The woke war on your 401(k)

And why you shouldn't worry.

Photo by Oren Elbaz on Unsplash

First, they came for your kid’s school.

Now, it’s your retirement money.

The woke mob, it seems, is everywhere.

Luckily, Republicans are manning the ramparts.

The latest battlefield was Congress, where last week the GOP came to the defense of your 401(k) by mounting a courageous attack against the US Department of Labor’s radical new rule, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.”

Scary, right?

In short, the rule pertains to an investment approach that takes into account Environmental, Social and Governance (ESG) factors in addition to the usual considerations. It’s been around for decades and is increasingly popular with young people.

Lately, though, ESG has become the latest target in the Republican War on Wokeness. And with the aid of two red-state Democratic senators who are up for re-election this year, Republicans in the House and Senate approved a measure that would squash the new rule.

President Biden has vowed to veto the move.

Still, Iowa Republicans are ready to fight. US Sen. Joni Ernst, for example, proclaimed that “Biden’s radical rule promotes a reckless social agenda over Americans’ financial security.”

Instead of making investment decisions “solely based on profitability,” as it used to be, her office says, the new rule will allow Wall Street to spend your nest egg on “woke corporations” based on their donations to “left-leaning charities” and “diversity and inclusion trainings.”

Before you get scared, though, it might be a good idea to step back and look at the facts.

What exactly does this new rule with the really long name do? What does it change?

The answer appears to be: “not much” and “well, not much.”

Consider this summary of the new Biden rule that was posted on the web site of the Harvard Law School Forum on Corporate Governance in early February:

In brief, the 2022 Biden Rule largely reaffirms the Department of Labor’s longstanding position, compelled by binding Supreme Court precedent, that an ERISA fiduciary may use ESG investing to improve risk-adjusted returns but not to obtain collateral benefits. Subject to a few nuanced changes of limited practical import, the Biden Rule is largely consistent with the 2020 Trump Rule and earlier regulatory guidance.

This was written by Max Schanzenbach, a Northwestern Pritzker School of Law professor and Robert Sitkoff, Harvard Law School professor. The two also co-authored an opinion piece in the Wall Street Journal last December that was entitled, “No, Biden isn’t forcing your retirement money into ESG funds.”

Don’t believe them?

How about this blog post from last December by Chantel Sheaks, vice president for retirement policy at the US Chamber of Commerce:

“The final regulation mostly just follows what we all have considered the ERISA standard for nearly 50 years.”

ERISA is the Employee Retirement Income Security Act of 1974.

Now, Sheaks does go on to criticize the Biden rule for “tie-breaker” language, which she writes says “if two investments serve the financial interest of the plan equally, additional factors, also known as collateral benefits (such as promoting union jobs), can be used to make a determination in favor of one of those investments.”

But she adds the chances such a tie breaker would come into play are “extremely rare.”

It’s beginning to sound like the Biden rule isn’t much different than the Trump rule, isn’t it?

If you’re still not convinced, read the lawsuit 25 Republican attorneys general, Iowa’s Brenna Bird included, have filed challenging the rule.

According to the suit, the Biden rule’s language says, “[a] fiduciary may not subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan to other objectives, and may not sacrifice investment return or take on additional investment risk to promote benefits or goals unrelated to interests of the participants and beneficiaries in their retirement income or financial benefits under the plan.”

The Republican AGs concede that this language “appears similar” to a Trump-era rule, but they claim there are “key differences.”

If this is a bit confusing, I understand. I suppose the courts will sort out the technicalities and decide whether they’re “key” or lacking practical import — if the lawsuit gets that far. But what I think is abundantly clear by now is this: The politicians who are screaming this is a radical change that will let woke capitalists take your life savings and squander it on left-wing charities and woke corporations aren’t being honest.

In addition, the folks telling you Biden is just reversing Donald Trump’s ban on ESG investing aren’t telling the truth, either.

That includes some congressional Democrats – and, well, Donald Trump. A week ago, the ex-president posted a video claiming credit for being the first – in the world! — to ban retirement accounts from sending money to ESG investments.

“These people are sick,” Trump said for good measure.

Such investments are “woke financial scams” that are “radical left garbage,” said the originator of Trump Steaks.

I can understand why Trump wants to claim credit for an ESG ban. Ron DeSantis, the Florida governor and likely challenger for the Republican presidential nomination, has already said the ESG movement should be crippled, according to CNBC. He’s even devoted several chapters of his new book to the subject, the network says.

I’m sure this will be a key battleground between the two, and when Trump and DeSantis come to Davenport this month, I can’t wait for them to lock horns and debate the merits of collateral benefits and the tie-breaker provision as it pertains to a fiduciary’s prudence and loyalty obligations under the Employee Retirement Income Security Act of 1974.

No doubt, that’ll pack them in at the Adler.

The truth is this: With politics, as with investing, it’s a good idea to read the fine print.

It might be a bit dry and boring, nuanced and technical. Some of it may even lack practical import. Still, if you do your homework, you’re less likely to get taken in by a press release, a politician or a con man.

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Kyle Munson: Kyle’s Main Street, Iowa

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