to satisfy the fiduciary duties of

investment trustees.

One commenter suggested that the

definition of ‘‘pecuniary factor’’ was too

narrow and recommended modifying it

to mean a factor that could reasonably

be expected to have a material effect on

the risk and/or return of an investment

based on appropriate investment

horizons consistent with the plan’s

investment objectives and the funding

policy established pursuant to section

402(b)(1) of ERISA.

Still another commenter suggested

that ‘‘appropriate investment horizon’’

be better defined in the definition of

‘‘pecuniary factor’’ to ensure that the

long-term horizons for certain policy

objectives are not substituted for those

relating to the time-horizon of retirees.

As the Department explained in the

proposal, it is the long-established view

of the Department that ERISA

fiduciaries must always put first the

economic interests of the plan in

providing retirement benefits. A

fiduciary’s evaluation of the economics

of an investment should be focused on

financial factors that have a material

effect on the return and risk of an

investment based on appropriate

investment horizons consistent with the

plan’s articulated funding and

investment objectives. In the preamble

to the proposal, the Department

recognized that there could be instances

when ESG issues present material

business risk or opportunities to

companies that company officers and

directors need to manage as part of the

company’s business plan and that

qualified investment professionals

would treat as economic considerations

under generally accepted investment

theories. In such situations, these issues

are themselves appropriate economic

considerations, and thus should be

considered by a prudent fiduciary along

with other relevant economic factors to

evaluate the risk and return profiles of

alternative investments. The proposal

even provided additional guidance as to

when it was appropriate to consider

ESG matters as pecuniary factors in

making investment decisions. Thus, the

proposal fundamentally accepted, rather

than ignored as claimed by some

commenters, the economic literature

and fiduciary investment experience

that showed ESG considerations may

present issues of material business risk

or opportunities to companies that

company officers and directors need to

manage as part of the company’s

business plan and that qualified

investment professionals would treat as

economic considerations under

generally accepted investment theories.

Rather, the proposal sought to make

clear that, from a fiduciary perspective,

the relevant question is not whether a

factor under consideration is ‘‘ESG’’, but

whether it is a pecuniary factor relevant

to an evaluation of the investment or

investment course of action under

consideration. Nonetheless, the

Department is persuaded by its review

of the public comments that ‘‘ESG’’

terminology, although used in common

parlance when discussing investments

and investment strategies, is not a clear

or helpful lexicon for a regulatory

standard. As one commenter put it,

‘‘‘ESG investing’ resists precise

definition.’’ Rather, ‘‘[r]oughly speaking,

it is an umbrella term that refers to an

investment strategy that emphasizes a

firm’s governance structure or the

environmental or social impacts of the

firm’s products or practices.’’ The

Department agrees that ESG terminology

suffers from two distinct shortcomings

as a regulatory standard. First, as the

Department noted in the proposal, and

many commenters agreed, various other

terms have been used to describe this

and related investment behaviors, such

as socially responsible investing,

sustainable and responsible investing,

impact investing, and economically

targeted investing. Moreover, the terms

do not have a uniform meaning and the

terminology is evolving, and the non-

pecuniary goals being advocated today

may not be the same as those advocated

in future years. Second, by conflating

unrelated environmental, social, and

corporate governance factors into a

single term, ESG invites a less than

appropriately rigorous analytical

approach in evaluating whether any

given E, S, or G consideration presents

a material business risk or opportunity

to a company that corporate officers and

directors should manage as part of the

company’s business plan and that

qualified investment professionals

would treat as economic considerations

in evaluating an investment in that

company. The Department also believes

that adopting ESG terminology in an

investment duties regulation invites the

arguments, made by some commenters,

that all manner of ESG considerations

are always and in every case a

pecuniary factor that must be

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See, e.g., James MacKintosh, A User’s Guide to

the ESG Confusion, Wall Street Journal (Nov. 12,

2019), www.wsj.com/articles/a-users-guide-to-the-

esg-confusion-11573563604 (‘‘It’s hard to move in

the world of investment without being bombarded

by sales pitches for running money based on

‘ESG’’’); Mark Miller, Bit by Bit, Socially Conscious

Investors Are Influencing 401(k)’s, New York Times

(Sept. 27, 2019), www.nytimes.com/2019/09/27/

business/esg-401k-investing-retirement.html.

36

The language in proposed (b)(1)(iii) referred to

‘‘unrelated objectives,’’ rather than ‘‘other

objectives.’’ The Department has used ‘‘unrelated

objectives’’ in previous sub-regulatory guidance.

However, that language could be misconstrued as

providing a loophole to allow fiduciaries to

consider and to subordinate participants and

beneficiaries’ financial interests to objectives that

are in any way related to the interests of

participants and beneficiaries in their retirement

income or financial benefits under the plan. It was

not the Department’s intent—and nor would it be

consistent with ERISA—to allow fiduciaries to

subordinate the interests of participants and

beneficiaries in their retirement income or financial

benefits under the plan to any other objective, and

the Department has revised the language used in the

final rule text to ensure that it is not misconstrued.

considered as such in all investment

decisions, or even that ESG should be a

mandatory investment strategy for

prudent fiduciaries. Such positions are

inconsistent with the Department’s

considered view and sound policy.

Thus, the final rule removes all ESG

terminology from the proposed

regulatory text. The Department

anticipates that when a fiduciary is

faced with a purported ESG factor in an

investment, the regulatory requirement

will be clearer and more consistent if it

demands that fiduciaries focus on

providing participants with the

financial benefits promised under the

plan and focus on whether a factor is

pecuniary, rather than being required to

navigate imprecise and ambiguous ESG

terminology. The ERISA fiduciary duty

of prudence requires portfolio-level

attention to risk and return objectives

reasonably suited to the purpose of the

account, diversification, cost-sensitivity,

documentation, and ongoing

monitoring. The proposal was not

intended to suggest that these principles

apply other than neutrally to all

investment decisions by a trustee or

other fiduciary, whether in the context

of a direct investment or menu

construction in an individual account

plan. For similar reasons, the

Department declines to follow

suggestions from some commenters that

ESG factors are necessarily pecuniary

and that the Department should

specifically mandate that fiduciaries

consider ESG factors as part of their

investment duties.

At the time of the investment

decision, fiduciaries should be focused

on whether or not any given factor

would materially affect the risk and/or

return of the investment over an

appropriate time horizon. The intent of

the proposal was to address the

Department’s continued concern about

the growing emphasis on ESG investing

that seeks to achieve non-pecuniary

objectives or goals that are unrelated to

the interests of the plan’s participants

and beneficiaries in their retirement

income or financial benefits under the

plan, and the consequence that ERISA

plan fiduciaries may be prompted to

make investment decisions for purposes

distinct from providing benefits to

participants and beneficiaries and

defraying reasonable expenses of

administering the plan. Thus, the

proposal was intended to ensure that

ERISA fiduciaries comply with their

investment duties in a consistent and

appropriate fashion in the face of ESG-

driven market developments.

35

The

Department believes that the generally

applicable prudence requirements in

paragraph (a) of the final rule, together

with a requirement in paragraphs (c)

and (d) of the final rule demanding a

focus on pecuniary factors and the

definition of pecuniary factors in

paragraph (f), are sufficient to establish

an appropriate regulatory standard in

this context.

As a result, paragraph (c)(1) of the

final rule retains the requirement in the

proposal that fiduciary evaluation of an

investment must be focused only on

pecuniary factors. As in the proposal,

the final rule’s paragraph (c)(1) is a legal

requirement and not a safe harbor. The

final rule also retains the text from the

proposal that expressly states that plan

fiduciaries are not permitted to sacrifice

investment return or take on additional

investment risk to promote non-

pecuniary benefits or any other non-

pecuniary goals, but has been revised to

include text from proposed paragraph

(b)(1)(iii), modified slightly, that a

fiduciary may not subordinate the

interests of the participants and

beneficiaries in their retirement income

or financial benefits under the plan to

other objectives. Even commenters that

opposed the Department’s proposal

generally agreed that such a provision

appropriately described a fiduciary’s

duty of loyalty under ERISA.

36

With respect to the provisions of

paragraph (c) of the proposal that would

have separately required compliance

with prudence obligations set forth in

paragraph (b) (e.g., that the weight given

to any particular pecuniary factors

should appropriately reflect a prudent

assessment of their impact on risk and

return, and that fiduciaries considering

pecuniary factors examine the level of

diversification, degree of liquidity, and

the potential risk-return in comparison

with other available alternative

investments that would play a similar

role in their plans’ portfolios), the

Department agrees with the observation

of one commenter that identifying these

requirements separately in paragraph

(c)(1) and tying them to regulatory text

about ‘‘environmental, social, corporate

governance, or other similarly oriented

factors’’ could be misconstrued as

applying these general prudence criteria

in some unique (or at least more

rigorous) fashion to ESG and ‘‘other

similarly oriented’’ investment

strategies. Accordingly, in order to

avoid redundant and potentially

confusing regulatory requirements, the

specific provisions on those obligations

that were in paragraph (c) of the

proposal have been eliminated from

paragraph (c) of the final rule and

replaced with a more general

requirement that the weight given to any

pecuniary factor by a fiduciary should

appropriately reflect a prudent

assessment of its impact on risk and

return. As modified, this provision will

provide fiduciaries the necessary

flexibility to evaluate and consider the

particular pecuniary factors relevant to

a specific investment or investment

course of action, while focusing

paragraph (c) on the principal objective

of adding to the regulation an express

provision that the duty of fiduciaries is

to act with an eye single toward

furthering participants’ ‘‘financial’’

rather than ‘‘nonpecuniary’’ benefits.

Further, the Department did not

intend the reference to ‘‘generally

accepted investment theories’’ to

foreclose ERISA fiduciaries from

considering emerging theories regarding

prudent investment practices or

otherwise freeze investment practice as

of the date of the rule. Rather, the intent

was to establish a regulatory guardrail

against situations in which plan

investment fiduciaries might be inclined

to use, as one example, policy-based

metrics in their assessment of the

pecuniary value of an investment or

investment plan that are inherently

biased toward inappropriate

overestimations of the pecuniary value

of policy-infused investment criteria.

The Department intended to

communicate the idea that the fiduciary

is required to have a soundly reasoned

and supported investment decision or

strategy to satisfy the ERISA prudence

requirement. However, the Department

has decided not to include this

provision in the final rule, but rather to

rely on the definition of pecuniary

factor as the governor for investment

decisions without specifically

constraining the criteria that a fiduciary

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37

See Letter to Eugene A. Ludwig from Olena

Berg (March 21, 1996), and also Advisory Opinions

2002–14A and 2006–08A; and Letter to J. Mark Iwry

(Oct. 23, 2014).

could consider in making a prudent

judgment. Although not retained as

express regulatory text in the final rule,

the Department believes that it would be

consistent with ERISA and the final rule

for a fiduciary to treat a given factor or

consideration as pecuniary if it presents

economic risks or opportunities that

qualified investment professionals

would treat as material economic

considerations under generally accepted

investment theories. In this regard, it is

based on the essence of the 1979

investment duties regulation, the

conditions of which basically require

the judgment of a prudent expert—and

if the decision maker does not have the

expertise himself, he should consult

such an expert. For example, in a 1996

letter to Eugene Ludwig, Comptroller of

the Currency, regarding the ERISA duty

of prudence in the context of an

evaluation of the prudence of derivative

investments, the Department stated that

among other things, the fiduciary

should determine whether it possesses

the requisite expertise, knowledge, and

information to understand and analyze

the nature of the risks and potential

returns involved in a particular

derivative investment. The letter

pointed out that the fiduciary must

determine whether the plan has

adequate information and risk

management systems in place given the

nature, size, and complexity of the

plan’s investment activity, and whether

the plan fiduciary has personnel who

are competent to manage those

systems.

37

The Department also did not intend

that the provision be read, as some

commenters did, as a limitation on the

ability of ERISA fiduciaries to consider

all relevant factors in evaluating

whether factors may have a ‘‘material

effect on the return and risk of an

investment.’’ Rather, when comparing

investment or investment courses of

action, including selection of designated

investment alternatives in the case of

participant-directed individual account

plans, a fiduciary satisfies its obligations

under paragraph (c)(1) by evaluating

factors that are expected to result in a

material difference among reasonably

available alternatives with respect to

risk and/or return. Thus, the final rule

neither specifically prohibits nor

permits the use of proprietary products,

fee sharing, and fee aggregation, but

requires the fiduciary to evaluate

whether such practices are expected to

have a material effect on risk and/or

return as compared to the reasonably

available alternatives. If a fiduciary were

to prudently conclude that a fund

manager’s brand or reputation will

materially affect the expected risk and/

or return as funds, then such factors

would be pecuniary. Similarly, to the

extent that the net expenses incurred by

the plan, such as for plan administration

or to develop disclosures that are easier

for participants to understand, are

expected to materially affect the risk

and return of one alternative as

compared to another, such factors

would be considered pecuniary. Finally,

in response to some commenters, the

Department did not intend to imply in

the proposal that, in evaluating

investments or investment courses of

action, a fiduciary must always select

the one with the lowest cost. Depending

on the facts and circumstances, a

fiduciary may conclude that a particular

investment or investment course of

action is prudent even though it entails

higher risk or cost.

The Department, however, cautions

fiduciaries against too hastily

concluding that ESG-themed funds may

be selected based on pecuniary factors

or are not distinguishable based on

pecuniary factors, thereby triggering the

tie-breaking provision of paragraph

(c)(2) of the final rule. A number of

commenters touted the performance of

ESG-themed funds for selected time

periods, particularly after the

widespread COVID–19 outbreak, as

compared to more conventional

alternatives. However, questions have

been raised as to whether such

performance was caused by a particular

ESG strategy or merely correlated with

broader economic trends unrelated to a

specific ESG factor. The Department

observes that many ESG-themed funds

have been over-weighted in technology

and underweighted in energy as

compared to more conventional

alternatives, which has affected certain

funds’ returns in recent periods.

Technology assets performed relatively

better during the recent pandemic,

while energy markets that were already

in turmoil from global excess supply

declined further due to widespread

decrease in demand, including due to

reductions in travel. This difference in

portfolio composition can affect the

level of risk associated with the

corresponding return and a fiduciary

would need to prudently balance such

considerations when comparing

alternatives.

In response to the commenter who

suggested that the definition of

‘‘pecuniary factor’’ should be modified

to include a ‘‘reasonably be expected’’

provision, the Department has revised

the definition to mean a factor that a

fiduciary prudently determines is

expected to have a material effect on

risk and/or return of an investment

based on appropriate investment

horizons consistent with the plan’s

investment objectives and the funding

policy established pursuant to section

402(b)(1) of ERISA. The Department

believes that a prudent determination

incorporates a reasonableness standard

of care, but has revised the definition to

use terminology that is more consistent

with the statutory language of ERISA

section 404(a)(1)(B), which includes

more than reasonableness. Thus, the

final rule recognizes that the nature of

the fiduciary investment judgments will

necessarily involve forward-looking

expectations when evaluating

investment alternatives and strategies.

The Department is also retaining the

concept of materiality in the definition

of ‘‘pecuniary factor’’ as it believes that

fiduciaries and investment managers are

generally familiar with that concept

from its use in connection with both

ERISA and the Federal securities laws.

With respect to the consideration of

how the final rule and its emphasis on

pecuniary factors would influence the

selection of company stock for a plan,

the Department notes first that

commenters should not have concern on

this issue. The basic ERISA principles

governing fiduciaries have coexisted

with the use of ESOPs for many years,

and this rule does not disturb them.

This rule is focused on principles of

pecuniary and nonpecuniary investing

in the broader marketplace. This rule

does not have as one of its objectives

any changes to the long-established use

of ESOPs by companies that wish to do

so.

Second and relatedly, the Department

recognizes that ESOPs are typically set

in most respects by the employer’s

settlor function, and further that they

are congressionally sanctioned under a

particularized statutory framework

compatible with this rule. Most

acquisitions of company stock and use

of company stock funds in individual

account plans are directed by the plan

or instruments governing the plan.

Investments in qualifying employer

securities are explicitly authorized by

statutory provisions in ERISA, and

subject to specific statutory conditions

that Congress enacted as elements of

Federal employee benefits law. For

example, there are specific provisions

for employer securities in the

requirements under ERISA section

101(i) related to notice of blackout

periods to participants or beneficiaries

under individual account plans. Section

101(m) includes special disclosure rules

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38

Dudenhoeffer, 573 U.S. at 418–419.

39

The Department has taken the position that

there is a class of activities that relate to the

formation, rather than the management, of plans.

These activities, generally referred to as settlor

functions, include decisions relating to the

formation, design, and termination of plans and,

except in the context of multi-employer plans,

generally are not activities subject to Title I of

ERISA. As such, decisions that are settlor functions

would not be subject to the final rule provisions

that govern fiduciary investment duties. The

Department notes, however, that actions taken to

implement settlor decisions may involve fiduciary

activities, and, to the extent those activities involve

fiduciary investment decisions, they would be

subject to the provisions of this final rule. See

Advisory Opinion 2001–01A; Advisory Opinion

97–03A; Letters to Kirk Maldonado from Elliot

Daniel (March 2, 1987); and Letter to John

Erlenborn from Dennis Kass (March 13, 1986).

40

See, e.g., DOL Inf. Ltr to George Cox (Jan. 16,

1981); DOL Adv. Op. to Theodore Groom (Jan. 16,

1981); DOL Adv. Op. to Daniel O’Sullivan, Union

Labor Life Ins. Co (Aug. 2, 1982); DOL Adv. Op to

James Ray, Union Labor Life Ins. Co. (July 8, 1988);

DOL Inf. Ltr. to Stuart Cohen, General Motors Corp..

(May 14, 1993).

41

See, e.g., DOL Inf. Ltr. to Ralph Katz (March 15,

1982) (‘‘A decision to make an investment may not

be influenced by a desire to stimulate the

construction industry and generate employment,

unless the investment, when judged solely on the

basis of its economic value to the plan, would be

equal or superior to alternative investments

available to the plan.’’).

42

See also supra at 83–84.

for individual account plans on the right

to divest employer securities with

respect to any type of contribution.

Section 105 on individual benefit

statements requires individual account

plans to include an explanation, written

in a manner calculated to be understood

by the average plan participant, of the

importance, for the long-term retirement

security of participants and

beneficiaries, of a well-balanced and

diversified investment portfolio,

including a statement of the risk that

holding more than 20 percent of a

portfolio in the security of one entity

(such as employer securities) may not be

adequately diversified. Section 204(j) of

ERISA includes special diversification

requirements for certain individual

account plans governing investments in

employer securities. ERISA sections

404(a)(2) and 407 provide specific rules

for the application of ERISA’s

diversification requirements to the

acquisition of ‘‘qualifying employer

securities.’’ The U.S. Supreme Court has

concluded that there is no special

presumption of prudence under ERISA

favoring ESOP fiduciaries, stating that

‘‘the same standard of prudence applies

to all ERISA fiduciaries, including ESOP

fiduciaries, except that an ESOP

fiduciary is under no duty to diversify

the ESOP’s holdings.’’

38

Similarly, the

duties of prudence and loyalty set forth

in this regulation apply in the context

of the pertinent provisions of ERISA. In

short, the statutory provisions in ERISA,

and others in the Internal Revenue

Code, make clear that plan fiduciaries

are permitted to invest in employer

securities following the direction of a

plan document with respect to

acquisitions or holding of employer

stock,

39

provided the fiduciary satisfies

the applicable conditions in the statute,

and acts prudently and loyally.

With respect to the comments by the

multiemployer plan community

requesting that the Department adjust its

definition of pecuniary factor to include

increased contributions to plans as a

result of investments, the Department

has previously addressed this and

similar issues in a number of advisory

opinions and information letters.

40

Specifically, the Department has

repeatedly explained that increased

plan contributions and similar factors

are not economic factors, but that they

are the type of non-economic factor that

may be considered where a fiduciary is

permitted to make an investment

decision on the basis of a non-pecuniary

factor.

41

Increasing plan contributions

and similar factors do not assist a

fiduciary in determining the expected

return on or riskiness of an investment,

as plan contributions do not constitute

a ‘‘return’’ on investment.

The Department’s position on this

issue has not changed and as a result we

disagree with these commenters. The

potential for increased contributions to

a plan as a result of an investment is not

a pecuniary factor associated with the

return on a particular investment. Nor

may increased contributions be

considered a return on an investment. In

terms of determining what is or is not

a pecuniary factor, the relevant

performance to be measured is that of

the investment in question, not future

plan contributions. The purpose of plan

investments under ERISA is to provide

and protect retirement benefits—not to

strengthen employers or unions or

provide job security. Under ERISA,

plans are to be operated solely in the

interest of participants and beneficiaries

as participants and beneficiaries, not in

some other role or capacity, such as

union members, employees, or members

of some other interest group. However,

the Department agrees—consistent with

the advisory opinions and information

letters referenced above—that an

objective to increase contributions or

respond to participant interest in

investment options for their retirement

savings are permissible factors to use in

the tie-breaker provisions in paragraph

(c)(2), discussed below, based on their

connection to the interests of the plan

and plan participants and beneficiaries.

Finally, the Department does not

agree with the position that ERISA

permits or requires plan fiduciaries to

premise investment decisions on the

idea that, as investors, they own a share

of the world economy, and, therefore,

that their financial interests demand

that they adapt their investment-related

actions to promote a theoretical benefit

to the world economy that might

redound, outside the plan, to the benefit

of the participants in the plan.

42

The

Department has acknowledged in the

proposal and in this final rule that

particular environmental or social

factors may present material and current

business risks or opportunities for

specific companies (and may be

reflected in potential market risk and

return). But the Department cannot

reconcile the approach described above

with the requirements of prudence and

loyalty under ERISA. On the contrary,

that approach and the potential

consequences of advocacy to plan

fiduciaries based on that approach is

one of the concerns that underlies this

final rule, and illustrates why the

Department considers the rule to be

warranted at this time. As the

Department has stated, it does not

ineluctably follow from the fact that an

investment promotes ESG factors, or

that it arguably promotes positive

general market trends or industry

growth, that the investment is a prudent

choice for retirement or other investors.

