Should ESG investment options be included in your company’s 401(k)?

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With the swearing in of each new administration, regulatory changes follow. One of the most recent changes to come from the Biden administration is the Department of Labor’s new proposed rule for retirement accounts involving environmental, social, and governance (ESG) funds. The change would block the previous administration’s proposed rule that plan fiduciaries can only consider investment-related factors, such as risk and return, when selecting investment options in 401(k)s or other Employee Retirement Income Security Act (or ERISA) plans.

The Department of Labor’s new rule for retirement accounts now allows fiduciaries to consider other factors, such as ESG-focused funds, when selecting investment options. This, however, doesn’t change the core requirements of ERISA plan fiduciaries. Their duties of prudence and loyalty to plan participants are still intact, and they must focus on material risk-return factors. Plan fiduciaries can’t sacrifice investment returns or take on additional investment risk unrelated to the provisions of benefits under the plan.