New Department of Labor Investment Rules Could Be Big Win for Everyone but Labor

Few constituencies benefited more from the election of Joe Biden than the socially-responsible investor community, which saw the most-hostile presidential administration replaced by the most supportive.[1] The point is best illustrated by the departure of Labor Secretary Eugene Scalia, who was perceived by labor to be a “union buster,”[2] and the arrival of former Boston Mayor Marty Walsh, the first union member to serve as secretary in decades.[3] New investment rules proposed by Walsh’s Department of Labor governing trillions of dollars in retirement funds are set to undo much of the harm to environmental, social, and governance investing caused by his predecessor.[4] Even so, the proposed new rules remain troubling insofar as they neglect the interests of American workers.

The problem started in the waning days of the Trump administration, when the Department of Labor issued new investment regulations governing retirement funds.[5] These regulations would have made it far more difficult to consider socially-responsible factors in making investment choices.[6] The Trump-Scalia DOL similarly pushed through a new regulation making it impossible for pension funds to vote in shareholder elections, an extreme, if unheralded, act of economic voter suppression.[7] These rules also insisted upon a view of fiduciary duty barring job creation (and the avoidance of job destruction) as an investment factor that could be considered by worker pension plans.[8] That meant trustees overseeing trillions of dollars in pension assets had to effectively ignore job creation or destruction when making investment choices, even if the implicated jobs were those of their own fund participants.

The new rules proposed by Secretary Walsh restore voting and actively encourage pension funds to consider at least some socially-responsible criteria in making investment decisions, notably the environment and diversity.[9] But so far, as I argue in this comment letter on the proposed regulation, they fail to consider the jobs of the very workers who contribute to these funds, harming both the workers and the funds themselves.[10] Taking such factors into consideration does not conflict with fiduciary duty, as I also argue.[11]

Pension plans don’t rely just on investment returns. They also count on contributions from workers and their employers.[12] Creating good union jobs, for example, generates new contributors to union retirement funds that make investments. The same is true for avoidance of job destruction. Such destruction leads not only to devastating job losses for formerly employed workers, but also to drops in contributions to these same pension funds, potentially destabilizing them. Thus, when a trustee considers employer and employee contributions, that trustee is still investing, “solely in the interests of the participants and beneficiaries and for the exclusive purpose of providing benefits…” as ERISA demands.

Pensions investing in ways that directly undermine their own contributors’ jobs is no mere hypothetical problem. Many unionized worker pensions invest in nonunion labor projects, even those that directly compete against their own workers, sometimes because they believe the law forces them to do so.[13] In so doing, they are often helplessly investing in their own demise, forced to chase short-term investments that fail to consider the overall economic impact on the workers making them.[14] Perversely, this is done in the name of an excessively narrow reading of the duty of loyalty.[15] Is using someone’s pension to invest them out of their own job loyalty?

The problem is even more extreme for state and city pension plans.[16] Though the Department of Labor technically does not have jurisdiction over these plans, it strongly influences their investment rules – perhaps excessively so – because most states follow the department’s pronouncements on such matters.[17] Many of these state and city plans invest in the privatization of public services via private equity funds. Teacher pension funds invest in privatized public school service companies, firefighters invest in private firefighting companies, police funds in private security forces, prison guards in private prisons – all of which rely on offering competing workers lower wages and benefits to maximize their profits.[18]

Investments from worker pension funds comprise between one-quarter and one-half of all assets managed by private equity firms.[19] Rules barring consideration of the jobs impact from such investments lead pensions to think they cannot refuse to make them, even though one source of profit is paying workers less to do the same job. No, these investments aren’t some “hedge” against inevitable job losses. They help drive these job losses, which could be arrested if pensions either divested from them or demanded that such projects pay fair wages and benefits and hire union labor. With the federal government now set to spend $1.2 trillion on infrastructure,[20] at least some of which will be in partnership with private entities, directly and indirectly creating hundreds of thousands of new jobs and other private-sector spillover projects,[21] this is a once-in-a-century moment to give U.S. labor the adrenaline shot it has long required. It’s a chance to let labor use its own capital to reinvigorate itself. Or instead, it could be a moment in which existing rules force pensions to sit on the sidelines of infrastructure investment to chase higher returns abroad, or instead invest in low-wage nonunion projects that undermine their own jobs and further reduce the flow of new fund contributors.

A Biden-Walsh Department of Labor still has time to allow trustees and investment advisers to weigh the impact of such choices on jobs and fund contributions. In fact, Biden’s executive order to the department commanding that the rules be revisited emphasized the importance of “creating well-paying job opportunities for workers.”[22] But somehow, the proposed regulation risks leaving the prior rule largely unchanged. Trustees can consider the environment and diversity, but jobs remain an afterthought, a mere “collateral benefit.”

