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Josh Lichtenstein Shares Insight Into ESG 401(k) Rule in Roll Call

Practices: ERISA, ESG, CSR and Business and Human Rights, Executive Compensation & Employee Benefits

A group of 25 Republican attorneys general sued Labor Secretary Marty Walsh and the Labor Department over a Biden administration regulation that gives retirement plan sponsors more freedom to consider environmental, social and governance factors when selecting investments.

Joshua Lichtenstein, partner and head of the ERISA and fiduciary benefits practice, told Roll Call that, “the federal regulation's interpretation of what it means to be a prudent fiduciary is actually agnostic toward ESG factors. But the law itself is pretty powerful.”

“Congress gave ERISA a very broad preemptive effect, some of the broadest preemption under federal law,” Joshua said. “It preempts all state laws relating to retirement plans. States challenging the ability for the Department of Labor to make rules that govern how those assets are invested, it's really contrary to what I would say are the normal operation of ERISA.”

The exceptions are state employee pensions and retirement funds, which may use ERISA as a template but are not governed by the law. The final rule has no effect on those plans. Joshua said the lawsuit is part of "a more generalized attack on ESG," including states restricting the state employee funds from this kind of investing. "This is part of a broader trend to contain the ability of regulators to regulate."

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