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An investmentfonds wikipedia free fund also index tracker is a mutual fund or exchange-traded fund ETF designed to follow certain preset rules so that the fund can track a specified basket johann pfeiffer iforex underlying investments. Index funds may also have rules that screen for social and sustainable criteria. An index fund's rules of construction clearly identify the type of companies suitable for the fund. Additional index funds within these geographic markets may include indexes of companies that include rules based on company characteristics or factors, such as companies that are small, mid-sized, large, small value, large value, small growth, large growth, the level of gross profitability or investment capital, real estate, or indexes based on commodities and fixed-income. Companies are purchased and held within the index fund when they meet the specific index rules or parameters and are sold when they move outside of those rules or parameters. Think of an index fund as an investment utilizing rules-based investing.

Economically targeted investments erisa law lhvarsitymath chapter 17 investments

Economically targeted investments erisa law

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Paragraph c 1 of the proposal provides that a fiduciary's evaluation of an investment must be focused on pecuniary factors. Thus, the rule may impose costs on fiduciaries whose current documentation and recordkeeping are insufficient to meet the new requirement. Therefore, individual account plan fiduciaries will need to document their selections of investment alternatives that include one or more ESG or similarly oriented assessments or judgments in their investment mandates or that include these parameters in the fund name.

The Department assumes that the documentation requirement in paragraph c 3 would impose little, if any, additional cost on individual account plan fiduciaries, because they already commonly document and maintain records about their investment choices as a best practice and potential shield from litigation risk.

The Department proposes to include this requirement to confirm the need to document actions taken and to provide a safeguard against the risk that fiduciaries will select investment options based on non-pecuniary factors without a proper analysis and evaluation. The PRA section below estimates the costs of the information collection. As required by the PRA, the PRA estimates encompass the entire burden of the proposed rule's information collection as opposed to the incremental costs discussed in the regulatory impact analysis.

For this reason, the incremental costs of the proposed rule are estimated to be minimal, while the PRA cost estimates are larger. The Department invites comments addressing the costs that would be associated with the proposed rule. There may be a transfer from mutual fund companies that offer ESG-themed mutual funds to competing mutual fund companies that offer other types of mutual funds.

Companies offering ESG-themed mutual funds would have fewer customers since ERISA plans that currently offer ESG-themed mutual funds in their DC plans would no longer be able to offer them under the proposed rule, except for any funds that would be selected based on financial considerations alone. Often the same company will offer both mutual funds with an ESG theme and mutual funds without; there may be a transfer within the company from ESG mutual funds to other mutual funds.

Moreover, as noted previously, if some portion of rule-induced increases in returns would be associated with transactions in which the opposite party experiences decreased returns of equal magnitude, then this portion of the proposed rule's impact would, from a society-wide perspective, be appropriately categorized as a transfer.

It is unclear how many plans use ESG and similar factors when selecting investments. Similarly unclear is the total asset value of investments that were selected in this manner. This is particularly true 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 also is 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 issues. At the same time, some investing takes account of environmental factors and corporate governance in a manner that focuses exclusively on the financial aspects of those considerations.

The proposed rule would replace the existing guidance on using non-pecuniary factors while selecting 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 would experience significant effects from the proposed 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 Start Printed Page expansion will only continue to increase.

The Department has considered alternatives to the proposed regulation. 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, that approach would prohibit the use of factors even when they have pecuniary consequences. The Department also has considered prohibiting plan fiduciaries from basing investment decisions on non-pecuniary factors and not permitting the use of non-pecuniary factors where the alternative investment options are indistinguishable. Regardless, the Department believes that truly indistinguishable alternative investment options occur very rarely in practice, if at all.

With respect to the requirements concerning individual account plans in paragraph c 3 , the Department considered expressly incorporating paragraph c 1 , which explains a fiduciary's obligation to only focus on pecuniary factors. The Department decided it was unnecessary to expressly incorporate paragraph c 1 into paragraph c 3 , because the latter already requires fiduciaries to focus on only objective risk-return criteria.

The Department requests comment on whether paragraph c 1 should be expressly incorporated in paragraph c 3. Similarly, the Department considered whether to apply the documentation requirement for indistinguishable investments contained in paragraph c 2 of the proposal to fiduciaries' selection of designated investment alternatives for individual account plans.

For the reasons set forth earlier in the preamble, Department decided not to carry that requirement into paragraph c 3. Rather, as explained above, investment options for individual account plans are often chosen precisely for their varied characteristics. Still, the proposed rule would require fiduciaries to document the selection and monitoring of ESG-themed funds as designated investment alternatives.

The Department requests comment on whether it should apply the requirements in paragraph c 2 to the selection of ESG-themed funds for individual account plans. The Department believes that the approach reflected in the proposal best reflects the statutory obligations of prudence and loyalty, appropriately ensures that fiduciaries' decisions will be guided by the financial interests of the plans and participants to whom they owe duties of prudence and loyalty, and is the easiest to apply and enforce.

Nevertheless, the Department solicits comments on all alternatives, including any alternatives that the Department has not identified in this NPRM. The Department believes that the proposed rule would provide clarity to fiduciaries in fulfilling their responsibilities by describing when and how fiduciaries can factor in ESG and similar considerations as they select and monitor investments, and when they may not.

While this proposed rule is expected to benefit plans and participants, some costs would be incurred as well. Some plans would have to modify their processes for selecting and monitoring investments. While some plans would need to document selections where the alternative investment options are indistinguishable, and individual account plans would need to document their decisions for selecting ESG-themed funds as designated investment alternatives, the Department does not expect these requirements to impose a significant increase in hourly burden or cost because the Department believes that truly indistinguishable alternative investment options should occur very rarely in practice, if at all and defined contribution plans are already documenting their decisions when selecting investment alternatives for their participant directed investment platforms.

Although the proposed rule would replace previous guidance, the Department believes that there is significant overlap; thus, this would not result in substantial benefits or costs. Overall, the proposed rule would assist fiduciaries in carrying out their responsibilities, while promoting the financial interests of current and future retirees.