Rather, ERISA fiduciaries must always

put first the economic interests of the

plan in providing retirement benefits. A

fiduciary’s evaluation of the economics

of an investment should be focused on

financial factors that have a material

effect on the return and risk of an

investment based on appropriate

investment horizons consistent with the

plan’s articulated funding and

investment objectives.

3. Section 2550.404a–1(c)(2)—Choosing

Between or Among Investment

Alternatives That the Plan Fiduciary Is

Unable to Distinguish on the Basis of

Pecuniary Factors Alone

Prior to the proposal, the

Department’s interpretive guidance

provided that if, after an evaluation,

alternative investments appear

economically indistinguishable, a

fiduciary may then, in effect, ‘‘break the

tie’’ by relying on a non-pecuniary

factor. The proposal carried forward this

idea and paragraph (c)(2) of the proposal

was designed to guide application of the

‘‘all things being equal’’ test by

requiring fiduciaries to adequately

document any such occurrences. In the

preamble to the proposal, the

Department noted that there are highly

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43

See Schanzenbach & Sitkoff, supra note 5, at

410 (describing a hypothetical pair of truly identical

investments as a ‘‘unicorn’’).

44

See, e.g., Restatement (Third) of Trusts section

37 cmt. f(1) (2007) (‘‘especially careful scrutiny’’).

correlated investments and otherwise

very similar ones. The Department

observed that seldom, however, will an

ERISA fiduciary consider two

investment funds, looking only at

objective measures, and find the same

target risk-return profile or benchmark,

the same fee structure, the same

performance history, and the same

investment strategy, but a different

underlying asset composition. The

Department explained that, even then,

those two alternatives may function

differently in the overall context of the

fund portfolio and going forward may

perform differently based on external

economic trends and developments.

43

As a result, the Department expressed

concern that the ‘‘all things being equal’’

test could invite fiduciaries to find ties

without a proper analysis in order to

justify the use of non-pecuniary factors

in making an investment decision.

Nonetheless, because it appeared that

some form of ties may theoretically

occur, and the Department did not have

sufficient evidence to say they do not

occur in fact, the Department proposed

to retain a version of an ‘‘all things

being equal’’ test. However, in the

proposal, the Department specifically

requested comment on the tie-breaker

concept, whether true ties exist, and, if

they do, how fiduciaries may

appropriately break ties.

The Department also believed that

using non-pecuniary factors to choose

among investments merited closer

scrutiny. As one commenter noted, trust

fiduciary law recognizes that there are

circumstances, mainly in the context of

conditionally permitted conflicts of

interest, that call for enhanced scrutiny

of the substance of the fiduciary’s

decision.

44

The Department believes

that relying on non-pecuniary factors to

select among investments is a

circumstance that similarly warrants

some form of enhanced scrutiny. Thus,

paragraph (c)(2) of the proposal was

designed to guide application of the ‘‘all

things being equal’’ test by requiring

fiduciaries to adequately document any

such occurrences. If, under proposed

paragraph (c)(2) after completing an

appropriate evaluation, alternative

investments appear economically

indistinguishable, and one of the

investments is selected on the basis of

a non-pecuniary factor or factors such as

environmental, social, and corporate

governance considerations, the fiduciary

must document why pecuniary factors

were not sufficient to select the

investment or investment courses of

action, how the investment compares to

alternative investments with respect to

the factors listed in paragraphs

(b)(2)(ii)(A) through (C), and how the

non-pecuniary factor or factors was

chosen based upon the purposes of the

plan, the diversification of investments,

and the interests of the participants and

beneficiaries in receiving benefits from

the plan. The Department included the

documentation requirement to provide a

safeguard against the risk that

fiduciaries will improperly find

economic equivalence and make

decisions based on non-pecuniary

factors without a proper analysis and

evaluation.

Many commenters characterized

proposed paragraph (c)(2) of the

proposal as a new stricter ‘‘tie breaker’’

or ‘‘all things being equal test’’ that was

inappropriately rigid. One commenter

asserted that proposed paragraph (c)(2)

effectively required plan fiduciaries to

demonstrate that the chosen investment

was ‘‘outright superior’’ to the available

alternative investments. Many

commenters stated that the standard in

the Department’s interpretive guidance

was an easier standard to comply with

and required the comparison only of

investments of comparable financial

value. Some commenters stated that the

proposal appeared to require that the

alternatives under consideration have

‘‘the same target risk-return profile or

benchmark, the same fee structure, the

same performance history, same

investment strategy, [and that it not]

function differently in the overall

context of the fund portfolio, and [not]

perform differently based on external

economic trends and developments.’’ In

short, the commenters argued the prior

standard, which they said is best

characterized as functional equivalence,

was replaced with a new, more

restrictive economically identical

standard. These commenters asserted

that the impossibility of satisfying this

standard suggested that the

Department’s objective in designing the

provisions was to deter fiduciaries from

considering investments with non-

pecuniary benefits.

Some commenters argued that true

‘‘ties’’ of the sort envisioned in the

proposal do not exist because they read

the proposal as requiring investments to

have identical characteristics, not just

equivalent roles in the plan’s

investment portfolio. They argued that

such indistinguishability in liquid

markets is all but impossible. The risk

of any two assets, even if identical on

some risk metric, will nonetheless not

be perfectly correlated. Further, they

argued that breaking the tie is not the

correct response. Rather, if there is no

liquidity constraint and trading costs are

low, they assert that textbook financial

economics teaches that in the event of

two economically equivalent

investments so defined, the investor

should buy both of them and achieve

improved diversification.

Other commenters said that ‘‘ties’’ are

actually quite common in the

investment process and that for almost

every portfolio, there are some

economically indistinguishable

alternatives when viewed in terms of

the role the investments would play in

the plan’s portfolio. The commenters

argued that two or even several

investments’ expected overall economic

impact on a plan may be essentially the

same even if the investments’ risk-

return profile, fee structure,

performance history, and investment

strategy are not each literally identical.

Some mutual fund commenters

suggested that the proposal appears to

assume that evaluation of two

alternative investments based solely on

pecuniary factors can be reduced to a

single number. That assumption, they

asserted, underestimates the complexity

of portfolio construction.

Some commenters said that putting

the burden on the fiduciary to justify a

finding of economic equivalence that

would permit a non-pecuniary tie-

breaker is an appropriate policy

response. They claimed there is

considerable opportunity in the

assessment of investment alternatives

for those with an incentive to favor an

ESG plan to nudge the process so that

a slightly economically inferior ESG

investment could be considered

‘‘economically indistinguishable’’ from

a non-ESG alternative.

Other commenters argued that the tie-

breaker idea should be available to

fiduciaries when selecting investment

alternatives for defined contribution

plans. Those commenters argued that

applying the tie breaker test to

investment choices with the same

overall economic role and impacts in a

plan’s portfolio, within a reasonable

range of expected outcomes, rather than

only those that are identical in each and

every respect (except for asset

composition), would more appropriately

reflect the process by which ERISA

fiduciaries select plan investments.

Some commenters claimed that the

proposal was vague and nonspecific as

to what form the additional

documentation required under proposed

paragraph (c)(2) should take. Further,

the commenters asserted, prudent plan

fiduciaries already document their

decision-making process. Other

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commenters asserted that no other

Federal regulator mandates this much

documentation. One commenter noted

that there is no ESG documentation for

investment managers under the

Investment Advisers Act or the

Investment Company Act. The

commenter said the SEC Regulation Best

Interest provides significant flexibility

by leaving it largely up to individual

firms to determine how best to

memorialize decisions. Commenters

asserted that although the Department

explained in the preamble that the

documentation safeguards against

fiduciaries making decisions based on

non-pecuniary factors without proper

analysis or rigor, a lack of rigor is not

synonymous with a lack of writing and

does not explain why ESG factors are

treated differently than other investment

factors. Commenters also asserted that

the proposed rule’s documentation

requirement would effectively create a

unique and unwarranted presumption

against ESG investing that does not

apply to any other kind of investment.

Some commenters asserted that the

proposed rule if implemented would

add new costs and these new costs

would chill sponsors from considering

any investment incorporating ESG

factors, even if pecuniary and part of the

risk assessment of the investment. Some

commenters argued that paragraph (c)(2)

would result in additional

documentation burdens on plans that

did not actually rely on the tie-breaker

because fiduciaries would feel

compelled to document ESG risk-reward

integration as non-pecuniary collateral

consideration for strategies in order to

protect against second-guessing about

the fiduciary’s determination that the

ESG factor was properly treated as a

pecuniary factor. Some commenters

stated that by requiring the

documentation the proposed regulation

would invite manufactured breach-of-

fiduciary-duty lawsuits based on

claimed documentation failures even in

cases where there was no evidence of a

failure in fiduciary decision-making.

Another commenter called for the

documentation requirement to be

expanded. The commenter argued that

paragraph (c)(2) of the proposal, while

a valuable addition, would not capture

situations in which plan managers who

are inclined toward policy-based

investment have used policy-based

metrics in their evaluation of the

pecuniary value of an investment or

investment plan that are inherently

biased toward inappropriate

overestimations of the pecuniary value

of policy-infused investment decisions.

This commenter suggested that the

requirement be expanded to require

complete explanation and

documentation any time policy-based

analysis plays any role in the

determination of the anticipated

pecuniary value of an investment or

investment strategy.

Fiduciaries are not compelled to break

ties on the basis of non-pecuniary

factors, and—consistent with their core

obligation to discharge their duties

solely in the interests of participants

and beneficiaries—fiduciaries are

encouraged to make their best judgment

on the basis of pecuniary factors alone,

or where prudent to diversify by

selecting all indistinguishable

alternatives. As described in the

proposal and above, proposed paragraph

(c)(2) is intended to provide a safeguard

against the possibility that fiduciaries

interested in making policy-based

investments would improperly find

economic equivalence and make

decisions based upon non-pecuniary

benefits without proper analysis and

evaluation.

The Department does not agree that

the final rule should adopt what some

commenters referred to as a less

restrictive ‘‘all things being equal’’ test.

However, the Department notes there

was disagreement among commenters as

to whether true ties actually occur, and

a great deal of confusion as to the

meaning of ‘‘economically

distinguishable’’ and whether that

requires mathematical precision in the

evaluation of investment characteristics

that is unrealistic with respect to how

investment professionals operate. After

considering the public comments, the

Department is persuaded that the tie-

breaker test should be simplified and

focus on situations in which the

fiduciary is unable to distinguish

investment alternatives on the basis of

pecuniary factors alone, rather than

demanding that investments be

identical in each and every respect

before the tie-breaker provision would

be available.

The Department remains convinced,

however, that it is appropriate for the

regulation to include a safeguard against

the risk that fiduciaries will improperly

find economic equivalence and make

decisions based on non-pecuniary

factors without a proper analysis and

evaluation. The Department thus

decided to retain, with some

modifications, the documentation

requirements as part of the ‘‘all things

being equal’’ test in paragraph (c)(2).

The Department does not believe those

requirements prohibit investments with

non-pecuniary ESG or other

components. Moreover, because the

final rule does not require any

documentation of decisions that use

pecuniary ESG factors, the Department

does not believe that it will

inappropriately chill fiduciaries from

considering investments that

incorporate ESG factors that can be

shown to be pecuniary as part of the

investment’s risk assessment relative to

non-ESG factors. In other words, the

final rule does not single out ESG

investing or any other particular

investment theory for particularized

treatment.

Rather, and specifically, paragraph

(c)(2) of the final rule provides that if a

fiduciary is unable to determine which

investment is in the best interests of the

plan on the basis of pecuniary factors

alone, the fiduciary may base the

investment decision on non-pecuniary

factors, provided the fiduciary

documents the following: why

pecuniary factors were not sufficient to

select the investment or investment

course of action; how the investment

compares to the alternative investments

with regard to the factors listed in

paragraphs (b)(2)(ii)(A) through (C); and

how the chosen non-pecuniary factor or

factors are consistent with the interests

of the participants and beneficiaries in

their retirement income or financial

benefits under the plan. With respect to

the third documentation requirement,

the Department has consolidated the

proposed requirement to document why

the selected investment was chosen

based on the purposes of the plan and

the interests of plan participants and

beneficiaries in receiving benefits from

the plan into a single requirement.

When a fiduciary makes an investment

decision based on non-pecuniary factors

as permitted under the final rule, the

fiduciary remains subject to ERISA’s

general loyalty obligation and must act

in a manner that is consistent with the

interests of participants and

beneficiaries in their retirement income

or financial benefits. For example,

responding to participant demand in

order to increase retirement plan

savings or investments in contribution

creating jobs for current or future plan

participants may be consistent with the

interests of participants and

beneficiaries in their retirement income

or financial benefits under the plan,

while selecting based on which

investment would bring greater personal

accolades to the chief executive officer

of the sponsoring employer, or solely on

the basis of a fiduciary’s personal policy

preferences, would not.

The proposal did not expressly

incorporate the tie-breaker provision in

paragraph (c)(2) on ‘‘economically

indistinguishable alternative

investments’’ into the regulatory

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45

For the reasons explained above in footnote 32,

supra, the final rule no longer contains an explicit

reference to section 403 of ERISA. This omission

better aligns the scope of paragraph (d) of the final

rule with the scope of paragraph (a) of the final rule.

provision on selection of investment

options for individual account plans.

The Department explained in the

proposal that it was of the view that the

concept of ‘‘ties’’ may have little

relevance in the context of fiduciaries’

selection of menu options for individual

account plans as such investment

options are often chosen precisely for

their varied characteristics and the

range of choices they offer plan

participants. Further, the Department

explained that because the proposal did

not restrict the addition of prudently

selected, well managed investment

options for individual account plans

which include non-pecuniary factors if

they can be justified solely on the basis

of pecuniary factors, there would be

little need for a tie-breaker between

selected investment funds. Nonetheless,

some commenters expressed some

uncertainty regarding the interaction of

paragraph (c)(2) and the provisions of

the proposal on selecting investment

options for individual account plans.

Some commenters asked the

Department to expressly make the tie-

breaker available for such investment

decisions. The Department continues to

doubt that the concept of a ‘‘tie’’ when

adding designated investment

alternatives to a platform of investments

that allow participants and beneficiaries

to choose from a broad range of

investment alternatives as defined in 29

CFR 2550.404c-1(b)(3) is relevant.

Nevertheless, the final rule makes the

tie-breaker provisions in paragraph (c)

generally available for use in selecting

investment options for individual

account plans in the event the

fiduciaries of the plan believe that it

gives them some added flexibility and

protection when adding an investment

fund, product, or model portfolio that

promotes, seeks, or supports one or

more non-pecuniary goals in

circumstances where the fiduciary

could not distinguish such investment

option from an alternative on the basis

of pecuniary factors alone.

4. Section 2550.404a–1(d)—Investment

Alternatives in Participant-Directed

Individual Account Plans

Paragraph (c)(3) of the proposed rule

contained standards applicable to

participant-directed individual account

plans. Participant-directed plans are a

subset of individual account retirement

plans that provide for the allocation of

investment responsibilities to

participants and beneficiaries of the

plans, sometimes referred to as ‘‘self-

directed’’ plans. Paragraph (c)(3) of the

proposal, in relevant part, stated the

general proposition that sections 403

and 404 of ERISA apply to a fiduciary’s

selection of an investment fund as a

designated investment alternative in an

individual account plan.

Paragraph (c)(3) of the proposal

further provided that a fiduciary’s

addition (for the platform) of one or

more prudently selected, well managed,

and properly diversified investment

alternatives that include one or more

environmental, social, corporate

governance, or similarly oriented

assessments or judgments in their

investment mandates, or that include

these parameters in the fund name,

would not violate the standards in

section 403 and 404 provided three

conditions were met. The first

condition, at paragraph (c)(3)(i) of the

proposed rule, was that the fiduciary

uses only objective risk-return criteria,

such as benchmarks, expense ratios,

fund size, long-term investment returns,

volatility measures, investment manager

investment philosophy and experience,

and mix of asset types (e.g., equity, fixed

income, money market funds,

diversification of investment

alternatives, which might include target

date funds, value and growth styles,

indexed and actively managed funds,

balanced and equity segment funds,

non-U.S. equity and fixed income

funds), in selecting and monitoring all

investment alternatives for the plan

including any environmental, social,

corporate governance, or similarly

oriented investment alternatives. The

second condition, at paragraph (c)(3)(ii)

of the proposed rule, was that the

fiduciary must document its compliance

with the first condition. The third

condition, at paragraph (c)(3)(iii) of the

proposed rule, was that the

environmental, social, corporate

governance, or similarly oriented

investment mandate alternative is not

added as, or as a component of, a

qualified default investment alternative

described in 29 CFR 2550.404c-5.

Paragraph (d) of the final rule

contains standards applicable to

participant-directed individual account

plans. The standards in paragraph (d) of

the final rule reflect substantial

revisions from the proposed rule. The

predecessor provisions in paragraph

(c)(3) of the proposal are revised,

reorganized, and relocated into

paragraph (d) of the final rule in

response to concerns raised by the

public commenters.

45

As in the

proposal, the final rule’s paragraph (d)

is a legal requirement and not a safe

harbor.

Paragraph (d)(1) of the final rule

provides that the standards set forth in

paragraph (a) (relating to the statutory

duties of loyalty and prudence) and

paragraph (c) (the pecuniary-only and

anti-subordination provisions, including

the tie-breaker test) of the final rule

apply to a fiduciary’s selection of

designated investment alternatives that

will be made available to participants

and beneficiaries for investing their

individual accounts. This provision

makes clear that the same prudence and

loyalty duties that apply generally to

evaluating investments under ERISA

(such as stock selection) also apply to a

fiduciary’s evaluation and selection of

designated investment alternatives from

which participants and beneficiaries

select where to direct their retirement

assets. Thus, when assembling,

choosing, or modifying an investment

menu for participants’ investment

choices, a fiduciary must evaluate the

designated investment alternatives on

the menu based solely on pecuniary

factors, not subordinate the interests of

participants to unrelated objectives, and

not sacrifice investment return or take

on additional investment risk to

promote non-pecuniary objectives or

goals.

Paragraph (d)(1) of the final rule

responds to commenters who objected

to what they perceived as the proposal’s

establishment of stricter or different

rules for self-directed individual

account plans than for all other types of

plans. For instance, a number of

commenters on the proposal questioned

the relationship between the ‘‘objective-

criteria only’’ standard in paragraph

(c)(3)(i) of the proposal, and the

‘‘pecuniary only’’ standard in paragraph

(c)(1) of the proposal. The commenters

argued that these two standards did not

harmonize with each other, and that

their overlay was unnecessarily

protective and would have created

ambiguity or possibly even

inconsistency. This concern was

generated, in part, by the fact that some

of the listed examples of permissible

objective criteria were seen as neither

‘‘objective’’ nor pecuniary, according to

the commenters. Many commenters also

questioned the accuracy of the list of

objective criteria contained in the

paragraph (c)(3)(i) of the proposal, with

some commenters suggesting additions

and other commenters suggesting

deletions. A number of commenters also

strongly objected to the objectivity

standard on the basis that it disfavors

active investment strategies for self-

directed plans, and that the Department

should refrain from interfering in the

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46

Government Accountability Office Report No.

18–398, Retirement Plan Investing: Clearer

Information on Consideration of Environmental,

Social, and Governance Factors Would Be Helpful

(2018).

investment marketplace by favoring or

disfavoring any particular investment

alternatives or strategies.

In response to these concerns, the

final rule omits the ‘‘objective-criteria

only’’ standard. The Department agrees

that this standard, as structured in the

proposal, was perhaps more restrictive

than necessary and potentially

confusing as to exactly how it was

intended to relate to other proposed

provisions subsequently removed from

the proposal. The Department does not

agree with the commenters, however, to

the extent that their comments could be

construed as suggesting that the duty of

prudence does not apply to a fiduciary’s

selection of designated investment

alternatives for investment menus. Nor

does the Department agree that a plan

fiduciary need not consider objective

risk-return criteria or need not

document the selection and monitoring

processes to comply with ERISA’s duty

of prudence. Since the final rule makes

it clear that ERISA’s duty of prudence

(as contained in paragraph (a) of the

final rule) and the pecuniary factor

provisions in paragraph (c) of the final

rule apply to the selection of designated

investment alternatives that will be

made available to participants and

beneficiaries for investing their

individual accounts, it is unnecessary to

retain the ‘‘objective-criteria only’’

provisions from the proposal.

Paragraph (d)(1) of the final rule,

moreover, responds to commenters who

raised concerns with the ESG

terminology in the introductory portion

of paragraph (c)(3) of the proposal. The

objected-to terminology made reference

to investment alternatives ‘‘that include

one or more environmental, social,

corporate governance, or similarly

oriented assessments or judgments in

their investment mandates, or that

include these parameters in the fund

name.’’ The principal concern with this

terminology, which operated as the

triggering mechanism for the

substantive requirements in paragraphs

(c)(3)(i) through (iii) of the proposal,

was that it improperly equated all ESG

considerations with non-financial

considerations, according to

commenters. Greatly compounding this

concern, according to the commenters,

was that this terminology lacked

sufficient clarity and definition to

enable implementation and compliance

by fiduciaries as well as the investment

managers they oversee. The final rule

does not contain this or similar

terminology in paragraph (d)(1) or

elsewhere. This omission makes it clear

that the Department understands that at

least some ESG factors, at times, may

also be pecuniary factors.

