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Mazzei Minute: 12/02/22

Your 401(k) is about to go “woke!” The Labor Department just expanded the rules for retirement plan sponsors to invest based on environmental, social, and governance (ESG) factors. Thanks to the liberal Biden Administration, politics can now pervade how your retirement savings are invested.


The 1974 Employee Retirement Income Security Act (ERISA) requires that retirement plan sponsors act “solely in the interest” of participants and beneficiaries. A previous Trump Administration rule prevented retirement managers from considering factors that were not material to financial risk and performance.


Now, asset managers can consider ESG factors like climate, workforce diversity, and labor relations. Investing in our amazing Oklahoma energy companies like Devon Energy could disappear. Investing in subsidized green energy companies that have a greater risk of bankruptcy could increase.


As the Wall Street Journal reported recently, “Fossil-fuel producers are reaping enormous profits as Western governments seek to restrict supply. A pension plan that divests from fossil fuels would be less diversified and probably produce lower returns over the long term.”


As a Tulsa-based financial planner, we have been taking a hard look at the effects of ESG on the industry. Some money managers out there have incorporated ESG parameters into their investing process, and their performance has not suffered. Other managers have underperformed. Be sure and talk to your financial advisor to assess whether your retirement plan is going “woke” to your detriment.

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