As part of its continuing effort to reduce paperwork and respondent burden, the Department conducts a preclearance consultation program to allow the general public and federal agencies to comment on proposed and continuing collections of information in accordance with the Paperwork Reduction Act of PRA.

The Department and OMB are particularly interested in comments that address the following:. OMB requests that comments be received within 30 days of publication of the proposed rule to ensure their consideration. The PRA Addressee may be reached by telephone, , or by fax, These are not toll-free numbers. ICRs also are available at www. In prior guidance, the Department has encouraged plan fiduciaries to appropriately document their investment activities, and the Department believes it is common practice.

Nevertheless, the Department believes that the likelihood that two investments options which are truly economically indistinguishable is very rare. While the incremental burden of the proposed regulations is small, the full burden of the requirements will be included below to allow for evaluation of the requirements in the required information collection.

According to the most recent Form data, there are 8, DB plans and 18, DC plans with ESG investments that are not participant directed that could be affected by the proposed rule. 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 89 DB plans and 61 DC plans with ESG investments that are not participant directed will encounter economically indistinguishable alternatives in a year.

The Department estimates that plan fiduciaries and clerical staff will each expend, on average, 2 hours of labor to maintain the needed documentation. The proposal also would require individual account plan fiduciaries to document their selections of ESG-themed funds as designated investment alternatives for their participant-directed investment platforms.

As explained above, fiduciaries selecting investment options for DC plans already commonly document and maintain records about their investment choices, since that is a best practice and a potential shield from litigation risk. Therefore, the Department assumes this documentation requirement will impose little, if any, additional cost. The requirement is included to confirm the need to document actions taken and to provide a safeguard against the risk that fiduciaries will select investment options based on non-pecuniary factors without a proper analysis and evaluation.

Affected Public: Businesses or other for-profits. Unless an agency determines that a proposal is not likely to have a significant economic impact on a substantial number of small entities, section of the RFA requires the agency to present an initial regulatory flexibility analysis of the proposed rule. Under section a 3 , the Secretary may also provide for exemptions or simplified annual reporting and disclosure for Start Printed Page welfare benefit plans.

Pursuant to the authority of section a 3 , the Department has previously issued—at 29 CFR Such plans include unfunded or insured welfare plans covering fewer than 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 proposed rule on small plans is an appropriate substitute for evaluating the effect on small entities.

The Department has determined that this proposed rule could have a significant impact on a substantial number of small entities. Therefore, the Department has prepared an Initial Regulatory Flexibility Analysis that is presented below.

The proposed 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 would help ensure that fiduciaries are protecting the financial interests of participants and beneficiaries. The proposed rule has documentation provisions that would affect small ERISA-covered plans, which have fewer than participants.

It also has some provisions about the improper use of non-pecuniary factors when plan fiduciaries select and monitor investments. These provisions would affect only plans and participants that are improperly incorporating non-pecuniary factors into their investment decisions.

The proposed rule would affect small plans that have ESG-type investments that are not in compliance with the proposed regulation. 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 6 percent of DC plans with participant directed individual accounts have ESG or ESG-themed investments and could be affected by the proposed rule.

The distribution across plan size is not available in the surveys. This represents approximately 8, defined benefit plans and 52, DC plans. It should be noted that 83 percent of all DB plans and 88 percent of all DC are small plans. In terms of the actual utilization of ESG options, about 0. A large majority of participants in small pension plans do not have an ESG fund in their portfolio. As previously mentioned, about 0. While the rule is expected to affect small pension plans, it is not likely that there would be a significant economic impact on many of these plans.

The proposed regulation provides guidance on how fiduciaries can comply with sections a 1 A and a 1 B of ERISA when investing plan assets. The Department believes most plans are already fulfilling the requirements in the course of following prior guidance. Participant directed individual account plans will need to document their selections of ESG-themed funds as designated investment alternatives.

As described above, fiduciaries in such plans already commonly document and maintain records about their choices of investment funds as designated investment alternatives, since that is the best practice and a potential shield from litigation risk.

Therefore, the Department concludes that this documentation requirement would impose little, if any, additional cost. While the costs associated with the rule are small, its benefits could be significant for plans that are heavily invested in underperforming ESG funds and would be required to change their current ESG investments in response to the proposed rule.

The Department does not have sufficient data to estimate the number of such plans and; therefore, welcomes comments and data that could help it make this determination. Start Printed Page The Department considered the following alternatives to the proposed regulation: 1 Prohibiting plan fiduciaries from considering ESG or similar factors; 2 prohibiting plan fiduciaries from basing investment decisions on non-pecuniary factors and the use of non-pecuniary factors when the alternative investment options are economically indistinguishable; 3 requiring fiduciaries of individual account plans to comply with paragraph c 1 of the proposal, which explains a fiduciary's obligation to only focus on pecuniary factors; and 4 applying the documentation requirement for indistinguishable investments contained in paragraph c 2 of the proposal to fiduciaries' selection of designated investment alternatives for individual account plans.

For a discussion of the Department's rationale for not adopting these alternatives, please see Section 1. The Department believes that the approach taken in the proposal best reflects the statutory obligations of prudence and loyalty, appropriately ensures that fiduciaries' decisions would be guided by the financial interests of the plans and participants to whom they owe duties of prudence, and loyalty, and is the most efficient to apply and enforce. Nevertheless, the Department solicits comments on other alternatives, particularly those that would reduce the burden on small entities.

The Department is charged with interpreting the ERISA provisions regarding the consideration of non-pecuniary factors in investment funds, and therefore, there are no duplicate, overlapping, or relevant Federal rules. For purposes of the Unfunded Mandates Reform Act, as well as Executive Order , this proposal does not include any federal mandate that the Department expects would result in such expenditures by state, local, or tribal governments.

In the Department's view, these proposed regulations would not have federalism implications because they would 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. The requirements implemented in the proposed 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.

The Department welcomes input from states regarding this assessment. The authority citation for part continues to read as follows:. Authority: 29 U. Sections Section a 1 A and a 1 B of the Employee Retirement Income Security Act of , 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 exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of Start Printed Page 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.

