July 30, 2020

Assistant Secretary Jeanne Wilson
Office of Regulations and Interpretations
Employee Benefits Security Administration
US Department of Labor
200 Constitution Ave., NW
Washington, DC 20210

Re: RIN1210-AB95, Financial Factors in Selecting Plan Investments Proposed Regulation (the “Proposed Regulation”)

Dear Secretary Wilson:

The Securities Industry Financial Markets Association (“SIFMA”)1 appreciates the opportunity to comment on the Department of Labor’s (“Department”) proposed amendments to the “Investment Duties” regulation under Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The preamble states that the amendments are intended to clarify that ERISA requires plan fiduciaries to select investments based solely on financial considerations.2 Since the enactment of ERISA the duty of prudence has been based on a prudent process and not on the end results.3 The Department has often stated that the duty of prudence is based on a prudent process and is neither results oriented nor “Monday Morning Quarterbacking.”

In the Department’s own publications designed to help fiduciaries meet their responsibilities, the Department recognizes the duty of prudence to be one of process.4 We are concerned that the amendments depart from that standard by suggesting that investments that consider environmental, social, and governance (“ESG”) factors are suspect, regardless of the process a prudent fiduciary follows in considering those investments. We think that is a mistake and departs from the Department’s long-held guidance on those issues as well as the statutory framework of ERISA.

1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.
2 85 Fed. Reg. 126, p. 39116 (June 30, 2020).
3 See James D. Hutchinson, The Federal Prudent Man Rule under ERISA, 22 Vill. L. Rev. 15, 43 (1976) (“Much of the emphasis under ERISA is on the procedures which should be followed in properly managing assets or selecting and monitoring investment managers. This emphasis is based upon the fact that sound management of employee benefit plan assets and proper fiduciary conduct under ERISA’s prudent man rule are tied to a standard which focuses upon the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”).