Notice2022-02798
Request for Information on Possible Agency Actions to Protect Life Savings and Pensions from Threats of Climate-Related Financial Risk
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Published
February 14, 2022
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
The Employee Benefits Security Administration (EBSA) is issuing this Request for Information (RFI), in furtherance of the Executive Order on Climate-Related Financial Risk, to solicit public input on EBSA's future work relating to retirement savings and climate- related financial risk. EBSA's efforts will focus on agency actions that can be taken under the Employee Retirement Income Security Act of 1974 (ERISA), the Federal Employees' Retirement System Act of 1986 (FERSA), and any other relevant laws, to protect the life savings and pensions of U.S. workers and families from the threats of climate- related financial risk.
Full Text
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<title>Federal Register, Volume 87 Issue 30 (Monday, February 14, 2022)</title>
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[Federal Register Volume 87, Number 30 (Monday, February 14, 2022)]
[Notices]
[Pages 8289-8292]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-02798]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
Z-RIN 1210-ZA30
Request for Information on Possible Agency Actions to Protect
Life Savings and Pensions from Threats of Climate-Related Financial
Risk
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Request for Information.
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SUMMARY: The Employee Benefits Security Administration (EBSA) is
issuing this Request for Information (RFI), in furtherance of the
Executive Order on Climate-Related Financial Risk, to solicit public
input on EBSA's future work relating to retirement savings and climate-
related financial risk. EBSA's efforts will focus on agency actions
that can be taken under the Employee Retirement Income Security Act of
1974 (ERISA), the Federal Employees' Retirement System Act of 1986
(FERSA), and any other relevant laws, to protect the life savings and
pensions of U.S. workers and families from the threats of climate-
related financial risk.
DATES: Submit written comments on or before May 16, 2022.
ADDRESSES: You may submit written comments, identified by Z-RIN 1210-
ZA30, to either of the following addresses:
[ssquf] Federal eRulemaking Portal: <a href="http://www.regulations.gov">www.regulations.gov</a>. Follow the
instructions for submitting comments.
[ssquf] Mail: Office of Regulations and Interpretations, Employee
Benefits Security Administration, Room N-5655, U.S. Department of
Labor, 200 Constitution Avenue NW, Washington, DC 20210, Attention:
Request for Information on Possible Agency Actions.
Instructions: All submissions received must include the agency name
and Regulatory Identifier Number (Z-RIN). Persons submitting comments
electronically are encouraged not to submit paper copies. Comments will
be available to the public, without charge, online at
<a href="http://www.regulations.gov">www.regulations.gov</a> and <a href="http://www.dol.gov/agencies/ebsa">www.dol.gov/agencies/ebsa</a> and at the Public
Disclosure Room, Employee Benefits Security Administration, Suite N-
1513, 200 Constitution Avenue NW, Washington, DC 20210. Warning: Do not
include any personally identifiable or confidential business
information that you do not want publicly disclosed. Comments are
public records posted on the internet as received and can be retrieved
by most internet search engines.
FOR FURTHER INFORMATION CONTACT: For information pertaining to this
Request for Information, contact Fred Wong or Colleen Brisport Sequeda,
Office of Regulations and Interpretations, Employee Benefits Security
Administration, (202) 693-8500. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
I. Background
A. Climate-Related Financial Risk
On May 20, 2021, President Biden signed Executive Order 14030 on
Climate-Related Financial Risks (the Order). The Order outlined a
whole-of-government approach to mitigating climate-related financial
risk and to safeguarding the financial security of America's workers,
families, and businesses from the threat that climate change poses to
their life savings. Section 4 of the Order directed the Department of
Labor (Department) to ensure the resilience of workers' life savings
and pensions through a series of actions.
Those actions included directing the Department to ``consider
publishing, by September 2021, for notice and comment a proposed rule
to suspend, revise, or rescind `Financial Factors in Selecting Plan
Investments,' 85 FR 72846 (November 13, 2020), and `Fiduciary Duties
Regarding Proxy Voting and Shareholder Rights,' 85 FR 81658 (December
16, 2020).'' Pursuant to the Order, on October 14, 2021, the Department
proposed a rule under ERISA to empower plan fiduciaries to safeguard
the savings of America's workers by making it clear that fiduciaries
may consider climate change and other ESG factors when they make
investment decisions and when they exercise shareholder rights,
including voting on shareholder resolutions and board nominations.
