80 FR 65135 - Interpretive Bulletin Relating to the Fiduciary Standard Under ERISA in Considering Economically Targeted Investments
DEPARTMENT OF LABOR
Employee Benefits Security Administration Federal Register Volume 80, Issue 206 (October 26, 2015)
Employee Benefits Security Administration
Federal Register Volume 80, Issue 206 (October 26, 2015)
| Page Range | 65135-65137 | |
| FR Document | 2015-27146 |
[Federal Register Volume 80, Number 206 (Monday, October 26, 2015)] [Rules and Regulations] [Pages 65135-65137] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-27146] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2509 RIN 1210-AB73 Interpretive Bulletin Relating to the Fiduciary Standard Under ERISA in Considering Economically Targeted Investments AGENCY: Employee Benefits Security Administration, Labor. ACTION: Interpretive bulletin. ----------------------------------------------------------------------- SUMMARY: This document sets forth supplemental views of the Department of Labor (Department) concerning the legal standard imposed by sections 403 and 404 of Part 4 of Title I of the Employee Retirement Income Security Act of 1974 (ERISA) with respect to a plan fiduciary's decision to invest plan assets in ``economically targeted investments'' (ETIs). ETIs are generally defined as investments that are selected for the economic benefits they create in addition to the investment return to the employee benefit plan investor. In this document, the Department withdraws Interpretive Bulletin 08-01 and replaces it with Interpretive Bulletin 2015-01 that reinstates the language of Interpretive Bulletin 94-01. DATES: This interpretive bulletin is effective on October 26, 2015. FOR FURTHER INFORMATION CONTACT: Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693- 8500. This is not a toll-free number. SUPPLEMENTARY INFORMATION: Background The Department has been asked periodically over the last 30 years to consider the application of ERISA's fiduciary rules to pension plan investments selected because of the collateral economic or social benefits they may further in addition to their investment returns. Various terms have been used to describe this and related investment behaviors, such as socially responsible investing, sustainable and responsible investing, environmental, social and governance (ESG) investing, impact investing, and economically targeted investing (ETI). The terms do not have a uniform meaning and the terminology is evolving. As used in this interpretive bulletin, however, an economically targeted investment broadly refers to any investment that is selected, in part, for its collateral benefits, apart from the investment return to the employee benefit plan investor. The Labor Department previously addressed issues relating to ETIs in Interpretive Bulletin 94-1 (IB 94-1) \1\ and Interpretive Bulletin 2008-1 (IB 2008- 1).\2\ The Department's stated objective in issuing IB 94-1 was to correct a popular misperception at the time that investments in ETIs are incompatible with ERISA's fiduciary obligations. The preamble to the Interpretive Bulletin explained that the requirements of sections 403 and 404 of ERISA do not prevent plan fiduciaries from investing plan assets in ETIs if the ETI has an expected rate of return that is commensurate to rates of return of alternative investments with similar risk characteristics that are available to the plan, and if the ETI is otherwise an appropriate investment for the plan in terms of such factors as diversification and the investment policy of the plan. Some commenters have referred to this standard as the ``all things being equal'' test. --------------------------------------------------------------------------- \1\ 59 FR 32606 (June 23, 1994). Prior to issuing IB 94-1, 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. See, Advisory Opinions 80-33A, 85-36A and 88-16A; Information Letters to Mr. George Cox, dated January 16, 1981; to Mr. Theodore Groom, dated January 16, 1981; to The Trustees of the Twin City Carpenters and Joiners Pension Plan, dated May 19, 1981; to Mr. William Chadwick, dated July 21, 1982; to Mr. Daniel O'Sullivan, dated August 2, 1982; to Mr. Ralph Katz, dated March 15, 1982; to Mr. William Ecklund, dated December 18, 1985, and January 16, 1986; to Mr. Reed Larson, dated July 14, 1986; to Mr. James Ray, dated July 8, 1988; to the Honorable Jack Kemp, dated November 23, 1990; and to Mr. Stuart Cohen, dated May 14, 1993; PTE 76-1, part