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Republican attorneys general from 25 US states have filed a lawsuit against the Biden administration’s plan to allow retirement fund managers to make “socially conscious” investment decisions.
The federal lawsuit filed Thursday in the US District Court for North Texas seeks to stop implementation of the Labor Department’s rule, which allows private benefit plans to invest in funds focused on environmental, social or governance (ESG).
The lawsuit alleges the new rule ‘undermines key protections for the retirement savings of 152 million workers…for a total of $12 trillion in assets’ in the name of social policies, including the fight against climate change.
The rule, which goes into effect on January 30, reverses a restriction imposed during the Trump administration that requires retirement plans to consider only financial factors when making investment decisions and exercising shareholder rights.
“The Biden Administration is furthering its climate change agenda by putting ordinary people’s retirement money at risk,” Utah Attorney General Sean Reyes, who is leading the lawsuit, said in a statement to DailyMail.com.
Utah Attorney General Sean Reyes leads 24 other Republican attorneys general in lawsuit challenging Biden administration rule easing restrictions on ESG investments
The Department of Labor and Biden’s Secretary of Labor, Marty Walsh (above), are defendants in the lawsuit, which was filed Thursday in the US District Court for North Texas.
“Allowing asset managers to direct the money of working Americans into ESG investments puts trillions of dollars of retirement savings at risk in exchange for someone else’s political agenda,” he added.
We are acting urgently on this case because this illegal rule will take effect next week. It has to be stopped,’ Reyes said.
The Department of Labor and Biden’s Secretary of Labor, Marty Walsh, are the defendants in the lawsuit. A Walsh spokesperson referred requests for comment to the Justice Department, which did not immediately respond to a message Thursday night.
The final rule at the center of the dispute is known as “Prudence and Fairness in the Selection of Plan Investments and the Exercise of Shareholders’ Rights” and it ran to 65 pages in the Federal Register when it was published on December 1.
If it goes into effect as planned on Monday, it would rescind a 2020 Trump-era rule that had been criticized by some business groups and the financial industry.
The Labor Department has argued that the Trump-era rule restricting investments in ESG funds failed to take into account the positive impact that ESG considerations can have on long-term investment returns.
The new rule also allows plan fiduciaries to consider ESG factors when voting by proxy on behalf of shareholders.
The Labor Department has argued that the rescinded Trump-era rule failed to take into account the positive impact ESG considerations can have on long-term investment returns (file photo)
The plaintiffs in the lawsuit are 25 Republican state attorneys general, as well as several private employers with benefit plans and one person enrolled in an ERISA plan.
Lisa Gomez, who heads the Labor Department office that issued the rule, previously told Reuters that the new policy would remove unnecessary barriers to investing based on ESG principles and end “the chilling effect created by the previous administration.”
The Labor Department argues that the rule, which only applies to private retirement plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), does not allow retirement plans to pursue social objectives expense of financial returns.
“Outside of the context of ERISA, investors may choose to invest in funds that further collateral objectives and even choose to sacrifice return or increase risk to achieve those objectives,” the department’s commentary on the rule reads.
“Such conduct, however, would be impermissible to ERISA plan fiduciaries, who may not sacrifice performance or increase risk in order to further collateral objectives unrelated to plan participants’ economic interests in their benefits,” it adds. .
The ERISA Industry Committee, which represents employee benefit plans, has cautiously supported the Biden administration’s new rule, after objecting to some language in earlier drafts.
‘[T]The final rule does not establish a mandate to consider any specific factor in each circumstance or put a finger in the balance when selecting investments, leaving it to the trustees to manage the plans in the best interests of workers and retirees’, Andy Banducci, senior vice president of the group. he said in a statement in November.
“This rule is an affront to all Americans concerned about their retirement accounts,” said Texas Attorney General Ken Paxton, one of the plaintiffs in the lawsuit.
But the rule change has drawn the ire of Republicans, who argue it will unleash activist retirement plan managers to squander workers’ savings.
“This rule is an affront to all Americans concerned about their retirement accounts,” Texas Attorney General Ken Paxton, one of the plaintiffs in the lawsuit, said in a statement Thursday.
“The fact that the Biden Administration now chooses to risk the financial security of working-class Americans to further a pious political agenda is insulting and illegal,” he added.
The lawsuit comes amid growing debates about ESG investing, with investment industry stalwarts like Blackrock facing backlash over their ESG goals.
Meanwhile, some public companies have faced increasing pressure from activist shareholders to address ESG issues that could threaten their share values, such as carbon emissions and workplace diversity. worked.
Funds that adhere to ESG principles oversee an estimated $6.5 trillion in assets, according to Reuters, though they experienced an unprecedented drop in investments last year amid the market downturn.
The case is 2:23-cv-00016-Z in the United States District Court for the Northern District of Texas.