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;. C The projected return of the portfolio relative to the funding objectives of the plan; and. D How the investment or investment course of action compares to available alternative investments or investment courses of action with regard to the factors listed in paragraphs b 2 ii A through C of this section.

Non-Pecuniary Factors. A fiduciary's evaluation of an investment must be focused only on pecuniary factors. 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.

Environmental, social, corporate governance, or other similarly oriented considerations are pecuniary factors only if they present economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories. The weight given to those factors should appropriately reflect a prudent assessment of their impact on risk and return. Fiduciaries considering environmental, social, corporate governance, or other similarly oriented factors as pecuniary factors are also required to 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.

When alternative investments are determined to be economically indistinguishable even after conducting the evaluation described in paragraph c 1 , and one of the investments is selected on the basis of a non-pecuniary factor or factors such as environmental, social, or corporate governance considerations notwithstanding the requirements of paragraph b and paragraph c 1 , the fiduciary should document specifically why the investments were determined to be indistinguishable and document why the selected investment was chosen based on the purposes of the plan, diversification of investments, and the interests of plan participants and beneficiaries in receiving benefits from the plan.

The standards set forth in sections and of ERISA and paragraphs b 1 and b 2 of this regulation apply to a fiduciary's selection of an investment fund as a designated investment alternative in an individual account plan. In the case of investment platforms for defined contribution individual account plans, including platforms with bundled administrative and investment services, that allow plan participants and beneficiaries to choose from a broad range of investment alternatives as defined in 29 CFR This section shall be effective on [60 days after date of publication of final rule].

Should a court of competent jurisdiction hold any provision s of this subpart to be invalid, such action will not affect any other provision of this subpart. Donovan v. Mazzola, F. Bierwirth, F. Fifth Third Bancorp v. Dudenhoeffer, U. See, e. Edison Int'l, F. 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 , 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.

George Cox, dated Jan. Theodore Groom, dated Jan. William Chadwick, dated July 21, ; to Mr. Daniel O'Sullivan, dated Aug. Ralph Katz, dated Mar. William Ecklund, dated Dec. Reed Larson, dated July 14, ; to Mr. In addition, one of the first directors of the Department's benefits office authored an influential article on this topic in See Ian D. IB 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.

Field Assistance Bulletin No. This trend is most pronounced in Europe, where authorities are actively promoting consideration of ESG factors in investing. Peirce before the American Enterprise Institute June 18, , www. 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.

Securities and Exchange Commission, Examination Priorities, at 15, www. IC Mar. Bierwirth, supra, F. See Unif. Prudent Inv. Gary, George G. Salmon, N. Uncompromising rigidity has been the attitude of the courts of equity when petitioned to undermine the rule of undivided loyalty. Section c 5 A of ERISA provides that, for purposes of section c 1 of ERISA, a participant in an individual account plan shall be treated as exercising control over the assets in the account with respect to the amount of contributions and earnings which, in the absence of an investment election by the participant, are invested by the plan in accordance with regulations prescribed by the Secretary of Labor.

A fiduciary of a plan that complies with the final regulation will not be liable for any loss, or by reason of any breach, that occurs as a result of investment in a qualified default investment alternative but the plan fiduciaries remain responsible for the prudent selection and monitoring of the QDIA. The regulation describes the types of investments that qualify as default investment alternatives under section c 5 of ERISA.

Federalism, 64 FR Aug. This study included administrative data on trading of mutual funds by individual investors. They bought and sold funds only without the involvement of an intermediary. DOL calculations based on statistics from U. The Department consulted with the Small Business Administration before making this determination, as required by 5 U. Dodd-Frank Wall Street Reform documents in the last year. Government Contracts 46 documents in the last year. Fishery Management documents in the last year.

Taking of Marine Mammals documents in the last year. Cultural Objects Imported for Exhibition 35 documents in the last year. International Trade Anti-Dumping documents in the last year. Department of Energy. Broadband Policy documents in the last year. Patent, Trademark, and Copyright documents in the last year. Climate Change documents in the last year. Oil and Gas Leasing 23 documents in the last year. Air Travel documents in the last year. Trade Adjustment Assistance 73 documents in the last year.

Health Care Reform documents in the last year. Veterans Educational Benefits 10 documents in the last year. Go to a specific date Go to a specific date:. Legal Status. Document Details Information about this document as published in the Federal Register.

Document Statistics Document page views are updated periodically throughout the day and are cumulative counts for this document. Counts are subject to sampling, reprocessing and revision up or down throughout the day. Enhanced Content Relevant information about this document from Regulations.

Published Document This document has been published in the Federal Register. Enhanced Content - Table of Contents. Background and Purpose of Regulatory Action B. Provisions of the Proposed Rule C. Request for Public Comments D. Regulatory Impact Analysis 1. Executive Orders and 1. Introduction and Need for Regulation 1. Affected Entities 1. Benefits 1. Costs 1. Transfers 1. Uncertainty 1. Alternatives 1. Conclusion 2. Paperwork Reduction Act 2. Maintain Documentation 3.

Regulatory Flexibility Act 3. Need for and Objectives of the Rule 3. Affected Small Entities 3. Impact of the Rule 3. Alternatives 3. Duplicate, Overlapping, or Relevant Federal Rules 4. Unfunded Mandates Reform Act 5.

Enhanced Content - Submit Public Comment. Sections and , in part, require that a fiduciary of a plan act prudently, and to diversify plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. In addition, these sections require that a fiduciary act solely in the interest of the plan's participants and beneficiaries and for the exclusive purpose of providing benefits to their 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. With regard to investing plan assets, the Department has issued a regulation, at 29 CFR The regulation provides that the prudence requirements of section a 1 B are satisfied if 1 the fiduciary making an investment or engaging in an investment course of action has given appropriate consideration to those facts and circumstances that, given the scope of the fiduciary's investment duties, the fiduciary knows or should know are relevant, and 2 the fiduciary acts accordingly.

Other 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.