B, concerning construction loans by multiemployer plans; PTE 84-25, issued to the Pacific Coast Roofers Pension Plan; PTE 85-58, issued to the Northwestern Ohio Building Trades and Employer Construction Industry Investment Plan; PTE 87-20, issued to the Racine Construction Industry Pension Fund; PTE 87-70, issued to the Dayton Area Building and Construction Industry Investment Plan, PTE 88-96, issued to the Real Estate for American Labor A Balcor Group Trust; PTE 89-37, issued to the Union Bank; PTE 93-16, issued to the Toledo Roofers Local No. 134 Pension Plan and Trust, et al. \2\ 73 FR 61734 (October 17, 2008). --------------------------------------------------------------------------- The Department has also consistently stated, including in Interpretative Bulletin 94-1, that the focus of plan fiduciaries on the plan's financial returns and risk to beneficiaries must be paramount. Under ERISA, the plan trustee or other investing fiduciary may not use plan assets to promote social, environmental, or other public policy causes at the expense of the financial interests of the plan's participants and beneficiaries. Fiduciaries may not accept lower expected returns or take on [[Page 65136]] greater risks in order to secure collateral benefits. Specifically, the Department stated in Interpretive Bulletin 94-1: \3\ --------------------------------------------------------------------------- \3\ 59 FR 32606, 07. Sections 403 and 404 of the Employee Retirement Income Security Act of 1974 (ERISA), 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. The Department continued in Interpretative Bulletin 2008-1: \4\ --------------------------------------------------------------------------- \4\ 73 FR 61734, 35. ERISA's plain text thus establishes a clear rule that in the course of discharging their duties, fiduciaries may never subordinate the economic interests of the plan [participants and --------------------------------------------------------------------------- beneficiaries] to unrelated objectives [ ]. In the preamble to IB 94-1, the Department elaborated: \5\ --------------------------------------------------------------------------- \5\ 59 FR 32606, 07 (footnote omitted). While the Department has stated that a plan fiduciary may consider collateral benefits in choosing between investments that have comparable risks and rates of return, it has consistently held that fiduciaries who are willing to accept expected reduced returns or greater risks to secure collateral benefits are in violation of ERISA. It follows that, because every investment necessarily causes a plan to forgo other investment opportunities, an investment will not be prudent if it would provide a plan with a lower expected rate of return than available alternative investments with commensurate degrees of risk or is riskier than alternative available investments --------------------------------------------------------------------------- with commensurate rates of return. Thus, it has been the Department's consistent view that sections 403 and 404 of ERISA do not permit fiduciaries to sacrifice the economic interests of plan participants in receiving their promised benefits in order to promote collateral goals. At the same time, however, the Department has consistently recognized that fiduciaries may consider such collateral goals as tie- breakers when choosing between investment alternatives that are otherwise equal with respect to return and risk over the appropriate time horizon. ERISA does not direct an investment choice in circumstances where investment alternatives are equivalent, and the economic interests of the plan's participants and beneficiaries are protected if the selected investment is in fact, economically equivalent to competing investments. On October 17, 2008, the Department replaced Interpretive Bulletin 94-1, with Interpretive Bulletin 2008-01, codified at 29 CFR 2509.08- 01. IB 2008-01 purported not to alter the basic legal principles set forth in IB 94-1. Its stated purpose was to clarify that fiduciary consideration of collateral, non-economic factors in selecting plan investments should be rare and, when considered, should be documented in a manner that demonstrates compliance with ERISA's rigorous fiduciary standards. The Department believes that in the seven years since its publication, IB 2008-01 has unduly discouraged fiduciaries from considering ETIs and ESG factors. In particular, the Department is concerned that the 2008 