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DOL Seeks Feedback on Climate Risk in Retirement Plans

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What You Need to Know

  • A new request for information follows Biden’s executive order issued last May.
  • One question asks if EBSA should use Form 5500 to collect data on climate-related financial risk to pension plans.
  • Another question: Do any guaranteed lifetime income products (e.g. annuities) help individuals mitigate the effects of some climate-related financial risk?

The Labor Department released Friday a request for information seeking comment on further actions Labor’s Employee Benefits Security Administration should take to protect retirement savings and pensions from threats of climate-related financial risk.

President Joe Biden issued an executive order in May on climate-related financial risk, which directed the Labor secretary to reconsider rules enacted under the Trump administration limiting environmental, social and governance focused investments in retirement plans.

In October, Labor proposed a new rule that will make it easier for 401(k) plans to choose investments based on ESG factors.

Labor’s proposed rule, Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, is designed “to empower plan fiduciaries to safeguard the savings of America’s workers by making it clear that fiduciaries may consider climate change and other ESG factors when they make investment decisions and when they exercise shareholder rights, including voting on shareholder resolutions and board nominations,” the RFI states.

The RFI follows Biden’s order directing Labor to identify actions it can take under the Employee Retirement Income Security Act, the Federal Employees’ Retirement System Act of 1986 and other relevant laws to safeguard the life savings and pensions of U.S. workers and families from the threats of climate-related financial risk.

Together, Labor said, ERISA and FERSA provide oversight to more than $13 trillion in assets.

Labor’s RFI requests public feedback on a number of issues, including:

  • How EBSA should address and implement the action items set forth for it in Executive Order 14030 on Climate-Related Financial Risk.
  • Should EBSA use the Form 5500 Annual Return/Report to collect data on climate-related financial risk to pension plans? For example, EBSA could add questions to the Form 5500 to collect data on climate-related financial risks to retirement plans and their service providers, and Form 5500 could try to collect information about whether and how plan investment policy statements specifically address climate-related financial risk, whether service providers disclose or meet metrics related to such financial risks, and whether and how plans have factored climate-related financial risk into their analysis of individual investments or investment courses of action.
  • Do any guaranteed lifetime income products (e.g., annuities) help individuals efficiently mitigate the effects of at least some climate-related financial risk? If so, what mitigation measures do these products take?