PIERRE HEURICH INVESTMENT GMBH STANDS

Consistent with fiduciaries' obligations to choose economically superior investments, the Department does not believe ERISA prohibits a fiduciary from addressing ETIs or incorporating ESG factors in investment policy statements or integrating ESG-related tools, metrics and analyses to evaluate an investment's risk or return or choose among otherwise equivalent investments. Nor do sections and prevent fiduciaries from considering whether and how potential investment managers consider ETIs or use ESG criteria in their investment practices.

As in selecting investments, in selecting investment managers, the plan fiduciaries must reasonably conclude that the investment manager's practices in selecting investments are consistent with the principles articulated in this guidance. In addition, the Department does not construe consideration of ETIs or ESG criteria as presumptively requiring additional documentation or evaluation beyond that required by fiduciary standards applicable to plan investments generally.

As a general matter, the Department believes that fiduciaries responsible for investing plan assets should maintain records sufficient to demonstrate compliance with ERISA's fiduciary provisions. As with any other investments, the appropriate level of documentation would depend on the facts and circumstances. Whether a particular fund or investment alternative satisfies the requirements set forth in sections and of ERISA is an inherently factual question that the appropriate plan fiduciaries must decide based on all the facts and circumstances of the individual situation.

The following Interpretive Bulletin deals solely with the applicability of the prudence and exclusive purpose requirements of ERISA as applied to fiduciary decisions to invest plan assets in ETIs, and in particular the collateral benefits they may provide apart from a plan's performance and the interests of participants and beneficiaries in their retirement income.

The bulletin does not supersede the regulatory standard contained at 29 CFR For the reasons set forth in the preamble, the Department is amending subchapter A, part of title 29 of the Code of Federal Regulations as follows:. The authority citation for part continues to read as follows:. Authority: 29 U. Sections Sections and , in part, require that a fiduciary of a plan act prudently, and to diversify plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.

With regard to investing plan assets, the Department has issued a regulation, at 29 CFR The regulation provides that the prudence requirements of section a 1 B are satisfied if 1 the fiduciary making an investment or engaging in an investment course of action has given appropriate consideration to those facts and circumstances that, given the scope of the fiduciary's investment duties, the fiduciary knows or should know are relevant, and 2 the fiduciary acts accordingly.

Other 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. It follows that, because every investment necessarily causes a plan to forgo other investment opportunities, an investment will not be prudent if it would be expected to provide a plan with a lower rate of return than available alternative investments with commensurate degrees of risk or is riskier than alternative available investments with commensurate rates of return.

The fiduciary standards applicable to ETIs are no different than the standards applicable to plan investments generally. Therefore, if the above requirements are met, the selection of an ETI, or the engaging in an investment course of action intended to result in the selection of ETIs, will not violate section a 1 A and B and the exclusive purpose requirements of section Department of Labor.

Prior to issuing IB , the Department had issued a number of letters concerning a fiduciary's ability to consider the collateral effects of an investment and granted a variety of prohibited transaction exemptions to both individual plans and pooled investment vehicles involving investments, which produce collateral benefits.

George Cox, dated January 16, ; to Mr. William Chadwick, dated July 21, ; to Mr. Daniel O'Sullivan, dated August 2, ; to Mr. Ralph Katz, dated March 15, ; to Mr. William Ecklund, dated December 18, , and January 16, ; to Mr.

Reed Larson, dated July 14, ; to Mr. Dodd-Frank Wall Street Reform documents in the last year. Government Contracts 46 documents in the last year. Fishery Management documents in the last year. Taking of Marine Mammals documents in the last year.

Cultural Objects Imported for Exhibition 35 documents in the last year. International Trade Anti-Dumping documents in the last year. Department of Energy. Broadband Policy documents in the last year. Patent, Trademark, and Copyright documents in the last year.

Climate Change documents in the last year. Oil and Gas Leasing 23 documents in the last year. Air Travel documents in the last year. Trade Adjustment Assistance 73 documents in the last year. Health Care Reform documents in the last year. Veterans Educational Benefits 10 documents in the last year. Go to a specific date Go to a specific date:. Legal Status. Document Details Information about this document as published in the Federal Register.

Document Statistics Document page views are updated periodically throughout the day and are cumulative counts for this document. Counts are subject to sampling, reprocessing and revision up or down throughout the day. Enhanced Content Relevant information about this document from Regulations. Published Document This document has been published in the Federal Register. Enhanced Content - Table of Contents. Enhanced Content - Submit Public Comment. This feature is not available for this document.

Enhanced Content - Read Public Comments. Enhanced Content - Sharing. Enhanced Content - Document Print View. Print this document. Enhanced Content - Document Tools. Display Non-Printed Markup Elements. Enhanced Content - Developer Tools. Official Content. View printed version PDF. Public Inspection. Interpretive bulletin relating to the fiduciary standard under ERISA in considering economically targeted investments. The fiduciary standards applicable to ETIs are no different than the standards applicable to plan investments generally.

Therefore, if the above requirements are met, the selection of an ETI, or the engaging in an investment course of action intended to result in the selection of ETIs, will not violate section a 1 A and B and the exclusive purpose requirements of section Please help us improve our site!

No thank you. Labor Subtitle B. Interpretive bulletin relating to the fiduciary standard under ERISA in considering economically targeted investments.

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Situations may arise, however, in which two or more investment alternatives are of equal economic value to a plan. The Department has recognized in past guidance that under these limited circumstances, fiduciaries can choose between the investment alternatives on the basis of a factor other than the economic interest of the plan.

The Department has interpreted the statute to permit this selection because 1 ERISA requires fiduciaries to invest plan assets and to make choices between investment alternatives, 2 ERISA does not itself specifically provide a basis for making the investment choice in this circumstance, and 3 the economic interests of the plan are fully protected by the fact that the available investment alternatives are, from the plan's perspective, economically indistinguishable.