In addition, on October 15, 2021, the Administration released a
comprehensive, government-wide strategy to measure, disclose, manage,
and mitigate the systemic risks climate change poses to American
families, businesses, and the economy in the form of a report entitled
``A Roadmap to Build a Climate-Resilient Economy.'' \1\ The report
points out that climate change poses serious and systemic risks to the
U.S. economy and financial system. As outlined in this report, the U.S.
government is using all of its tools to properly account for and
mitigate climate change-related financial and economic risks, as
climate impacts are already affecting American jobs, homes, families'
hard-earned savings, and businesses. In a report issued on October 21,
2021, the Financial Stability Oversight Council (FSOC) identifies
climate change as an emerging threat to U.S. financial stability.\2\
That report includes recommendations to U.S. financial regulators
laying out actions to identify and address climate-related risks to the
financial system and promote the resilience of the financial system to
those risks.
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\1\ See FACT SHEET: Biden Administration Roadmap to Build an
Economy Resilient to Climate Change Impacts [verbar] The White House
(available at <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/10/15/fact-sheet-biden-administration-roadmap-to-build-an-economy-resilient-to-climate-change-impacts/">https://www.whitehouse.gov/briefing-room/statements-releases/2021/10/15/fact-sheet-biden-administration-roadmap-to-build-an-economy-resilient-to-climate-change-impacts/</a>) (Oct. 14,
2021).
\2\ See <a href="https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf">https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf</a>.
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This RFI is intended to further the goals of the Order and the
Roadmap by assisting the Department in identifying steps that it can
take under applicable law to further protect the life savings and
pensions of U.S. workers and families from the threats of climate-
related financial risk.
B. Employee Retirement Income Security Act of 1974
The Employee Retirement Income Security Act of 1974, as amended
(ERISA), covers retirement plans (including traditional defined benefit
pension plans and individual account defined contribution plans such as
401(k) plans) and welfare benefit plans (e.g., employment based medical
and hospitalization benefits, apprenticeship plans, and other plans
described in section 3(1) of Title I) of most private-sector employers.
The goal of Title I of ERISA is to protect the interests of
participants and their beneficiaries in employee benefit plans. Plan
sponsors must design and administer their plans in accordance with
ERISA. Among other things, Title I of ERISA requires that sponsors of
private employee benefit plans provide participants and beneficiaries
with adequate information regarding their plans. Also, those
individuals who manage plans (and other fiduciaries) must meet certain
standards of conduct, derived from the common law of trusts and made
applicable (with certain modifications) to all fiduciaries. The law
also contains detailed provisions for reporting to the government and
disclosure to participants. Furthermore, there are civil enforcement
provisions aimed at assuring that plan funds are protected and that
participants who qualify receive their benefits. Title II of ERISA
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contains standards that must be met by employee retirement benefit
plans in order to qualify for favorable tax treatment.
The administration of ERISA is shared among the U.S. Department of
Labor (Department), the Department of the Treasury and the Internal
Revenue Service (IRS), and the Pension Benefit Guaranty Corporation
(PBGC). The Department administers Title I of ERISA, which contains
rules for reporting and disclosure, vesting, participation, funding,
fiduciary conduct, and civil enforcement. The IRS administers Title II
of ERISA, which was codified in the Internal Revenue Code (Code) and is
periodically amended to establish requirements that must be met by
employee retirement benefit plans to qualify for favorable tax
treatment. Some of the Code provisions are parallel to some of the
Title I rules. Title III is concerned with jurisdictional matters and
with coordination of enforcement and regulatory activities by the
Department and IRS. Title IV covers the insurance program for defined
benefit pension plans and is administered by the PBGC.
Prior to a 1978 reorganization, there was some overlapping
responsibility for administration of the parallel provisions of Title I
of ERISA and the tax code by the Department and the IRS,
respectively.\3\ As a result of this reorganization, the Department has
primary responsibility for reporting, disclosure, and fiduciary
requirements; and the IRS has primary responsibility for participation,
vesting, and funding issues. However, the Department continues to have
a role in those areas and works with the IRS on matters that materially
affect the rights of participants, regardless of primary
responsibility.
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\3\ 5 U.S.C. App. (2018).
