By Ari Sonneberg and Barry Salkin
The U.S. House of Representatives has passed the Protecting Prudent Investment of Retirement Savings Act (H.R. 2988), which proposes substantial amendments to the Employee Retirement Income Security Act of 1974 (ERISA). If enacted, this legislation would significantly restrict the consideration of non‑pecuniary factors in retirement plan investing. That would include restrictions on the consideration of environmental, social, and governance (ESG)-related factors. It would also impose new nondiscrimination rules for service provider selection, tighten fiduciary obligations with respect to proxy voting, and require enhanced disclosures for brokerage windows. The bill restructures ERISA fiduciary obligations across four major divisions (detailed below), each targeting a different aspect of retirement plan governance.
Division A – Increase Retirement Earnings Act
This portion of the bill is aimed at limiting the use by retirement plan fiduciaries of non‑pecuniary factors in investment decisions, and would codify a strict pecuniary‑only standard for ERISA fiduciaries.
Key elements of this division include:
- Fiduciaries must base investment decisions solely on pecuniary factors, defined as those expected to materially affect risk or return.
- Non‑pecuniary factors may only be used as a tiebreaker, and only if the fiduciary documents why pecuniary factors were insufficient; a comparison of alternatives; and how the non‑pecuniary factor being considered aligns with plan participants’ financial interests.
- ESG‑themed funds cannot be used as a Qualified Default Investment Alternative (QDIA) if their objectives incorporate non‑pecuniary goals.
This provision reverses Biden-era rules that permitted fiduciaries to consider ESG factors as part of a risk‑return analysis to be used as a tiebreaker when investments were otherwise equal.
This element of the bill would become effective 12 months after enactment and, notably, would significantly narrow the circumstances under which ESG considerations may be used by fiduciaries in plan investment decisions.
Division B – No Discrimination in My Benefits Act
This division of the bill amends ERISA by creating a new fiduciary duty requiring that plan fiduciaries select and retain service providers in accordance with ERISA’s fiduciary standards, and without regard to race, color, religion, sex, or national origin. It would serve to codify nondiscrimination principles governing service provider selection directly into ERISA’s fiduciary framework. The bill does not specify the effective date for this division.
Division C – Retirement Proxy Protection Act
This division sets new standards for retirement plan proxy voting and shareholder rights. It would impose detailed requirements on fiduciaries when exercising shareholder rights on behalf of plan participants and require that fiduciaries act solely in the economic interest of the plan when proxy voting.
The bill would require fiduciaries, when voting proxies, to consider costs, evaluate material facts, and maintain records of all proxy votes and related activities. In addition, fiduciaries would be required to prudently monitor investment managers and proxy advisory firms.
The bill introduces several safe-harbor proxy-voting policies, including voting only on proposals materially related to the issuer’s business, and not voting when plan assets invested in the issuer are below 5%.
The effective date for this provision is retroactive to January 1, 2026.
Division D – Providing Complete Information to Retirement Investors Act
The bill’s final provision amends ERISA to include new disclosure requirements for retirement plans that include a participant self-directed brokerage window. Pursuant to this new requirement, participants must be provided with and acknowledge a four‑part notice before directing investments into or out of a brokerage window.
First, the notice must warn that brokerage window investments are not selected or monitored by plan fiduciaries. It must also notify participants that such investments may involve higher fees, higher risk, and diminished returns. The notice must contain a graphical illustration showing projected balances at age 67 under 4%, 6% and 8% rates of return.
The bill also establishes a definition for the term “designated investment alterative” that specifically excludes brokerage windows, self-directed brokerage accounts and similar arrangements. This is consistent with existing Department of Labor guidance relating to that term.
This provision of the bill is to become effective January 1, 2027.
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While this bill did have limited bipartisan support in the House, a supermajority of 60 votes would likely be needed in the Senate to overcome a probable filibuster – a reality that makes it unlikely the bill will be enacted, at least in its current form. Consequently, we can expect the Department of Labor to continue active regulatory projects touching on ESG investing and proxy voting under ERISA. Each of these projects appears on the DOL’s semiannual regulatory agenda. The implications of this bill for retirement plan sponsors and other fiduciaries, however, are to expect heightened scrutiny of ESG‑related investment strategies, to prepare for expanded documentation requirements for investment decisions and proxy voting, and to review service provider selection processes for compliance with new nondiscrimination standards.