guidance may be dissuading fiduciaries from (1) pursuing investment strategies that consider environmental, social, and governance factors, even where they are used solely to evaluate the economic benefits of investments and identify economically superior investments, and (2) investing in ETIs even where economically equivalent. Some fiduciaries believe the 2008 guidance sets a higher but unclear standard of compliance for fiduciaries when they are considering ESG factors or ETI investments. An important purpose of this Interpretive Bulletin is to clarify that plan fiduciaries should appropriately consider factors that potentially influence risk and return. Environmental, social, and governance issues may have a direct relationship to the economic value of the plan's investment. In these instances, such issues are not merely collateral considerations or tie-breakers, but rather are proper components of the fiduciary's primary analysis of the economic merits of competing investment choices. Similarly, if a fiduciary prudently determines that an investment is appropriate based solely on economic considerations, including those that may derive from environmental, social and governance factors, the fiduciary may make the investment without regard to any collateral benefits the investment may also promote. Fiduciaries need not treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social, or other such factors. When a fiduciary prudently concludes that such an investment is justified based solely on the economic merits of the investment, there is no need to evaluate collateral goals as tie-breakers. In addition, this Interpretive Bulletin also clarifies that plan fiduciaries may invest in ETIs based, in part, on their collateral benefits so long as the investment is economically equivalent, with respect to return and risk to beneficiaries in the appropriate time horizon, to investments without such collateral benefits. In an effort to correct the misperceptions that have followed publication of IB 2008-01 the Department is withdrawing IB 2008-01, replacing it with this guidance that reinstates the language of IB 94-1. 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 403 and 404 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. The Department also has concluded that the same standards set forth in sections 403 and 404 of ERISA governing a fiduciary's investment decisions, discussed above, apply to a fiduciary's selection of a ``socially-responsible'' mutual fund as a plan investment or, in the case of an ERISA section 404(c) plan or other individual account plan, a designated investment alternative under the plan. Specifically, in Advisory Opinion 98-04A, the [[Page 65137]] Department has expressed the view that the fiduciary standards of sections 403 and 404 do not preclude consideration of collateral benefits, such as those offered by a ``socially-responsible'' fund, in a fiduciary's decision to designate an investment alternative in an individual account plan. Whether a particular fund or investment alternative satisfies the requirements set forth in sections 403 and 404 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 2550.404a-1, nor does it address any issues which may arise in connection with the prohibited transaction provisions or the statutory exemptions from those provisions. List of Subjects in 29 CFR Part 2509 Employee benefit plans, Pensions. For the reasons set forth in the preamble, the Department is amending subchapter A, part 2509 of title 29 of the Code of Federal Regulations as follows: SUBCHAPTER A--GENERAL PART 2509--INTERPRETIVE BULLETINS RELATING TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 0 1. The authority citation for part 2509 continues to read as follows: Authority: 29 U.S.C. 1135. Secretary of Labor's Order 1-2003, 68 FR 5374 (Feb. 3, 2003). Sections 2509.75-10 and 2509.75-2 issued under 29 U.S.C. 1052, 1053, 1054. Sec. 2509.75-5 also issued under 29 U.S.C. 1002. Sec. 2509.95-1 also issued under sec. 625, Public Law 109-280, 120 Stat. 780. Sec. 2509.08-1 [Removed] 0 2. Part 2509 is amended by removing Sec. 2509.08-1. 