PLANADVISER - November/December 2020 - 6

Legislative and Judicial Actions
compliance news //
➜ The DOL Presents
Its Final ESG Rule
The Department of Labor (DOL)
has published the final version
of a new retirement plan
investing
rule,
retaining
the proposed version's
formal title: " Financial
Factors in Selecting Plan
Investments. " The rule
addresses the use of
environmental,
social
and governance (ESG)
investments in tax-qualified
retirement plans
subject to the Employee
Retirement Income Security
Act (ERISA) and the
supervision of the DOL's
Employee Benefits Security
Administration (EBSA).
The rule's final version
includes some important differences
compared with the proposed
version, though the substance of
that earlier attempt largely remains
intact. The proposed rule, published
on June 30, generated a tremendous
amount of public input during the
30-day comment period. The DOL's
website shows there were more than
1,100 unique comment letters and
more than 7,000 signed form letters
submitted by the investment industry
and the public.
Chief among the significant changes
is the fact that the text of the final rule
no longer refers explicitly to " ESG. "
Rather, it presents a framework that
emphasizes that retirement plan fiduciaries
should use only " pecuniary "
factors when assessing investments of
any type-which is to say they should
use only factors that have a material,
demonstrable impact on performance.
In this sense, the rule does seem to
leave ample room for the use of ESGminded
investments, presuming these
types of investments are assessed in
a purely economic manner and that
their financial features make them
prudent investments.
The final rule's preamble, on the
factors as a plan's qualified default
investment alternative (QDIA). Once
again, the final rule requires that
a fund being selected as the
QDIA must be assessed using
purely
pecuniary
factors
that are directly material to
its financial performance.
Beyond this, the final rule
stipulates that a fund is
inappropriate as a QDIA
if its stated objectives
include explicitly nonpecuniary
factors-for
example
addressing
climate change itself, not
climate change's impact
on the financial outcomes
of investors.
➜ IRS Simplifies Certain
403(b) Plan Terminations
The Department of the Treasury
and the IRS have issued IRS Revenue
The DOL's website
shows there were
more than 1,100
unique comment
letters and more
than 7,000 signed
form letters
submitted by the
investment industry
and the public.
other hand, speaks directly to the ESG
topic. DOL and EBSA officials said the
preamble seeks to help stakeholders
understand how the pecuniary framework
may apply to the assessment
of ESG investments in practice. The
final rule does not explicitly prohibit
the selection of a fund that uses ESG
Ruling (Rev. Rul.) 2020-23-employer
and employee guidance related to
terminating 403(b) plans that fund
their benefits through individual or
group 403(b)(7) custodial accounts. As
explained by the two departments, the
guidance reflects changes provided for
in the Setting Every Community Up for
Retirement
Enhancement
(SECURE)
Act. That landmark retirement legislation,
which was passed last December,
directed the IRS to issue guidance
providing that individual custodial
accounts (ICAs) may be distributed
to all participants in-kind upon their
plan's termination, eliminating the
requirement for a cash distribution.
The SECURE Act demands the guidance
to be effective retroactively
for tax years beginning on and after
December 31, 2008.
Sources say this new guidance will
allow for these in-kind distributions
under rules similar to those applying
when a terminating 403(b) plan distributes
annuity contracts. The new guidance
establishes that, if a distributed
custodial account continues to comply
with certain requirements, no portion
6 | planadviser.com November-December 2020
Art by Klaas Verplancke
http://www.planadviser.com
PLANADVISER - November/December 2020

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