Compliance November 22, 2022

DOL Finalizes ESG Consideration in Retirement Investing

With final DOL ruling, plan sponsors can consider climate change and other ESG factors when selecting investments.

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The U.S. Department of Labor on Tuesday announced a final rule that retirement plan fiduciaries can consider climate change and other environment, social and governance factors when they select investments for retirement plans like 401(k)s, reversing a rule enacted under former President Donald Trump that restricted ESG offerings.

The news finalizes a discussion started more than a year ago to allow workplace retirement plan providers and their advisers to consider ESG factors when designing plan investments. The initial DOL proposal, made in October 2021, caused a stir in the industry in its reaction to the Trump-era DOL, which had warned against the integration of climate change and ESG factors with the rationale that it would not meet a fiduciary’s obligation to make the best investment decision for participants.

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The rule follows an Executive Order from President Joe Biden, to “protect the life savings and pensions of America’s workers and families from the threats of climate-related financial risk.”

The final rule, which now explicitly allows for ESG investing, “can be useful for plan investors as they make decisions about how to best grow and protect the retirement savings of America’s workers,” the DOL said.

The ruling also allows fiduciaries to consider climate change and ESG factors when selecting a Qualified Default Investment Alternative and exercising shareholder rights, such as proxy voting.

“The rule announced today will make workers’ retirement savings and pensions more resilient by removing needless barriers, and ending the chilling effect created by the prior administration on considering environmental, social and governance factors in investments,” Assistant Secretary of the Employee Benefits Security Administration Lisa M. Gomez said in a statement.

The “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” rule comes at the direction of an executive order signed by Biden on May 20, 2021. It will be effective 60 days after its publication, the DOL said.

Ask the Experts November 21, 2022

Can A 403(b) Plan Continue to Provide Benefits Once The Sponsoring Organization Shuts Down?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

 

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We work with a church plan sponsor which is ceasing to exist in 2023. The church sponsors a 403(b) plan and does have a retirement plan commitment to a pastor who is the participant in the church’s 403(b) plan. I have always thought that a plan must have a sponsor. So, in effect, when the sponsor ceases to exist, the plan terminates. Having said that, is there a way to help this church provide for a contribution to this plan over the next five years, even though the church will be gone? The amount exceeds the legal limits for a contribution in 2022 and another in 2023 because the pastor’s salary is low, which creates a problem with the Internal Revenue Code Section 415 limit.

 

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Kimberly Boberg, Taylor Costanzo, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

 

A: No, the church cannot provide contributions over the next five years, because a 403(b) plan must be sponsored by an eligible employer to make contributions to the plan. Treas. Reg. § 1.403(b)-2(b)(8)(C) permits a minister to be an eligible employer for a retirement income account (403(b)(9) account) established solely for the minster. However, if this 403(b) was established to include other church employees, then this is not an option.

 

The only remaining solution is to maximize the pastor’s 403(b) contributions for 2022 and 2023. You are correct, however, that if the pastor’s compensation is nominal, this may not provide much relief, as contributions are typically limited to 100% of salary. There is a limited exception to this rule where the pastor could receive up to $10,000 per year in retirement contributions for 2022 and 2023, even if the pastor’s salary is less than $10,000. To learn more about this, check out one of our previous Ask the Experts columns.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice. 

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.

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