0 3. Part 2509 is further amended by adding Sec. 2509.2015-01 to read as follows: Sec. 2509.2015-01 Interpretive bulletin relating to the fiduciary standard under ERISA in considering economically targeted investments. This Interpretive Bulletin sets forth the Department of Labor's interpretation of sections 403 and 404 of the Employee Retirement Income Security Act of 1974 (ERISA), as applied to employee benefit plan investments in ``economically targeted investments'' (ETIs), that is, investments selected for the economic benefits they create apart from their investment return to the employee benefit plan. Sections 403 and 404, 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 2550.404a-1, interpreting the prudence requirements of ERISA as they apply to the investment duties of fiduciaries of employee benefit plans. The regulation provides that the prudence requirements of section 404(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. This includes giving appropriate consideration to the role that the investment or investment course of action plays (in terms of such factors as diversification, liquidity, and risk/return characteristics) with respect to that portion of the plan's investment portfolio within the scope of the fiduciary's responsibility. 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 404(a)(1)(A) and (B) and the exclusive purpose requirements of section 403. Phyllis C. Borzi, Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2015-27146 Filed 10-22-15; 11:15 am] BILLING CODE 4510-29-P
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that on November 1, 2015, the DEPARTMENT OF LABOR return to the employee benefit plan
Automated Commercial Environment investor. The Labor Department
(ACE) will be a CBP-authorized Employee Benefits Security previously addressed issues relating to
Electronic Data Interchange (EDI) Administration ETIs in Interpretive Bulletin 94–1 (IB
System. That document erroneously 94–1) 1 and Interpretive Bulletin
included language in Amendatory 29 CFR Part 2509 2008–1 (IB 2008–1).2 The Department’s
Instruction 38 that was not consistent RIN 1210–AB73 stated objective in issuing IB 94–1 was
with the text of the existing CFR. This to correct a popular misperception at
document corrects the text in Interpretive Bulletin Relating to the the time that investments in ETIs are
Amendatory Instruction 38. Fiduciary Standard Under ERISA in incompatible with ERISA’s fiduciary
Considering Economically Targeted obligations. The preamble to the
DATES: Effective November 1, 2015. The Investments Interpretive Bulletin explained that the
effective date for the interim final rule, requirements of sections 403 and 404 of
published October 13, 2015 (80 FR AGENCY: Employee Benefits Security ERISA do not prevent plan fiduciaries
61278), remains November 1, 2015. Administration, Labor. from investing plan assets in ETIs if the
Written comments must be submitted ACTION: Interpretive bulletin. ETI has an expected rate of return that
on or before November 12, 2015. is commensurate to rates of return of
SUMMARY: This document sets forth
FOR FURTHER INFORMATION CONTACT:
alternative investments with similar risk
supplemental views of the Department
characteristics that are available to the
Robert Altneu, Chief, Trade and of Labor (Department) concerning the
plan, and if the ETI is otherwise an
Commercial Regulations Branch, legal standard imposed by sections 403
appropriate investment for the plan in
Regulations and Rulings, Office of and 404 of Part 4 of Title I of the
terms of such factors as diversification
International Trade, at robert.f.altneu@ Employee Retirement Income Security
and the investment policy of the plan.
cbp.dhs.gov. Act of 1974 (ERISA) with respect to a
Some commenters have referred to this
plan fiduciary’s decision to invest plan
SUPPLEMENTARY INFORMATION: On standard as the ‘‘all things being equal’’
assets in ‘‘economically targeted
October 13, 2015, U.S. Customs and test.
investments’’ (ETIs). ETIs are generally
Border Protection (CBP) published in defined as investments that are selected The Department has also consistently
the Federal Register (80 FR 61278) an for the economic benefits they create in stated, including in Interpretative
Interim Final Rule (CBP Dec. 15–14) addition to the investment return to the Bulletin 94–1, that the focus of plan
document, entitled Automated employee benefit plan investor. In this fiduciaries on the plan’s financial
Commercial Environment (ACE) Filings document, the Department withdraws returns and risk to beneficiaries must be
for Electronic Entry/Entry Summary Interpretive Bulletin 08–01 and replaces paramount. Under ERISA, the plan
(Cargo Release and Related Entry). As it with Interpretive Bulletin 2015–01 trustee or other investing fiduciary may
