ERISA

NYU prevails in ERISA suit

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.

George Michael Gerstein Discusses Interplay of SEC Release With DOL Fiduciary Rule and State Developments

George Michael Gerstein (right), joining Larry Stadulis (not pictured) and Dave Grim (left) at the ICI General Membership Meeting, identified the moving regulatory pieces and impetus of major fiduciary law reform.

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.

FX Service Providers Should Watch DOL Fiduciary Rule Developments

As I wrote in Profit & Loss last year, FX service providers, particularly those in an agency capacity, should continue to monitor the fate of the DOL Fiduciary Rule, particularly for straddling the line between pure sales/marketing and those communications that may give rise to a “recommendation” under the 2016 rule. Hedging managers will stand to benefit if we revert to the 1975 rule.

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.

Take a deep breath on the 5th Circuit – Bill Mandia, financial services litigator, weighs in

Bill Mandia was interviewed by Citywire on why the Fifth Circuit has not officially vacated the DOL Fiduciary Rule yet.

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.

Stradley’s analysis of latest DOL guidance showcased: “What was designed as a sweeping and, to many, draconian, rule has since morphed into an ever narrower and more flexible slate of compliance obligations”

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.

Live Blogging: ACA Compliance Group Spring Conference

I am here on Amelia Island, FL about to start our panel on fiduciary law developments: the SEC release (and what it means practically-speaking, the delta between adviser and broker-dealer duties, the issues around the new disclosures, etc.), the latest on the DOL Fiduciary Rule (FAB 2018-02, the Fifth Circuit decision, how firms should proceed with compliance), what is in store from state legislatures and regulators, and the recent DOL ESG guidance and how managers should view the guidance. There are over 200 attendees here and, based on questions I received last night, there is a real need for clarity on fiduciary governance at the federal and state levels!

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.

Live Blogging: ESG Panel at Fi360 National Conference in San Diego

We just wrapped up our panel discussion on ESG considerations for ERISA fiduciaries. Jason Blackwell of Mercer (left) and Ali Caffery of Envestnet (center) joined me to discuss how advisers can account for ESG factors through the prism of a fiduciary. We started with the confusion over what is meant by ‘ESG,’ why the DOL worries about fiduciaries pursuing objectives unrelated to financial performance, how the brand new DOL guidance preserves the concept of an ESG factor creating alpha opportunities (and why that direct link to investment performance matters from a legal perspective), the different tools and indices that are out there, how ESG can be incorporated into an IPS, how managers can demonstrate their ESG stripes, DOL’s concerns about ESG-themed QDIAs, and shareholder engagement. Blaine Aikin, Executive Chairman of Fi360, is also pictured (far right) and deserves a ton of credit for allowing us to do this panel at such an important event!

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.

Trump’s DOL Expresses Its Own Views on ESG Investing

This week’s U.S. Department of Labor (DOL) Field Assistance Bulletin (FAB) 2018‑01 on environmental, social and governance (ESG) investing seems to have both caught everyone by surprise and caused confusion amongst a good many. This is unfortunate because ESG, with its various connotations, already eludes some. But despite its shortcomings, FAB 2018-01 reflects an unease by the DOL over certain ESG practices and largely clarifies existing fiduciary obligations in this space. Here are our key observations:

  • ESG guidance issued by the DOL during the Obama administration in 2015 and 2016 was largely viewed as supportive of including ESG factors in the investment process. For example, Interpretive Bulletin (IB) 2015‑01 recognized that an ESG factor can in fact have a close nexus with investment performance, and, therefore, should be considered by a fiduciary like any other material investment factor (e.g., inflation risk) in the usual prudence analysis. This acknowledgement recognized the growing body of research linking ESG factors, such as climate change, with investment performance. In respect of climate change, for example, an issuer may now be facing numerous risks, including stranded asset risk, the prospect of heightened government regulation that disproportionally affects certain industries or sectors (and the resulting litigation) and even the risk that some companies or industries may be rendered obsolete as global markets search for solutions to what is called, the transition to a low-carbon economy. IB 2015-01 also restated the historical test for ESG investing: only when competing investment options serve the plan’s interests equally well may a fiduciary use an ESG factor as the tie-breaker. This historical approach, sometimes called the tie-breaker test, was designed to address the early iterations of ESG investing, where the fiduciary would want to pursue an objective unrelated to investment performance, such as to spur jobs in the local economy. In 2016, the DOL issued IB 2016‑01 in which it permitted plan-funded shareholder engagement if “the responsible fiduciary concludes that there is a reasonable expectation that [such engagement] with management, by the plan alone or together with other shareholders, is likely to enhance the value of the plan’s investment in the corporation, after taking into account the costs involved.” Issues on which engagement may be appropriate included “the nature of long-term business plans including plans on climate change preparedness and sustainability” and “policies and practices to address environmental or social factors that have an impact on shareholder value.”
  • FAB 2018‑01 preserves the notion that an ESG factor can have a direct link to investment performance and may be added to the investment decision mix with all other material factors, such as volatility and its correlation with other securities in the portfolio. But the DOL cautioned that there must in fact be a real nexus between the ESG factor and shareholder value in order to avoid having to satisfy the tie-breaker test. Fiduciaries will want to build a record in support of the view that a particular factor bears a relationship with investment performance, and carefully consider how much weight to put on that specific factor.
  • Though hardly clear, the DOL is seemingly still comfortable with fiduciaries populating plan investment lineups with an ESG-themed investment option, provided the fiduciary can justify its inclusion on prudence grounds. The DOL is definitely wary of a fiduciary’s selection of an ESG-themed QDIA, though FAB 2018‑01 does not completely close the door on such an investment product. Moreover, the DOL, in expressing skepticism of ESG-related QDIA products, distinguished between “ESG-themed funds (e.g., Socially Responsible Index Fund, Religious Belief Investment Fund, or Environmental and Sustainable Index Fund),” from funds “in which ESG factors may be incorporated…as one of many factors in ordinary portfolio management and shareholder engagement decisions.” The former seems to be more concerning to the DOL than the latter. This potentially has the effect of favoring some ESG products and strategies over others.
  • The DOL also zeroed-in on shareholder engagement in respect of ESG issues that have a connection to the value of the plan’s investment in the company, where the plan may be paying significant expenses for the engagement or development of proxy resolutions. FAB 2018-01 states that if “a plan fiduciary is considering a routine or substantial expenditure of plan assets to actively engage with management on environmental or social factors, either directly or through the plan’s investment manager,” then that may warrant “a documented analysis of the cost of the shareholder activity compared to the expected economic benefit (gain) over an appropriate investment horizon.” It is not evident why the DOL raised a concern over shareholder engagement that results in an ERISA plan incurring significant expenses due to direct engagement with company boards because we are not aware of that being much of a practice (at least as of yet). The DOL may have simply taken notice of other types of institutional investors, such as very large governmental plans, which are pushing for more engagement with corporate boards as an alternative to divestment, for example.

Even with FAB 2018-01, ESG remains an entirely viable investment approach under ERISA, provided it is structured in a way that satisfies the duties of prudence and loyalty. Fiduciaries face a proliferation of data and analytic tools to help identify managers and investment opportunities that are sufficiently attuned to ESG risks and best practices. Nomenclature and disclosure remain sources of concern and confusion among ESG specialists and newcomers alike. ESG’s historical association with the pursuit of objectives unrelated to financial performance give the DOL and some fiduciaries pause, but a more nuanced understanding of how ESG factors can shape a portfolio’s performance is emerging apace.

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.

New DOL Guidance on ESG Investing/Shareholder Engagement

DOL just updated its guidance on ESG investing and shareholder engagement. We will be providing an analysis on this in the coming days.

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.

Our Interview with ACA Insights on the DOL Fiduciary Rule in the Aftermath of the 5th Circuit Ruling

We were recently interviewed for ACA Insight on the consequences of the Court’s ruling to vacate the DOL rule.

©2018 ACA Insight and ACA Compliance Group. All rights reserved. Reproduced with written permission of the publisher.

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.