Paragraph (d)(2) of the final rule

reinforces the principles in paragraph

(d)(1) by providing that a fiduciary is

not automatically prohibited from

considering or including an investment

fund, product, or model portfolio

merely because the fund, product, or

model portfolio promotes, seeks, or

supports one or more non-pecuniary

goals, provided that the fiduciary

satisfies the requirements of paragraphs

(a) and (c) of this section in selecting

any such investment fund, product, or

model portfolio. This provision makes it

clear that fiduciaries are indeed

permitted to add, to platforms or menus,

designated investment alternatives that

may produce collateral benefits or

otherwise are viewed by some as

socially desirable. But, importantly,

these alternatives may be added only if

they can be justified solely on the basis

of pecuniary factors. Fiduciaries who

choose investments with expected

reduced returns or greater risks to

secure non-pecuniary benefits are in

violation of ERISA. Thus, fiduciaries

who are considering investment

alternatives for individual account plans

should carefully review the prospectus

or other investment disclosures for

statements regarding ESG investment

policies and investment approaches.

Fiduciaries should be particularly

cautious in exercising their diligence

obligations under ERISA when

disclosures, whether in prospectuses or

marketing materials, contain references

to non-pecuniary factors or collateral

benefits in a fund’s investment

objectives or goals or its principal

investment strategies.

With further regard to paragraph

(d)(2) of the final rule, many

commenters reported evidence of strong

participant preference for investment

alternatives that promote, seek, or

support one or more non-financial goals.

These commenters, moreover, suggested

a positive correlation between the in-

plan availability of such alternatives

and increased participation and savings

rates by participants in plans with such

alternatives. For example, one

commenter in the business of providing

financial services cited research finding

that 76 percent of consumers think it

important for their employer to apply

ESG principles to workplace benefits,

and that 60 percent would likely

contribute more to an ESG-aligned

retirement plan if it were certified.

Another commenter cited a 2018 GAO

study finding that more than half of the

asset managers interviewed stated that

incorporating ESG factors into

retirement plan investment options

would help meet participant

expectations and increase participation,

especially of younger investors.

46

Nothing in the final rule precludes a

fiduciary from looking into certain types

of investment alternatives in light of

participant demand for those types of

investments. But in deciding whether to

include such investment options on a

401(k)-style menu, the fiduciary must

weigh only pecuniary (as that term is

defined in this rule) factors. Paragraph

(d)(2) does not diminish the pecuniary-

only standards in paragraph (c)(1) of the

final rule; rather, it applies the

principles in paragraph (c)(1) to the

search for and selection of designated

investment alternatives. In addition,

participant preferences of the type

discussed in this paragraph also can be

directly relevant to compliance with the

tie-breaking provision in paragraph

(c)(2) of the final rule. In such tie-

breaker scenarios, plan fiduciaries may

consider the express demands or

interests of plan participants to be

consistent with the interests of

participants and beneficiaries for

purposes of the documentation

requirement in paragraph (c)(2)(iii) of

the final rule.

Paragraph (d)(2) of the final rule does

not contain the documentation

requirement that existed in paragraph

(c)(3)(ii) of the proposal. That provision

of the proposal would have required a

fiduciary to document its compliance

with the requirement, in paragraph

(c)(3)(i) of the proposal, to use only

objective risk-return criteria in the

selection and monitoring of investment

platform or menu alternatives. Some

commenters objected to this

requirement on the grounds that it

would have applied more stringent

requirements to ESG investment

alternatives than other types of

investment alternatives. These

commenters argued that it is

inappropriate to impose separate

documentation requirements that vary

by investment strategy. Other

commenters objected to this

requirement on the grounds that it

would increase costs to plans and

potentially provide grounds for

unwarranted class action lawsuits. As

discussed above, the final rule does not

contain the ‘‘objectivity’’ test from

paragraph (c)(3)(i) of the proposal.

Therefore, the final rule similarly omits

the related requirement to document

compliance with that test.

Paragraph (d)(2)(ii) of the final rule

provides special treatment for qualified

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47

This acknowledgement does not change the

Department’s views expressed on ESG rating

systems. See Section 8.e. of this preamble for

further discussion on ESG ratings systems and

comments received on them.

default investment alternatives (QDIA or

QDIAs) as defined in 29 CFR

2550.404c–5. As was more fully

explained in the preamble to the

proposed rule, QDIAs warrant special

treatment because they are unique

arrangements under ERISA that help

ensure that the retirement savings of

plan participants who have not

provided affirmative investment

directions for their individual accounts,

e.g., because they may not be

comfortable making such investment

decisions, are put into a single

investment capable of meeting the

participant’s long-term retirement

savings needs. Indeed, the relevant

provisions of ERISA and the

Department’s implementing regulations

encourage plans to offer QDIAs by

providing fiduciaries with relief from

liability for investment outcomes by

deeming a participant to have exercised

control over assets in his or her account

if, in the absence of investment

direction from the participant, the plan

fiduciary invests the assets in a QDIA.

Thus, selection of an investment fund as

a QDIA is not analogous to merely

offering participants an additional

investment alternative as part of a

prudently constructed lineup of

investment alternatives from which

participants may choose.

The proposed rule, in relevant part,

therefore provided that even a prudently

selected, well managed, and properly

diversified investment alternative could

not be added as, or as a component of,

a QDIA if the investment alternative

included ‘‘one or more environmental,

social, corporate governance, or

similarly oriented assessments or

judgements’’ in its ‘‘mandate’’ or

included those parameters in the fund

name. Thus, paragraph (c)(3)(iii) of the

proposal would have banned any

alternative containing this type of

mandate from being a QDIA even if it

was selected using only objective risk-

return criteria and was otherwise

prudent. This ban was limited to QDIAs

and would not have affected an

otherwise compliant alternative from

being added to an investment platform

or investment menu.

Many commenters interpreted

paragraph (c)(3)(iii) of the proposal as a

ban on any investment alternative

serving as a QDIA if the investment

alternative (or any component of the

investment alternative) was constructed

using any ‘E’, ‘S’, or ‘G’ factor even if

such factor was pecuniary in nature,

(i.e., it has a material effect on the risk

and/or return of the investment based

on an appropriate time horizon). That

was not the Department’s intention or,

in the Department’s view, a reasonable

reading of paragraph (c)(3)(iii) of the

proposal. The intent behind that

paragraph, rather, was to prohibit an

investment alternative (or any

component of the investment

alternative) whose investment objectives

or principal strategies included a non-

financial goal from being a QDIA.

Investment alternatives falling into this

category often are referred to as ‘‘ESG-

themed funds,’’ ‘‘impact funds,’’

‘‘sustainability funds,’’ ‘‘social funds,’’

‘‘society-first funds,’’ and so on,

according to the commenters.

The foregoing misinterpretation

notwithstanding, some commenters

supported a ban on any investment

alternative serving as a QDIA if the

investment alternative (or any

component of the investment

alternative) was constructed using ESG

factors. According to these commenters,

ESG is a vague and contradictory

concept, ESG performance is difficult to

measure and does not convey the same

information as traditional performance

measures, ESG investments may contain

unidentified risks, many ESG funds do

not execute on their stated principles,

some ESG alternatives involve

considerations other than purely

economic considerations, and social

issues are contentious and will vary

across plan participants. Consequently,

these commenters argued that allowing

ESG funds to be included as, or as a

component of, a QDIA could encourage

plan participants to hold ESG

investments that are either

inappropriate or not consistent with

their individual investment goals.

A number of commenters, however,

were not supportive of paragraph

(c)(3)(iii) of the proposal. Many

commenters believe no special

treatment is needed for QDIAs. If an

investment alternative is chosen based

only on pecuniary factors, according to

these commenters, the alternative

should be eligible to serve as a QDIA if

it otherwise meets the requirements of

the QDIA regulation. These commenters

question why an otherwise compliant

investment alternative, constructed only

on the basis of sound pecuniary factors

as defined in the proposal, should be

per se ineligible to be a QDIA. Further,

commenters were concerned that the

breadth of the proscription in paragraph

(c)(3)(iii) of the proposal, as they

understood it, would be extremely

disruptive to the market and that it

might inadvertently result in a lack of

available investment alternatives that

could qualify as QDIAs, to the detriment

of participants and beneficiaries of

ERISA covered plans.

After considering the comments, the

final rule limits the scope of the special

rule for QDIAs. Paragraph (d)(2)(ii) of

the final rule expressly provides that in

no circumstances may any investment

fund, product, or model portfolio be

‘‘added as, or as a component of, a

qualified default investment alternative

described in 29 CFR 2550.404c–5 if its

investment objectives or goals or its

principal investment strategies include,

consider, or indicate the use of one or

more non-pecuniary factors.’’

Thus, by omitting all references to

‘‘environmental,’’ ‘‘social,’’ ‘‘corporate

governance,’’ and ‘‘similarly oriented’’

assessments and judgments, paragraph

(d)(2)(ii) of the final rule clarifies that

the special rule for QDIAs is not focused

on whether an investment alternative

employs or applies any particular ‘E’,

‘S’, or ‘G’ factors in operation. This

omission responds directly to the many

commenters who stated their belief that

the proposal’s use of these terms

unhelpfully conflated financial and

non-financial factors. In place of these

terms, paragraph (d)(2)(ii) of the final

rule focuses on whether the investment

alternative includes, considers, or

indicates the use of non-pecuniary

factors in its investment objectives or

goals or its principal investment

strategies. This refocusing is an

acknowledgement that individual ‘E’,

‘S’, and ‘G’ factors can be both

pecuniary and non-pecuniary in nature,

and that the selection of ESG funds is

not per se prudent or imprudent.

47

Accordingly, paragraph (d)(2)(ii)

clarifies that the special rule for QDIAs

only prevents a designated investment

alternative, which otherwise satisfies

the requirements in paragraph (d)(1) of

the final rule, from being selected as a

QDIA if it, or any of its components, has

investment objectives or goals or

principal investment strategies that

include, consider, or indicate the use of

one or more non-pecuniary factors.

These circumstances would trigger the

ban in paragraph (d)(2)(ii) of the final

rule against a particular designated

investment alternative from being

selected as a QDIA, even if the

investment alternative could otherwise

permissibly be selected as a designated

investment alternative for the

investment platform or investment

menu by fiduciaries only on the basis of

pecuniary factors.

In these circumstances, the

Department agrees with those

commenters who believe a heightened

prophylactic approach for QDIAs is the

best course of action. QDIAs by

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17 CFR 270.0–1 through 270.60a–1.

49

Referenced at 17 CFR 239.15A and 274.11A.

See, e.g., Item 2 and Item 4 of Part of Form N–1A.

50

See Section 8.e. below, which further discusses

ESG and similar rating systems and indexes.

51

See Letter to Sen. Howard Metzenbaum from

Dennis Kass (May 27, 1986) (defending statement in

press that ‘‘an investment policy that is on its face

exclusionary runs the risk of being on its face

imprudent’’ and explaining that ‘‘before a fiduciary

of an ERISA covered pension plan can make a

decision to exclude a category of investments for

social purposes, the fiduciary must first make a

determination that the exclusion of such category

of investments would not reduce the return or raise

the risk of the plan’s investment portfolio. If such

a determination can be made, then social judgments

as to the composition of the portfolio would be

permissible.’’).

definition exist for participants and

beneficiaries who do not actively direct

their investments, and by operation tend

to sweep in many participants and

beneficiaries with less investment

experience and sophistication than

more active investors, according to the

commenters. ERISA is a statute whose

overriding concern relevant here has

always been providing a secure

retirement for America’s workers and

retirees, and it is inappropriate for

participants to be defaulted into a

retirement savings fund that may have

other objectives absent their affirmative

decision. This is especially true if the

default investment alternative, or any of

its components, has investment

objectives or principal strategies that

reflect one or more non-pecuniary

factors. The use of non-pecuniary

factors, even if co-existing with

financially-oriented strategies or goals,

raise questions as to the extent to which

the QDIA’s managers may be forgoing

financial returns in pursuit of non-

financial objectives.

The test in paragraph (d)(2)(ii) of the

final rule can be applied objectively

without difficulty. A plan fiduciary, for

instance, can simply look at the

investment fund’s prospectus to

determine whether the fund is subject to

the prohibition on its use as a QDIA or

as a component investment of a QDIA.

Under the Investment Company Act of

1940, as amended,

48

investment

companies and their managers have

routinely dealt with the concepts

underpinning the provisions in

paragraph (d)(2)(ii) of the final rule, i.e.,

providing disclosure on an investment

alternative’s ‘‘investment objectives’’

and ‘‘principal investment strategies.’’

Under Form N–1A,

49

for example, to the

extent that non-pecuniary

considerations form a material part of a

fund’s investment objective or principal

strategies, these factors would need to

be disclosed accordingly in the fund’s

prospectus. For example, if the

prospectus or similar disclosure states

that the fund (or any component) is

constructed using an ESG or

sustainability rating system or index,

and that ratings system or index

evaluates one or more factors that are

not financially material to investments

(i.e., evaluates non-pecuniary factors),

then paragraph (d)(2)(ii) of the final rule

would prohibit such fund from being

used as a default investment

alternative.

50

The Department

understands that the final rule applies

to investment alternatives other than

registered investment companies, such

as bank collective investment trusts and

insurance company separate accounts.

However, these vehicles typically

adhere to similar rules and maintain

operating documents comparable to a

prospectus.

Paragraph (d)(2)(ii) of the final rule

also responds to concerns with so-called

‘‘screening strategies,’’ which include,

for example, the act of excluding from

a fund certain sectors or companies

involved in activities deemed

unacceptable or controversial, such as

screens or exclusions on investments in

companies engaged in the production or

distribution, for example, of alcohol,

tobacco, fossil fuels, weapons, or

gaming. Other screening strategies will

only select sectors or companies that

satisfy certain attributes, such as carbon

emissions, board diversity, or employee

compensation. Screening strategies,

regardless of whether they are

characterized or described as ‘‘positive

screening’’ or ‘‘negative screening,’’ may

implicate paragraph (d)(2)(ii) of the final

rule if the screening involves non-

pecuniary factors that effectively results

in the exclusion of certain sectors or

categories of investments. Investment

alternatives that use these exclusions

may not be QDIAs (or components of

QDIAs) if these exclusions involve non-

pecuniary goals and are reflected in the

investment alternatives’ objectives or

goals or its principal investment

strategies. This is because such an

exclusion in an investment alternative’s

objectives or principal strategies raises

questions as to the extent to which the

QDIA’s manager may be foregoing

financial returns in pursuit of non-

financial objectives.

If these exclusions are not reflected in

an investment alternative’s objectives or

principal strategies, however, the

alternative is not prohibited as a QDIA

(or a component). It must be prudently

selected as required by paragraph (a) of

the final rule, and comply with

paragraph (c) of the final rule and the

Department’s QDIA regulation. ERISA’s

duty of prudence dictates that before a

fiduciary of an ERISA covered pension

plan can make a decision to exclude a

category of investments for non-

pecuniary purposes, the fiduciary must

first make a determination that the

exclusion of such category of

investments would not reduce the

return or increase the risk of the plan’s

investment portfolio. An investment

policy or strategy that is exclusionary

runs the risk of being imprudent

because, if the decision results in the

exclusion, for example, of certain

sectors or markets, without first doing

an economic analysis of the economic

consequences to the plan of such an

exclusion and determining that such an

exclusionary policy would not be

economically harmful to the plan, the

fiduciary making such a decision would

be imprudent under ERISA.

51

Finally, a commenter stated that,

although paragraph (c)(3) of the

proposal helpfully clarifies that ERISA’s

duties of loyalty and prudence apply to

‘‘designated investment alternatives,’’

the final regulation should further

clarify that these statutory duties (and,

hence, the requirements of the final

rule) do not apply more broadly to other

investment alternatives that may be

available through the plan. For instance,

some participant-directed individual

account plans contain brokerage

windows, self-directed brokerage

accounts, or similar plan arrangements

that enable participants and

beneficiaries to select investments

beyond those designated by the plan.

The commenter appears to have had

these arrangements in mind and

specifically requested that the final rule

define the term ‘‘designated investment

alternative’’ so as to exclude

investments of this type from the

requirements of the rule.

In response to this commenter, the

final regulation defines the term

‘‘designated investment alternative’’ for

purposes of paragraph (d) of the final

rule. Specifically, paragraph (e)(5) of the

final rule defines this term as ‘‘any

investment alternative designated by the

plan into which participants and

beneficiaries may direct the investment

of assets held in, or contributed to, their

individual accounts.’’ Thus, whether an

investment alternative is a ‘‘designated

investment alternative’’ for purposes of

the regulation depends on whether it is

specifically identified as available under

the plan. This necessarily is a fact

driven analysis. Further, the definition

specifically clarifies that the term does

not include ‘‘brokerage windows,’’ ‘‘self-

directed brokerage accounts,’’ or similar

plan arrangements that enable

participants and beneficiaries to select

investments beyond those designated by

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52

Field Assistance Bulletin 2012–02R, Q&A 39

(July 30, 2012).

53

Id. at Q&A 39.

54

See 29 CFR 2550.404c–1(d)(2) (imposing limits

on the relief otherwise available to plan fiduciaries

in the case of implementing improper investment

instructions of participants and beneficiaries).

the plan. The inclusion of this

definition in the final rule also obviates

the need for explicit references in the

operative regulatory text to ‘‘platforms,’’

which appeared in the proposal

essentially as a synonym for menus of

designated investment alternatives.

Consequently, this regulation does not

apply to investment alternatives that are

not designated investment alternatives

under the plan. The Department in other

contexts has made it clear, however,

that ERISA’s duties of loyalty and

prudence do not contain exceptions for

circumstances in which plans with

brokerage windows, self-directed

brokerage accounts, or similar plan

arrangements enable participants and

beneficiaries to select investments

beyond those designated by the plan.

For instance, in addressing questions

under 29 CFR 2550.404a–5 (a disclosure

regulation focusing on fees in 401(k)-

type plans) in the case of participant-

directed individual account plans that

do not designate any of the funds on the

platform or available through the

brokerage window, self-directed

brokerage account, or similar plan

arrangement as ‘‘designated investment

alternatives’’ under the plan, the

Department stated that fiduciaries ‘‘are

still bound by ERISA section 404(a)’s

statutory duties of prudence and loyalty

to participants and beneficiaries who

use the platform or the brokerage

window, self-directed brokerage

account, or similar plan arrangement,

including taking into account the nature

and quality of services provided in

connection with the brokerage window,

self-directed brokerage account, or

similar plan arrangement.’’

52

In this

same context, the Department also

stated that a plan fiduciary’s failure to

designate investment alternatives, for

example, to avoid the standards and

obligations under ERISA or

implementing regulations raises

questions under ERISA section 404(a)’s

general statutory fiduciary duties of

prudence and loyalty.

53

The Department

has also stated in the context of the

404(c) regulation that the relief from

fiduciary liability for participant or

beneficiary exercises of control over

their individual accounts does not

extend to any instruction, which if

implemented (A) would not be in

accordance with the documents and

instruments governing the plan insofar

as such documents and instruments are

consistent with the provisions of title I

of ERISA; (B) would cause a fiduciary to

maintain the indicia of ownership of

any assets of the plan outside the

jurisdiction of the district courts of the

United States other than as permitted by

section 404(b) of the Act and 29 CFR

2550.404b–1; (C) would jeopardize the

plan’s tax qualified status under the

Internal Revenue Code; or (D) could

result in a loss in excess of a

participant’s or beneficiary’s account

balance. Similarly, relief from fiduciary

liability under the 404(c) regulation

would not extend to: (1) The

implementation of instructions which

would result in a direct or indirect sale,

exchange, or lease of property between

a plan sponsor or any affiliate of the

sponsor and the plan except for the

acquisition or disposition of any interest

in a fund, subfund, or portfolio managed

by a plan sponsor or an affiliate of the

sponsor, or the purchase or sale of any

qualifying employer security (as defined

in section 407(d)(5) of the Act) which

meets the conditions of section 408(e) of

ERISA and 29 CFR 2550.404c–

1(d)(2)(ii)(E)(4); (2) a loan or extension

of credit to a plan sponsor or any

affiliate of the sponsor; or (3) the

acquisition or sale of any employer real

property (as defined in section 407(d)(2)

of the Act).

54

The Department has not

addressed in these other contexts

whether, or under what circumstances,

the duties of prudence or loyalty compel

a fiduciary to disregard or overrule a

participant’s or beneficiary’s affirmative

selection of a particular investment or

investments through a brokerage

window or similar arrangement, and

these matters similarly are not

addressed here. Accordingly, nothing in

this regulation should be construed as

addressing the application of ERISA’s

duties of prudence and loyalty to such

investments or to the particular

investment options (e.g., brokerage

windows) that grant participants and

beneficiaries access to investments that

are not designated investment

alternatives. Although the Department

has determined that the establishment

of regulatory standards governing such

arrangements is beyond the scope of this

particular regulation, this issue could be

addressed in future rulemaking or sub-

regulatory guidance if necessary. The

Department, therefore, is available as

necessary to engage in discussions with

interested parties to help determine how

best to assure compliance with these

duties in a practical and cost effective

manner.

5. Section 2550.404a–1(e)—Reserved

Paragraph (e) is reserved for the

operative text, if finalized, of the

rulemaking on proxy voting and

exercise of shareholder rights.

6. Section 2550.404a–1(f)—Definitions

Paragraph (f) of the final rule provides

definitions and is largely unchanged

from the proposal.

The term ‘‘investment duties’’ in the

proposal was unchanged from the

current 404a–1 regulation. It was

defined to mean any duties imposed

upon, or assumed or undertaken by, a

person in connection with the

investment of plan assets which make or

will make such person a fiduciary of an

employee benefit plan or which are

performed by such person as a fiduciary

of an employee benefit plan as defined

in section 3(21)(A)(i) or (ii) of the Act.

