July 02, 2020
  • Labor Department has been querying plan sponsors for months.
  • Failing to document doesn’t automatically prove fiduciary breach.

A series of form letters sent to retirement plans hint at how the Labor Department may enforce a new requirement that sponsors justify socially conscious investments.

One such letter obtained by Bloomberg Law presses plan administrators to provide 13 types of supporting documents, including: the names, addresses, and duties of those responsible for making investment decisions, proxy voting policies, and myriad financial statements associated with the plan design.

The letters predate a proposed rule by the Employee Benefits Security Administration, which would require sponsors to fully document their reasoning for investing in environmental, social, and corporate governance (ESG)-focused funds, according to an agency official. EBSA has been sending out the letters over the past few months.

But failing to hand over every document related to a plan administrator’s decisions doesn’t automatically mean there’s been a fiduciary breach, benefits lawyers say. Labor officials would still have to prove that the investment activity is financially harmful under current law, they say.

. . .

Focusing Resources

Machiz suggested the agency could save time and money by focusing its enforcement on other endeavors.

If investigators get involved in the too much paperwork about ESG, it “would involve ignoring serious violations to focus on record keeping and nuance,” he said. The agency is still responsible for ferreting out detrimental practices such as self-dealing transactions that benefit fiduciaries rather than participants, for example.

Karen Handorf, a former DOL official who’s now chair of Cohen Milstein Sellers & Toll’s ERISA practice group in Washington said EBSA’s investigators can’t make a meaningful dent without additional help.

“They’d have to have a better budget than they do now,” she said. “They’re stretched pretty thin.”

The complete article can be viewed here.