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C. Federal Employees Retirement System Act of 1986
The Federal Employees' Retirement System Act of 1986 (Pub. L. 99-
335) (FERSA) established the Federal Employees' Retirement System
(FERS) for Federal employees, postal employees, and Members of
Congress. The FERS has three elements: (1) Social Security; (2) the
FERS basic retirement annuity and FERS supplement; and (3) the Thrift
Savings Plan (TSP), which is a tax-deferred retirement savings plan
similar to cash or deferred arrangements established for private-sector
employees under section 401(k) of the Code. FERSA also established in
the executive branch the Federal Retirement Thrift Investment Board
(FRTIB) to be responsible for administering the TSP. The Department
exercises specified statutory authority under FERSA. For example, EBSA
is charged with establishing a program to carry out audits to determine
the level of TSP compliance with FERSA requirements relating to
fiduciary responsibilities. In addition, FERSA also provides the
Department with authority to prescribe regulations regarding fiduciary
responsibility and prohibited transaction provisions to carry out 5
U.S.C. 8477.
D. Executive Orders
The President's May 20, 2021, Executive Order 14030 on Climate-
Related Financial Risk (the Order) states that the ``intensifying
impacts of climate change present physical risks to assets, publicly
traded securities, private investments, and companies,'' and that ``the
global shift away from carbon-intensive energy sources and industrial
processes presents transition risks to many companies, communities, and
workers.'' \4\ Furthermore, the Order points out that the failure to
appropriately and adequately account for and measure these physical and
transition risks threatens the competitiveness of U.S. companies and
markets, and the life savings and pensions of U.S. workers and
families. The Order sets forth the policy of the Administration to
advance disclosure of climate-related financial risk (consistent with
Executive Order 13707 of September 15, 2015), and to act to mitigate
that risk and its drivers.
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\4\ 86 FR 27967 (May 25, 2021).
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Section 4(a) of the Order directs the Department to identify agency
actions that can be taken under ERISA, FERSA, and any other relevant
laws to protect the life savings and pensions of U.S. workers and
families from the threats of climate-related financial risk.\5\
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\5\ Id at Section 4(a).
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The May 20 Executive Order complements the President's January 20,
2021 Executive Order 13990 on Protecting Public Health and the
Environment and Restoring Science to Tackle the Climate Crisis, which
acknowledges the Nation's ``abiding commitment to empower our workers
and communities; promote and protect our public health and the
environment,'' and sets forth the policy of the Administration to
listen to the science, improve public health and protect our
environment, and bolster resilience to the impacts of climate
change.\6\
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\6\ 86 FR 7037 (January 25, 2021).
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This RFI is limited to the matters within the scope of section 4(a)
of Executive Order 14030, as addressed in the Request for Comments
section of this document. This RFI does not solicit comments on
recently proposed amendments to the Department's Investment Duties
throughout regulation (29 CFR 2550. 404a-1) published on October 14,
2021.\7\ That proposal was published after the Department, pursuant to
the two Executive Orders,\8\ conducted a review of final rules adopted
in late 2020 that amended the Investment Duties regulation and created
uncertainty as to whether a fiduciary may consider climate change and
other environmental, social, or governance (ESG) factors in selecting
investments and investment courses of action, and exercising
shareholder rights, such as proxy voting.\9\ The comment period on that
proposal ended December 13, 2021.
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\7\ 86 FR 57272 (October 14, 2021).
\8\ Executive Order 14030 Section 4(b) and Executive Order 13990
Section 2.
\9\ See ``Financial Factors in Selecting Plan Investments,'' 85
FR 72846 (November 13, 2020), and ``Fiduciary Duties Regarding Proxy
Voting and Shareholder Rights,'' 85 FR 81658 (December 16, 2020).
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II. Request for Comments
General
1. Please provide your views on how EBSA should address and
implement the action items set forth for EBSA in Executive Order 14030
on Climate-Related Financial Risk. Specifically, what agency actions
can be taken under ERISA, FERSA, and any other relevant laws to protect
the lifesavings and pensions of U.S. workers and families from the
threats of climate-related financial risk?
2. Executive Order 14030 uses the phrase ``climate-related
financial risk'' to encompass a wide variety of risks under two broad
categories: Physical risks and transition risks. What are the most
significant climate-related financial risks to retirement savings and
why?
Data Collection Regarding ERISA-Covered Plans
3. Should EBSA collect data on climate-related financial risk for
plans? If so, please specify with as much precision as possible what
information EBSA could and should collect, potential sources of such
information, as well as how EBSA should collect it.
