WASHINGTON – U.S. Secretary of Labor Tom Perez announced today new guidance for economically targeted investments (ETIs) in retirement plans. By issuing Interpretive Bulletin 2015-01, the Department of Labor (DOL) affirmed that the first duty of pension plan trustees is to the workers and retirees who depend on the plan for their retirement, but the Department also clarified that a pension plan can invest in projects that serve the common good, so long as such investments are consistent with the plan’s primary obligation to provide for the financial security of its participants.
The Pension Rights Center applauded the new guidance. Karen Friedman, executive vice president and policy director, stated, “The law provides unequivocally that pension fund money must be prudently invested, with due regard for diversification and for the exclusive benefit of plan participants. Having said that, can a pension plan invest in projects that provide a larger economic good while staying true to its primary duty to workers and retirees? The Department of Labor says, ‘Yes,’ and we are glad that Secretary Perez emphasized that point today.”
Interpretive Bulletin 2015-01 is consistent with DOL rulings over virtually the entire life of ERISA and adopts the same common-sense language that was articulated in a 1994 bulletin. The earlier bulletin stated that an economically targeted investment is acceptable if and only if the investment “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.” In 2008, the DOL narrowed that language — a change that the Center viewed as a mistake and that discouraged pension plans from considering ETIs.
“The fiduciary standards for ETIs are no different than the standards for retirement plan investments in general,” continued Friedman. “Clean oceans and clean air, full employment, livings wages, a hospital that might serve plan participants—those are the primary goals of good government and the charitable sector, but they can be only a collateral goal for ERISA fiduciaries. A plan fiduciary should strive first to be a Warren Buffet, not a Mother Teresa. But when we can do well by doing good, we should do both. One might even say we have a non-ERISA fiduciary obligation to each other and to future generations to do so.”
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Read the DOL’s news release.
Read the DOL’s fact sheet on ETIs.