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It’s Time to Depoliticize Retirement Fund Investments

The opinions expressed by columnists are their own and do not necessarily represent the views of
AP Photo/J. Scott Applewhite

Pension funds and asset managers should make investment decisions based solely on maximizing returns for retirees. New legislative activity and legal opinions from state attorneys general will ensure that retirement fund managers uphold their fiduciary duty to the millions of Americans that are relying on their expert financial advice and decision-making skills.


Bills have been introduced at the federal level to explicitly reaffirm that investment managers have a fiduciary duty to focus solely on providing financial returns to retirees. The Employee Retirement Income Security Act of 1974 (ERISA), which governs over 730,000 private-sector employee benefit plans with more than $10 trillion in assets, states that plan managers are obligated to make decisions “solely in the interest” of retirees to minimize losses and maximize returns.

Rep. Andy Barr (R-Ky.) and Sen. Mike Braun (R-Ind.) have introduced similar bills, which amend ERISA by explicitly requiring retirement money to be invested without considering environmental, social, and governance (ESG) factors that have no material effect on the financial performance of a company.

Supreme Court precedent clearly states that managers of ERISA plans must make investment decisions solely in the interest of providing retirees with “financial benefits”, not“collateral benefits”that are promoted in ESG products.

At the state level, the American Legislative Exchange Council finalized a model bill requiring that state pension fund managers invest and vote on proxies solely in the “pecuniary interest” of retirees. The bill also gives voting power to an elected financial officer or state treasurer instead of investment managers or politicized pension fund boards.


Florida also passed a resolution to require its state pension funds to invest and cast shareholder votes solely based on pecuniary factors.

Retirement plan managers are in violation of their fiduciary duty if a “mixed motive” is involved in making an investment decision. Even if the ESG investment“did not harm the beneficiaries” or was “laudable,” plan managers would still be in violation of the law. Indiana Attorney General Todd Rokita wrote an advisory opinion claiming that an investment manager’s commitment to climate pledges such as Climate Action 100+ and the Glasgow Financial Alliance for Net Zero “demonstrates a mixed motive inconsistent with a fiduciary duty of loyalty to act for the exclusive financial benefit” of state retirement plan beneficiaries.

AGs in Kentucky and Louisiana also wrote separate opinions that could expose plan managers to potential legal liability“if they continue allocating funds to ESG-promoting asset managers.”

More AGs around the country should write individual opinions to clarify where pension fund managers may be making decisions that are in breach of their fiduciary duty as defined in current law.  

Trustees of private trusts also have a fiduciary duty. According to the Uniform Prudent Investor Act, social investing is in violation of a trustees’ fiduciary duty “if the investment activity entails sacrificing the interests of trust beneficiaries -- for example, by accepting below-market returns -- in favor of the interests of the persons supposedly benefitted by pursuing the particular social cause.”


Plan managers are legally obligated to observe costs and returns and rearrange investments based on financial performance. Supreme Court precedent requires managers to monitor investments and adjust portfolios over time“as circumstances evolve.”

Over reliance on ESG factors could ultimately require managers to invest in undervalued stocks with low ESG scores. Max Schanzenbach and Robert Sitkoff point out that for certain investing strategies managers must take advantage of the higher risk-adjusted return opportunity that presents itself with stocks that may be undervalued due to ESG pressure. It would be the manager’s obligation to invest in low ESG-scoring stocks that have potential for a profit.

There are also cases in which commercial and investment banking activities give rise to a fiduciary duty. Based on court precedent, banks have a fiduciary duty to a borrower if the borrower lacks certain knowledge and puts “faith, confidence, and trust” in the bank while the bank also has “dominion, control, or influence” over the borrower. Investment banking functions, such as underwriting municipal bonds, also have a fiduciary duty that may be based on a bank providing expert advice to a state or local government.

Verifying that these duties are being fulfilled via new legislation or private contracts is of paramount importance to ensure returns are being maximized.


Reaffirming their reliance on financial factors to influence investment decision-making is essential to ensure that investment managers are following their respective fiduciary duties under state and federal law. The new legislative initiatives and legal opinions should remind managers that retirees should always be at the forefront of their minds.

Bryan Bashur is a federal affairs manager at Americans for Tax Reform and executive director of the Shareholder Advocacy Forum.

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