4. Should EBSA use Form 5500 Annual Return/Report (``Form 5500'')
to collect data on climate-related financial risk to pension plans? For
example, EBSA could add questions to the Form 5500 to collect data on
climate-related financial risks to retirement plans and
[[Page 8291]]
their service providers. For instance, the Form 5500 could try to
collect information about whether and how plan investment policy
statements specifically address climate-related financial risk, whether
service providers disclose or meet metrics related to such financial
risks, and whether and how plans have factored climate-related
financial risk into their analysis of individual investments or
investment courses of action. Similarly, the Form 5500 could try to
collect data on whether, and how, plan fiduciaries voted on proxy
proposals involving climate-related financial risk. If you think EBSA
should use the Form 5500 to collect this, or similar, information,
please specify the data that should be collected, how it should be
presented as part of the Form 5500, and how collecting that data or
information would help protect the life savings and pensions of U.S.
workers and families from the threats of climate-related financial
risk.\10\
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\10\ The Department solicited comments on this topic in 2016,
but received very limited information. See 81 FR 47534, 47564 (July
21, 2016). This RFI is revisiting the question in light of section
4(a) of Executive Order 14030.
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5. Other than the Form 5500, are there other methods of collecting
data on climate-related financial risks to plans that EBSA should
consider? For instance, should the Department conduct an information
request/survey on plan sponsor or employee awareness of such risks, and
if so, should that information request categorize the information based
on plan size, e.g., large plans versus small plans, or segmented in an
other way?
6. Should administrators of ERISA plans be required to publicly
report on the steps they take to manage climate-related financial risk
and the results and outcomes of any such steps taken, in a form that is
more easily accessible to the public, and timelier, than the Form 5500?
If so, what alternative to the Form 5500 could be used for such a
report, how should this report be compiled, what should be the
contents, and how should it be made available to the public?
ERISA Fiduciary Issues
7. Changes in the financial markets, particularly an increased
number of metrics and tools allowing for additional analyses of
investments, give ERISA plan fiduciaries more information on which to
make decisions on climate-related financial risk factors in evaluating
the merits of competing investment choices. Some private sector sources
are developing structured ESG research data for evaluating corporate
performance. What are the best sources of information for plan
fiduciaries to utilize in evaluating such risks with respect to plan
investments? Are there difficulties or challenges in obtaining such
information or comparing information from different sources? If so,
what is the source or sources of those difficulties or challenges, and
what are the solutions?
8. Do any guaranteed lifetime income products (e.g., annuities)
help individuals efficiently mitigate the effects of at least some
climate-related financial risk? If so, what mitigation measures do
these products take? Would such products constitute a safe and
efficient strategy to transfer climate-related financial risk from the
participant/employee to the insurer/guarantor? If so, should EBSA take
steps to facilitate the inclusion of these products in ERISA-covered
defined contribution plans? If so, what steps should be taken and what
products should be considered, and why? Are there climate-focused
annuities that plans could offer?
FERSA
9. 5 U.S.C. 8438 defines the specific types of investments that are
permissible under the TSP. Given the scope of 5 U.S.C. 8438, what
specific actions relating to FRTIB's consideration of ESG factors,
including climate-related financial risks, when making investment
decisions could and should EBSA take, consistent with EBSA's authority
and role under FERSA, and why? \11\
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\11\ 5 U.S.C. 8438(f).
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10. The Executive Director and the members of the FRTIB are TSP
fiduciaries, and are subject to the fiduciary responsibility and
prohibited transaction provisions set forth at 5 U.S.C. 8477.\12\ FERSA
requires the Department to, among other things, establish a program to
carry out audits to determine the level of compliance with these
standards and obligations.\13\ Those responsibilities have been
delegated to EBSA, which implements a risk-based audit program that
identifies risks and vulnerabilities, assesses the likelihood of harm
from these risks and vulnerabilities, and considers the magnitude of
potential damage associated with the various risks and vulnerabilities.
FERSA also provides the Department with specific authority to prescribe
regulations to carry out 5 U.S.C. 8477.\14\ How can EBSA best conduct
an audit program, consistent with its authority and role under FERSA,
that identifies and assesses the risks and vulnerabilities posed to TSP
by climate change? What types of questions should the audit program
answer? What data sources should EBSA use to answer them?
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\12\ 5 U.S.C. 8477(a)(3), (b) and (c).
\13\ 5 U.S.C. 8477(g)(1).
\14\ 5 U.S.C. 8477(f).
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11. What policies and practices do managers of sovereign wealth
funds or public pensions, in the United States or overseas, follow to
help mitigate climate-related financial risks, and are these policies
and practices significantly different from the policies and practices
of managers of ERISA-covered plans? Which of these policies and
practices could the Department or the FRTIB incorporate into their
obligations under FERSA?