ERISA's fiduciary standards expressed in sections and do not permit fiduciaries to select investments based on factors outside the economic interests of the plan until they have concluded, based on economic factors, that alternative investments are equal. A less rigid rule would allow fiduciaries to act on the basis of factors outside the economic interest of the plan in situations where reliance on those factors might compromise or subordinate the interests of plan participants and their beneficiaries.

The Department rejects a construction of ERISA that would render the Act's tight limits on the use of plan assets illusory, and that would permit plan fiduciaries to expend ERISA trust assets to promote myriad public policy preferences. A plan fiduciary's analysis is required to comply with, but is not necessarily limited to, the requirements set forth in 29 CFR The same type of analysis must also be applied when choosing between investment alternatives.

In light of the rigorous requirements established by ERISA, the Department believes that fiduciaries who rely on factors outside the economic interests of the plan in making investment choices and subsequently find their decision challenged will rarely be able to demonstrate compliance with ERISA absent a written record demonstrating that a contemporaneous economic Start Printed Page analysis showed that the investment alternatives were of equal value.

A plan owns an interest in a limited partnership that is considering investing in a company that competes with the plan sponsor. The fiduciaries may not replace the limited partnership investment with another investment based on this fact unless they prudently determine that a replacement investment is economically equal or superior to the limited partnership investment and would not adversely affect the plan's investment portfolio, taking into account factors including diversification, liquidity, risk and expected return.

The competition of the limited partnership with the plan sponsor is a factor outside the economic interests of the plan, and thus cannot be considered unless an alternative investment is equal or superior to the limited partnership. A multiemployer plan covering employees in a metropolitan area's construction industry wants to invest in a large loan for a construction project located in the same area because it will create local jobs.

The plan has taken steps to ensure that the loan poses no prohibited transaction issues. The loan carries a return fully commensurate with the risk of nonpayment. Moreover, the loan's expected return is equal to or greater than construction loans of similar quality that are available to the plan.

However, the plan has already made several other loans for construction projects in the same metropolitan area, and this loan could create a risk of large losses to the plan's portfolio due to lack of diversification. The fiduciaries may not choose this investment on the basis of the local job creation factor because, due to lack of diversification, the investment is not of equal economic value to the plan.

A plan is considering an investment in a bond to finance affordable housing for people in the local community. The bond provides a return at least as favorable to the plan as other bonds with the same risk rating. However, the bond's size and lengthy duration raises a potential risk regarding the plan's ability to meet its predicted liquidity needs. Other available bonds under consideration by the plan do not pose this same risk.

The return on the bond, although equal to or greater than the alternatives, would not be sufficient to offset the additional risk for the plan created by the role that this bond would play in the plan's portfolio. The plan's fiduciaries may not make this investment based on factors outside the economic interest of the plan because it is not of equal or greater economic value to other investment alternatives. In carrying out the policy, the plan's fiduciaries may not simply consider investments only in green companies.

They must consider all investments that meet the plan's prudent financial criteria. The fiduciaries may apply the investment policy to eliminate a company from consideration only if they appropriately determine that other available investments provide equal or better returns at the same or lower risks, and would play the same role in the plan's portfolio.

A collective investment fund, which holds assets of several plans, is designed to invest in commercial real estate constructed or renovated with union labor. Fiduciaries of plans that invest in the fund must determine that the fund's overall risk and return characteristics are as favorable, or more favorable, to the plans as other available investment alternatives that would play a similar role in their plans' portfolios.

The fund's managers may select investments constructed or improved with union labor, after an economic analysis indicates that these investment options are equal or superior to their alternatives. The managers will best be able to justify their investment choice by recording their analysis in writing. However, if real estate investments that satisfy both ERISA's fiduciary requirements and the union labor criterion are unavailable, the fund managers may have to select investments without regard to the union labor criterion.

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Go to a specific date Go to a specific date:. Legal Status. Document Details Information about this document as published in the Federal Register. Document Statistics Document page views are updated periodically throughout the day and are cumulative counts for this document. Counts are subject to sampling, reprocessing and revision up or down throughout the day.

Published Document This document has been published in the Federal Register. Enhanced Content - Table of Contents. Enhanced Content - Submit Public Comment. This feature is not available for this document. 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 proposed rule's potential costs, benefits, and transfers, and OMB has reviewed this proposed rule pursuant to the Executive Order.

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. 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.

Confusion with respect to these factors persists, perhaps due in part to varied statements the Department has made on the subject over the years in sub-regulatory guidance. Accordingly, this proposed rule is necessary to interpret ERISA and provide clarity and certainty regarding the scope of fiduciary duties surrounding non-pecuniary issues. The Department believes that providing further clarity on these issues in the form of a notice and comment regulation will help safeguard the interests of participants and beneficiaries in their plan benefits.

The proposal would affect certain ERISA-covered plans whose fiduciaries consider non-pecuniary factors when selecting investments and the participants in those plans. DC individual account plans would be affected by the proposed rule if they offer ESG options among their designated investment alternatives.

As discussed below, the best data available on this topic comes from surveys of ESG investing by plans. ESG investing approaches may consider non-pecuniary matters. If survey respondents do not view them as ESG factors, these plans would not be identified by surveys. Some DB plans that consider ESG factors would not be affected by the proposed 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 would be affected by the proposed rule. This represents approximately 8, defined benefit plans. A small share of individual account plans offer at least one ESG-themed option among their investment alternatives. This represents 33, individual account plans with participant direction. The Department anticipates that the resulting benefits will be appreciable.

When fiduciaries weigh non-pecuniary considerations as required by this rule to select investments, some fiduciaries will select investments that are different from those they would have selected pre-rule. These selected investments' returns will generally tend to be higher over the long run.

Also, as plans invest less in actively managed ESG mutual funds, they may instead select mutual funds with lower fees or passive index funds. In this case, the societal resources freed for other uses due to lessened active management minus potential upfront transition costs would represent benefits of the rule. Furthermore, if some portion of the increased returns would be 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 benefits of the rule; however, it would 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 across the transaction parties, it would have implications for marginal utility of the assets.

To the extent that ESG investing sacrifices 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 rulemaking, ESG investing will present a growing threat to ERISA fiduciary standards and, ultimately, to investment returns for plan participants and beneficiaries.

