[UPDATED JUNE 16, ADDING A LINK TO THE LETTER]
The New York Regional Office of the Employee Benefit Security Administration is said to be seeking a long list of information from plans with ESG funds—about the selection and review process for those options.
In recent weeks, there have been reports of several letters from that office to various plans. A copy of one such letter was obtained by the Plan Sponsor Council of America (PSCA) (click here to view the redacted copy). The letter—delivered by certified mail—notes that, “based on information available to EBSA, it appears that the Plan has environmental, social, and governance (ESG) themed funds in its investment options.” The letter goes on to explain that “the Department seeks to better understand the Plan fiduciaries’ selection of ESG funds for inclusion in the Plan’s investment options and compliance with their duty to administer the Plan prudently and solely for the purpose of providing benefits to participants and beneficiaries, and defraying reasonable expenses of administering the Plan.” The letter we reviewed, dated in early May, does not specify (at least in the unredacted portions) the process in which EBSA is requesting the information. However, this is not the customary DOL document subpoena.
The letter comes during the same month that the Labor Department dropped off a proposed rule for review by the Office of Management and Budget titled “Financial Factors in Selecting Plan Investments” that is thought by some to have something to do with ESG (environmental, social and governance) investing—a topic on which the Labor Department has previously provided some perspective, albeit in the form of Field Assistance Bulletins (see Is DOL Making an ESG ‘Investment’?).
It also comes roughly a year after President Trump’s Executive Order regarding energy infrastructure investment, which included a section on environment, social and governance (ESG) issues. That order called for a “review of available data filed with the Department of Labor by retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) in order to identify whether there are discernible trends with respect to such plans’ investments in the energy sector, an update by the Secretary of Labor to the Assistant to the President for Economic Policy “on any discernable trends in energy investments by such plans,” and the completion of a “review of existing Department of Labor guidance on the fiduciary responsibilities for proxy voting to determine whether any such guidance should be rescinded, replaced, or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets”—all within 180 days of that order.
The letter obtained by PSCA makes a series of specific, pointed, requests for information regarding ESG investments by the plan, including:
- All investment policies or guidelines currently in effect for the Plan, “specifically including, but not limited to, any policies or guidelines concerning the use of ESG factors (or any similar factors) in selecting investment funds for inclusion in the Plan’s fund lineup, or monitoring the performance of Plan investments or funds.”
- Any “policies or guidelines relating to the Plan’s compliance with the principles set forth in previous applicable guidance relating to ESG during the relevant period.”
- All documents “relating to the fiduciaries’ use or consideration of ESG factors (or any similar factors) in connection with the investment options for the Plan, selection of investment funds for inclusion in the Plan’s fund lineup, or monitoring the performance of Plan investments or fund,” as well as all proxy voting policies currently in effect for the plan.
- Documents “sufficient to show the names, addresses, and responsibilities of all persons or entities with responsibility for making investment decisions, or providing investment advisory or consulting services, that take into account ESG factors (or any similar factors) in connection with the Plan’s investments.”
- Documents sufficient to identify any investment holdings or transactions which were based in whole or part on the consideration of ESG factors (or any similar factors), as well as “asset listings or portfolio statements for any investment holdings included in the Plan’s portfolio in whole or part based on the consideration of ESG factors (or any similar factors).”
And—for “each investment which was based in whole or part on the consideration of ESG factors (or any similar factors),” the letter asks for documents reflecting calculations or disclosures of gains or losses on the Plan’s investments, all reports or summaries of investment performance or investment returns, all financial statements or audits provided to or prepared for the Plan, and any documents relating to any such audit or financial statement, as well as all disclosures, communications or other documents describing the operation, investment risks, management, or performance of each of the investments in which the Plan invested or with which it conducted business.
According to the letter, EBSA is also looking for prohibited transaction exemption(s) relied on for the Plan’s investment in proprietary funds, as well as “documents sufficient to demonstrate compliance with any applicable exemption”, any meeting notes or minutes relating to the consideration of ESG factors by Plan fiduciaries, any statements furnished to participants by the plan administrator (or by a designated service provider) in accordance with ERISA 404(c), ERISA Reg. 2550.404a-5 andERISAReg.2550.404c-1 relating to funds or investments covered by any of the preceding requests.”
In that latter category, the letter specifically calls for “information regarding (i) the investments of the plan (including applicable benchmarks and performance data), and (ii) the fees and expenses associated with such Plan investments,” as well as any statements furnished to the participants of the Plan related to the Plan’s or PIan fund’s use of ESG factors (or any similar factors), and “any documents furnished to participants of the Plan by the plan administrator (or by a designated service provider) describing the investment lineup for the Plan.”
Moreover, at least in one case, the window for response is pretty narrow. The letter, delivered by certified mail, and dated in early May , requests that the information “for the period January 1, 2017 to present” be provided (via email) within two weeks of the date of the letter.
What remains unclear at this point is the breadth of this inquiry—if it is related to the 2019 Executive Order, a specific initiative of the New York office of EBSA, or part of something broader.