Biden Administration reverses strict 401(k) investing regulations for ESG funds

President Joe Biden
President Joe Biden
Published: Dec. 27, 2022 at 2:00 PM CST
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BISMARCK, N.D. (KFYR) - On November 22, the Biden administration along with the U.S. Department of Labor loosened rules for 401(k) investing in ESG (environmental, social, governance) funds.

In 2020, the Trump administration set strict guidelines for 401(k) investing when it came to ESG funds. The reversal of these measures has many worried their fund managers can now choose unstable or unpredictable investments.

“Typically, when you have a mutual fund, they have an investment policy, they have a mandate. I don’t see that as something that’s going to happen in the dark of night, not on that conspiracy side of it. I think it’s more so the money managers that are going to exit from ESG just because they’re frustrated the returns aren’t there,” said David Wald, president at Securian Financial Advisors of North Dakota.

While regulations for 401(k) investing are being loosened to allow ESG investments, this doesn’t mean those not interested will have to, or be tricked into investing in them. It simply means that as ESG funds gain popularity, the ability to invest in them does as well. David Wald says that fund managers have an obligation to invest in funds with the highest potential for a return, and this rule shift doesn’t change that.