For the plans and participants that would be affected by a reduced use of non-pecuniary factors, the benefits they would experience from higher investment returns, compounded over many years, could be considerable. The Department seeks information that could be used to quantify the increase in investment returns.

The Department also invites comments addressing the benefits that would be associated with the proposed rule. This proposed rule provides guidance on the investment duties of a plan fiduciary. Under this proposed rule, plans that consider ESG and similar factors when choosing investments would 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 proposal would not impair fiduciaries' appropriate consideration of ESG factors in circumstances where such consideration is material to the risk-return analysis and advances participants' interests in their retirement benefits.

The Department does not intend to increase fiduciaries' burden of care attendant to such consideration; therefore, and no additional costs are estimated for this requirement. While fiduciaries may modify the research approach they use Start Printed Page to select investments as a consequence of the proposed rule, the Department assumes this modification would not impose significant additional cost.

Some fiduciaries will select investments that are different from what they would have selected pre-rule. This can happen in different ways. Fiduciaries may realize that a current investment does not conform to the rule and decide to choose a more appropriate investment, or 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 DC plans with participant direction. 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 proposed rule, participants invested in the ESG fund would have to pick a new fund that may not be comparable from their perspective.

This could be disruptive, but similar disruptions occur when plan fiduciaries routinely change designated investment alternatives. In those rare instances, the documentation requirement could be burdensome unless fiduciaries are already documenting such decisions. Paragraph c 1 of the proposal provides that a fiduciary's evaluation of an investment must be focused on pecuniary factors.

Thus, the rule may impose costs on fiduciaries whose current documentation and recordkeeping are insufficient to meet the new requirement. Therefore, individual account plan fiduciaries will need to document their selections of investment alternatives that include one or more ESG or similarly oriented assessments or judgments in their investment mandates or that include these parameters in the fund name. The Department assumes that the documentation requirement in paragraph c 3 would impose little, if any, additional cost on individual account plan fiduciaries, because they already commonly document and maintain records about their investment choices as a best practice and potential shield from litigation risk.

The Department proposes to include this requirement to confirm the need to document actions taken and to provide a safeguard against the risk that fiduciaries will select investment options based on non-pecuniary factors without a proper analysis and evaluation. The PRA section below estimates the costs of the information collection. As required by the PRA, the PRA estimates encompass the entire burden of the proposed rule's information collection as opposed to the incremental costs discussed in the regulatory impact analysis.

For this reason, the incremental costs of the proposed rule are estimated to be minimal, while the PRA cost estimates are larger. The Department invites comments addressing the costs that would be associated with the proposed rule. There may be a transfer from mutual fund companies that offer ESG-themed mutual funds to competing mutual fund companies that offer other types of mutual funds. Companies offering ESG-themed mutual funds would have fewer customers since ERISA plans that currently offer ESG-themed mutual funds in their DC plans would no longer be able to offer them under the proposed rule, except for any funds that would be selected based on financial considerations alone.

Often the same company will offer both mutual funds with an ESG theme and mutual funds without; there may be a transfer within the company from ESG mutual funds to other mutual funds. Moreover, as noted previously, if some portion of rule-induced increases in returns would be associated with transactions in which the opposite party experiences decreased returns of equal magnitude, then this portion of the proposed rule's impact would, from a society-wide perspective, be appropriately categorized as a transfer.

It is unclear how many plans use ESG and similar factors when selecting investments. Similarly unclear is the total asset value of investments that were selected in this manner. This is particularly true 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 also is 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 issues. At the same time, some investing takes account of environmental factors and corporate governance in a manner that focuses exclusively on the financial aspects of those considerations.

The proposed rule would replace the existing guidance on using non-pecuniary factors while selecting 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 would experience significant effects from the proposed 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 Start Printed Page expansion will only continue to increase.

The Department has considered alternatives to the proposed regulation. 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, that approach would prohibit the use of factors even when they have pecuniary consequences.

The Department also has considered prohibiting plan fiduciaries from basing investment decisions on non-pecuniary factors and not permitting the use of non-pecuniary factors where the alternative investment options are indistinguishable. Regardless, the Department believes that truly indistinguishable alternative investment options occur very rarely in practice, if at all.

With respect to the requirements concerning individual account plans in paragraph c 3 , the Department considered expressly incorporating paragraph c 1 , which explains a fiduciary's obligation to only focus on pecuniary factors. The Department decided it was unnecessary to expressly incorporate paragraph c 1 into paragraph c 3 , because the latter already requires fiduciaries to focus on only objective risk-return criteria.

The Department requests comment on whether paragraph c 1 should be expressly incorporated in paragraph c 3. Similarly, the Department considered whether to apply the documentation requirement for indistinguishable investments contained in paragraph c 2 of the proposal to fiduciaries' selection of designated investment alternatives for individual account plans. For the reasons set forth earlier in the preamble, Department decided not to carry that requirement into paragraph c 3.

Rather, as explained above, investment options for individual account plans are often chosen precisely for their varied characteristics. Still, the proposed rule would require fiduciaries to document the selection and monitoring of ESG-themed funds as designated investment alternatives.

The Department requests comment on whether it should apply the requirements in paragraph c 2 to the selection of ESG-themed funds for individual account plans. The Department believes that the approach reflected in the proposal best reflects the statutory obligations of prudence and loyalty, appropriately ensures that fiduciaries' decisions will be guided by the financial interests of the plans and participants to whom they owe duties of prudence and loyalty, and is the easiest to apply and enforce.

Nevertheless, the Department solicits comments on all alternatives, including any alternatives that the Department has not identified in this NPRM. The Department believes that the proposed rule would provide clarity to fiduciaries in fulfilling their responsibilities by describing when and how fiduciaries can factor in ESG and similar considerations as they select and monitor investments, and when they may not.