The term ‘‘investment course of action’’

is amended from the current 404a–1

regulation to mean any series or

program of investments or actions

related to a fiduciary’s performance of

the fiduciary’s investment duties, and

the selection of an investment fund as

a plan investment, and now includes

the selection of an investment fund as

a plan investment, or in the case of an

individual account plan, a designated

alternative under the plan, as part of

this term. One commenter noted that

neither the definition of ‘‘investment

duties’’ nor the definition of

‘‘investment course of action’’ expressly

included the notion of stewardship

activity and argued that the allocation of

resources to voting, engagement, and

related activity should be treated as an

‘‘action related to’’ the investment of

plan assets. The commenter expressed

that the focus on investment is less on

the risks and returns of individual

holdings and more on addressing

systemic or ‘‘beta’’ issues such as

climate change and corruption where

outcomes are prioritized at the economy

or society-wide scale with long-term,

absolute returns for universal owners,

including real-term financial and

welfare outcomes for beneficiaries.

The Department does not see how it

is possible for the stewardship approach

advocated by the commenters to be

justified, given the requirements of

prudence and loyalty under ERISA. As

the Department has stated, it does not

ineluctably follow from the fact that an

investment promotes ESG factors, or

that it arguably promotes positive

general market trends or industry

growth, that the investment is a prudent

choice for retirement investors. Rather,

ERISA fiduciaries must always put first

the economic interests of the plan in

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55

See Field Assistance Bulletin 2018–01 (Apr. 23,

2018).

providing retirement benefits. A

fiduciary’s evaluation of the economics

of an investment should be focused on

financial factors that have a material

effect on the return and risk of an

investment based on appropriate

investment horizons consistent with the

plan’s articulated funding and

investment objectives.

55

Accordingly, as

noted above, paragraphs (f)(1) and (2) of

the final rule are the same as the

language of the proposal.

The term ‘‘pecuniary factor’’ was a

new definition in the proposal. The

proposal defined it as a factor that has

a material effect on the risk and/or

return of an investment based on

appropriate investment horizons

consistent with the plan’s investment

objectives and the funding policy

established pursuant to section 402(a)(1)

of ERISA. Many commenters urged the

Department to re-examine the definition

of ‘‘pecuniary factor.’’ The Department’s

discussion of those comments is

included in the section of this preamble

that addresses paragraph (c)(1) above.

Finally, the term ‘‘plan’’ was

unchanged from the current 404a–1

regulation. It was defined in the

proposal to mean an employee benefit

plan to which Title I of ERISA applies.

Although not commenting specifically

on the proposal, some commenters

raised issues regarding the

consequences for plans maintained for

their employees by states, political

subdivisions of states, and the agencies

or instrumentalities of either. Section

4(b)(1) of ERISA excludes from coverage

under ERISA all such governmental

plans. Accordingly, issues regarding the

investment practices of such plans or

the duties of persons who may be

fiduciaries with respect to such plans

are outside the scope of both the

Department’s jurisdiction under Title I

of ERISA and this regulation.

Some commenters suggested that the

Department define ‘‘ESG,’’ ‘‘ESG

vehicle,’’ ‘‘ESG consideration,’’ or any

other similar term, and

‘‘environmental,’’ ‘‘social,’’ or

‘‘corporate governance,’’ or give

guidance on what might be ‘‘similarly

oriented assessments or judgments.’’

These commenters argued that without

an ESG definition, fiduciaries would be

left in the undesirable position of being

unable to determine exactly what the

Department seeks to regulate and the

scope of that regulation, opening the

door to expensive litigation that seeks to

exploit those ambiguities. Other

commenters stated that a definitive list

of ESG issues does not exist and that it

would not be possible or desirable to

produce a list or set of definitions, and

any attempt at such list or definition

would soon be outdated in any event.

The same commenter said a definition

of ESG was needed so that fiduciaries

would know whether the Department

intends for ‘‘ESG’’ to apply narrowly,

such as with respect to only those

investment alternatives that

prominently call themselves ‘‘ESG,’’ or

if the Department intended to sweep in

a much broader set of investment

alternatives under ‘‘ESG,’’ because the

resulting impact, burden, expense, and

collateral consequences of the proposed

amendments could significantly differ.

As described earlier in this preamble,

the Department has concluded, based on

the comments, that the use of ESG

terminology is not appropriate for a

regulatory standard precisely because of

the ambiguity and lack of precision that

exists in the use of ESG in the

marketplace. Since the Department has

removed ESG terminology from the

operative text of the final rule, inclusion

of the sort of definitions requested by

commenters is no longer necessary.

7. Section 2550.404a–1(g) and (h)—

Effective Date and Severability

The proposal included a provision

under which the effective date for the

rule would be a date 60 days after the

date of the publication of the final rule.

The Department requested comment in

the proposal, including whether any

transition or applicability date

provisions should be added to any of

the proposed provisions. Some

commenters suggested that a

grandfather provision of existing

investments be adopted to avoid market

disruption, including forced sales at

sub-optimal prices. Other commenters

said grandfathering is necessary not

only because fiduciaries will be unable

to comply retrospectively with

prescriptive requirements, but also to

avoid the wide-ranging economic harms

that could follow a sudden investment

mandate. The commenters suggested

that, at a minimum, the provisions of

the final rule would not apply to

investments made on or prior to the

effective date of any final regulation. In

the alternative, the commenters

requested that the Department permit

those investments that have been made

on or preceding such effective date not

to become subject to the provisions of

any final rule for a period of one year

following such effective date. Other

commenters suggested that this period

of transition and grandfathering be

generous. Other commenters suggested

that the Department allow plan

fiduciaries adequate time to prepare the

documentation and analysis required by

the proposal to identify, assess, and

consider alternative investment options

in accordance with the proposal. These

commenters believed the proposal

greatly underestimated the time

required for plan fiduciaries to consider

and implement the new framework. As

a result, they suggested that plan

fiduciaries should be afforded at least 12

months before the rule becomes

effective to mitigate hastened decision-

making and potential financial losses

resulting from modifying investment

strategies that may inadvertently harm

plan participants in the current volatile

and uncertain market environment.

Finally, a commenter suggested that due

to COVID–19 and its financial fallout,

the effective date should be delayed by

at least a year to allow time for

compliance.

The same principles of prudence and

loyalty under section 404(a)(1)(A) and

(B) of ERISA are on display in the

proposal and final rule as have been

applied in all the previous guidance on

ESG investing and investing in general

by the Department since the investment

duties regulation was published in

1979. Indeed, since the 1980s the

Department has stated that a fiduciary

in its decision-making, regarding

investments or otherwise, cannot

subordinate the interests of the

participants and beneficiaries in their

retirement income or financial benefits

under the plan to unrelated objectives.

Following consideration of the public

comments, the Department is not

persuaded that there is sound reason to

delay the anticipated benefits and

protections to plan participants and

beneficiaries of this rule. As the

Department has previously stated, the

final rule, including changes from the

proposal, primarily explains existing

statutory requirements and regulations

with respect to the investment duties of

plan fiduciaries and is not a major

departure from its previous guidance on

the basic investment duties of

fiduciaries. Thus, the Department does

not believe an overall delay in the

applicability of the final rule is

necessary to allow additional time for

plans to prepare for the significantly

scaled-back investment documentation

requirements of the final rule.

However, the Department

acknowledges that some plans may have

to make adjustments to their investment

policies and practices in light of the

final rule. As a result, paragraph (g)(1)

of the final rule provides that the

effective date of the new regulatory text

in the final rule will be 60 days

following the date of publication in the

Federal Register and shall apply

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56

Tibble v. Edison Int’l, 135 S. Ct. 1823, 1828–

29 (2015), confirmed that ERISA fiduciaries have a

continuing duty—separate and apart from the duty

to exercise prudence in selecting investments at the

outset—to monitor, and remove imprudent, trust

investments. How that monitoring obligation would

be applied in the context of the final rule’s

application to individual investments would

depend on the facts and circumstances. When and

what kind of review would depend on the facts and

circumstances. ERISA fiduciaries must discharge

their fiduciary responsibilities ‘‘with the care, skill,

prudence, and diligence’’ that a prudent person

‘‘acting in a like capacity and familiar with such

matters’’ would use. ERISA section 404(a)(1). The

Department notes that it may be that a fiduciary

could prudently determine that the expected return

balanced against the costs and risks of loss

associated with divesting an investment made

before the effective date of the rule are such that

continuing to hold that investment would be

appropriate even if the fiduciary as part of its

monitoring process determined that the investment,

or aspects of the decision-making process, does not

comply with the final rule.

57

In the Regulatory Impact Analysis, the

Department estimates that only 0.1 percent of plans

may have an affected QDIA.

prospectively in its entirety to

investments made and investment

courses of action taken after such date.

Plan fiduciaries are not required to

divest or cease any existing investment,

investment course of action, or

designated investment alternative, even

if originally selected using non-

pecuniary factors in a manner

prohibited by the final rule; however,

after the effective date, all decisions

regarding such investments, investment

courses of action, or designated

investment alternatives, including

decisions that are part of a fiduciary’s

ongoing monitoring requirements, must

comply with the final rule.

56

Also,

although the Department believes that

much of the final rule explains pre-

existing duties under the statute, the

Department of course will not pursue

enforcement, and does not believe any

private action would be viable,

pertaining to any action taken or

decision made with respect to an

investment or investment course of

action by a plan fiduciary prior to the

effective date of the final rule to the

extent that any such enforcement action

would necessarily rely on citation to

this final rule. Of course, nothing in this

regulation forecloses the Department

from taking enforcement action based

on prior conduct that violated ERISA’s

provisions, including the statutory

duties of prudence and loyalty, based on

the statutory and regulatory standards in

effect at the time of the violation.

The final rule does include one

extended compliance date; new

paragraph (g)(2) provides that plans

shall have until April 30, 2022 to make

any changes to qualified default

investment alternatives described in 29

CFR 2550.404c–5, where necessary to

comply with the requirements of

paragraph (d)(2). Unlike other

provisions of the final rule, which apply

only to prospective investment

decisions, paragraph (d)(2) prohibits

certain designated investment

alternatives from being used as a QDIA

where the investment objectives or goals

or the principal investment strategies

include, consider, or indicate the use of

one or more non-pecuniary factors.

Although the Department believes the

paragraph (d)(2), as modified from the

proposal, will only affect a very small

number of plans,

57

the Department

recognizes that those plans will need

appropriate time to modify their QDIA

selections. Therefore, in response to a

commenter’s requests for at least a 12

month transition period, the Department

is providing a QDIA compliance date of

April 30, 2022.

Moreover, EBSA confirms that until

January 12, 2021, the prior 404a–1

regulation under the Act (as it appeared

in the July 1, 2020, edition of 29 CFR

part 2550) applies.

The final rule also includes, in

paragraph (h), a severability provision,

which provides that if any provision in

the final rule is found to be invalid or

unenforceable by its terms, or as applied

to any person or circumstance, or stayed

pending further agency action, such

provision shall be severable and the

remaining portions of the rule would

remain operative and available to plan

administrators. Thus, if a Federal court

were to find a specific provision to be

legally insufficient, then the remaining

requirements would remain applicable

and in place.

8. Miscellaneous Issues and Public

Comments

a. Religious Freedom Restoration Act

One commenter argued that the

proposal violates the Religious Freedom

Restoration Act (RFRA). The commenter

averred that the proposal is a burden on

religion and is contrary to RFRA

because, in the commenter’s view, it

prohibits the inclusion of investment

options in defined contribution plans

for retirement savers whose beliefs and

values dictate that they take material

environmental and societal effects of

corporate activities into consideration in

stewardship of their worldly riches. As

a result, many people of faith would be

forced to support economic activity that

violates their beliefs. By singling out

ESG investment options as raising

‘‘heightened concerns under ERISA’’

whenever an option ambiguously might

involve ‘‘one or more environmental,

social, and corporate governance-

oriented assessments or judgments,’’

despite the availability of numerous

prudently managed and outperforming

ESG investment options for ERISA

pension plans, the proposal would have

the practical effect of unnecessarily

limiting access by people of faith to

prudent pension investment options

aligned with their religious beliefs,

according to this commenter. The

commenter asserted that RFRA provides

an exception only if two conditions are

met, that the restriction must be in

furtherance of a compelling government

interest and the rule must be the least

restrictive way in which the government

can further its interest, and the proposal

does not meet those conditions. Other

commenters also suggested that the

proposal’s interference with the

investment preferences of retirement

investors potentially would constitute a

violation of their First Amendment

rights, though they did not explain

whether they were referring to the Free

Exercise Clause or the Free Speech

Clause.

A commenter also explained that

some funds, not marketed as ESG funds,

exclude ‘‘sin’’ stocks, such as alcohol

and tobacco. Typically, these

restrictions are not part of the

investment objectives or strategy and do

not impact the fund’s ability to find

suitable investments, according to the

commenter. The commenter suggested

that the proposed rule’s broad definition

of ESG would sweep in many such

funds and subject them to heightened

fiduciary scrutiny. According to the

commenter, such restrictions, dating

back to the 1950s, qualitatively differ

from those embraced by the emerging

universe of ESG funds. Faith-based

organizations operating under Title I

(e.g., ERISA-electing church plans) use

such funds and use faith-based filters to

eliminate certain categories. According

to the commenter, these are founded on

the concern of discouraging plan

participation if the only investment

options available to participants with

strong religious convictions permitted

investments relating to alcohol or

tobacco. These restrictions may also

fairly be viewed by some as relevant to

an analysis about the likely long-term

value of an issuer deriving the majority

of revenue from products whose

continued use could be impacted by

societal changes, according to this

commenter.

The Department is committed to

fulfilling its obligations under RFRA

and respecting religious liberty. The

Department is confident that the RFRA

concerns raised by the commenter can

be reviewed and resolved as needed on

an individual basis. While broader

discussion and resolution of RFRA-

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58

85 FR 13221 (Mar. 6, 2020).

related issues can be appropriate in

rulemaking, especially when they are a

prominent aspect of the rulemaking, see

Little Sisters of the Poor Saints Peter &

Paul Home v. Pennsylvania, 140 S. Ct.

2367, 2383–84 (2020), the Department

believes that it need not conduct a

broadly applicable RFRA analysis in

this particular rule, which does not have

religious concerns as a central focus. If

RFRA’s interaction with this final rule

reveals over time that a broader project

is warranted, the Department will

consider doing so.

Moreover, the Department believes

that changes made in the final rule,

including significant changes to specific

conditions related to use of ESG

considerations, may provide enough

flexibility to sufficiently address the

commenters’ concerns, even without

invocation of RFRA. Further, paragraph

(d)(2) of the final rule permits a

prudently selected ESG-themed

investment alternative, which complies

with paragraphs (a) and (c) of the final

rule, to be added to the available

investment options on a participant-

directed individual account plan

platform without requiring the plan to

forego adding other non-ESG-themed

investment options to the platform.

Paragraph (d)(2) applies equally to an

investment fund, product, or model

portfolio that promotes, seeks, or

supports participant preferences

regarding religion. In addition,

paragraph (d)(2)(ii) of the final rule does

not prevent a negatively screened fund

from being selected as a QDIA if no non-

pecuniary factors are reflected in its

investment objectives or principal

strategies.

b. Coordination With Other Federal

Laws and Policies

A number of commenters suggested

that the Department’s action is

untimely, and might redirect or stall the

continuing development of ESG practice

at a time when the SEC continues to

monitor and evaluate ESG

developments, with a clear focus on

disclosure and accuracy. For example,

several commenters noted that the

proposal appeared to reflect concerns

with the marketing of investment

strategies that use ESG criteria. These

concerns, commenters suggested, may

be addressed by the SEC, which recently

solicited public comment on a number

of issues (including use of the term

‘‘ESG’’ in a fund name) under the

‘‘Names Rule’’ under the Investment

Company Act of 1940.

58

Other

commenters believed that the proposal’s

characterization of the materiality of

ESG criteria was potentially out of step

with the SEC, which has noted the

importance of disclosing ESG factors to

the extent that they are material. A

commenter indicated that risk

disclosure is fundamental to protecting

investors. The commenter criticized the

proposal for cautioning fiduciaries to

scrutinize fund risk disclosures when

evaluating the impact of ESG

considerations, and suggested that any

additional risk added by ESG

considerations is unacceptable

regardless of the reason for the risk or

the effect on returns. The commenter

explained that ESG considerations are

used in a variety of ways in fund

portfolios—some pecuniary in nature

and others solely as an incidental

component of the fund’s investment

strategy. Further, the comment

indicated that when funds take ESG

considerations into account, they are

pursuing an investment strategy. Each

strategy is different, and will perform

differently with different risks. In the

commenter’s opinion, if the ESG

consideration is used to enhance the

overall value of the investment, and the

risk and return are appropriately

balanced, then the fact that the risks are

‘‘different’’ should not be the focus of

the analysis. The commenter concluded

that the Department’s focus instead

should be on risk disclosures that

suggest the fund is sacrificing

investment returns or assuming greater

investment risk as a means to promote

collateral social policy goals.

Another commenter indicated that

some ESG issues pose systemic risks to

financial markets, which the US

financial regulatory community is

beginning to examine. A commenter

also suggested that the proposal might

have the unintended consequence of

concentrating investment in securities

and products that may or may not bear

less risk and greater return in the future,

relying on mechanical use of financial

data from one reporting source rather

than employing human judgment and

prudence. The commenter cautioned

that this concentration will pose

systemic financial risk and is something

the Office of Financial Research (OFR)

is tracking and seeking to minimize. The

commenter suggested that the OFR

should be consulted on any sweeping

new ERISA rule that might cause

herding and market concentration.

With respect to the Names Rule, the

Department does not believe there is a

need to delay a final rule until the SEC

decides whether to take action as a

result of its solicitation. Although

disclosures may be helpful to fiduciaries

in evaluating investment funds, the

primary goal of the proposed and final

rule is to provide, in the form of a final

rule, guidance on the scope of fiduciary

duties surrounding non-pecuniary

issues. However, the Department will

continue to monitor SEC activity, and

consider providing further guidance as

may be appropriate. With respect to the

other comments, the Department

believes that changes made in the final

rule, including a focus on pecuniary

factors rather than ESG factors, are

sufficient to address the stated concerns.

As to the comments regarding ESG

disclosure, the Department has clarified

that they apply to circumstances where

prospectuses or marketing materials

discuss non-pecuniary objectives or

benefits. We note that the Department’s

concerns under ERISA, and the policies

underlying this final rule, are focused

on safeguarding the interests of

participants and beneficiaries in their

plan benefits. If financial regulators

adopt new rules or policies that affect

financial market participants, that may

create pecuniary or non-pecuniary

considerations for plan fiduciaries apart

from ERISA.

Commenters noted that the

Department of State, Department of the

Treasury, Department of Commerce, and

Department of Homeland Security have

taken positions on risks of supply chain

links to entities that engage in human

rights abuses, including forced labor, in

China. They argued that the Department

should not issue a rule that

fundamentally undermines policy from

four other Departments and should

ensure that pension fiduciaries are not

discouraged from making the

appropriate calculations about supply

chain risks. Further, commenters

criticized that the proposal conflicts

with the Department’s own statements

regarding the need to divest the Federal

Thrift Savings Plan (TSP) from

investments in China due to increased

risk. The Department believes the

concerns expressed by these

commenters are beyond the scope of

issues being addressed by the final rule,

which is limited to the investment

duties of fiduciaries under Title I of

ERISA. Nonetheless, if a fiduciary

prudently determines that an

investment is appropriate based solely

on pecuniary considerations, including

those that may derive from ESG factors,

the fiduciary may make the investment

without regard to any collateral benefits.

Accordingly, the Department does not

agree that there is any fundamental

conflict between the positions other

agencies have articulated on supply

chain risk, and this final rule. Nothing

in the final rule is intended to or does

prevent a fiduciary from appropriately

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59

See, e.g., Statement on SEC Response to the

Report of the President’s Working Group on

Financial Markets (Aug. 10, 2020), www.sec.gov/

news/public-statement/statement-presidents-

working-group-financial-markets.

60

85 FR 55219 (Sept. 4, 2020).

considering any material risk with

respect to an investment. Moreover,

with respect to the TSP, which is not

covered by Title I of ERISA, we note

that the Department’s position with

respect to investments in China was

informed by consideration of specific

matters relating to investment risk,

including inadequate investor

disclosures and legal protections, that

are consistent with ‘‘pecuniary factors’’

as used in the final rule. We note that

matters relating to investments in China

continue to be examined by other

Federal agencies.

59

Moreover, other

concerns were raised because the

Federal Government matches TSP

contributions and investments in China

might result in the Federal Government

funding activities that are opposed to

U.S. national security interests.

One commenter claimed that the

DOL’s failure to consult with the Fish

and Wildlife Service and the National

Marine Fisheries Service regarding the

proposed rule’s impacts upon

endangered species violates the

Endangered Species Act (ESA), and the

DOL’s failure to assess the proposed

rule’s environmental impacts violates

the National Environmental Policy Act

(NEPA). The Department has reviewed

the relevant legal provisions of the ESA

and NEPA and concludes neither statute

is implicated by the rule. In addition,

the final rule’s operative language does

not expressly address ESG investments,

but rather centers on the fiduciary duty

to focus plan investment decisions on

pecuniary factors only, a duty arising

from ERISA and confirmed in the case

law. The Department believes this

change further renders the final rule

beyond the scope of either ESA or

NEPA, and any accompanying

consultation or assessment

requirements.

c. Comparison of Proposal to

International Standards and Practices

Commenters also asserted that the

Department’s proposal is against an

international trend in the consideration

of ESG factors. Other regulators, they

argued, are requiring consideration of

financially material ESG factors and

focusing on the importance of the

disclosure of those factors. European

regulators have imposed rules, effective

March 10, 2021, that require investment

managers governed by the regulations to

incorporate financially material ESG

factors into the investment process.

