Free Enterprise Project Seeks to Protect Pension Holders from Labor Rule Putting Left-Wing Activist Agenda Ahead of Retirement Funds
Q3 2021 hedge fund letters, conferences and more
The Labor Rule Will Roll Back Critical Protections To Pension Holders
Washington, D.C. - Warning that a proposed U.S. Department of Labor rule would roll back critical protections to pension holders under the Employee Retirement Income Security Act (ERISA), the Free Enterprise Project (FEP) submitted public comment to the Department saying that the rule would “enrich giant investment houses at the expense of those beneficiaries.”
The proposed rulemaking, Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, pushes a left-wing Environmental, Social, Government (ESG) agenda focusing on a liberal wish list of climate-change and so-called diversity initiatives at the expense of pension holders’ bottom line - and in likely violation of pension fund managers’ fiduciary duties.
The Labor Department’s proposed rule effectively eviscerates two departmental rules from 2020 that were designed to ensure that pension managers: (1) exercise their fiduciary duties to act in the best financial interest of pension holders; and (2) engage in appropriate oversight of those it may outsource responsibilities to, such as proxy-advisory firms. Although the 2020 rules represent the current regulatory scheme, the Biden Administration has refused to enforce them since March 2021.
Arguing that the rule must be withdrawn and the current regulations permitted to stand, FEP’s comment points out several key areas of concern with Labor’s proposal. First, the rule effectively coerces pension managers into investing in and voting for overtly political ESG shareholder resolutions. Next, by pushing ESG, the rule benefits money-management firms and encourages reliance by fund managers on a biased proxy-advisory firm duopoly, all but guaranteeing the true profiters of the rule are investment and proxy-advisory firms - not pension holders. And finally, in spite of evidence demonstrating a biased and conflicted proxy-advisory firm duopoly, the rule removes protections that ensure proxy-advisory firms’ guidance is based on the best interest of the funds rather than the personal and political preferences of the individuals making the recommendations.
Maximizing Benefits For Pension Beneficiaries
FEP’s comment states:
The Department of Labor’s task in this instance is to ensure that pension-fund managers act to maximize benefits for pension beneficiaries. This proposed rule instead would enrich giant investment houses at the expense of those beneficiaries while effectively delegating proxy decision making to profoundly conflicted proxy-advisory services whose interests in no real way align with those of pension beneficiaries and who fail to justify and substantiate their advice. It is, therefore, entirely illegitimate...
Instead of being concerned about investment managers potentially spending too much time and effort attending to their fiduciary duty, the Department should be concerned about violations of fiduciary duties should investment managers blindly follow proxy-advisory firm advice.
“Not only does the rule strong-arm pension fund managers into considering and voting for leftwing ESG investments and shareholder resolutions, it ensures the true beneficiaries of the rule are giant money-management and biased proxy-advisory firms,” said FEP Director Scott Shepard. “This is an unacceptable dereliction of duty by the Department of Labor. Fund managers owe a clear duty to maximize the value of the funds they manage, and violate their fiduciary duties if they act otherwise. If this proposed rule goes forward, it puts fund managers in the impossible position of complying with a government edict or with their fiduciary duties,” Shepard continued.
“There’s a mountain of evidence demonstrating that ESG investing leads to lower returns,” said FEP Program Coordinator Sarah Rehberg. “With study after study showing that ESG considerations all but ensure reduced profits for pension holders, it’s inconceivable that the Department of Labor would issue a rule effectively requiring pension fund managers and their proxies to spend time researching, investing in, or otherwise voting on ESG initiatives and shareholder resolutions. Rather than protecting the future of America’s retirees, the current administration is protecting its liberal climate-change and surface characteristic agenda.”
FEP's comment is available here. Investors can learn how to oppose the left-wing ESG agenda by downloading FEP’s Investor Value Voter Guide here.
About FEP
Launched in 2007, the National Center's Free Enterprise Project focuses on shareholder activism and the confluence of big government and big business. Over the past four years alone, FEP representatives have participated in over 100 shareholder meetings - advancing free-market ideals about health care, energy, taxes, subsidies, regulations, religious freedom, food policies, media bias, gun rights, workers' rights and other important public policy issues. As the leading voice for conservative-minded investors, it annually files more than 90 percent of all right-of-center shareholder resolutions. Dozens of liberal organizations, however, annually file more than 95 percent of all policy-oriented shareholder resolutions and continue to exert undue influence over corporate America.
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