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Employee Benefits Blog - E-Blog

Employee Benefits Blog

The Employee Benefits & Executive Compensation attorneys at Chamberlain Hrdlicka represent public companies, large and closely-held private companies, tax-exempt organizations, and the fiduciaries who oversee those entities' employee benefit plans.  We understand incentives in the workplace, and we stand ready with an integrated approach to help you deal with them.

From qualified retirement plans, to executive compensation, to fiduciary advice, to health and welfare programs, to mergers and acquisitions, to ERISA litigation, our broad experience helps companies answer questions in these areas of the law.  A background in tax, securities, and fiduciary matters is our foundation.  A common theme runs through our work in these areas: we specialize in representing employers in protecting their interests and maximizing tax advantages. We understand the work that goes into creating and maintaining incentives in the workplace, and we have the technical skills to help keep a company's employee benefit plans operating at peak efficiency.

At Chamberlain Hrdlicka, we stand with company Boards of Directors, Compensation Committees, and the HR teams that serve those directors and committees, as they seek to provide a stable, productive environment for company executives and workers.

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When can ERISA plan fiduciaries invest in environmental, social, and corporate governance (ESG) vehicles?

The Department of Labor’s final regulation (https://www.federalregister.gov/documents/2020/06/30/2020-13705/financial-factors-in-selecting-plan-investments) makes it clear that ERISA plan fiduciaries may not invest in environmental, social, and corporate governance (ESG) vehicles when they understand an underlying investment strategy of the vehicle is to subordinate return or increase risk for the purpose of non-pecuniary objectives. The duty of loyalty—a core principle of ERISA, which evolved from the common law of trusts—requires those serving as fiduciaries to act without their own interests in mind but with a required focus on the interests of the beneficiaries.

Furthermore the duty of prudence prevents a fiduciary from choosing an investment alternative that is financially less beneficial than an available alternative. These fiduciary standards are the same no matter the investment vehicle or category.

As the Department stated in prior guidance, there may be instances where factors that sometimes are considered without regard to their pecuniary measure.  Thus, environmental considerations could present an economic business risk or opportunity that corporate officers, directors, and qualified investment professionals would appropriately treat as material economic considerations under generally accepted investment theories.  For example, a company's improper disposal of hazardous waste would likely implicate business risks and opportunities, litigation exposure, and regulatory obligations. These would be appropriate economic considerations that qualified investment professionals would treat as material under generally accepted investment theories. Dysfunctional corporate governance can likewise present pecuniary risk that a qualified investment professional would appropriately consider on a fact-specific basis.

For those that wish to invest in ESG vehicles, the DOL just made it a bit more difficult to do so in your ERISA qualified retirement plans.  If you are a fiduciary that feels strongly about ESG investing, please call us and we can help you navigate the new fiduciary waters.

  • Joshua A. Sutin

    Joshua Sutin helps clients unravel complex legal and business issues related to employee benefit plans, tax-exempt organizations, and business tax planning. He counsels both businesses and not-for-profit organizations on the ...