Another commenter contended that

across the world’s 50 largest economies,

there have been more than 730 hard and

soft law policy revisions across some

500 policy instruments, which support,

encourage, or require investors to

consider long-term value drivers,

including ESG factors. To the extent that

these foreign standards condone

sacrificing returns to consider non-

pecuniary objectives, they are

inconsistent with the fiduciary

obligations imposed by ERISA.

According to this commenter, of these

top 50 economies, 48 have some form of

policy designed to help investors

consider sustainability risks,

opportunities, or outcomes. The

Department believes that assertions by

these commenters do not fairly

characterize the statements the

Department made in the proposal. The

final rule does not preclude

consideration of any factor that is

financially material to an investment or

investment course of action. In addition,

a few comments cited statements

supporting non-financial investment

considerations, thereby confirming the

need for the Department to clarify

ERISA fiduciary duties in the face of

investment practices that stray from

pecuniary considerations. Moreover, the

final rule reflects ERISA’s requirements,

and commenters acknowledged that the

duties of prudence and loyalty under

ERISA may not be the same investment

standards under which international

regulation is taking place. Accordingly,

international trends in the consideration

of ESG factors or the actions of

regulators in other countries are not an

appropriate gauge for evaluating

ERISA’s requirements as they apply to

investments of ERISA-covered employee

benefit plans.

d. Proxy Voting

Commenters expressed concern that

the proposal does not directly mention

proxy voting or corporate stewardship

and argue that any treatment of ESG

investment practices should include

those topics. Those issues technically

are outside of the scope of this

rulemaking. On September 4, 2020, the

Department published a proposed

amendment to the investment duties

regulation to address the application of

the prudence and exclusive purpose

duties to the exercise of shareholder

rights, including proxy voting, the use

of written proxy voting policies and

guidelines, and the selection and

monitoring of proxy advisory firms.

60

e. ESG Rating Systems and ESG Indices

Some commenters were concerned

that the Department’s expressed

skepticism about ESG rating systems

and its assertion that ‘‘[t]here is no

consensus about what constitutes a

genuine ESG investment, and ESG

rating systems are often vague and

inconsistent,’’ is unfair. They also

challenged the Department’s

observation that ‘‘fiduciaries should also

be skeptical of ‘ESG rating systems’—or

any other rating system that seeks to

measure, in whole or in part, the

potential of an investment to achieve

non-pecuniary goals—as a tool to select

designated investment alternatives, or

investments more generally.’’ Such

cautions, the commenters assert, cast a

pall on the use of ESG ratings and

substitute the judgment of the

Department for that of plan fiduciaries

who may find one or more of these

ratings an appropriate investment tool.

However, one commenter submitted

materials describing sustainability

ratings as ‘‘black boxes’’ in which

ratings providers publish only a general

description of their approaches; to the

extent that any more detailed

information is available, it is provided

only to subscribers.

Another commenter stated that

manufacturing companies often face

calls from third-party actors (who do not

have a stake in the business or any

interest in shareholders’ long-term

returns) to address ESG issues in a one-

size-fits-all way that meets only the

political needs of outside activists. In

recent years, the commenter argued, this

pressure has been driven in large part by

ESG ratings firms that have a financial

interest in ensuring more widespread

adoption of non-pecuniary ESG

investing criteria. The commenter

complained that these firms operate by

boiling down a complex issue (or, often,

multiple complex issues) into a single

numerical score or letter grade with

little to no disclosure as to how such

score or grade is calculated, nor its

impact on shareholder value creation.

These one-size-fits-all standards do not

take into account the individual

circumstances of a given company or

provide any context for a company’s

ESG work outside of the check-the-box

approach favored by the ratings firms.

Furthermore, the commenter avers, it is

often unclear to issuers and investors

alike exactly what data went into

calculating a given rating. This

commenter stated that pension plan

managers making investment decisions

based on these ratings are staking plan

participants’ retirement savings on the

opinions of unregulated, nontransparent

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61

Regulatory Planning and Review, 58 FR 51735

(Oct. 4, 1993).

62

Improving Regulation and Regulatory Review,

76 FR 3821 (Jan. 18, 2011).

63

5 U.S.C. 804(2) (1996).

64

Reducing Regulation and Controlling

Regulatory Costs, 82 FR 9339 (Jan. 30, 2017).

65

44 U.S.C. 3506(c)(2)(A) (1995).

66

5 U.S.C. 601 et seq. (1980).

67

2 U.S.C. 1501 et seq. (1995).

68

Federalism, 64 FR 153 (Aug. 4, 1999).

entities that have no obligation to make

decisions in pensioners’ best interests.

The commenter has called for the

Securities and Exchange Commission to

provide effective oversight of ESG raters

and strongly supports the DOL’s

guidance that ERISA fiduciaries should

be ‘‘skeptical’’ of ESG ratings systems.

Similarly, the commenter appreciated

that the proposed rule highlights the

fact that ESG ratings firms ‘‘typically

emphasize tick-the-box policies and

disclosure levels, data points unrelated

to investment performance, and/or

backward-looking negative events with

little predictive power.’’

In footnote 24 of the proposal, the

Department stated that fiduciaries

should be skeptical of ESG rating

systems—or any other rating system that

seeks to measure, in whole or in part,

the potential of an investment to

achieve non-pecuniary goals—as a tool

to select designated investment

alternatives, or investments more

generally. The Department has not

changed its views as to the need for

fiduciaries to carefully examine ESG

rating systems before relying on them to

make investment decisions. The

Department notes that an ERISA plan

fiduciary should evaluate any rating

system with care, skill, prudence, and

diligence in order to determine that the

rating system appropriately considers

only pecuniary factors if such rating

system is used to evaluate an

investment.

Skepticism of ESG or sustainability

rating systems is warranted under

ERISA because such ratings systems

may involve the evaluation of non-

pecuniary factors. While individual ‘E’,

‘S’, or ‘G’ factors evaluated by a ratings

provider may be a pecuniary factor for

a particular investment or investment

course of action it does not follow that

all factors under the ESG rubric are

pecuniary for all investments. And

because ESG factors are so disparate—

and often idiosyncratic—a fiduciary

may not assume that combining them

into a single rating, index, or score

creates an amalgamated factor that is

itself pecuniary. If ESG or sustainability

rating systems are to be used, a fiduciary

should conduct appropriate due

diligence to understand how the ratings

are determined, for example

methodology, weighting, data sources,

and the underlying assumptions used by

such rating systems. Similarly, in

selecting an investment fund that

follows an ESG index, a fiduciary

should also conduct appropriate due

diligence and understand the ESG index

objective, how the ESG index is

constructed and maintained, its

performance benchmarks, and how the

factors and weightings used by the ESG

index are pecuniary. For example,

should specific ESG factors become

reliably and consistently identified, and

widely recognized by qualified

investment managers as pecuniary

factors that are predictive of financial

performance, then nothing in the final

rule would prohibit their use by plan

fiduciaries.

f. Interpretive Bulletin 2015–1 (IB

2015–1) and Field Assistance Bulletin

2018–01 (FAB 2018–01)

The final rule also withdraws IB

2015–1 and removes it from the Code of

Federal Regulations. Accordingly, as of

publication of this final rule, IB 2015–

1 may no longer be relied upon as

reflecting the Department’s

interpretation of the application of

ERISA’s fiduciary responsibility

provisions to the selection of

investments and investment courses of

action.

Similarly, FAB 2018–01, which

concerned both ‘‘ESG Investment

Considerations’’ and ‘‘Shareholder

Engagement Activities,’’ is superseded

in part. Accordingly, as of publication of

this final rule, the portion of FAB 2018–

01 under the heading ‘‘ESG Investment

Considerations’’ will be null and void

and will be disregarded by the

Department.

E. Regulatory Impact Analysis

This section analyzes the regulatory

impact of a final regulation concerning

the legal standard imposed by sections

404(a)(1)(A) and 404(a)(1)(B) of ERISA

with respect to investment decisions

involving plan assets. In particular, it

addresses the selection of a plan

investment or, in the case of an ERISA

section 404(c) plan or other individual

account plan, a designated investment

alternative under the plan. This final

rule addresses the limitations that

section 404(a)(1)(A) and 404(a)(1)(B) of

ERISA impose on fiduciaries’

consideration of non-pecuniary benefits

and goals when making investment

decisions, including environmental,

social, and corporate governance and

other similar factors.

Thus, the rule sets forth standards of

prudence and loyalty for selecting and

monitoring investments. This rule

imposes some costs. For example, some

plans will incur costs to review the rule

to ensure compliance, document the

basis for certain investment decisions,

and ensure their QDIA does not contain

prohibited characteristics. The research

and analysis used to select investments

may change, but such a change is

unlikely to increase the overall cost. The

transfer impacts, benefits, and costs

associated with the final rule depend on

the number of plan fiduciaries that are

currently not following or are

misinterpreting the Department’s

existing sub-regulatory guidance. While

the Department does not have sufficient

data to estimate the number of such

fiduciaries, the Department’s educated

estimate is small, because most

fiduciaries are operating in compliance

with the Department’s sub-regulatory

guidance. The Department

acknowledges, however, that some plan

fiduciaries may be making investment

decisions that do not comply with the

requirements of this final rule.

Nevertheless, the Department expects

that the gains to investors will justify

the costs for participants and

beneficiaries covered by plans with

noncompliant investment fiduciaries. If

the Department’s educated estimate

regarding the number of noncompliant

fiduciaries is understated, the final

rule’s transfer impacts, and costs will be

proportionately higher. Even in this

instance, however, the Department

believes that the rule’s benefits and

gains to retirement investors justify its

costs.

The Department has examined the

effects of this rule as required by

Executive Order 12866,

61

Executive

Order 13563,

62

the Congressional

Review Act,

63

Executive Order 13771,

64

the Paperwork Reduction Act of 1995,

65

the Regulatory Flexibility Act,

66

section

202 of the Unfunded Mandates Reform

Act of 1995,

67

and Executive Order

13132.

68

1. Executive Orders 12866 and 13563

Executive Orders 12866 and 13563

direct agencies to assess all costs and

benefits of available regulatory

alternatives and, if regulation is

necessary, to select regulatory

approaches that maximize net benefits

(including potential economic,

environmental, public health and safety

effects; distributive impacts; and

equity). Executive Order 13563

emphasizes the importance of

quantifying costs and benefits, reducing

costs, harmonizing rules, and promoting

flexibility.

Under Executive Order 12866,

‘‘significant’’ regulatory actions are

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69

See Jon Hale, Sustainable Funds U.S.

Landscape Report: Record Flows and Strong Fund

Performance in 2019 (Feb. 14, 2020),

www.morningstar.com/lp/sustainable-funds-

landscape-report.

70

See Schanzenbach & Sitkoff, supra note 5, at

389–90 (distinguishing between ‘‘collateral benefits

ESG’’ investing—defined as ‘‘ESG investing for

moral or ethical reasons or to benefit a third

party’’—which is not permissible under ERISA, and

‘‘risk-return ESG’’ investing, which is).

71

Brad Smith & Kelly Regan, NEPC ESG Survey:

A Profile of Corporate & Healthcare Plan

Decisionmakers’ Perspectives, NEPC (Jul. 11, 2018),

https://cdn2.hubspot.net/hubfs/2529352/files/

2018%2007%20NEPC%20ESG%20Survey%

20Results%20.pdf?t=1532123276859.

72

2019 ESG Survey, Callan Institute (2019),

www.callan.com/wp-content/uploads/2019/09/

2019-ESG-Survey.pdf.

73

DOL calculations are based on statistics from

Private Pension Plan Bulletin: Abstract of 2018

Form 5500 Annual Reports, Employee Benefits

Security Administration (forthcoming 2020),

(46,869 * 19% = 8,905 DB plans).

74

Id. (93,033 * 19% = 17,676 plans).

subject to review by the Office of

Management and Budget (OMB).

Section 3(f) of the Executive Order

defines a ‘‘significant regulatory action’’

as an action that is likely to result in a

rule (1) having an annual effect on the

economy of $100 million or more, or

adversely and materially affecting a

sector of the economy, productivity,

competition, jobs, the environment,

public health or safety, or state, local, or

tribal governments or communities (also

referred to as ‘‘economically

significant’’); (2) creating a serious

inconsistency or otherwise interfering

with an action taken or planned by

another agency; (3) materially altering

the budgetary impacts of entitlement

grants, user fees, or loan programs or the

rights and obligations of recipients

thereof; or (4) raising novel legal or

policy issues arising out of legal

mandates, the President’s priorities, or

the principles set forth in the Executive

Order. It has been determined that this

rule is economically significant within

the meaning of section 3(f)(1) of the

Executive Order. Therefore, the

Department has provided an assessment

of the final rule’s potential costs,

benefits, and transfers, and OMB has

reviewed this final rule pursuant to the

Executive Order. Pursuant to the

Congressional Review Act, OMB has

designated this final rule as a ‘‘major

rule,’’ as defined by 5 U.S.C. 804(2),

because it would be likely to result in

an annual effect on the economy of $100

million or more.

1.1. Introduction and Need for

Regulation

Recently, there has been an increased

emphasis in the marketplace on

investments and investment courses of

action that further non-pecuniary

objectives, particularly what have been

termed environmental, social, and

corporate governance (ESG) investing.

69

The Department is concerned that the

growing emphasis on ESG investing,

and other non-pecuniary factors, may be

prompting ERISA plan fiduciaries to

make investment decisions for purposes

distinct from their responsibility to

provide benefits to participants and

beneficiaries and defray reasonable plan

administration expenses. The

Department is also concerned that some

investment products may be marketed

to ERISA fiduciaries on the basis of

purported benefits and goals unrelated

to financial performance.

The Department has periodically

considered the application of ERISA’s

fiduciary rules to plan investment

decisions that are based, in whole or

part, on non-pecuniary factors, and not

simply investment risks and expected

returns. The Department has made

various statements on the subject over

the years in sub-regulatory guidance not

issued pursuant to the Administrative

Procedure Act. Accordingly, this final

rule is necessary to interpret ERISA

regarding the scope of fiduciary duties

surrounding non-pecuniary issues.

Some commenters asserted that

ERISA’s prudence and loyalty duties do

not justify the need for the final rule.

The Department disagrees and firmly

believes that fiduciaries must evaluate

plan investments based solely on

pecuniary factors and not subordinate

the interests of the participants and

beneficiaries in their retirement income

or financial benefits under the plan to

unrelated objectives or sacrifice

investment return or take on additional

investment risk to promote goals

unrelated to the financial interests of the

plan’s participants and beneficiaries or

the purposes of the plan. The

Department believes that providing a

final regulation will help safeguard the

interests of participants and

beneficiaries in their plan benefits.

1.2. Affected Entities

The final rule will affect certain

ERISA-covered plans whose fiduciaries

consider or will begin considering non-

pecuniary factors when selecting

investments and the participants in

those plans. Indeed, the Department

received multiple comments from

entities who described their use of non-

pecuniary factors when selecting

investments and their intention to

continue using them in the future. The

best data available on the topic of non-

pecuniary investing comes from surveys

of ESG investing by plans, thus the data

used in this analysis is on ESG

investing. A challenge in relying on

survey data, however, is that one cannot

tell how much of the ESG investing

described is pecuniary or non-

pecuniary.

70

Further complicating

matters is that in selecting investments,

some plans may use non-pecuniary

factors that are not ESG factors, or are

not perceived to be ESG factors. If

survey respondents do not view them as

ESG factors, these plans would not be

identified by surveys.

The final rule requires plan

fiduciaries to meet a documentation

requirement when they are unable to

distinguish among alternative

investments based on pecuniary factors

alone and base their investment

decision on non-pecuniary factors. In

such circumstances, the fiduciary must

document (i) why pecuniary factors

were not sufficient to select the

investment or investment course of

action; (ii) how the investment

compares to the alternative investments

with regard to the certain factors, and

(iii) how the non-pecuniary chosen

factor is, or factors are, consistent with

interests of the participants and

beneficiaries in their retirement income

or financial benefits under the plan.

According to a 2018 survey by the

NEPC, approximately 12 percent of

private pension plans have adopted ESG

investing.

71

Another survey, conducted

by the Callan Institute in 2019, found

that about 19 percent of private sector

pension plans consider ESG factors in

investment decisions.

72

Both of these

estimates are calculated from samples

that include both defined benefit (DB)

and defined contribution (DC) plans.

Some DB plans that consider ESG

factors will not be affected by the final

rule because they focus only on the

financial aspects of ESG factors, rather

than on non-pecuniary objectives. In

order to generate an upper-bound

estimate of the costs, however, the

Department assumes that 19 percent of

DB plans will be affected by the final

rule. This represents approximately

8,905 DB plans.

73

The Department also

assumes that 19 percent of DC plans

with investments that are not

participant-directed will be affected;

this represents an additional 17,676

plans.

74

Participant-directed individual

account DC plans and their participants

will be affected by the final rule if

fiduciaries respond to participant

demand by examining ESG options for

inclusion among their plans’ designated

investment alternatives. Fiduciaries of

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75

62nd Annual Survey of Profit Sharing and

401(k) Plans, Plan Sponsor Council of America

(2019).

76

How America Saves 2019, Vanguard (June

2019), https://institutional.vanguard.com/iam/pdf/

HAS2019.pdf.

77

DOL calculations based on statistics from

Private Pension Plan Bulletin: Abstract of 2018

Form 5500 Annual Reports, Employee Benefits

Security Administration (forthcoming 2020),

(581,974 * 9% = 52,378 individual account plans

with participant direction).

78

62nd Annual Survey of Profit Sharing and

401(k) Plans, Plan Sponsor Council of America

(2019).

79

Id.

80

DOL calculations based on statistics from

Private Pension Plan Bulletin: Abstract of 2018

Form 5500 Annual Reports, Employee Benefits

Security Administration (forthcoming 2020),

(581,974 * 70% = 407,382 individual account plans

with participant direction).

81

62nd Annual Survey of Profit Sharing and

401(k) Plans, Plan Sponsor Council of America

(2019).

82

Morningstar, 2020 Target-Date Strategy

Landscape, How Target-Date Shareholders Fared in

the Coronavirus Bear Market and the Trends

Shaping the Future of Investing for Retirement

(2020).

83

407,383 * 0.001 = 407.

such plans may also select investments

using non-pecuniary factors when the

fiduciary is unable to distinguish

alternative investment options based on

pecuniary considerations. A small share

of individual account plans offer at least

one ESG-themed option among their

designated investment alternatives.

According to the Plan Sponsor Council

of America, about three percent of

401(k) and/or profit sharing plans

offered at least one ESG-themed

investment option in 2018.

75

Vanguard’s 2018 administrative data

show that approximately nine percent of

DC plans offered one or more ‘‘socially

responsible’’ domestic equity fund

options.

76

In a comment letter, Fidelity

Investments reported that 14.5 percent

of corporate DC plans with fewer than

50 participants offered an ESG option,

and that the figure is higher for large

plans with at least 1,000 participants.

Considering these sources together, the

Department estimates that nine percent

of participant-directed individual

account plans have at least one ESG-

themed designated investment

alternative and will be affected by the

final rule. This represents 52,378

participant-directed individual account

plans.

77

In terms of the actual

investment in ESG options, one survey

indicates that about 0.1 percent of total

DC plan assets are invested in ESG

funds.

78

The rule prevents any investment

fund, product, or model portfolio from

being added as, or as a component of,

a Qualified Default Investment

Alternative (QDIA) if its investment

objectives or goals or its principal

investment strategies include, consider,

or indicate the use of one or more non-

pecuniary factors. To assess the impact

of this provision, it is important to

determine how many DC plans have a

QDIA. According to a 2018 survey

conducted by the Plan Sponsor Council

of America, about 70 percent of DC

plans have a QDIA.

79

This represents

approximately 407,382 individual

account plans with participant

direction.

80

As specified in 29 CFR

2550.404c–5, there are four permitted

types of QDIAs: Target-date funds,

professionally managed accounts,

balanced funds, and capital preservation

products for only the first 120 days of

participation. The 2018 survey from

Plan Sponsor Council of America also

found that approximately 75 percent of

QDIAs are target-date funds, while 12

percent are balanced funds, 7 percent

are professionally managed accounts, 4

percent are stable value funds, and the

remaining 2 percent are investments

classified as ‘‘other.’’

81

To better understand how many plans

with QDIAs would be affected by the

rule, the Department looked at the

holdings of target-date fund providers.

According to Morningstar, the five

largest target-date fund providers

account for 79 percent of target-date

strategy assets.

82

The Department

examined the most recent holdings, as

of September 2020, of the target-date

funds offered by the five largest target-

date fund providers, denoting target-

date funds that either had an investment

strategy considering non-pecuniary

factors or that were invested in a fund

with a non-pecuniary investment focus.

Within this sample, the Department

found only one target-date fund

provider that had issued a target-date

series with an ESG focus. This series

was launched in 2020, and as of

September 2020, this series accounted

for less than 0.002 percent of assets in

the sample. The Department also

examined other target-date funds it was

aware of that had an ESG focus. When

looking at the total net asset value for

each of the target date series from

Morningstar Direct, the Department

found that target-date funds with an

ESG focus account for a very small

portion of the assets invested in the

target-date market. When looking at

preliminary data from BrightScope on

the holdings of 401(k) and 403(b) plans

for 2018, the Department found that

target-date funds with an ESG focus

account for an even smaller portion of

the target-date assets in ERISA plans.

For the purpose of this analysis, the

Department assumes that the

characteristics of the five largest

providers of target-date funds are

representative of the investment

alternatives offered as QDIAs. As the

target-date series noted above is

relatively new, and the Department is

aware of at least one other target-date

series focusing on non-pecuniary

factors, the Department assumes that 0.1

percent of plans will need to make

changes to their QDIAs. Based on the

foregoing, the Department assumes that

407 plans with QDIAs will be affected

by the rule.

83

1.3. Gains to Retirement Investors

The final rule will replace existing

guidance on the use of ESG and similar

factors in the selection of investments.

