A new rule from the Biden administration makes it easier for big investment fiduciaries and corporate plan managers to invest trillions in “woke” causes that the workers may not support.
Known as ESG, the social and governance issues include climate change, defunding fossil fuels, social justice initiatives like CRT, population control through abortion, and other investment options funding what many consider “woke” agendas. Investment managers can now more easily support those agendas under a new rule from the Biden administration. The move could radically transform retirement investing for tens of millions of Americans nationwide according to Forbes and the Wall Street Journal.
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Until now, fund managers were required to prioritize the best possible return on investment. By opening the door to leftwing investment plans, the Biden administration is permitting employers and private pension fund managers to effectively politicize retirement investments.
Under the new regulation, a retirement account fund manager or employer must continue to pledge to prioritize the interests of retirees, a longstanding requirement, but fiduciaries now also will be allowed to include factors such as climate change and other ESG considerations in their analyses and decision-making processes. This will, by design, empower leftwing employers and fund managers to use retirement accounts to push leftist causes.
The regulation is a huge win for those who support using investment dollars to promote a leftwing ideological agenda. The total value of all U.S. 401(k) accounts was $7.3 trillion in June 2021. Although not all of that wealth will likely end up in ESG funds in the wake of Biden’s regulatory change, if even just one-third of those funds do, it would mean trillions of dollars could soon flow toward companies that embrace liberal ideals.
Some workers may not notice any changes to their 401(k) and other retirement options over the next year or two, but others soon will find themselves stuck choosing between a short list of ESG-focused investment funds, effectively requiring some workers wanting to take advantage of the tax benefits offered by 401(k) plans to contribute to beliefs with which they do not agree. Investors can protect themselves in three ways:
- First, tell your employer, pension fund manage, or other fiduciary responsible for your retirement accounts that you are not interested in ESG investing. The Biden rule does not require ESG investments; it only allows fiduciaries to offer them.
- Second, the new Biden rule permits employers to make an ESG fund the default option for employees enrolled in 401(k) accounts. That means that employees who normally do not voluntarily elect specific 401(k) investments soon could have their hard-earned money automatically invested in an ESG fund. Many workers won’t even notice the change. If you want to avoid this from happening in coming years, be sure to submit your own 401(k) elections.
- Third, if your employer or pension manager severely limits your options so ESG investing is hard to avoid when contributing to a 401(k), consider other investment opportunities that would put you in greater control of your money. An individual retirement account could be a better option, for example.
Investment watchdogs say that with growth of a fund not necessarily the highest priority of ESG investment, workers with retirement funds need to be extra vigilant about what their savings are funding.
–Dwight Widaman | MV