12. A 2021 GAO Report recommended that FRTIB conduct a rigorous
audit of TSP's exposure to climate-related financial risk. What data,
if any, should FRTIB collect on TSP's exposure to climate-related
financial risk? What types of data, if any, should it collect from
asset managers regarding climate-related financial risk?
13. What information, if any, should the FRTIB collect on asset
managers' policies, including their consideration of climate change and
ESG factors in their stewardship and investment decision-making, and
how their actual behavior corresponds to their stated policies? How
could this data inform FRTIB's own decision-making and management of
TSP?
14. What actions, if any, should the TSP's asset managers, take to
incorporate climate-related financial risk, consistent with FERSA's
terms and their duty of prudence?
15. The TSP's fund offerings rely on passive index investing. Is
there evidence that the indices relied upon by the TSP systematically
underestimate or overestimate the risks associated with climate change,
or that the market fails to appropriately factor in the risks
associated with climate change in pricing publicly-traded assets?
16. What analysis could FRTIB undertake to inform whether other
possible indices may better take into account the risks posed by
climate change? What analysis could FRTIB perform to weigh this feature
against other characteristics of these indices such as their fees? What
actions could FRTIB take to consider climate change and other material
ESG factors in directing investment selection decisions for the TSP,
consistent with FERSA's statutory requirement that indices be
``commonly recognized'' and a ``reasonably complete representation'' of
the market?
[[Page 8292]]
17. Other than investments, are there any incentives that could be
offered to encourage more effective incorporation of climate-related
financial risks into TSP, using the regulatory authority delegated to
the Secretary or other administrative authorities under FERSA?
18. Some material suggests that when plan participants know their
plan offers ESG options, many will invest in them. See, e.g., ESG
Options in 401(k) Plans Could Lead to Higher Contribution Rates
According to Schroders Survey, (May 13, 2021), available at <a href="https://www.schroders.com/en/us/private-investor/media-centre/retirement-survey-2021-esg/">https://www.schroders.com/en/us/private-investor/media-centre/retirement-survey-2021-esg/</a> (when plan participants know their plan offers ESG
options, 90% invest in them). In a 2017 survey of TSP participants,
twenty-two percent of respondents said they most want the TSP to offer
a broader range of investment options. See Federal Retirement Thrift
Investment Board: 2017 Participant Satisfaction Survey, P. 11, fig. 8
(2017) available at <a href="https://www.frtib.gov/ReadingRoom/SurveysPart/TSP-Survey-Results-2017.pdf">https://www.frtib.gov/ReadingRoom/SurveysPart/TSP-Survey-Results-2017.pdf</a>. Are there additional data suggesting,
measuring, or otherwise indicating whether federal employees' prefer
ESG-focused investments?
Miscellaneous
19. Are there any legal or regulatory impediments that hinder
managers of investments held in savings and retirement arrangements not
covered by ERISA, such as IRAs, from taking steps to mitigate against
climate-related financial risks to those investments? Does the absence
of prudence and loyalty obligations with respect to these arrangements
leave them vulnerable to climate-related financial risks?
20. Should EBSA sponsor and publish research to improve data and
analytics that ERISA plan fiduciaries could use to evaluate climate-
related financial risks? If so, what research subjects should EBSA
sponsor?
21. Is there a need to educate participants, especially those
responsible for making their own investment decisions in participant-
directed individual account plans, about climate-related financial
risks? If yes, what role, if any, should EBSA play in sponsoring and
providing such education? In addition, what efforts, if any, should
EBSA make to coordinate with the Securities and Exchange Commission on
its efforts to inform and protect investors, especially individual
investors such as plan participants, from potentially misleading
statements about fund adherence to policies that address climate-
related financial risk (often referred to as ``greenwashing'')? \15\
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\15\ See, e.g., SEC Division of Examination Risk Alert <a href="https://www.sec.gov/files/esg-risk-alert.pdf">https://www.sec.gov/files/esg-risk-alert.pdf</a>.
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22. Is there a need to educate owners of IRAs about climate-related
financial risks? If yes, what role, if any, should EBSA play in
assisting the IRS or States (for those having state automatic-IRA
arrangements) in sponsoring and providing such education?
Signed at Washington, DC, this 4th day of February, 2022.
Ali Khawar,
Acting Assistant Secretary, Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2022-02798 Filed 2-11-22; 8:45 am]
BILLING CODE 4510-29-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.