published, the Interim Final regulation that reinstates the language of not use plan assets to promote social,
contains an error in the text of Interpretive Bulletin 94–01. environmental, or other public policy
Amendatory Instruction 38 in the DATES: This interpretive bulletin is causes at the expense of the financial
‘‘Amendments to the CBP Regulations’’ effective on October 26, 2015. interests of the plan’s participants and
section of FR Doc. 2015–25729. beneficiaries. Fiduciaries may not
FOR FURTHER INFORMATION CONTACT:
accept lower expected returns or take on
Office of Regulations and
Correction
Interpretations, Employee Benefits 1 59 FR 32606 (June 23, 1994). Prior to issuing IB
On page 61289, in the second column, Security Administration, (202) 693– 94–1, the Department had issued a number of letters
under ‘‘§ 141.57 [Amended]’’ revise 8500. This is not a toll-free number. concerning a fiduciary’s ability to consider the
Amendatory Instruction 38 to read as SUPPLEMENTARY INFORMATION: collateral effects of an investment and granted a
variety of prohibited transaction exemptions to both
follows: Background individual plans and pooled investment vehicles
involving investments, which produce collateral
■ 38. Amend § 141.57, in paragraph The Department has been asked benefits. See, Advisory Opinions 80–33A, 85–36A
(d)(2) by removing the words ‘‘through periodically over the last 30 years to and 88–16A; Information Letters to Mr. George Cox,
the Customs ACS (Automated consider the application of ERISA’s dated January 16, 1981; to Mr. Theodore Groom,
dated January 16, 1981; to The Trustees of the Twin
Commercial System)’’ and adding in fiduciary rules to pension plan City Carpenters and Joiners Pension Plan, dated
their place the words ‘‘to the CBP investments selected because of the May 19, 1981; to Mr. William Chadwick, dated July
Automated Commercial Environment collateral economic or social benefits 21, 1982; to Mr. Daniel O’Sullivan, dated August 2,
(ACE) or any other CBP-authorized they may further in addition to their 1982; to Mr. Ralph Katz, dated March 15, 1982; to
Mr. William Ecklund, dated December 18, 1985,
electronic data interchange system’’. investment returns. Various terms have and January 16, 1986; to Mr. Reed Larson, dated
Dated: October 20, 2015.
been used to describe this and related July 14, 1986; to Mr. James Ray, dated July 8, 1988;
investment behaviors, such as socially to the Honorable Jack Kemp, dated November 23,
Harold M. Singer, responsible investing, sustainable and 1990; and to Mr. Stuart Cohen, dated May 14, 1993;
Director, Regulations and Disclosure Law PTE 76–1, part B, concerning construction loans by
responsible investing, environmental, multiemployer plans; PTE 84–25, issued to the
Division, Regulations and Rulings, Office of social and governance (ESG) investing, Pacific Coast Roofers Pension Plan; PTE 85–58,
International Trade, U.S. Customs and Border impact investing, and economically issued to the Northwestern Ohio Building Trades
asabaliauskas on DSK5VPTVN1PROD with RULES
Protection. targeted investing (ETI). The terms do and Employer Construction Industry Investment
Heidi Cohen, Plan; PTE 87–20, issued to the Racine Construction
not have a uniform meaning and the Industry Pension Fund; PTE 87–70, issued to the
Senior Counsel for Regulatory Affairs, terminology is evolving. As used in this Dayton Area Building and Construction Industry
Department of the Treasury. interpretive bulletin, however, an Investment Plan, PTE 88–96, issued to the Real
[FR Doc. 2015–27103 Filed 10–23–15; 8:45 am] economically targeted investment Estate for American Labor A Balcor Group Trust;
PTE 89–37, issued to the Union Bank; PTE 93–16,
BILLING CODE 9111–14–P broadly refers to any investment that is issued to the Toledo Roofers Local No. 134 Pension
selected, in part, for its collateral Plan and Trust, et al.
benefits, apart from the investment 2 73 FR 61734 (October 17, 2008).
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greater risks in order to secure collateral alternatives are equivalent, and the prudently concludes that such an
benefits. economic interests of the plan’s investment is justified based solely on
Specifically, the Department stated in participants and beneficiaries are the economic merits of the investment,
Interpretive Bulletin 94–1: 3 protected if the selected investment is in there is no need to evaluate collateral
Sections 403 and 404 of the Employee fact, economically equivalent to goals as tie-breakers.