It will lead to less use of non-pecuniary

factors in selecting DB plan investments

and participant-directed individual

account plan QDIAs. These effects may

provide gains to retirement investors in

the form of higher returns by preventing

fiduciaries from selecting investments

by factoring in non-pecuniary ESG

considerations and requiring them to

base investment decisions on financial

factors.

The final rule states that fiduciaries

for DB plans must base investment

decisions on pecuniary factors unless

the plan fiduciary is unable to

distinguish alternative investment

options on the basis of pecuniary factors

and such a conclusion is properly

documented. This will lead to a

decrease in the use of non-pecuniary

factors in selecting DB plan

investments. Defined contribution plans

that do not have participant direction

will be similarly affected with the same

results.

This rule specifically addresses

circumstances when participant-

directed individual account plan

fiduciaries select designated investment

alternatives. Such fiduciaries are not

automatically prohibited from casting a

broad net to consider or include an

investment fund, product, or model

portfolio merely because the fund,

product, or model portfolio promotes,

seeks, or supports one or more non-

pecuniary goals, so long as fiduciaries

meet the final rule’s requirement to base

final selection decisions on pecuniary

factors. If the pecuniary factors lead to

situations where plan fiduciaries are

unable to distinguish alternative

investment options on the basis of

pecuniary factors, the plan fiduciary can

make a selection based on non-

pecuniary factors if they properly

document the basis for their decision. It

is unclear whether fiduciaries will

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84

Negative screening refers to the exclusion of

certain sectors, companies, or practices from a fund

or portfolio based on ESG criteria.

85

Tim Verheyden, Robert G. Eccles, and Andreas

Feiner, ESG for all? The Impact of ESG Screening

on Return, Risk, and Diversification. 28 Journal of

Applied Corporate Finance 2 (2016).

86

Alexander Kempf and Peer Osthoff, The Effect

of Socially Responsible Investing on Portfolio

Performance, 13 European Financial Management 5

(2007).

87

Yutaka Ito, Shunsuke Managi, and Akimi

Matsuda, Performances of Socially Responsible

Investment and Environmentally Friendly Funds, 64

Journal of the Operational Research Society 11

(2013).

88

Wayne Winegarden, Environmental, Social,

and Governance (ESG) Investing: An Evaluation of

the Evidence. Pacific Research Institute (2019).

89

Pieter Jan Trinks and Bert Scholtens, The

Opportunity Cost of Negative Screening in Socially

Responsible Investing, 140 Journal of Business

Ethics 2 (2014).

90

Luis Ferruz, Fernando Mun

˜oz, and Ruth

Vicente, Effect of Positive Screens on Financial

Performance: Evidence from Ethical Mutual Fund

Industry (2012).

91

Rocco Ciciretti, Ambrogio Dalo

`, and

Lammertjan Dam, The Contributions of Betas versus

Characteristics to the ESG Premium (2019).

92

Sylvain Marsat and Benjamin Williams, CSR

and Market Valuation: International Evidence.

Bankers, Markets & Investors: An Academic &

Professional Review, Groupe Banque (2013).

93

Elizabeth Goldreyer and David Diltz, The

Performance of Socially Responsible Mutual Funds:

Incorporating Sociopolitical Information in

Portfolio Selection, 25 Managerial Finance 1 (1999).

94

Luc Renneboog, Jenke Ter Horst, and Chendi

Zhang, The Price of Ethics and Stakeholder

Governance: The Performance of Socially

Responsible Mutual Funds, 14 Journal of Corporate

Finance 3 (2008).

95

Zakri Bello, Socially responsible investing and

portfolio diversification, 28 Journal of Financial

Research 1 (2005).

96

Positive screening refers to including certain

sectors and companies that meets the criteria of

non-financial objectives.

97

Ferruz, Mun

˜oz, and Vicente, Effect of Positive

Screens on Financial Performance (2012).

98

Jacquelyn Humphrey and David Tan, Does It

Really Hurt to be Responsible?, 122 Journal of

Business Ethics 3 (2014).

increase selection of non-pecuniary

funds as designated investment

alternatives, and consequently, how

returns may be affected.

Furthermore, the rule prohibits plan

fiduciaries from adding any investment

fund, product, or model portfolio as, or

as a component of, a QDIA if its

investment objectives or goals or its

principal investment strategies include,

consider, or indicate the use of one or

more non-pecuniary factors. The

Department expects that requiring a

fiduciary’s selection of a QDIA to be

based solely on pecuniary factors will

lead to higher returns for the reasons

discussed above.

Some commenters objected to the

Department’s characterization in the

proposal of the empirical research

assessing ESG investing. Indeed, the

research studies have a wide range of

findings. Some studies have shown that

ESG investing outperforms conventional

investing. Verheyden, Eccles, and

Feiner’s research analyzes stock

portfolios that used negative

screening

84

to exclude operating

companies with poor ESG records from

the portfolios.

85

The study finds that

negative screening tends to increase a

stock portfolio’s annual performance by

0.16 percent. Similarly, Kempf and

Osthoff’s research, which examines

stocks in the S&P 500 and the Domini

400 Social Index (renamed as the MSCI

KLD 400 Social Index in 2010), finds

that it is financially beneficial for

investors to positively screen their

portfolios.

86

Additionally, Ito, Managi,

and Matsuda’s research finds that

socially responsible funds outperformed

conventional funds in the European

Union and United States.

87

In contrast, other studies have found

that ESG investing has resulted in lower

returns than conventional investing. For

example, Winegarden shows that over

ten years, a portfolio of ESG funds has

a return that is 43.9 percent lower than

if it had been invested in an S&P 500

index fund.

88

Trinks and Scholten’s

research, which examines socially

responsible investment funds, finds that

a screened market portfolio significantly

underperforms an unscreened market

portfolio.

89

Ferruz, Mun

˜oz, and

Vicente’s research, which examines U.S.

mutual funds, finds that a portfolio of

mutual funds that implements negative

screening underperforms a portfolio of

conventionally matched pairs.

90

Likewise, Ciciretti, Dalo

`, and Dam’s

research, which analyzes a global

sample of operating companies, finds

that companies that score poorly in

terms of ESG indicators have higher

expected returns.

91

Marsat and

Williams’ research has very similar

findings.

92

Operating companies with

better ESG scores according to MSCI

had lower market valuation.

Furthermore, there are many studies

with inconclusive results. Goldreyer

and Diltz’s research, which examines 49

socially responsible mutual funds, finds

that employing positive social screens

does not affect the investment

performance of mutual funds.

93

Similarly, Renneboog, Ter Horst, and

Zhang’s research, which analyzes global

socially responsible mutual funds, finds

that the risk-adjusted returns of socially

responsible mutual funds are not

statistically different from conventional

funds.

94

Bello’s research, which

examines 126 mutual funds, finds that

the long-run investment performance is

not statistically different between

conventional and socially responsible

funds.

95

Likewise, Ferruz, Mun

˜oz, and

Vicente’s research finds that a portfolio

of mutual funds that implement positive

screening

96

performs equally well as a

portfolio of conventionally matched-

pairs.

97

Finally, Humphrey and Tan’s

research, which examines socially

responsible investment funds, finds no

evidence of negative screening affecting

the risks or returns of portfolios.

98

The final rule emphasizes the

importance of plan fiduciaries focusing

on pecuniary factors when selecting

investments. This emphasis may

encourage fiduciaries to pay greater

attention to fees. If, as a result of the

final rule, assets are invested in funds

with lower fees on average, the reduced

fees, minus potential upfront transition

costs, will represent gains to retirement

investors.

To the extent that ESG and other

investing decisions sacrifice return to

achieve non-pecuniary goals, it reduces

participant and beneficiaries’ retirement

investment returns, thereby

compromising a central purpose of

ERISA. Given the increase in ESG

investing, the Department is concerned

that, without this rulemaking, non-

pecuniary ESG investing will present a

growing threat to ERISA fiduciary

standards and, ultimately, to investment

returns and retirement income security

for plan participants and beneficiaries.

The gains to investors derived from

higher investment returns compounded

over many years could be considerable

for plans and participants that would be

impacted by plan fiduciaries’ increased

reliance on pecuniary factors as

required by the final rule.

If some portion of the increased

returns realized by the rule are

associated with ESG investments

generating lower pre-fee returns than

non-ESG investments (as regards

economic impacts that can be

internalized by parties conducting

market transactions), then the new

returns qualify as gains to investors

from the rule. It would, however, be

important to track externalities, public

goods, or other market failures that

might lead to economic effects of the

non-ESG activities being potentially less

fully internalized than ESG activities’

effects would, and thus generating costs

to society on an ongoing basis. Finally,

if some portion of the increased returns

would be associated with transactions

in which the opposite party experiences

decreased returns of equal magnitude,

then this portion of the rule’s impact

would, from a society-wide perspective,

be appropriately categorized as a

transfer (though it should be noted that,

if there is evidence of wealth differing

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across the transaction parties, it would

have implications for marginal utility of

the assets).

1.4. Costs

This final rule provides guidance on

the investment duties of a plan

fiduciary. Under this final rule, plan

fiduciaries who consider ESG and

similar factors when choosing

investments will be reminded that they

may evaluate only the investments’

relevant economic pecuniary factors to

determine the risk and return profiles of

the alternatives. It is the Department’s

view that many plan fiduciaries already

undertake such evaluations, though

many that consider ESG and similar

factors may not be treating those as

pecuniary factors within the risk-return

evaluation. This final rule will not

impair fiduciaries’ appropriate

consideration of ESG factors in

circumstances where such consideration

is material to the risk-return analysis

and, as a result, advances participants’

interests in their retirement benefits.

The Department does not intend to

increase fiduciaries’ burden of care

attendant to such consideration;

therefore, no additional costs are

estimated for this requirement. While

fiduciaries may modify the research

approach they use to select investments

as a consequence of the final rule, the

Department assumes this modification

will not impose significant additional

cost.

The Department solicited comments

on its cost analysis in the regulatory

impact analysis for the proposed rule.

While some commenters provided

insights the Department could use to

improve its analysis, few commenters

provided additional data or data sources

to help the Department quantify the cost

impacts of the rule.

Commenters suggested that the

analysis did not account for the

movement from ESG assets to non-ESG

assets due to the rule and the related

costs of this movement. Commenters

provided several reasons for this

movement including, the proposed rule

favors non-ESG investments; additional

costs are required to document

decisions to invest in ESG investments

in certain circumstances; and increased

litigation risk. Commenters suggested

that this movement from ESG to non-

ESG investments would create a cost

due to lost returns, suggesting that ESG

investments outperform non-ESG

investments.

The Department disagrees with most

of these comments; changes made in the

final rule strengthen the Department’s

view that commenters’ concerns are

overstated. For example, the final rule

reaffirms that plan investments and

investment alternatives are to be chosen

based on pecuniary factors. If an

investment, including an ESG

investment, is expected to outperform

other similar investments, fills a plan’s

needs, and meets other relevant

requirements under ERISA, it can be

selected and the plan and plan

participants will benefit from its

inclusion. If an investment, including

an ESG investment, is expected to

underperform other similar investments,

it does not satisfy the final rule’s

requirements and should not be

selected. Plan investments or

investment alternatives that previously

followed this requirement will not

experience a change in economic

performance. If plan investments or

investment alternatives were selected

based on non-pecuniary factors and they

are not maximizing the economic

benefits of the plan, they should be

replaced, which would increase the

returns to the plan. Thus, the

requirement to consider only pecuniary

factors only serves to benefit the plan,

and additional losses are less likely to

be incurred as suggested by

commenters.

Commenters also suggested that the

requirement to document the decision

when fiduciaries use non-pecuniary

factors to choose between alternative

investment options that cannot be

distinguished based on pecuniary

factors could drive up costs.

Commenters said that these costs would

lead plans to avoid selecting ESG assets

due to the added cost, even when they

are beneficial. The final rule

significantly reduces the documentation

requirements from the proposal. In the

final rule, the Department explicitly

requires plan fiduciaries to document

three elements identified in the final

rule only in the discrete (and likely rare)

situations in which a fiduciary cannot

distinguish between alternatives based

on pecuniary factors. Stating precisely

what is required to be documented in

the final rule should help both lower

compliance costs and address concerns

about liability exposure, because

fiduciaries will have clear expectations

of what is expected. While the

Department does include a requirement

to document the decision, it continues

to believe that a prudent process would

already require plan fiduciaries to have

considered responses to these questions,

so the only added costs would be to

document their reasoning and many

plan fiduciaries already are doing this as

part of a prudent selection process.

Further, commenters suggested that

the requirement to document the use of

non-pecuniary factors would subject

ESG factors to a different standard of

analysis that would diminish a

fiduciary’s ability to act in the best

interest of plan participants. In response

to comments, the Department has

removed the proposed requirement to

document the selection and monitoring

of designated investment alternatives

that include ESG assessments. A

different standard is not being created in

this final rule. Fiduciaries should use a

prudent process for selecting all

investments. In exchange for using a

non-pecuniary factor to select between

or among investment alternatives that

the fiduciary prudently determines

would serve equivalent roles in the

plan’s portfolio, the rule requires

fiduciaries to prepare a justification to

help ensure that the decision is

consistent with interests of participants

and beneficiaries in their retirement

income or financial benefits under the

plan and not based on any other

consideration.

Some commenters also expressed

concern that the regulation would limit

diversification and a fiduciary’s ability

to consider all material factors in an

investment decision. The regulation

specifies that compliance with section

404(a)(1)(B) of ERISA requires a

fiduciary of an employee benefit plan to

evaluate investments and investment

courses of action based solely on

pecuniary factors that have had a

material effect on the return and risk.

The regulation does not restrict

consideration of any asset classes or

sectors of investment so long as

investment decisions are made solely in

the interest of the plan’s financial

objective of providing retirement

income for plan participants and

beneficiaries.

Commenters suggested that the

Department did not appropriately

consider an investment’s time horizon

at all or focused only on a short-time

horizon. The Department disagrees. The

rule requires plan fiduciaries to

‘‘evaluate investments and investment

courses of action based solely on

pecuniary factors that have a material

effect on the return and risk of an

investment based on appropriate

investment horizons.’’ The appropriate

time horizon to consider for an

investment or investment alternative

can be plan specific, and the rule allows

the plan fiduciary to make that

determination for their plan.

Some commenters expressed concern

regarding how the regulation will affect

the behavior of plan participants

(participation rates, elective deferrals,

and investment choices) and plan

sponsors (offering of ESG options in

plan investment menus). A change to

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99

DOL calculations based on statistics from U.S.

Department of Labor, Employee Benefits Security

Administration, ‘‘Private Pension Plan Bulletin:

Abstract of 2018 Form 5500 Annual Reports,’’

(forthcoming 2020), (46,869 DB plans * 19% =

8,905 DB plans; 93,033 DC Plans * 19% = 17,676

DC plans; 581,974 * 6% = 34,918 individual

account plans with participant direction).

100

DOL calculations based on statistics from

Private Pension Plan Bulletin: Abstract of 2018

Form 5500 Annual Reports, Employee Benefits

Security Administration (forthcoming 2020),

(581,974 * 9% = 52,378 individual account plans

with participant direction).

101

DOL calculations based on statistics from U.S.

Department of Labor, Employee Benefits Security

Administration, ‘‘Private Pension Plan Bulletin:

Abstract of 2018 Form 5500 Annual Reports,’’

(forthcoming 2020), (46,869 DB plans * 19% =

8,905 DB plans; 93,033 DC Plans * 19% = 17,676

DC plans; 581,974 * 6% = 34,918 individual

account plans with participant direction).

102

The Department estimated that there are

78,959 plans that will need to ensure compliance

with the final rule. The burden is estimated as

follows: (78,959 plans * 4 hours) = 315,836 hours.

A labor rate of $138.41 is used for a lawyer. The

cost burden is estimated as follows: (78,959 plans

* 4 hours * $138.41) = $43,714,860.76. Labor rates

are based on DOL estimates from Labor Cost Inputs

Used in the Employee Benefits Security

Administration, Office of Policy and Research’s

Regulatory Impact Analyses and Paperwork

Reduction Act Burden Calculation, Employee

Benefits Security Administration (June 2019),

www.dol.gov/sites/dolgov/files/EBSA/laws-and-

regulations/rules-and-regulations/technical-

appendices/labor-cost-inputs-used-in-ebsa-opr-ria-

and-pra-burden-calculations-june-2019.pdf.

103

See Schanzenbach & Sitkoff, supra note 5, at

410 (describing a hypothetical pair of truly identical

investments as a ‘‘unicorn’’).

104

The Department estimated that there are

407,383 DC plans with QDIAs and that 0.1 percent,

or 407 plans, will need to reconsider their QDIAs

as a result of the rule. The burden is estimated as

follows: (407,383 plans * 0.001 * 20 hours) = 814

hours. A labor rate of $134.21 is used for a plan

fiduciary. The cost burden is estimated as follows:

(407,383 plans * 0.001 * 20 hours * $134.21) =

$1,092,469.40. Labor rates are based on DOL

estimates from Labor Cost Inputs Used in the

Employee Benefits Security Administration, Office

of Policy and Research’s Regulatory Impact

Analyses and Paperwork Reduction Act Burden

Calculation, Employee Benefits Security

Administration (June 2019), www.dol.gov/sites/

dolgov/files/EBSA/laws-and-regulations/rules-and-

regulations/technical-appendices/labor-cost-inputs-

used-in-ebsa-opr-ria-and-pra-burden-calculations-

june-2019.pdf.

the final rule makes it clear that

participant-directed individual account

plan fiduciaries are not automatically

prohibited from considering or

including an investment fund, product,

or model portfolio merely because the

fund, product, or model portfolio

promotes, seeks, or supports one or

more non-pecuniary goals, provided

that certain requirements are met. As

discussed above, this could lead to

increased participation or inflows of

assets into plans.

Several of the commenters note that

the rule would require plan fiduciaries

to read the rule and review investment

policy statements to ensure they are in

compliance. The Department estimates

that 78,959 plans have exposure to

investments with non-pecuniary

objectives, consisting of 8,905 DB

plans,

99

52,378 participant-directed

individual account plans,

100

and 17,676

DC plans with ESG investments that are

not participant directed.

101

In the

proposal, the Department estimated that

the incremental costs would be

‘‘minimal.’’ The Department agrees with

commenters that fiduciaries of each of

these types of plans will need to spend

time reviewing the final rule, evaluating

how it affects their investment practices,

and implementing any necessary

changes. The Department now estimates

that this review process will require a

lawyer to spend approximately four

hours to complete, resulting in a cost

burden of approximately $44 million.

102

The Department believes that these

processes will likely be performed by a

service provider for most plans that

likely oversee multiple plans. Therefore,

the Department’s estimate likely is an

upper bound, because it is based on the

number of affected plans. The

Department does not have data that

would allow it to estimate the number

of service providers acting in such a

capacity for these plans.

Some fiduciaries will select

investments that are different from what

they would have selected pre-rule. As

part of a routine evaluation of the plan’s

investments or investment alternatives,

fiduciaries may replace an investment

or investment alternative. This could

lead to some disruption, particularly for

participant-directed DC plans. If a plan

fiduciary removes an ESG fund as a

designated investment alternative and

does not replace it with a more

appropriate ESG fund as a result of this

final rule, participants invested in the

ESG fund will have to pick a new fund

that may not be comparable from their

perspective. This could be disruptive.

Paragraph (c)(1) of the final rule

provides that a fiduciary’s evaluation of

an investment must be focused on

pecuniary factors. Paragraph (c)(2)

addresses investment alternatives that

the fiduciary prudently determines

would serve equivalent roles in the

plan’s portfolio and that which the plan

fiduciary is unable to distinguish on the

basis of pecuniary factors alone. In such

cases, a fiduciary may choose between

such alternatives based on non-

pecuniary factors provided the fiduciary

documents (1) why the pecuniary

factors were not sufficient to select the

investment; (2) why the fiduciary

believes diversification among the

investments under consideration would

not be prudent; and (3) how the chosen

non-pecuniary factors are consistent

with the interests of the plan. The

Department continues to believe that the

likelihood that a plan fiduciary will be

unable to distinguish between two

investment options based on pecuniary

factors is rare; therefore, the need to

document such circumstances also will

be rare.

103

In those rare instances, the

documentation requirement could be

burdensome if fiduciaries are not

currently documenting decisions. The

Department estimates that this

requirement will not result in a

substantial cost burden, because it

concludes that situations where plan

fiduciaries are unable to distinguish

between alternative investment options

based on pecuniary factors are rare. The

cost for the documentation requirement

is estimated to be $122,000 annually.

The estimation of this cost is discussed

in the Paperwork Reduction Act (PRA)

section.

The final rule provides that under no

circumstances may any investment

fund, product, or model portfolio be

added as, or as a component of, a QDIA

if its investment objectives or goals or

its principal investment strategies

include, consider, or indicate the use of

one or more non-pecuniary factors. The

final rule provides a transition provision

requiring plans to bring their QDIAs

into compliance with the final rule by

April 30, 2022. This transition provision

is intended to provide sufficient time for

plans to review and make any necessary

changes to their QDIAs to bring them

into compliance. The Department

believes as plans familiarize themselves

with the rule, they are likely to make

necessary changes. Accordingly, the

Department assumes that associated

costs will be incurred during the first

year. The Department estimates that it

will take on average 20 hours (in

addition to any time fiduciaries

customarily spend reviewing and

changing their QDIAs) for fiduciaries of

a plan offering QDIAs with exposure to

non-pecuniary investment objectives to

review and change their QDIAs

resulting in a cost of $1.1 million.

104

The use of ESG investment

alternatives in participant-directed

plans has potential as a marketing tool

that may increase retirement savings

contributions for some investors. To the

extent the rule reduces access to ESG

investment alternatives retirement

investors may reduce their future

contributions. The Department is not

aware of any empirical evidence

assessing whether ESG investing is

associated with increased rates of

retirement savings.