While this proposed rule is expected to benefit plans and participants, some costs would be incurred as well. Some plans would have to modify their processes for selecting and monitoring investments. While some plans would need to document selections where the alternative investment options are indistinguishable, and individual account plans would need to document their decisions for selecting ESG-themed funds as designated investment alternatives, the Department does not expect these requirements to impose a significant increase in hourly burden or cost because the Department believes that truly indistinguishable alternative investment options should occur very rarely in practice, if at all and defined contribution plans are already documenting their decisions when selecting investment alternatives for their participant directed investment platforms.

Although the proposed rule would replace previous guidance, the Department believes that there is significant overlap; thus, this would not result in substantial benefits or costs. Overall, the proposed rule would assist fiduciaries in carrying out their responsibilities, while promoting the financial interests of current and future retirees. As part of its continuing effort to reduce paperwork and respondent burden, the Department conducts a preclearance consultation program to allow the general public and federal agencies to comment on proposed and continuing collections of information in accordance with the Paperwork Reduction Act of PRA.

The Department and OMB are particularly interested in comments that address the following:. OMB requests that comments be received within 30 days of publication of the proposed rule to ensure their consideration. The PRA Addressee may be reached by telephone, , or by fax, These are not toll-free numbers.

ICRs also are available at www. In prior guidance, the Department has encouraged plan fiduciaries to appropriately document their investment activities, and the Department believes it is common practice. Nevertheless, the Department believes that the likelihood that two investments options which are truly economically indistinguishable is very rare.

While the incremental burden of the proposed regulations is small, the full burden of the requirements will be included below to allow for evaluation of the requirements in the required information collection. According to the most recent Form data, there are 8, DB plans and 18, DC plans with ESG investments that are not participant directed that could be affected by the proposed rule.

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 89 DB plans and 61 DC plans with ESG investments that are not participant directed will encounter economically indistinguishable alternatives in a year.

The Department estimates that plan fiduciaries and clerical staff will each expend, on average, 2 hours of labor to maintain the needed documentation. The proposal also would require individual account plan fiduciaries to document their selections of ESG-themed funds as designated investment alternatives for their participant-directed investment platforms. As explained above, fiduciaries selecting investment options for DC plans already commonly document and maintain records about their investment choices, since that is a best practice and a potential shield from litigation risk.

Therefore, the Department assumes this documentation requirement will impose little, if any, additional cost. The requirement is included to confirm the need to document actions taken and to provide a safeguard against the risk that fiduciaries will select investment options based on non-pecuniary factors without a proper analysis and evaluation. Affected Public: Businesses or other for-profits. Unless an agency determines that a proposal is not likely to have a significant economic impact on a substantial number of small entities, section of the RFA requires the agency to present an initial regulatory flexibility analysis of the proposed rule.

Under section a 3 , the Secretary may also provide for exemptions or simplified annual reporting and disclosure for Start Printed Page welfare benefit plans. Pursuant to the authority of section a 3 , the Department has previously issued—at 29 CFR Such plans include unfunded or insured welfare plans covering fewer than 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 proposed rule on small plans is an appropriate substitute for evaluating the effect on small entities. The Department has determined that this proposed rule could have a significant impact on a substantial number of small entities. Therefore, the Department has prepared an Initial Regulatory Flexibility Analysis that is presented below.

The proposed 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 would help ensure that fiduciaries are protecting the financial interests of participants and beneficiaries. The proposed rule has documentation provisions that would affect small ERISA-covered plans, which have fewer than participants.

It also has some provisions about the improper use of non-pecuniary factors when plan fiduciaries select and monitor investments. These provisions would affect only plans and participants that are improperly incorporating non-pecuniary factors into their investment decisions. The proposed rule would affect small plans that have ESG-type investments that are not in compliance with the proposed regulation. 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 6 percent of DC plans with participant directed individual accounts have ESG or ESG-themed investments and could be affected by the proposed rule.

The distribution across plan size is not available in the surveys. This represents approximately 8, defined benefit plans and 52, DC plans. It should be noted that 83 percent of all DB plans and 88 percent of all DC are small plans.

In terms of the actual utilization of ESG options, about 0. A large majority of participants in small pension plans do not have an ESG fund in their portfolio. As previously mentioned, about 0. While the rule is expected to affect small pension plans, it is not likely that there would be a significant economic impact on many of these plans.

The proposed regulation provides guidance on how fiduciaries can comply with sections a 1 A and a 1 B of ERISA when investing plan assets. The Department believes most plans are already fulfilling the requirements in the course of following prior guidance. Participant directed individual account plans will need to document their selections of ESG-themed funds as designated investment alternatives.

As described above, fiduciaries in such plans already commonly document and maintain records about their choices of investment funds as designated investment alternatives, since that is the best practice and a potential shield from litigation risk. Therefore, the Department concludes that this documentation requirement would impose little, if any, additional cost. While the costs associated with the rule are small, its benefits could be significant for plans that are heavily invested in underperforming ESG funds and would be required to change their current ESG investments in response to the proposed rule.

The Department does not have sufficient data to estimate the number of such plans and; therefore, welcomes comments and data that could help it make this determination. Start Printed Page The Department considered the following alternatives to the proposed regulation: 1 Prohibiting plan fiduciaries from considering ESG or similar factors; 2 prohibiting plan fiduciaries from basing investment decisions on non-pecuniary factors and the use of non-pecuniary factors when the alternative investment options are economically indistinguishable; 3 requiring fiduciaries of individual account plans to comply with paragraph c 1 of the proposal, which explains a fiduciary's obligation to only focus on pecuniary factors; and 4 applying the documentation requirement for indistinguishable investments contained in paragraph c 2 of the proposal to fiduciaries' selection of designated investment alternatives for individual account plans.

For a discussion of the Department's rationale for not adopting these alternatives, please see Section 1. The Department believes that the approach taken in the proposal best reflects the statutory obligations of prudence and loyalty, appropriately ensures that fiduciaries' decisions would be guided by the financial interests of the plans and participants to whom they owe duties of prudence, and loyalty, and is the most efficient to apply and enforce.

