George Michael Gerstein

George Michael Gerstein advises financial institutions on the fiduciary and prohibited transaction provisions of ERISA. As co-chair of the fiduciary governance group, he assists clients with tracking, and understanding, the numerous fiduciary developments at the federal and state levels, including the rules and regulations of governmental plans. He also advises clients with respect to the fiduciary duty implications of ESG investing.

A key implication for financial services firms under the SECURE Act

The passage of the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) includes provisions on pooled individual account plans whose participating employers lack a common nexus (PEPs). PEPs should be particularly appealing to small employers who were previously daunted by the cost and complexity of sponsoring, and the fiduciary duty risk from managing, their own retirement plan. A pooled plan provider (PPP) would serve as plan administrator and “named fiduciary” under ERISA of the PEP. In this capacity, a financial services firm operating as a PPP would have various fiduciary responsibilities, including all administrative functions and the selection of investment options in the plan lineup. A PPP must also ensure that all persons/firms handling plan assets are properly bonded under ERISA. The DOL will issue regulations over the coming months on the exact contours of a PPP’s duties. Financial services firms looking to gain market share of the plan market may wish to watch these developments closely, particularly as we gauge interest in these types of plans by small employers.

ERISA fiduciaries, take note of new ISS study on ESG

Brian Croce of Pensions & Investments recently reported on a new ISS study. As reported, the study establishes a link between a high/favorable ISS ESG rating and profitability. Similarly, companies with higher ESG ratings are less volatile.  The Department of Labor, rather rightly, in Field Assistance Bulletin 2018-01, cautioned fiduciaries against making too many assumptions or wishful thinking in establishing a nexus between an ESG risk factor and investment performance. The ISS study is worthwhile because it helps build a case for fiduciaries that use integration as an ESG strategy. As a reminder, integration is when one “incorporates ESG-related data and/or information in respect of an ESG factor into the usual process when making an investment decision where such data or information is material to investment performance and where the exclusive purpose is to enhance portfolio return or reduce portfolio risk.” See this glossary for more information and context.

Larry Fink discusses ESG and ERISA’s fiduciary duties with Squawk Box