US Department of Labor declares Bush Interpretive Bulletin on Pension Investments Null and Void


In a long awaited Interpretive Bulletin issued October 22, 2015, (IB 2015-01) the US DOL finally killed a 2008 Bush Bulletin that “chilled” attempts by pension funds to consider collateral benefits of investments which might include creating more Union jobs, protecting the environment, and in other respects being “socially responsible” investments.

In 1994, the Clinton administration issued a Bulletin which said for the first time that if two investments were equal in the expected rate of economic returns, factors like economic targeting, and environmental, social, and governance (ESG) issues could then be considered as “tie breakers” in determining which investment to make.  But with the issuance of this new Interpretive Bulletin, Secretary of Labor Thomas Perez has stated that “environmental, social, and governance factors may have a direct relationship to the economic and financial value of an investment. When they do, these factors are more than just tiebreakers but rather are proper components of the fiduciary’s analysis of the economic and financial merits of competing investment choices.” (EBSA 10/22/15 News Release, emphasis added.)

The DOL also says that “fiduciaries need not treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social, or other such factors.”

Perhaps most important, the EBSA guidance as to this new Interpretive Bulletin expressly spells out how to exercise one’s fiduciary duty when selecting not just investments, but also investment managers: “As in selecting investments, in selecting investment managers, the plan fiduciaries must reasonably conclude that the investment managers’ practices in selecting investments are consistent with the principles articulated” in this guidance. In other words, this guidance tells fiduciaries that when picking investment managers, they must know how these managers factor in environmental, social and governance factors when recommending investments.

To be straightforward about this, the DOL is now recognizing what we all know to be true—you cannot figure out if an investment is a good long-term investment for a pension fund without considering the financial impact on that investment of long-term environmental factors (global warming & climate change), social factors (work relationships, including the presence and/or absence of Unions), and governance factors (responsiveness of Boards of Directors and CEOs to good governance practices).

It appears Trustees must consider environmental, social and governance issues when considering rates of return—they are no longer just “tie breakers,” they are to be a part of the original analysis of rates of return.

For further information, please contact your labor law counsel. 

By Bill Sokol | October 26, 2015

Legal Developments