Retirement Income Security Act of 1974 competing investments. In addition, this Interpretive Bulletin
(ERISA), in part, require that a fiduciary of On October 17, 2008, the Department also clarifies that plan fiduciaries may
a plan act prudently, and to diversify plan replaced Interpretive Bulletin 94–1, invest in ETIs based, in part, on their
investments so as to minimize the risk of with Interpretive Bulletin 2008–01, collateral benefits so long as the
large losses, unless under the circumstances codified at 29 CFR 2509.08–01. IB 2008– investment is economically equivalent,
it is clearly prudent not to do so. In addition, 01 purported not to alter the basic legal with respect to return and risk to
these sections require that a fiduciary act principles set forth in IB 94–1. Its stated beneficiaries in the appropriate time
solely in the interest of the plan’s
participants and beneficiaries and for the
purpose was to clarify that fiduciary horizon, to investments without such
exclusive purpose of providing benefits to consideration of collateral, non- collateral benefits. In an effort to correct
their participants and beneficiaries. The economic factors in selecting plan the misperceptions that have followed
Department has construed the requirements investments should be rare and, when publication of IB 2008–01 the
that a fiduciary act solely in the interest of, considered, should be documented in a Department is withdrawing IB 2008–01,
and for the exclusive purpose of providing manner that demonstrates compliance replacing it with this guidance that
benefits to, participants and beneficiaries as with ERISA’s rigorous fiduciary reinstates the language of IB 94–1.
prohibiting a fiduciary from subordinating standards. Consistent with fiduciaries’
the interests of participants and beneficiaries The Department believes that in the obligations to choose economically
in their retirement income to unrelated
seven years since its publication, IB superior investments, the Department
objectives.
2008–01 has unduly discouraged does not believe ERISA prohibits a
The Department continued in fiduciaries from considering ETIs and fiduciary from addressing ETIs or
Interpretative Bulletin 2008–1: 4 ESG factors. In particular, the incorporating ESG factors in investment
ERISA’s plain text thus establishes a clear Department is concerned that the 2008 policy statements or integrating ESG-
rule that in the course of discharging their guidance may be dissuading fiduciaries related tools, metrics and analyses to
duties, fiduciaries may never subordinate the from (1) pursuing investment strategies evaluate an investment’s risk or return
economic interests of the plan [participants that consider environmental, social, and or choose among otherwise equivalent
and beneficiaries] to unrelated objectives [ ]. governance factors, even where they are investments. Nor do sections 403 and
In the preamble to IB 94–1, the used solely to evaluate the economic 404 prevent fiduciaries from
Department elaborated: 5 benefits of investments and identify considering whether and how potential
While the Department has stated that a economically superior investments, and investment managers consider ETIs or
plan fiduciary may consider collateral (2) investing in ETIs even where use ESG criteria in their investment
benefits in choosing between investments economically equivalent. Some practices. As in selecting investments,
that have comparable risks and rates of fiduciaries believe the 2008 guidance in selecting investment managers, the
return, it has consistently held that sets a higher but unclear standard of plan fiduciaries must reasonably
fiduciaries who are willing to accept compliance for fiduciaries when they conclude that the investment manager’s
expected reduced returns or greater risks to are considering ESG factors or ETI practices in selecting investments are
secure collateral benefits are in violation of investments. consistent with the principles
ERISA. It follows that, because every An important purpose of this articulated in this guidance.
investment necessarily causes a plan to forgo
other investment opportunities, an
Interpretive Bulletin is to clarify that In addition, the Department does not
investment will not be prudent if it would plan fiduciaries should appropriately construe consideration of ETIs or ESG
provide a plan with a lower expected rate of consider factors that potentially criteria as presumptively requiring
return than available alternative investments influence risk and return. additional documentation or evaluation
with commensurate degrees of risk or is Environmental, social, and governance beyond that required by fiduciary
riskier than alternative available investments issues may have a direct relationship to standards applicable to plan
with commensurate rates of return. the economic value of the plan’s investments generally. As a general
Thus, it has been the Department’s investment. In these instances, such matter, the Department believes that
consistent view that sections 403 and issues are not merely collateral fiduciaries responsible for investing
404 of ERISA do not permit fiduciaries considerations or tie-breakers, but rather plan assets should maintain records
to sacrifice the economic interests of are proper components of the fiduciary’s sufficient to demonstrate compliance
plan participants in receiving their primary analysis of the economic merits with ERISA’s fiduciary provisions. As
promised benefits in order to promote of competing investment choices. with any other investments, the
collateral goals. Similarly, if a fiduciary prudently appropriate level of documentation
At the same time, however, the determines that an investment is would depend on the facts and
Department has consistently recognized appropriate based solely on economic circumstances.