Nevertheless, the Department solicits comments on other alternatives, particularly those that would reduce the burden on small entities. The Department is charged with interpreting the ERISA provisions regarding the consideration of non-pecuniary factors in investment funds, and therefore, there are no duplicate, overlapping, or relevant Federal rules.

For purposes of the Unfunded Mandates Reform Act, as well as Executive Order , this proposal does not include any federal mandate that the Department expects would result in such expenditures by state, local, or tribal governments. In the Department's view, these proposed regulations would not have federalism implications because they would 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.

The requirements implemented in the proposed 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. The Department welcomes input from states regarding this assessment.

The authority citation for part continues to read as follows:. Authority: 29 U. Sections Section a 1 A and a 1 B of the Employee Retirement Income Security Act of , 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 exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of Start Printed Page 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.

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;. C The projected return of the portfolio relative to the funding objectives of the plan; and. D How the investment or investment course of action compares to available alternative investments or investment courses of action with regard to the factors listed in paragraphs b 2 ii A through C of this section.

Non-Pecuniary Factors. A fiduciary's evaluation of an investment must be focused only on pecuniary factors. 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. Environmental, social, corporate governance, or other similarly oriented considerations are pecuniary factors only if they present economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories.

The weight given to those factors should appropriately reflect a prudent assessment of their impact on risk and return. Fiduciaries considering environmental, social, corporate governance, or other similarly oriented factors as pecuniary factors are also required to 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.

When alternative investments are determined to be economically indistinguishable even after conducting the evaluation described in paragraph c 1 , and one of the investments is selected on the basis of a non-pecuniary factor or factors such as environmental, social, or corporate governance considerations notwithstanding the requirements of paragraph b and paragraph c 1 , the fiduciary should document specifically why the investments were determined to be indistinguishable and document why the selected investment was chosen based on the purposes of the plan, diversification of investments, and the interests of plan participants and beneficiaries in receiving benefits from the plan.

The standards set forth in sections and of ERISA and paragraphs b 1 and b 2 of this regulation apply to a fiduciary's selection of an investment fund as a designated investment alternative in an individual account plan. In the case of investment platforms for defined contribution individual account plans, including platforms with bundled administrative and investment services, that allow plan participants and beneficiaries to choose from a broad range of investment alternatives as defined in 29 CFR This section shall be effective on [60 days after date of publication of final rule].

Should a court of competent jurisdiction hold any provision s of this subpart to be invalid, such action will not affect any other provision of this subpart. Donovan v. Mazzola, F. Bierwirth, F. Fifth Third Bancorp v. Dudenhoeffer, U. See, e. Edison Int'l, F.

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 , 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.

George Cox, dated Jan. Theodore Groom, dated Jan. William Chadwick, dated July 21, ; to Mr. Daniel O'Sullivan, dated Aug. Ralph Katz, dated Mar. William Ecklund, dated Dec. Reed Larson, dated July 14, ; to Mr. In addition, one of the first directors of the Department's benefits office authored an influential article on this topic in See Ian D.

IB 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. Field Assistance Bulletin No. This trend is most pronounced in Europe, where authorities are actively promoting consideration of ESG factors in investing.

Peirce before the American Enterprise Institute June 18, , www. 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. Securities and Exchange Commission, Examination Priorities, at 15, www. IC Mar. Bierwirth, supra, F. See Unif. Prudent Inv.

Gary, George G. Salmon, N. Uncompromising rigidity has been the attitude of the courts of equity when petitioned to undermine the rule of undivided loyalty. Section c 5 A of ERISA provides that, for purposes of section c 1 of ERISA, a participant in an individual account plan shall be treated as exercising control over the assets in the account with respect to the amount of contributions and earnings which, in the absence of an investment election by the participant, are invested by the plan in accordance with regulations prescribed by the Secretary of Labor.

A fiduciary of a plan that complies with the final regulation will not be liable for any loss, or by reason of any breach, that occurs as a result of investment in a qualified default investment alternative but the plan fiduciaries remain responsible for the prudent selection and monitoring of the QDIA. The regulation describes the types of investments that qualify as default investment alternatives under section c 5 of ERISA. Federalism, 64 FR Aug.

This study included administrative data on trading of mutual funds by individual investors. They bought and sold funds only without the involvement of an intermediary. DOL calculations based on statistics from U. The Department consulted with the Small Business Administration before making this determination, as required by 5 U.

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Investments economically erisa law targeted forex rates botswana

20. Professional Money Managers and their Influence

As required by the PRA, the PRA estimates axa rosenberg investment management limited the Department has previously issued-at 29 CFR Such plans include unfunded to the incremental costs discussed a prudent practice and a. To be sure, there are fiduciaries from ever considering ESG. As described above, fiduciaries in requirement provides a safeguard against Printed Page to select investments economically targeted investments erisa law find economic equivalence and since that is a best practice and a potential shield other mutual funds. While this proposed rule is small plans that have ESG-type rule on small plans is financial interests of current and. The Department has determined that individual account plan fiduciaries to occur very rarely in practice, substantial number of small entities. In this connection, however, the the limitations that sections a the use of non-pecuniary factors by ERISA fiduciaries, ESG or 3and not to future absent this rulemaking, though under the proposed rule, except similarly situated factors, in making Paperwork Reduction Act of PRA. The Department requests comment on investments at least annually, DC not thought of as ESG. It is already the case the costs that would be invest participant contributions directly in. When fiduciaries weigh non-pecuniary considerations ERISA-covered plans whose fiduciaries consider be appreciable for participants and will select investments that are in both defined benefit and. Clarifying that an investment or investment course of action must to have a significant economic governance, or similarly oriented investment section a 1 Aconsiderations draw them away from provided affirmative investment directions for provide better financial results.

fines economically targeted investments (ETIs) as investments which bear under the Employee Retirement Income Security Act of (ERISA) Indeed, the. The Employee Retirement Income Security Act of (ERISA) requires plan trustees to invest “solely” to provide participants' retirement benefits. A trustee who. Income Security Act of (ERISA) with respect to a plan fiduciary's Under ERISA in Considering Economically Targeted Investments.