Alaska and 24 other states filed a complaint last week against a U.S. Department of Labor rule that, starting today, will allow retirement account managers to invest their clients’ money into funds that prioritize or consider environmental and social values, rather than traditional fiduciary standards.
The new rule, allowing the fiduciaries for retirement funds to choose what they may believe is best for the world, rather than best for the client. The “woke” funds are known as ESG, or Environmental, Social ,Governance funds, and investments in these funds may bring smaller returns to the retirement accounts of millions of people. Two-thirds of Americans’ retirement savings are held in accounts that could be converted into “woke” investments without their knowledge.
The rule also runs counter to the Employee Retirement Income Security Act of 1974.
“This rule is contrary to longstanding federal law and fiduciary principles that require fiduciaries to place their clients’ financial interests first,” Gov. Mark Gordon of Wyoming said. “Allowing political agendas to guide managers investing Americans’ retirement accounts is unacceptable and shortsighted. Their sole responsibility must be the best financial interests of the beneficiaries.
The rule, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” went into effect on Jan. 30, 2023.
“The 2022 Investment Duties Rule makes changes that authorize fiduciaries to consider and promote ‘nonpecuniary benefits’ when making investment decisions. Contrary to Congress’s clear intent, these changes make it easier for fiduciaries to act with mixed motives. They also make it harder for beneficiaries to police such conduct,” the lawsuit reads.
The 25 states participating in the lawsuit, which is led by Wyoming, are: Alabama, Alaska, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.
A copy of the complaint may be found here and below:
