Tired of mandates and government overreach? Want to get away? Well, here’s some news to ruin your 401(k). The Biden administration is pushing its radical agenda through retirement account regulation. In this case, it’s a proposed Labor Department rule that was not heavily reported—shocker. The change is to the Erisa Act, which governs your 401(k), and forces plan sponsors (your company or retirement plan provider) to offer funds focused on ESG—environmental, social, and governance. The Wall Street Journal editors explain the rule here:
Asset managers like BlackRock are pushing to create ESG 401(k) funds in part because they can charge higher fees. According to Morningstar, the asset-weighted average expense ratio of U.S. “sustainable” funds was 0.61% in 2020 compared to 0.41% for all open-ended mutual and exchange-traded funds and 0.12% for passive funds. This difference can reduce retirement savings by tens of thousands of dollars over a few decades.
The Biden rule would let plan sponsors enroll workers in ESG 401(k) funds as the default, so workers could unknowingly end up paying higher fees. It also threatens retirement plan sponsors with legal liability if they don’t support progressive shareholder resolutions, such as those requiring companies to reduce CO2 emissions or disclose political donations.
Many small pension plans abstain from proxy votes because performing the required due diligence would be inordinately expensive. Some also want to avoid political controversy. But DOL comes close to demanding that pension funds pick a political side, and you know which side that is.
“Voting proxies are a crucial lever in ensuring that shareholders’ interests, as the company’s owners, are protected,” DOL says. “Abstaining from a vote is not a neutral act” since it “could determine whether a particular matter or proposal is approved.”
DOL says small plans can reduce their costs by relying on the recommendations of proxy advisers that happen to be the left-leaning proxy duopolists Glass Lewis and Institutional Shareholder Services. Both also provide ESG research services, so the DOL rule will boost their business.
All of this amounts to a backdoor rewrite of Erisa, one of the better laws of the last 50 years. Progressives are moving across the Biden Administration to steer private capital to implement an agenda they can’t pass through Congress. Your savings will be conscripted to advance the progressive agenda, whether you like it or not.
You know from here, here, here, and here how I feel about ESG where you invest, and they win. The reason the big players love it is they get to charge higher fees. Just follow the money. If this rule isn’t stopped, your own retirement savings could be weaponized against you, supporting progressive causes you oppose without you even knowing. I want you to be a Liberty Retiree, not a pawn in Joe Biden’s agenda.
Action Line: If you’re tired of all the rules, then opt for the self-direct option in your 401(k), or roll it over by doing a rollover IRA. We should probably talk. But only if you’re serious.
E.J. Smith - Your Survival Guy
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