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105

See generally Government Accountability

Office Report No. 18–398, Retirement Plan

Investing: Clearer Information on Consideration of

Environmental, Social, and Governance Factors

Would Be Helpful (May 2018), at 25–27; Principles

for Responsible Investment, Fiduciary Duty in the

21st Century, supra note 12, at 21–22, 50–51.

1.5. Uncertainty

It is unclear how many plan

fiduciaries use non-pecuniary factors

when selecting investments and the

total asset value of investments that are

selected in this manner, particularly for

DB plans. While there is some survey

evidence on how many DB plans factor

in ESG considerations, the surveys were

based on small samples and yielded

varying results. It is also not clear

whether survey information about ESG

investing accurately represents the

prevalence of investing that

incorporates non-pecuniary factors. For

instance, some non-pecuniary investing

concentrates on issues that are not

thought of as ESG-related. At the same

time, some investment policies take

account of environmental factors and

corporate governance in a manner that

focuses exclusively on the financial

aspects of those considerations.

The final rule will replace the

Department’s existing sub-regulatory

guidance on using non-pecuniary

factors while selecting plan

investments. It is very difficult to

estimate how many plans have

fiduciaries that are currently using non-

pecuniary factors improperly while

selecting investments. Such plans will

experience significant effects from the

final rule. It is also difficult to estimate

the degree to which the use of non-

pecuniary factors by ERISA fiduciaries,

ESG or otherwise, would expand in the

future absent this rulemaking, though

trends in other countries suggest that

pressure for such expansion will

continue only to increase.

105

However,

based on current trends the Department

believes that the use of non-pecuniary

factors by ERISA plan fiduciaries would

likely increase moderately in the future

without this rulemaking.

1.6. Alternatives

The Department considered several

alternatives to the final regulation. One

alternative would prohibit plan

fiduciaries from ever considering ESG

factors. This would address the

Department’s concerns that some plan

fiduciaries may sacrifice return or

increase investment risk to promote

goals that are unrelated to the financial

interests of the plan or its participants.

However, the Department rejected this

alternative, because it would prohibit

fiduciaries from considering such

factors even when the fiduciaries are

focused on the financial aspects rather

than the non-pecuniary aspects of the

investments.

The Department also considered

prohibiting plan fiduciaries from basing

investment decisions on non-pecuniary

factors and prohibiting the use of non-

pecuniary factors even where the

alternative investment options cannot

be distinguished based on pecuniary

factors (the so-called ‘‘tie-breaker’’

provision). However, if the alternative

investment options cannot be

distinguished on the basis of pecuniary

factors, it is not clear what factors

would be available to a plan fiduciary

to base its decision on other than a non-

pecuniary factor. Regardless, the

Department believes that investment

options that cannot be distinguished on

the basis of pecuniary factors occur very

rarely in practice, if at all. Accordingly,

this final rule provides that when

choosing between investment

alternatives that the fiduciary prudently

determines would serve equivalent roles

in the plan’s portfolio or the portion of

the portfolio over which the fiduciary

has responsibility and which the plan

fiduciary is unable to distinguish on the

basis of pecuniary factors alone, the

fiduciary may base the investment

decision non-pecuniary factors provided

the fiduciary documents the following:

(1) Why the pecuniary factors were not

sufficient to select the investment; (2)

how the investment compares to

alternative investments with regard to

the factors listed in paragraphs

(b)(2)(ii)(A) through (C) of the final rule;

and (3) how the chosen non-pecuniary

factors are consistent with the interests

of the plan.

The Department notes that the

proposal did not expressly incorporate

the tie-breaker provision into the

regulatory provision on selection of

investment options for individual

account plans. The Department

explained in the proposal its

perspective that the concept of ‘‘ties’’

may have little relevance in the context

of fiduciaries’ selection of menu options

for individual account plans as such

investment options are often chosen

precisely for their varied characteristics

and the range of choices they offer plan

participants. Further, the Department

explained that because the proposal did

not restrict the addition of prudently

selected, well managed investment

options for individual account plans

that include non-pecuniary factors if

they can be justified solely on the basis

of pecuniary factors, there would be

little need for a tie-breaker between

selected investment funds. Nonetheless,

some commenters expressed uncertainty

regarding the interaction of paragraph

(c)(2) and the provisions of the proposal

on selecting investment options for

individual account plans. Some

commenters asked the Department to

expressly make the tie-breaker available

for such investment decisions.

Although the Department continues to

doubt the relevance of a ‘‘tie’’ concept

when adding investment alternatives to

a platform of investments that allow

participants and beneficiaries to choose

from a broad range of investment

alternatives as defined in 29 CFR

2550.404c–1(b)(3), the final rule makes

the tie-breaker provisions in paragraph

(c) generally available for use in

selecting investment options for

individual account plans in the event

the fiduciaries of the plan believe that

it gives them some added flexibility and

fiduciary protection when adding an

investment fund, product, or model

portfolio that promotes, seeks, or

supports one or more non-pecuniary

goals.

Paragraph (d) of the final rule

contains standards applicable to

participant-directed individual account

plans. The predecessor standards for

participant-directed individual account

plans were set forth in paragraph (c)(3)

of the proposal. Paragraph (c)(3)(ii) of

the proposal would have required plan

fiduciaries to document their

compliance with the requirement to use

only objective risk-return criteria in the

selection and monitoring of investment

platforms or menu alternatives. The

Department included the cost plan

fiduciaries would incur to comply with

this documentation requirement in its

cost estimates for the proposal.

The Department considered including

this documentation requirement in the

final rule; however, it determined not to

include such requirement in paragraph

(d)(2) of the final rule. The Department

was persuaded by some commenters’

concerns that this requirement would

have applied more stringent

requirements to ESG investment

alternatives than other types of

investment alternatives. These

commenters argued that it is

inappropriate to impose separate

documentation requirements that vary

by investment strategy. Other

commenters objected to this

requirement on the grounds that it

would increase costs to plans and

potentially provide grounds for

unwarranted class action lawsuits. The

Department believes that the approach

reflected in the final rule best reflects

ERISA’s statutory obligations of

prudence and loyalty, appropriately

ensures that small and large plan

fiduciaries’ decisions will be guided by

the financial interests of the plans and

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106

The costs would be $44.5 million over 10-year

period with an annualized cost of $5.2 million,

applying a three percent discount rate.

107

The annualized costs in 2016 dollars would be

$1.4 million applying a three percent discount rate.

108

DOL calculations based on statistics from U.S.

Department of Labor, Employee Benefits Security

Administration, ‘‘Private Pension Plan Bulletin:

Abstract of 2018 Form 5500 Annual Reports,’’

(forthcoming 2020), (46,869 DB plans * 19% =

8,905 DB plans; 93,033 DC Plans * 19% = 17,676

DC plans; 581,974 * 9% = 52,378 individual

account plans with participant direction).

participants to whom they owe duties of

prudence and loyalty, and is the most

efficient alternative to apply and

enforce.

1.7. Conclusion

The final rule describes when and

how fiduciaries can fulfill their

responsibilities by factoring in only

pecuniary considerations when

selecting and monitoring investments.

Some plans and their service providers

will incur costs to (1) review the rule

and if necessary, modify their processes

for selecting and monitoring

investments, (2) make changes to their

QDIA if it does not align with the final

rule’s requirements, and (3) document

selections where alternative investment

options cannot be distinguished on the

basis of pecuniary factors. The

Department does not expect these

requirements to impose a significant

cost increase. The final rule mitigates

some costs by allowing plans to make

any required changes to QDIAs when

necessary to comply with the

requirements of paragraph (d)(2) by

April 30, 2022. The Department also

believes cost will be mitigated, because

circumstances where alternative

investment options that cannot be

distinguished based on pecuniary

factors should occur very rarely in

practice.

Although the final rule will replace its

prior sub-regulatory guidance, the

Department believes that there is

significant overlap in the content of

each. Overall, the final rule will assist

fiduciaries in carrying out their

responsibilities by avoiding making

investment decisions based on non-

pecuniary factors, while protecting the

financial interests of participants and

beneficiaries in their retirement benefits

under their plans.

The Department estimates that the

final rule would impose incremental

costs of approximately $44.9 million in

the first year and $122,000 in

subsequent years. Over 10 years, the

associated costs would be

approximately $42.7 million with an

annualized cost of $6.1 million, using a

seven percent discount rate.

106

Using a

perpetual time horizon (to allow the

comparisons required under Executive

Order 13771), the annualized costs in

2016 dollars are $2.9 million at a seven

percent discount rate.

107

1. Paperwork Reduction Act

In accordance with the Paperwork

Reduction Act of 1995 (PRA 95) (44

U.S.C. 3506(c)(2)(A)), the Department

solicited comments concerning the

information collection request (ICR)

included in the Financial Factors in

Selecting Plan Investments ICR (85 FR

39113). At the same time, the

Department also submitted an

information collection request (ICR) to

the Office of Management and Budget

(OMB), in accordance with 44 U.S.C.

3507(d). OMB filed a comment on the

proposed rule with the Department on

August 25, 2020, requesting the

Department to provide a summary of

comments received on the ICR and

identify changes to the ICR made in

response to the comments. OMB did not

approve the ICR, and requested the

Department to file future submissions of

the ICR under OMB control number

1210–0162.

The Department received several

comments that specifically addressed

the paperwork burden analysis of the

information collection requirement

contained in the proposed rule. The

Department took into account such

public comments in developing the

revised paperwork burden analysis

discussed below.

In connection with publication of this

final rule, the Department is submitting

an ICR to OMB requesting approval of

a new collection of information under

OMB Control Number 1210–0162. The

Department will notify the public when

OMB approves the ICR.

A copy of the ICR may be obtained by

contacting the PRA addressee shown

below or at www.RegInfo.gov. PRA

ADDRESSEE: G. Christopher Cosby,

Office of Regulations and

Interpretations, U.S. Department of

Labor, Employee Benefits Security

Administration, 200 Constitution

Avenue NW, Room N–5718,

Washington, DC 20210; cosby.chris@

dol.gov. Telephone: 202–693–8410; Fax:

202–219–4745. These are not toll-free

numbers.

In prior guidance, the Department has

encouraged plan fiduciaries to

appropriately document their

investment activities, and the

Department believes it is common

practice. The final rule expressly

requires only that, where a plan

fiduciary or its service provider

determines that alternative investments

are unable to be distinguished on the

basis of pecuniary factors alone, the

fiduciary or the plan’s service provider

further documents the basis for

concluding that a distinguishing factor

could not be found and the reason that

the investment was selected based on

non-pecuniary factors. Nevertheless, the

Department believes that the likelihood

of two investment options that cannot

be distinguished based on pecuniary

factors is very rare.

While the incremental burden of the

final regulation is small, the full burden

of the requirements will be included

below as required by the PRA to allow

for evaluation of the requirements in the

entire information collection.

According to the most recent Form

5500 data and other assumptions

discussed in the affected entities section

above, there are 8,905 DB plans and

17,676 DC plans with ESG investments

that are not participant directed, and

52,378 participant-directed individual

account plans.

108

These plans and their

service providers could be affected by

the final rule. While the Department

does not have data regarding the

frequency of the rare event of

alternatives being not distinguished on

the basis of pecuniary factors and

requiring documentation, the

Department models the burden using

one percent of plans with ESG

investments as needing to comply with

the documentation requirement.

While DB plans may change

investments at least annually, DC plans

may do so less frequently. For this

analysis, DC plans are assumed to

review their service providers and

investments about every three years.

Therefore, the Department estimates

that in a year, 89 DB plans and 59 DC

plans with ESG investments that are not

participant directed, and 175

participant-directed DC plans with ESG

alternatives will encounter alternative

investment options that cannot be

distinguished on the basis of pecuniary

factors.

2.1. Maintain Documentation

The final rule requires ESG plan

fiduciaries to maintain documentation

when choosing between or among

investment alternatives that the

fiduciary prudently determines would

serve equivalent roles in the plan’s

portfolio based on appropriate

consideration of the investment and that

the plan fiduciary is unable to

distinguish on the basis of pecuniary

factors and the fiduciary bases the

investment decision on non-pecuniary

factors. While much of the

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109

The burden is estimated as follows: (8,905 DB

plans * 0.01 * 2 hours) + (17,676 DC plans * 0.01

* 2 hours * 0.33) + (52,378 DC plans with

participant direction * 0.01 * 2 hours * 0.33) = 645

hours for both a plan fiduciary and clerical staff for

a total of 1,290. A labor rate of $134.21 is used for

a plan fiduciary and a labor rate of $55.14 for

clerical staff ((8,905 DB plans * 0.01 * 2 * $134.21)

+ (17,676 DC plans * 0.01 * 2 hours* 0.33 *

$134.21)) + (52,378 DC plans with participant

direction * 0.01 * 2 hours * 0.33 * $134.21) + (8,905

DB plans * 0.01 * 2 * $55.14) + (17,676 DC plans

* 0.01 * 2 hours* 0.33 * $55.14)) + (52,378 DC plans

with participant direction * 0.01 * 2 hours * 0.33

* $55.14) = $122,115).

110

5 U.S.C. 601 et seq. (1980).

111

5 U.S.C. 551 et seq. (1946).

112

The Department consulted with the Small

Business Administration’s Office of Advocacy

before making this determination, as required by 5

U.S.C. 603(c) and 13 CFR 121.903(c).

113

13 CFR 121.201.

114

15 U.S.C. 631 et seq.

documentation needed to fulfill this

requirement is generated in the normal

course of business, plans may need

additional time to ensure records are

properly maintained and are up to the

standard required by the Department.

Some commenters suggested that the

Department underestimated the cost

associated with documenting the

required information. Specifically, they

asserted that the Department

underestimated the labor rates for

attorneys and the time required to

document the required information. The

Department disagrees with both of these

comments. Instead of using an attorney

labor rate, the Department based its

estimate on a plan fiduciary’s labor rate,

because this task could be performed by

attorneys or other types of professionals

including financial professionals. The

labor rate estimates were based on

estimates from the Bureau of Labor

Statistics (BLS). While the Department

understands that hiring outside services

can come at a higher cost, the

Department believes that using the BLS

estimate is appropriate for purposes of

this analysis.

Commenters claimed that the two

hours estimated to document when

alternative investments cannot be

distinguished based on pecuniary

factors underestimated the burden. The

Department continues to believe that a

prudent process required by ERISA

should already include the burden of

research and consideration. The burden

associated with this ICR is for plan

fiduciaries to meet the final rule’s

specific documentation requirement. In

the final rule, the Department explicitly

set forth the three items that must be

documented. Stating precisely what is

required to be documented should help

lower the cost of compliance, because

fiduciaries know the specific

information that must be documented.

In response to the comments, and to

avoid underestimating the final rule’s

potential costs, the Department has not

reduced the total estimated quantified

costs although the research burden of

the rule has been reduced.

The Department estimates that plan

fiduciaries and clerical staff will each

expend, on average, two hours of labor

to maintain the needed documentation.

This results in an annual burden

estimate of 1,290 hours annually, with

an equivalent cost of $122,115 for DB

plans and DC plans with ESG

investments.

109

Plans that rely on

service providers may incur a lower cost

due to economies of scale. However, the

Department does not know exactly how

many plans use a service provider;

therefore, it estimated such costs on a

per-plan basis.

The Department’s paperwork burden

estimate associated with the final rule is

summarized as follows:

Type of Review: New collection.

Agency: Employee Benefits Security

Administration, Department of Labor.

Title: Financial Factors in Selecting

Plan Investments.

OMB Control Number: 1210–0162.

Affected Public: Businesses or other

for-profits.

Estimated Number of Respondents:

323.

Estimated Number of Annual

Responses: 323.

Frequency of Response: Occasionally.

Estimated Total Annual Burden

Hours: 1,290.

Estimated Total Annual Burden Cost:

$0.

2. Regulatory Flexibility Act

The Regulatory Flexibility Act

(RFA)

110

imposes certain requirements

with respect to Federal rules that are

subject to the notice and comment

requirements of section 553(b) of the

Administrative Procedure Act

111

and

that are likely to have a significant

economic impact on a substantial

number of small entities. Unless the

head of an agency determines that a

final rule is not likely to have a

significant economic impact on a

substantial number of small entities,

section 603 of the RFA requires the

agency to present a final regulatory

flexibility analysis of the final rule.

For purposes of analysis under the

RFA, the Employee Benefits Security

Administration (EBSA) continues to

consider a small entity to be an

employee benefit plan with fewer than

100 participants.

112

The basis of this

definition is found in section 104(a)(2)

of ERISA, which permits the Secretary

of Labor to prescribe simplified annual

reports for pension plans that cover

fewer than 100 participants. Under

section 104(a)(3), the Secretary may also

provide for exemptions or simplified

annual reporting and disclosure for

welfare benefit plans. Pursuant to the

authority of section 104(a)(3), the

Department has previously issued—at

29 CFR 2520.104–20, 2520.104–21,

2520.104–41, 2520.104–46, and

2520.104b–10—certain simplified

reporting provisions and limited

exemptions from reporting and

disclosure requirements for small plans.

Such plans include unfunded or insured

welfare plans covering fewer than 100

participants and satisfying certain other

requirements. Further, while some large

employers may have small plans, in

general small employers maintain small

plans. Thus, EBSA believes that

assessing the impact of this final rule on

small plans is an appropriate substitute

for evaluating the effect on small

entities. The definition of small entity

considered appropriate for this purpose

differs, however, from a definition of

small business that is based on size

standards promulgated by the Small

Business Administration (SBA)

113

pursuant to the Small Business Act.

114

In its initial regulatory flexibility

analysis for the proposal, the

Department requested, but did not

receive, comments on the

appropriateness of the size standard

used in evaluating the impact of the

proposed rule on small entities.

The Department has determined that

this final rule could have a significant

impact on a substantial number of small

entities. Therefore, the Department has

prepared a Final Regulatory Flexibility

Analysis that is presented below.

3.1. Need for and Objectives of the Rule

The final rule confirms that ERISA

requires plan fiduciaries to select

investments and investment courses of

action based solely on financial

considerations relevant to the risk-

adjusted economic value of a particular

investment or investment course of

action. This will help ensure that

fiduciaries are protecting the financial

interests of participants and

beneficiaries.

3.2. Affected Small Entities

The final rule has documentation

provisions that will affect small ERISA-

covered plans with fewer than 100

participants. It also contains provisions

about the improper use of non-

pecuniary factors when plan fiduciaries

select and monitor investments. These

provisions will affect only small plans

that are improperly incorporating non-

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115

DOL calculations based on statistics from U.S.

Department of Labor, Employee Benefits Security

Administration, ‘‘Private Pension Plan Bulletin:

Abstract of 2018 Form 5500 Annual Reports,’’

(forthcoming 2020).

116

62nd Annual Survey of Profit Sharing and

401(k) Plans, Plan Sponsor Council of America

(2019).

117

Id.

pecuniary factors into their investment

decisions.

As discussed in the affected entities

section above, surveys suggest that 19

percent of DB plans and DC plans with

investments that are not participant

directed and 9 percent of DC plans with

participant directed individual accounts

have ESG or ESG-themed investments.

Plans with ESG or ESG-themed

investments are used as a proxy of the

number of plans that could be affected

by the final rule. This represents

approximately 8,905 DB plans and

70,054 DC plans. Additionally, surveys

suggest 70 percent of DC plans with

participant-directed individual accounts

offer a QDIA. Of the 70 percent, the

Department estimates that 0.1 percent

have exposure to ESG investments,

representing approximately 407 plans.

The distribution across plan size is

not available in the surveys. It should be

noted that 84 percent of all DB plans

and 87 percent of all DC plans are small

plans.

115

Applying these proportions

uniformly, 7,480 small DB plans and

60,947 small DC plans are estimated to

be affected by the rule. Particularly for

DB plans, it is likely that most plans

with ESG investments are large. In terms

of the actual utilization of ESG options,

about 0.1 percent of total DC plan assets

are invested in ESG funds.

116

In

addition, one survey found that among

401(k) plans with fewer than 50

participants, approximately 1.7 percent

offered an ESG investment option.

117

Therefore, a large majority of small plan

participants do not have an ESG fund in

their portfolio.

One commenter suggested that the

Department underestimated the percent

of small DC plans that offer an ESG

investment option. The commenter

asserted that their data analysis

indicates that 14.5 percent of corporate

DC plans with fewer than 50

participants have an ESG option. The

experience of one service provider is

insightful, but may not be representative

of the industry as a whole. While the

Department appreciates the input, the

commenter did not provide the data

source for their statistic. Thus, the

Department could not access the

validity of the data and general

applicability of the statistic. The

Department did consider the statistic

when reevaluating its estimates, and

when combined with other data points,

raised its estimate from six percent to

nine percent of DC plans with

individual accounts where a plan

fiduciary could not distinguish

investment alternatives based on

pecuniary factors and such fiduciary is

required to document its use of a non-

pecuniary factor.

One commenter was concerned that

the Department did not survey plan

participants and fiduciaries in order to

estimate the cost incurred by the plan.

While the Department acknowledges

this concern, the Department used

survey data from the Plan Sponsor

Council of America to estimate the

percent of small DC plans that offer an

ESG investment option. The Department

believes that the impact of the rule has

been accurately assessed.

Other general comments about the

final rule and its impacts are discussed

elsewhere in the preamble.

3.3. Impact of the Rule

While the rule is expected to affect

small pension plans, it is unlikely there

will be a significant economic impact on

many of these plans. The final

regulation provides guidance on how

fiduciaries can comply with section

404(a)(1)(B) of ERISA when investing

plan assets. The Department believes

most plans are already fulfilling the

requirement in the course of following

the Department’s prior sub-regulatory

guidance.