This failure to reverse the Scalia rule isn’t just bad policy. It’s awful politics. The so-called blue-green alliance has long been strained.[23] Large swaths of the labor movement came out against the Green New Deal for fear that it would lead to job losses.[24] Now the Department of Labor risks playing straight into the narrative that climate-concerned, “socially-responsible” coastal elites are only interested in worker pensions funds insofar as they can be used to advance their own environmental and social goals. As much as a green planet advances the interests of all, blue-collar workers remain suspicious that going green will cost them their jobs, thereby posing a major threat to the political coalition that would be required to make it happen.

The Biden-Walsh labor department should make it absolutely clear that these pensions can be used to protect and promote the economic security of the workers whose retirement funds are doing the investing.


[1] Compare Rachel Koning Beals, Trump Labor Department’s rule discouraging ESG investing in retirement plans is finalized over swell of objections, Market Watch (Oct. 31, 2020, 10:41 AM), (“The Department of Labor made final on Friday a rule making it harder for socially-minded investments to be included in select retirement plans….  Opposing comments came not only from asset managers focused on ESG investing but also from many large conventional asset managers, including BlackRock, Fidelity, State Street Global Advisors, T. Rowe Price and Vanguard.”) with Taylor Tepper, Does an ESG Fund Belong in Your 401(k)?, Forbes Advisor (Nov. 2, 2021, 10:14 AM), (“The Biden administration’s move was cheered both by environmental activists who hope ESG funds can help curb carbon emissions…”).

[2] “Union-Buster Eugene Scalia Should Not Lead Department of Labor,” (Statement from AFL-CIO President Richard Trumka on Eugene Scalia’s confirmation as secretary of labor) September 26, 2019 .

[3] Our New Labor Secretary is a Union Member, and other news, Comm’s Workers of Am. (Mar. 25, 2021), (“This week, the U.S. Senate confirmed former Boston Mayor Marty Walsh to lead the Department of Labor. Walsh is the first union member to serve as Secretary of Labor in nearly 50 years.”).

[4] Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, 86 F.R. 57272, (“The intent of this new paragraph is to establish that material climate change and other ESG factors are no different than other ‘traditional’ material risk-return factors, and to remove any prejudice to the contrary. Thus, under ERISA, if a fiduciary prudently concludes that a climate change or other ESG factor is material to an investment or investment course of action under consideration, the fiduciary can and should consider it and act accordingly, as would be the case with respect to any material risk-return factor.”) [hereinafter Prudence and Loyalty].

[5] See Beals, supra note 1.

[6] Elizabeth Warren, Eugene Scalia Off the Mark on ESG Investing, Wall St. J. (July 7, 2020, 3:45 PM), (“Labor Secretary Eugene Scalia proclaims his department is doing right by retirees by making it harder to invest with environmental, social and governance (ESG) considerations in mind.”).

[7] Brian Anderson, Dems Say DOL Proxy Voting Proposal Hurts Retirement Savers, 401k Specialist Magazine (Oct. 5, 2020), (“The Department of Labor has again drawn the wrath of Democratic lawmakers, who on Friday submitted a comment letter strongly criticizing its proposed rule to limit fiduciaries’ ability to use proxy voting, which the commenters say is a key tool to further the financial interests of the workers and retirees they serve.”).

[8] Financial Factors in Selecting Plan Investments, 85 F.R. 72846, (“The purpose of plan investments under ERISA is to provide and protect retirement benefits—not to strengthen employers or unions or provide job security. Under ERISA, plans are to be operated solely in the interest of participants and beneficiaries as participants and beneficiaries, not in some other role or capacity, such as union members, employees, or members of some other interest group.”) [hereafter 85 F.R. 72846].

[9] See Prudence and Loyalty, supra note 5.

[10] See David Webber, Comment on Proposed Regulation: Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights (Dec. 13, 2021), (By considering job creation/preservation as merely a “collateral benefit” the proposed regulation fails to acknowledge that the workers contribute to the financial growth of the funds.)

[11] See id.; see also Brock v. Walton, 794 F.2d 586 (11th Cir. 1986) (holding that loan program designed to give lower interest rate to fund participants did not violate the exclusive purpose rule of fund). See also, David H. Webber, ”The Use and Abuse of Labor’s Capital,” 89 New York University Law Review 2106 (2014); and David Webber, THE RISE OF THE WORKING-CLASS SHAREHOLDER: LABOR’S LAST BEST WEAPON, (Harvard University Press 2018) at Ch. 7.

[12] NRTA Pension Education Toolkit, Pension Contribution Requirements, Nat‘l Inst. Ret. Sec. (2014), (“On average, public sector employees contribute 5% of each paycheck to their pensions. Employers contribute 7%”).

