Question: Last fall, we heard that we should consider only financial factors in selecting investments for the 401(k) plan’s investment menu, which could make it difficult to include environmental, social and governance (ESG) choices. As the new administration took over in the White House, has anything changed?

Answer: It has. On November 13, 2020, the U.S. Department of Labor (DOL) released its final regulations (following the June 30, 2020, proposed regulations) that many felt discouraged ESG investments in qualified plans, because such investments consider nonfinancial factors. Soon after taking office, the Biden administration directed federal agencies to pump the brakes on regulations adopted during the Trump administration, including that new DOL guidance. So, on March 10, 2021, the DOL announced that they will not pursue enforcement action against any plan based on failure to comply with the November 2020 final regulations’ impact on ESG selections. Of course, this is not a general policy of nonenforcement; all other applicable rules for selecting and monitoring investments that are based on ERISA and subsequent regulations continue to apply. But it may mean that choosing ESG options for the investment menu of a qualified plan could get easier.


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