The new rule also eases rules on qualified default investment alternatives, the default vehicles that plan sponsors use for participants who haven’t made investment selections. The new DOL rule removes a 2020 ban on any ESG-oriented investment from being used for QDIAs in defined contribution plans—even when the investment is widely recognized among experts as best in class, Gomez said.
“We agree with commenters that it was unnecessarily restrictive,” she added.
The final rule also adds a new provision clarifying that fiduciaries do not violate their duty of loyalty solely because they take participants’ non-financial preferences into consideration when building an investment menu for participant-directed retirement plans.
“We hope this will lead to greater participation and retirement savings,” Gomez concluded.
The final regulation will likely be criticized because it refers to ESG factors, added Reish. “However, a fair reading is that fiduciaries must act in the best interest of participants’ retirement outcomes—that is, choose high-quality, reasonably priced investments. I think we can all agree with that,” Reish said.