that fiduciaries may consider such considerations, including those that The Department also has concluded
collateral goals as tie-breakers when may derive from environmental, social that the same standards set forth in
choosing between investment and governance factors, the fiduciary sections 403 and 404 of ERISA
alternatives that are otherwise equal may make the investment without governing a fiduciary’s investment
asabaliauskas on DSK5VPTVN1PROD with RULES
with respect to return and risk over the regard to any collateral benefits the decisions, discussed above, apply to a
appropriate time horizon. ERISA does investment may also promote. fiduciary’s selection of a ‘‘socially-
not direct an investment choice in Fiduciaries need not treat commercially responsible’’ mutual fund as a plan
circumstances where investment reasonable investments as inherently investment or, in the case of an ERISA
suspect or in need of special scrutiny section 404(c) plan or other individual
3 59 FR 32606, 07. merely because they take into account plan, a designated investment
4 73 FR 61734, 35. consideration environmental, social, or alternative under the plan. Specifically,
5 59 FR 32606, 07 (footnote omitted). other such factors. When a fiduciary in Advisory Opinion 98–04A, the
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Department has expressed the view that Retirement Income Security Act of 1974 of risk or is riskier than alternative
the fiduciary standards of sections 403 (ERISA), as applied to employee benefit available investments with
and 404 do not preclude consideration plan investments in ‘‘economically commensurate rates of return.
of collateral benefits, such as those targeted investments’’ (ETIs), that is, The fiduciary standards applicable to
offered by a ‘‘socially-responsible’’ fund, investments selected for the economic ETIs are no different than the standards
in a fiduciary’s decision to designate an benefits they create apart from their applicable to plan investments
investment alternative in an individual investment return to the employee generally. Therefore, if the above
account plan. Whether a particular fund benefit plan. Sections 403 and 404, in requirements are met, the selection of an
or investment alternative satisfies the part, require that a fiduciary of a plan ETI, or the engaging in an investment
requirements set forth in sections 403 act prudently, and to diversify plan course of action intended to result in the
and 404 of ERISA is an inherently investments so as to minimize the risk selection of ETIs, will not violate
factual question that the appropriate of large losses, unless under the section 404(a)(1)(A) and (B) and the
plan fiduciaries must decide based on circumstances it is clearly prudent not exclusive purpose requirements of
all the facts and circumstances of the to do so. In addition, these sections section 403.
individual situation. require that a fiduciary act solely in the
interest of the plan’s participants and Phyllis C. Borzi,
The following Interpretive Bulletin
deals solely with the applicability of the beneficiaries and for the exclusive Assistant Secretary, Employee Benefits
purpose of providing benefits to their Security Administration, U.S. Department of
prudence and exclusive purpose
Labor.
requirements of ERISA as applied to participants and beneficiaries. The
Department has construed the [FR Doc. 2015–27146 Filed 10–22–15; 11:15 am]
fiduciary decisions to invest plan assets
in ETIs, and in particular the collateral requirements that a fiduciary act solely BILLING CODE 4510–29–P
benefits they may provide apart from a in the interest of, and for the exclusive
plan’s performance and the interests of purpose of providing benefits to,
participants and beneficiaries in their participants and beneficiaries as DEPARTMENT OF HOMELAND
retirement income. The bulletin does prohibiting a fiduciary from SECURITY
not supersede the regulatory standard subordinating the interests of
contained at 29 CFR 2550.404a-1, nor participants and beneficiaries in their Coast Guard
does it address any issues which may retirement income to unrelated
arise in connection with the prohibited objectives. 33 CFR Part 117
transaction provisions or the statutory With regard to investing plan assets,
the Department has issued a regulation, [USCG–2015–0964]
exemptions from those provisions.
at 29 CFR 2550.404a–1, interpreting the
List of Subjects in 29 CFR Part 2509 Drawbridge Operation Regulations;
prudence requirements of ERISA as they
Tchefuncta River, Madisonville, LA
Employee benefit plans, Pensions. apply to the investment duties of
For the reasons set forth in the fiduciaries of employee benefit plans. AGENCY: Coast Guard, DHS.
preamble, the Department is amending The regulation provides that the ACTION: Notice of deviation from
subchapter A, part 2509 of title 29 of the prudence requirements of section regulations.
