Joe Biden’s Department of Labor had an “ulterior motive” of pursuing the president’s climate agenda when writing its retirement fund investing rule, a lawyer for plaintiffs suing the department said.
In a Monday case update held by the Federalist Society, Jared Kelson, counsel for plaintiffs Liberty Energy, Inc., Liberty Oilfield Services LLC, and Western Energy Alliance, connected the Department of Labor’s rule, which permits fund managers to consider environmental, social, and governance factors in handling retirement accounts, to an executive order on climate change.
GAS PRICES TODAY: WHERE TO FIND THE CHEAPEST FUEL ACROSS THE COUNTRY
A lawsuit brought by 26 states, several trade associations, and companies claims the Department of Labor is illegitimately attempting to loosen trustee requirements on retirement fund investors in its efforts to boost ESG.
The Biden rule change came as a response to a Trump administration change in 2020 that sought to clarify fiduciary duties in light of emerging ESG considerations. In the 2020 rule, factors expected to have a tangible effect on investment returns cannot be made without fulfilling the legal obligation to the fund. That rule did not allow for ESG investing as a determining factor but said in a “tiebreaker” scenario, in which the benefit to the fund was identical, it may be considered.
In response to litigation, the Department of Labor claims the Trump-era rule had a “chilling” effect on ESG investing and that the new rule is merely a clarification” that maintains the same legal standards for fund trustees.
However, in its new rule, the Department of Labor cites Biden Executive Order 13990, which explicitly aims to “tackle the climate crisis,” which the plaintiffs argue shows the rule lacked a sound basis in the law. Kelson said that it is “interesting” the order “has nothing to do with return of the financial benefits of plan participants, in fact, has everything to do with the President’s climate agenda.”
“No man can serve two masters,” Kelson said. “There’s a concern that even when there’s a hierarchy to these priorities, or to these objectives, whenever there’s a secondary objective in the background, it will either overtly or subvertly influence any other priorities.”
“The whole point is to prevent [fiduciaries] from having any sort of secondary considerations altogether,” he added.
The rule from the Department of Labor redefined the obligation employee retirement fund investors have to their clients in maximizing profits, in favor of making environmental, social, and corporate governance considerations before investing, according to the lawsuit challenging the rule implementing the Employee Retirement Income Security Act.
About two-thirds of the U.S. adult population, or 152 million workers, benefit from retirement savings protections for approximately $12 trillion in assets under the Employee Retirement Income Security Act. The Biden rule change would loosen restrictions on investors, who have a fiduciary duty to maximize profits for beneficiaries, to pursue making investments that consider things like climate change, potentially to the detriment of the retirement fund.
The courts should be “recognizing that when you’re systematically loosening these restrictions and removing all sorts of record keeping requirements, everything’s pointing in this direction of removing the oversight allowing for ESG considerations,” Kelson said.
“The consistent theme is a general lack of concern for participants and for their returns, and a greater concern for making decisions easier for fiduciaries, for protecting fiduciaries,” he added.
Plaintiffs in the case argue that any consideration outside the benefit to retirement plan participants would not be fulfilling the legal obligation required by the Employee Retirement Income Security Act, which Kelson said was “undivided loyalty and single-minded devotion that fiduciaries can’t be influenced by any motives other than the accomplishment of the purposes of the trust that they’re managing.”
Kelson explained that because of the vast economic and political considerations of the rule, plaintiffs believe the case may invoke the “major questions” doctrine, which could see the court require the change be made by Congress as opposed to an executive branch agency.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Congress has already spoken on the subject, as both houses passed a resolution against the rule, which Biden vetoed.
The Department of Labor declined to comment, referring the Washington Examiner to the Department of Justice, which did not return a request for comment.
