POLITICS + GOVERNMENT

Utah leading a lawsuit against new ESG rule affecting 401(k) plans

Jan 27, 2023, 11:52 AM

With 24 other states on board, the Utah Attorney General announced on Friday a lawsuit against a De...

The door of the Utah Attorney General ’s office is pictured at the Capitol in Salt Lake City on Wednesday, Jan. 25, 2023. (Laura Seitz, Deseret News)

(Laura Seitz, Deseret News)

SALT LAKE CITY — With 24 other states on board, the Utah attorney general announced on Friday a lawsuit against a Department of Labor rule. The new rule involves ESG (environmental, social and governance) investing, which the AG said would impact millions of 401(k) plans.

The “prudence and loyalty in selecting plan investments and exercising shareholder rights” rule will take effect Monday (Jan. 30, 2023). It is included along with other amendments to the Employee Retirement Income Security Act of 1974 (ERISA). 

Utah Attorney General Sean Reyes said the new rule in question allows 401(k) managers to put their clients’ money into ESG investments.

AG lawsuit involves ESG investing

According to Nerdwallet, ESG investing means that money managers make investment decisions based in part on whether a potential investment company addresses issues like carbon emissions and pollution in its business decisions. 

“The Biden administration is promoting its climate-change agenda by putting everyday people’s retirement money at risk,” said Reyes in a press release.

“Permitting asset managers to direct hard-working Americans’ money to ESG investments puts trillions of dollars of retirement savings at risk in exchange for someone else’s political agenda,” Reyes said.

He believes the new rule could put 401(k) assets at risk by using non-monetary benefits (such as pollution awareness) to make investment decisions.

According to Lexology.com, in May 2021, President Joe Biden used an executive order to direct federal agencies to “review and assess climate risks posed on the U.S. financial system.” This reportedly prompted a new focus by federal regulators on ESG-related regulatory issues.

Besides Utah, the 25 states joining this lawsuit are Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, Ohio, South Carolina, North Dakota, Tennessee, Texas, Virginia, West Virginia and Wyoming.

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Utah leading a lawsuit against new ESG rule affecting 401(k) plans