Code of Federal Regulations as follows: 404(a)(1)(B) are satisfied if (1) the
fiduciary making an investment or SUMMARY: The Coast Guard has issued a
SUBCHAPTER A—GENERAL engaging in an investment course of temporary deviation from the operating
action has given appropriate schedule that governs the SR 22 Bridge
PART 2509—INTERPRETIVE consideration to those facts and over the Tchefuncta River, mile 2.5, at
BULLETINS RELATING TO THE circumstances that, given the scope of Madisonville, St. Tammany Parish,
EMPLOYEE RETIREMENT INCOME the fiduciary’s investment duties, the Louisiana. This deviation is necessary to
SECURITY ACT OF 1974 fiduciary knows or should know are complete scheduled maintenance of the
■ 1. The authority citation for part 2509 relevant, and (2) the fiduciary acts bridge. This deviation allows the bridge
accordingly. This includes giving to remain closed to navigation for
continues to read as follows:
appropriate consideration to the role approximately six weeks while allowing
Authority: 29 U.S.C. 1135. Secretary of that the investment or investment for two scheduled openings on
Labor’s Order 1–2003, 68 FR 5374 (Feb. 3, course of action plays (in terms of such
2003). Sections 2509.75–10 and 2509.75–2
scheduled work days except for a five-
factors as diversification, liquidity, and day period and a 36-hour period, both
issued under 29 U.S.C. 1052, 1053, 1054. Sec.
2509.75–5 also issued under 29 U.S.C. 1002.
risk/return characteristics) with respect in December, when there will be
Sec. 2509.95–1 also issued under sec. 625, to that portion of the plan’s investment complete closures. The bridge will
Public Law 109–280, 120 Stat. 780. portfolio within the scope of the operate normally on non-scheduled
fiduciary’s responsibility. work days and on weekends.
§ 2509.08–1 [Removed] Other facts and circumstances
DATES: This deviation is effective from
■ 2. Part 2509 is amended by removing relevant to an investment or investment
7 a.m. on November 2, 2015 until 7 p.m.
§ 2509.08–1. course of action would, in the view of
on December 15, 2015.
the Department, include consideration
■ 3. Part 2509 is further amended by ADDRESSES: The docket for this
of the expected return on alternative
adding § 2509.2015–01 to read as deviation, [USCG–2015–0964] is
investments with similar risks available
follows:
asabaliauskas on DSK5VPTVN1PROD with RULES
to the plan. It follows that, because available at http://www.regulations.gov.
§ 2509.2015–01 Interpretive bulletin every investment necessarily causes a FOR FURTHER INFORMATION CONTACT: If
relating to the fiduciary standard under plan to forgo other investment you have questions on this temporary
ERISA in considering economically targeted opportunities, an investment will not be deviation, call or email Jim
investments. prudent if it would be expected to Wetherington, D8 Bridge
This Interpretive Bulletin sets forth provide a plan with a lower rate of Administration Branch, Coast Guard;
the Department of Labor’s interpretation return than available alternative telephone 504–671–2128, email
of sections 403 and 404 of the Employee investments with commensurate degrees james.r.wetherington@uscg.mil.
VerDate Sep<11>2014 17:27 Oct 23, 2015 Jkt 238001 PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 E:\FR\FM\26OCR1.SGM 26OCR1](https://thefederalregister.org/doc/80_FR_65341/page/3.svg)
Document Created: 2018-02-27 08:56:11
Document Modified: 2018-02-27 08:56:11
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Interpretive bulletin. | |
| Dates | This interpretive bulletin is effective on October 26, 2015. | |
| Contact | Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693- 8500. This is not a toll-free number. | |
| FR Citation | 80 FR 65135 | |
| RIN Number | 1210-AB73 | |
| CFR Associated | Employee Benefit Plans and Pensions |
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