[13] See Joe Maniscalco, NYC Carpenters: Largest Teachers Only Retirement Fund in the World is Failing Union Workers, LaborPress.Org (Feb. 9, 2022),; see also Martin Z. Braun & William Selway, Pension Fund Gains Mean Worker Pain as Aramark Cuts Pay, Bloomberg (Nov. 20, 2012, 12:01 AM),; Noelle Haner-Dorr, Pension buy leaves critics seeing red, Orlando Bus. J. (Oct. 6, 2003, 1:03 PM),

[14] David H. Webber, Protecting public pension investments, Wash. Post (Nov. 20, 2014), (”Pension funds have financed the privatization of school bus companies, water utilities, and libraries. Displaced workers not only stop contributing to the funds, losses that can harm other workers and retirees, but also often must turn to public assistance to survive, undermining the argument that taxpayers benefit from these transactions.”).

[15] See id. (Trustees often take a plan-centric view of loyalty, that focuses narrowly on investment returns of the plan.)

[16] See e.g., David H. Webber, The Use and Abuse of Labor’s Capital, 89 N.Y.U. L. Rev. 2106, 2111-12 (2014) (citing Braun & Selway, supra note 14, quoting Phil Griffith) (In 2010, when the then chief investment officer for the Teacher’s Retirement System of Louisiana was asked about investment strategies, he said, “The only thing we look at is the security of the trust, not whether or not it creates jobs or takes away jobs…”).

[17] Id. at 2120 (“But there are a number of reasons why ERISA plays a large role in the interpretation of state pension fiduciary duties, including the traditional duty of loyalty embodied in the exclusive purpose rule.”) (Citing Emp. Benefits Rsch. Inst., Fundamentals of Employee Benefit Programs, Part Five: Public Sector 20 (2005), available at publications/books/fundamentals/Fnd05.Prt05.Chp41.pdf (“But while many ERISA provisions do not always apply to retirement plans of state and local governments, those requirements may indirectly influence plan design and administration in areas ranging from investment and fiduciary standards to pension rights of surviving spouses.”).)

[18] See Webber, supra note 15. (“The retirement funds of firefighters, teachers, prison guards and others are invested in private firefighting companies, private public-school-service companies and private prisons. These companies may offer the promise of high investment returns, but they may achieve those returns at the expense of the public employees themselves.”); see e.g., Dan Primark, Teachers union aims at private equity, AXIOS (March 18, 2021), (Public teacher pension funds are major investors in private equity funds. The California State Teachers’ Retirement System, for example, has over $30 billion allocated to the asset class.”).

[19] Andrew J. Bowden, Spreading Sunshine in Private Equity, U.S. Securities and Exchange Commission (May 6, 2014),–spch05062014ab.html#_ftn2 (“The biggest investors in private equity include public and private pension funds, endowments and foundations, which account for 64% of all investment in private equity in 2012.”); Public Pension Funds Investing in Alternative Assets, Prequin (Sept. 2015), (“Public pension funds have historically had high allocations to alternative assets and continue to allocate significant capital to the industry; for example, public pension funds currently account for 29% of aggregate capital currently invested in private equity.”).

[20] Jacob Pramuk, Biden signs $1 trillion bipartisan infrastructure bill into law, unlocking funds for transportation, broadband, utilities, CNBC (Nov. 15, 2021, 10:33 AM),

[21] Ronald Brownstein, Biden’s economic policy moves away from the strategy of his party’s past two presidents, CNN (Nov. 16, 2021, 2:37 PM), (“Using different methodology, Adam Hersh, a visiting economist at the liberal Economic Policy Institute, recently calculated that over the first five years of implementation the infrastructure plan would create nearly 775,000 jobs annually, while the Build Back Better plan would add about another 2.3 million jobs a year.”).

[22] Exec. Order No. 14030, 86 Fed. Reg. 27,967 (May 20, 2021),

[23] Erik Loomis, Why labor and environmental movements split – and how they can come back together, Env’t Health News (Sept. 18, 2018), (“Today, environmentalists and labor are often seen as enemies. The Keystone XL Pipeline, supported by the Laborers and other building trade unions for creating jobs but strongly opposed by environmental organizations for channeling dirty, climate-altering Canadian tar sands oil to processing facilities on the Gulf of Mexico, is but one example of this problem.”).

[24] Rachel M. Cohen, Labor Unions are Skeptical of the Green New Deal, and They Want Activists to Hear Them Out, The Intercept (Feb. 28, 2019), (“Recent polling has found strong bipartisan support for a Green New Deal, but unions, a key constituency, have been less than enthused by — and in some cases, downright hostile to — the ambitious proposal to tackle climate change.”).

This post comes to us from Professor David H. Webber at Boston University School of Law. It is based on his recent article, “Comment on Proposed Regulation: Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” available here. Webber is also the author of The Rise of the Working-Class Shareholder: Labor’s Last Best Weapon (Harvard 2018).