Predicting a ‘Busy, Active Time’ at the DOL and EBSA

The PLANSPONSOR National Conference highlighted potential shifts in retirement plan regulations under the Trump administration, particularly concerning ESG investing and alternative asset inclusion in defined contribution plans. The DOL is expected to issue a new rule on ESG factors, likely reverting to a stricter "pecuniary factors" approach, while also considering an executive order to allow private assets in DC plans, contingent on SEC rule revisions. Former EBSA head Lisa Gomez noted potential chaos from regulatory reversals, while Secretary of Labor Lori Chavez-DeRemer emphasized fiduciary decision-making over bureaucratic influence, as seen in the rescinding of guidance restricting cryptocurrency in retirement plans.

Analysis

The U.S. retirement plan regulatory landscape is undergoing significant recalibration under the current Trump administration, marked by an anticipated 'busy, active time' at the Department of Labor's (DOL) Employee Benefits Security Administration (EBSA), as noted by former EBSA Assistant Secretary Lisa Gomez. A pivotal shift is expected in Environmental, Social, and Governance (ESG) investing, with the DOL planning a new rule likely to revert to the first Trump administration's emphasis on 'pecuniary factors' for investment decisions, as suggested by George Sepsakos of Groom Law Group. This would necessitate fiduciaries to rigorously document the economic rationale for ESG selections, a contrast to the Biden administration’s rule that permitted ESG considerations between financially comparable options. Concurrently, the administration is reportedly formulating an executive order to enable the inclusion of private assets in defined contribution (DC) plans, a development contingent on Securities and Exchange Commission rule revisions and new DOL guidance. This move, along with the recent rescission of DOL guidance that urged 'extreme care' with cryptocurrency in retirement plans—a decision Secretary of Labor Lori Chavez-DeRemer framed as empowering fiduciaries over 'D.C. bureaucrats'—signals a broader deregulatory agenda. However, this policy dynamism, described by Gomez as potentially 'chaotic' due to inter-administration 'ping-ponging,' introduces considerable uncertainty, despite the DOL's new program of opinion letters aimed at providing clearer guidance. The high market impact score (0.75) associated with these developments underscores their substantial implications for plan sponsors, fiduciaries, and asset managers navigating this evolving environment.

Key Decisions for Investors

• Plan fiduciaries should prepare for a potential tightening of ESG investment criteria, emphasizing demonstrable pecuniary benefits and meticulous documentation, and may explore self-directed brokerage windows to meet participant ESG interest.
• Investors and plan sponsors should closely track developments related to the inclusion of private assets in defined contribution plans, as this could introduce new investment opportunities alongside complex due diligence and regulatory compliance challenges.
• Due to the significant regulatory uncertainty and the 'mixed' sentiment surrounding these changes, market participants should maintain adaptable strategies and closely monitor communications from the DOL and EBSA to navigate potential policy shifts impacting retirement plan management.
• Following the rescission of cautionary guidance on cryptocurrency, plan fiduciaries should approach such investments with heightened diligence, thoroughly documenting their decision-making process, given the asset class's inherent volatility and the DOL's historical concerns.