The Department expects some small

plans to experience rising costs from

three potential sources. The first cost is

associated with the time required for

plan fiduciaries to review the rule and

amending investment policy statements

to reflect it. The second cost is

associated with the requirement for plan

fiduciaries to document selections of

investments based on non-pecuniary

factors where the alternative investment

options are unable to be distinguished

on the basis of pecuniary factors alone.

The third cost is associated with the

final rule’s provision prohibiting plan

fiduciaries from adding any investment

fund, product, or model portfolio as, or

as a component of, a QDIA if its

investment objectives or goals or its

principal investment strategies include,

consider, or indicate the use of one or

more non-pecuniary factors. The final

rule allows for a transition period for

plans to review and make necessary

changes to pre-existing QDIAs; however,

as discussed in the regulatory impact

analysis, the Department assumes that

associated costs will be incurred during

the first year.

As illustrated in Table 1 below, the

Department estimates a cost of

$3,599.74 per affected plan in year 1

and $379 per affected plan in year two

for plan fiduciaries and clerical

professionals to become familiar with

the final rule, fulfill the documentation

requirement, and review their QDIA

holdings. These costs reflect an instance

in which (1) a plan has exposure to

investments with non-pecuniary

investment objectives, (2) a plan

fiduciary uses a non-pecuniary factor to

make an investment decision between

investments that cannot be

distinguished on the basis of pecuniary

factors, and (3) a plan offers a QDIA in

which the QDIA, or component of the

QDIA, considers, or indicates the use of,

one or more non-pecuniary factors in its

investment objectives or goals or its

principal investment strategies. As

discussed throughout the regulatory

impact analysis, most plans will only

incur the rule familiarization costs,

while few plans will incur both costs (2)

and (3). Plans needing to provide

documentation will be rare, because tie-

breakers rarely occur, and only an

estimated 0.1 percent of plans need to

update their QDIA holdings, because the

QDIA or a component thereof, includes,

considers, or indicates the use of, one or

more non-pecuniary factors in its

investment objectives or goals or its

principal investment strategies.

T

ABLE

1—C

OSTS FOR

P

LANS

T

O

C

OMPLY

W

ITH

R

EQUIREMENTS

Affected entity Labor rate Hours Year 1 cost Year 2 cost

Documentation: Plan Fiduciary ........................................................................ $134.21 2 $268.42 $268.42

Documentation: Clerical workers ..................................................................... 55.14 2 110.28 110.28

Rule Familiarization: Plan Fiduciary ................................................................ 134.21 4 536.84 0

Update QDIA Holdings: Plan Fiduciary ........................................................... 134.21 20 2,684.20 0

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T

ABLE

1—C

OSTS FOR

P

LANS

T

O

C

OMPLY

W

ITH

R

EQUIREMENTS

—Continued

Affected entity Labor rate Hours Year 1 cost Year 2 cost

Total: Plans Needing Familiarization Only ............................................... ........................ ........................ 536.84 0

Total: Plans Needing to Update QDIA and Provide Documentation ....... ........................ ........................ 3,599.74 $378.70

Source: DOL calculations based on statistics from Labor Cost Inputs Used in the Employee Benefits Security Administration, Office of Policy

and Research’s Regulatory Impact Analyses and Paperwork Reduction Act Burden Calculation, Employee Benefits Security Administration (June

2019), www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-

ria-and-pra-burden-calculations-june-2019.pdf.

Small plans affected by the rule—

those with exposure to investments

considering non-pecuniary factors—

would incur a cost associated with the

time to review the rule and amend

relevant investment policy statements.

The Department estimates that nine

percent of plans would fall into this

category. Additionally, the Department

believes small plans are likely to rely on

service providers to monitor regulatory

changes and make necessary changes to

the plan. Overall, the Department

expects the costs associated with the

familiarization of the rule to be small on

a per-plan basis.

As stated above, the final rule also

prohibits plan fiduciaries from adding

any investment fund, product, or model

portfolio as, or as a component of, a

QDIA if its investment objectives or

goals or its principal investment

strategies include, consider, or indicate

the use of one or more non-pecuniary

factors. While the cost in the table above

reflects a cost for participant-directed

individual account plans with exposure

to investments with non-pecuniary

objectives, the Department believes this

is likely to affect few small plans. The

Department estimates that 0.1 percent of

all plans would need to reassess their

QDIAs; however, as the Department

believes small plans are likely to rely on

service providers to propose compliant

QDIAs, this estimate likely represents

an upper bound of the burden on

affected small entities. Further, the

Department believes service providers

should be familiar with the available

target-date funds and be able to propose

an alternative, compliant QDIA without

expending material resources. As

discussed above, this restriction will

affect small plans; however, the

Department expects that a minimal

burden will be imposed on a small

number of them.

3.4. Regulatory Alternatives

As discussed above in this preamble,

the final regulation reiterates and

codifies long-established principles of

fiduciary standards for selecting and

monitoring investments, and thus seeks

to provide clarity and certainty

regarding the scope of fiduciary duties

surrounding non-pecuniary issues.

These standards apply to all affected

entities, both large and small; therefore,

the Department’s ability to craft specific

alternatives for small plans is limited.

The Department carefully considered

the final rule’s impact on small entities

by analyzing other alternatives for the

proposal. One alternative would

prohibit plan fiduciaries from ever

considering ESG or similar factors. This

would address the Department’s

concerns that some plan fiduciaries may

sacrifice return or increase investment

risk to promote goals that are unrelated

to the financial interests of the plan or

its participants. However, the

Department rejected this alternative,

because it would prohibit fiduciaries

from considering such factors even

when the fiduciaries are focused on the

financial aspects rather than the non-

pecuniary aspects of the investments.

The Department also has considered

prohibiting plan fiduciaries from basing

investment decisions on non-pecuniary

factors and prohibiting the use of non-

pecuniary factors even where plan

fiduciaries cannot distinguish

alternative investment options based on

pecuniary factors. But if the alternative

investment options cannot be

distinguished on the basis of pecuniary

factors, it is unclear what factors would

be available for a plan fiduciary to base

its decision on other than non-

pecuniary factors. Regardless, the

Department believes this circumstance

occurs very rarely in practice, if at all.

Accordingly, this final rule retains the

‘‘all things being equal’’ test from the

Department’s previous guidance with a

specific requirement for plan fiduciaries

to document (1) why the pecuniary

factors were not sufficient to select the

investment; (2) how the investment

compares to alternative investments

with regard to the factors listed in

paragraphs (b)(2)(ii)(A) through (C) of

the final rule; and (3) how the chosen

non-pecuniary factors are consistent

with the interests of participants and

beneficiaries in their retirement income

or financial benefits under the plan.

The Department notes that the

proposal did not expressly incorporate

the tie-breaker provision into the

regulatory provision on selection of

investment options for individual

account plans. The Department

explained in the proposal its

perspective that the concept of ‘‘ties’’

may have little relevance in the context

of fiduciaries’ selection of menu options

for individual account plans as such

investment options are often chosen

precisely for their varied characteristics

and the range of choices they offer plan

participants. Further, the Department

explained that because the proposal did

not restrict the addition of prudently

selected, well-managed investment

options for individual account plans

that include non-pecuniary factors if

they can be justified solely on the basis

of pecuniary factors, there would be

little need for a tie-breaker between

selected investment funds. Nonetheless,

some commenters expressed some

uncertainty regarding the interaction of

paragraph (c)(2) and the provisions of

the proposal on selecting investment

options for individual account plans.

Some commenters asked the

Department to expressly make the tie-

breaker available for such investment

decisions.

Although the Department continues to

doubt the relevance of a ‘‘tie’’ concept

when adding investment alternatives to

a platform of investments that allow

participants and beneficiaries to choose

from a broad range of investment

alternatives as defined in 29 CFR

2550.404c–1(b)(3), the final rule makes

the tie-breaker provisions in paragraph

(c) generally available for use in

selecting investment options for

individual account plans in the event

the fiduciaries of the plan believe that

it gives them some added flexibility and

fiduciary protection when adding an

investment fund, product, or model

portfolio that promotes, seeks, or

supports one or more non-pecuniary

goals.

Paragraph (d) of the final rule

contains standards applicable to

participant-directed individual account

plans. The predecessor standards for

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118

Federalism, 64 FR 153 (Aug. 4, 1999).

participant-directed individual account

plans were set forth in paragraph (c)(3)

of the proposal. Paragraph (c)(3)(ii) of

the proposal would have required plan

fiduciaries to document their

compliance with the requirement to use

only objective risk-return criteria in the

selection and monitoring of investment

platform or menu alternatives. The

Department included the cost plan

fiduciaries would incur to comply with

this documentation requirement in its

cost estimates for the proposal.

The Department considered including

this document requirement in the final

rule; however, it determined not to

include such requirement in paragraph

(d)(2) of the final rule. The Department

was persuaded by some commenters’

concerns that this requirement would

have applied more stringent

requirements to ESG investment

alternatives than other types of

investment alternatives. These

commenters argued that it is

inappropriate to impose separate

documentation requirements that vary

by investment strategy. Other

commenters objected to this

requirement on the grounds that it

would increase costs to plans and

potentially provide grounds for

unwarranted class action lawsuits.

The Department believes that the

approach taken in the final rule best

reflects the statutory obligations of

prudence, appropriately ensures that

large and small plan fiduciaries’

decisions would be guided by the

financial interests of the plans and

participants to whom they owe duties of

prudence, and is the most efficient

alternative to apply and enforce.

3.5. Duplicate, Overlapping, or Relevant

Federal Rules

The Department is issuing this final

rule under sections 404(a)(1)(A) and

404(a)(1)(B) of Title I under ERISA. The

Department has sole jurisdiction to

interpret these provisions as they apply

to plan fiduciaries’ consideration of

non-pecuniary factors in selecting plan

investment funds. Therefore, there are

no duplicate, overlapping, or relevant

Federal rules.

4. Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (Pub. L. 104–4)

requires each Federal agency to prepare

a written statement assessing the effects

of any Federal mandate in a proposed or

final agency rule that may result in an

expenditure of $100 million or more

(adjusted annually for inflation with the

base year 1995) in any one year by state,

local, and tribal governments, in the

aggregate, or by the private sector. For

purposes of the Unfunded Mandates

Reform Act, as well as Executive Order

12875, this final rule does not include

any Federal mandate that the

Department expects would result in

such expenditures by state, local, or

tribal governments.

5. Federalism Statement

Executive Order 13132 outlines

fundamental principles of federalism

and requires the adherence to specific

criteria by Federal agencies in the

process of their formulation and

implementation of policies that have

‘‘substantial direct effects’’ on the states,

the relationship between the National

Government and the states, or on the

distribution of power and

responsibilities among the various

levels of government.

118

Federal

agencies promulgating regulations that

have federalism implications must

consult with state and local officials,

and describe the extent of their

consultation and the nature of the

concerns of state and local officials in

the preamble to the final rule.

In the Department’s view, this final

regulation does not have federalism

implications because it will not have

direct effects on the states, the

relationship between the National

Government and the states, or on the

distribution of power and

responsibilities among various levels of

government. Section 514 of ERISA

provides, with certain exceptions

specifically enumerated, that the

provisions of Titles I and IV of ERISA

supersede any and all laws of the states

as they relate to any employee benefit

plan covered under ERISA. The

requirements implemented in the final

rule do not alter the fundamental

reporting and disclosure requirements

of the statute with respect to employee

benefit plans, and as such have no

implications for the states or the

relationship or distribution of power

between the National Government and

the states.

Statutory Authority

This regulation is finalized pursuant

to the authority in section 505 of ERISA

(Pub. L. 93–406, 88 Stat. 894; 29 U.S.C.

1135) and section 102 of Reorganization

Plan No. 4 of 1978 (43 FR 47713,

October 17, 1978), effective December

31, 1978 (44 FR 1065, January 3, 1979),

3 CFR 1978 Comp. 332, and under

Secretary of Labor’s Order No. 1–2011,

77 FR 1088 (Jan. 9, 2012).

List of Subjects in 29 CFR Parts 2509

and 2550

Employee benefit plans, Employee

Retirement Income Security Act,

Exemptions, Fiduciaries, Investments,

Pensions, Prohibited transactions,

Reporting and Recordkeeping

requirements, Securities.

For the reasons set forth in the

preamble, the Department amends parts

2509 and 2550 of subchapters A and F

of chapter XXV of title 29 of the Code

of Federal Regulations as follows:

Subchapter A—General

PART 2509—INTERPRETIVE

BULLETINS RELATING TO THE

EMPLOYEE RETIREMENT INCOME

SECURITY ACT OF 1974

■1. The authority citation for part 2509

continues to read as follows:

Authority: 29 U.S.C. 1135. Secretary of

Labor’s Order 1–2003, 68 FR 5374 (Feb. 3,

2003). Sections 2509.75–10 and 2509.75–2

issued under 29 U.S.C. 1052, 1053, 1054. Sec.

2509.75–5 also issued under 29 U.S.C. 1002.

Sec. 2509.95–1 also issued under sec. 625,

Pub. L. 109–280, 120 Stat. 780.

§ 2509.2015–01 [Removed]

■2. Remove § 2509.2015–01.

Subchapter F—Fiduciary Responsibility

under the Employee Retirement Income

Security Act of 1974

PART 2550—RULES AND

REGULATIONS FOR FIDUCIARY

RESPONSIBILITY

■3. The authority citation for part 2550

continues to read as follows:

Authority: 29 U.S.C. 1135 and Secretary of

Labor’s Order No. 12011, 77 FR 1088

(January 9, 2012). Sec. 102, Reorganization

Plan No. 4 of 1978, 5 U.S.C. App. at 727

(2012). Sec. 2550.401c–1 also issued under

29 U.S.C. 1101. Sec. 2550.404a–1 also issued

under sec. 657, Pub. L. 107–16, 115 Stat 38.

Sec. 2550.404a–2 also issued under sec. 657

of Pub. L. 107–16, 115 Stat. 38. Sections

2550.404c–1 and 2550.404c–5 also issued

under 29 U.S.C. 1104. Sec. 2550.408b–1 also

issued under 29 U.S.C. 1108(b)(1). Sec.

2550.408b–19 also issued under sec. 611,

Pub. L. 109–280, 120 Stat. 780, 972. Sec.

2550.412–1 also issued under 29 U.S.C. 1112.

■4. Revise § 2550.404a–1 to read as

follows:

§ 2550.404a–1 Investment duties.

(a) In general. Section 404(a)(1)(A)

and 404(a)(1)(B) of the Employee

Retirement Income Security Act of 1974,

as amended (ERISA or the Act) provide,

in part, that a fiduciary shall discharge

that person’s duties with respect to the

plan solely in the interests of the

participants and beneficiaries, for the

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exclusive purpose of providing benefits

to participants and their beneficiaries

and defraying reasonable expenses of

administering the plan, and with the

care, skill, prudence, and diligence

under the circumstances then prevailing

that a prudent person acting in a like

capacity and familiar with such matters

would use in the conduct of an

enterprise of a like character and with

like aims.

(b) Investment duties. (1) With regard

to the consideration of an investment or

investment course of action taken by a

fiduciary of an employee benefit plan

pursuant to the fiduciary’s investment

duties, the requirements of section

404(a)(1)(B) of the Act set forth in

paragraph (a) of this section are satisfied

if the fiduciary:

(i) Has given appropriate

consideration to those facts and

circumstances that, given the scope of

such fiduciary’s investment duties, the

fiduciary knows or should know are

relevant to the particular investment or

investment course of action involved,

including the role the investment or

investment course of action plays in that

portion of the plan’s investment

portfolio with respect to which the

fiduciary has investment duties; and

(ii) Has acted accordingly.

(2) For purposes of paragraph (b)(1) of

this section, ‘‘appropriate

consideration’’ shall include, but is not

necessarily limited to:

(i) A determination by the fiduciary

that the particular investment or

investment course of action is

reasonably designed, as part of the

portfolio (or, where applicable, that

portion of the plan portfolio with

respect to which the fiduciary has

investment duties), to further the

purposes of the plan, taking into

consideration the risk of loss and the

opportunity for gain (or other return)

associated with the investment or

investment course of action compared to

the opportunity for gain (or other return)

associated with reasonably available

alternatives with similar risks; and

(ii) Consideration of the following

factors as they relate to such portion of

the portfolio:

(A) The composition of the portfolio

with regard to diversification;

(B) The liquidity and current return of

the portfolio relative to the anticipated

cash flow requirements of the plan; and

(C) The projected return of the

portfolio relative to the funding

objectives of the plan.

(3) An investment manager appointed,

pursuant to the provisions of section

402(c)(3) of the Act, to manage all or

part of the assets of a plan, may, for

purposes of compliance with the

provisions of paragraphs (b)(1) and (2)

of this section, rely on, and act upon the

basis of, information pertaining to the

plan provided by or at the direction of

the appointing fiduciary, if—

(i) Such information is provided for

the stated purpose of assisting the

manager in the performance of the

manager’s investment duties; and

(ii) The manager does not know and

has no reason to know that the

information is incorrect.

(c) Investments based on pecuniary

factors. (1) A fiduciary’s evaluation of

an investment or investment course of

action must be based only on pecuniary

factors, except as provided in paragraph

(c)(2) of this section. A fiduciary may

not subordinate the interests of the

participants and beneficiaries in their

retirement income or financial benefits

under the plan to other objectives, and

may not sacrifice investment return or

take on additional investment risk to

promote non-pecuniary benefits or

goals. The weight given to any

pecuniary factor by a fiduciary should

appropriately reflect a prudent

assessment of its impact on risk-return.

(2) Notwithstanding the requirements

of paragraph (c)(1) of this section, when

choosing between or among investment

alternatives that the plan fiduciary is

unable to distinguish on the basis of

pecuniary factors alone, the fiduciary

may use non-pecuniary factors as the

deciding factor in the investment

decision provided that the fiduciary

documents:

(i) Why pecuniary factors were not

sufficient to select the investment or

investment course of action;

(ii) How the selected investment

compares to the alternative investments

with regard to the factors listed in

paragraphs (b)(2)(ii)(A) through (C) of

this section; and

(iii) How the chosen non-pecuniary

factor or factors are consistent with the

interests of participants and

beneficiaries in their retirement income

or financial benefits under the plan.

(d) Investment alternatives for

participant-directed individual account

plans. (1) The standards set forth in

paragraphs (a) and (c) of this section

apply to a fiduciary’s selection or

retention of designated investment

alternatives available to participants and

beneficiaries in an individual account

plan.

(2) In the case of selection or retention

of investment alternatives for an

individual account plan that allows

plan participants and beneficiaries to

choose from a broad range of investment

alternatives as defined in § 2550.404c-

1(b)(3), a fiduciary is not prohibited

from considering or including an

investment fund, product, or model

portfolio as a designated investment

alternative solely because the fund,

product, or model portfolio promotes,

seeks, or supports one or more non-

pecuniary goals, provided that:

(i) The fiduciary satisfies the

requirements of paragraphs (a) and (c) of

this section in selecting or retaining any

such investment fund, product, or

model portfolio; and

(ii) The investment fund, product, or

model portfolio is not added or retained

as, or as a component of, a qualified

default investment alternative described

in § 2550.404c-5 if its investment

objectives or goals or its principal

investment strategies include, consider,

or indicate the use of one or more non-

pecuniary factors.

(e) [Reserved]

(f) Definitions. For purposes of this

section:

(1) The term investment duties means

any duties imposed upon, or assumed or

undertaken by, a person in connection

with the investment of plan assets

which make or will make such person

a fiduciary of an employee benefit plan

or which are performed by such person

as a fiduciary of an employee benefit

plan as defined in section 3(21)(A)(i) or

(ii) of the Act.

(2) The term investment course of

action means any series or program of

investments or actions related to a

fiduciary’s performance of the

fiduciary’s investment duties, and

includes the selection of an investment

fund as a plan investment, or in the case

of an individual account plan, a

designated investment alternative under

the plan.

(3) The term pecuniary factor means

a factor that a fiduciary prudently

determines is expected to have a

material effect on the risk and/or return

of an investment based on appropriate

investment horizons consistent with the

plan’s investment objectives and the

funding policy established pursuant to

section 402(b)(1) of ERISA.

(4) The term plan means an employee

benefit plan to which Title I of the Act

applies.

(5) The term designated investment

alternative means any investment

alternative designated by the plan into

which participants and beneficiaries

may direct the investment of assets held

in, or contributed to, their individual

accounts. The term ‘‘designated

investment alternative’’ shall not

include ‘‘brokerage windows,’’ ‘‘self-

directed brokerage accounts,’’ or similar

plan arrangements that enable

participants and beneficiaries to select

investments beyond those designated by

the plan.

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72885

Federal Register / Vol. 85, No. 220 / Friday, November 13, 2020 / Rules and Regulations

(g) Effective date. (1) This section

shall be effective on January 12, 2021,

and shall apply in its entirety to all

investments made and investment

courses of action taken after January 12,

2021.

(2) Plans shall have until April 30,

2022 to make any changes to qualified

default investment alternatives

described in § 2550.404c-5, where

necessary to comply with the

requirements of paragraph (d)(2) of this

section.

(h) Severability. If any provision of

this section is held to be invalid or

unenforceable by its terms, or as applied

to any person or circumstance, or stayed

pending further agency action, the

provision shall be construed so as to

continue to give the maximum effect to

the provision permitted by law, unless

such holding shall be one of invalidity

or unenforceability, in which event the

provision shall be severable from this

section and shall not affect the

remainder thereof.

Signed at Washington, DC, this 30th day of

October 2020.

Jeanne Klinefelter Wilson,

Acting Assistant Secretary, Employee Benefits

Security Administration, Department of

Labor.

[FR Doc. 2020–24515 Filed 11–12–20; 8:45 am]

BILLING CODE 4510–29–P

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Published date	13 November 2020
Citation	85 FR 72846
Record Number	2020-24515
Section	Rules and Regulations
Court	Employee Benefits Security Administration

Financial Factors in Selecting Plan Investments

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