In this article we review transition issues facing policymakers following Tuesday’s election, highlighting two that are likely to be a focus of the new Trump Administration: the Department of Labor’s Fiduciary Rule and ESG/proxy voting regulation. In follow-on articles we will review staffing, legislative and other regulatory initiatives.
Transition
- Republicans have won the White House and control of the Senate and are projected to win control of the House. The Republican Senate margin (53-47) will make the task of getting cabinet appointments approved significantly easier. Control of both the House and the Senate will allow President Trump significant control over the terms of 2025 tax and budget legislation (which is not subject to Senate “filibuster” rules).
- Lame Duck spending legislation – As the current three-month spending bill expires December 20, 2024, the current Congress will have to pass legislation authorizing more spending on or before that date to avoid a shutdown. It is possible that some retirement policy legislation is included in this effort, e.g., SECURE 2.0 technical corrections and 403(b) legislation authorizing the use of collective trusts.
- Organization of the new Congress – The 119th Congress is scheduled to be sworn in on January 3, 2025.
- President-elect Trump will be sworn into office on January 20, 2025.
Executive action
Legislation, in the best case, takes time, but there are a number of things the new President can do through, e.g., Executive Orders (EO) or agency action.
We expect the new Administration to focus on at least two big retirement policy-related regulatory issues at the Department of Labor (DOL).
Fiduciary Rule
Within weeks of taking office in 2017, then-President Trump issued an Executive Order instructing DOL to “examine the [2016] Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.” That 2016 Fiduciary Rule was vacated by the Fifth Circuit in 2018.
Notwithstanding then-President Trump’s EO and the Fifth Circuit decision, DOL continued work on a new rule that—within (DOL’s view of) the constraints of the Fifth Circuit’s decision—could implement fiduciary restrictions on a wide array of activity currently considered by most practitioners not to trigger fiduciary status. That effort resulted in DOL’s 2024 Fiduciary Rule package, which itself is currently the subject of at least two court challenges.
Republican opposition to DOL’s 2024 Fiduciary Rule is widespread, and it is likely that, early in 2025, President Trump will issue another Executive Order with perhaps more teeth in it than the 2017 EO, ordering a review or even, conceivably, a withdrawal of it.
ESG/proxy voting
n February 2024, the DOL released its final amendment to the ESG/Proxy Voting rules, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” amending the Trump DOL’s 2020 amendments to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) fiduciary regulations on the same issues. We discuss the changes made by the Biden DOL here.
Summarizing: The new rules significantly relaxed restrictions on ESG investing, eliminating special restrictions on ESG investments in defined contribution default investments (such as 401(k) plan target date funds), and eliminated special rules for proxy voting, making the “tie-breaker” rule, which allows consideration of non-financial issues in certain circumstances, more flexible, and eliminating recordkeeping and disclosure requirements with respect to the tie-breaker rule.
This issue has been a priority for Republicans; 25 “red state” Attorneys General have sued DOL over its ESG/proxy voting regulation. A decision in that case by the United States District Court for the Northern District of Texas in favor of DOL has been vacated and remanded by the Fifth Circuit for reconsideration in light of the Supreme Court’s overturning of the Chevron Doctrine.
Republican members of the House Committee on Financial Services have formed an ESG Working Group and published a memorandum on “Key Priorities” focusing on proxy voting issues. On April 10, 2019, then-President Trump issued an “Executive Order on Promoting Energy Infrastructure and Economic Growth” that instructed DOL to (among other things) review “existing [DOL] guidance on the fiduciary responsibilities for proxy voting to determine whether any such guidance should be rescinded, replaced, or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets.”
In our view, it is more likely that the new Trump Administration and Republicans in Congress will focus on the issue of proxy voting, not because of retirement policy issues, but because of its effect on macro issues that are a priority: energy policy and capital markets.
In that regard, we believe it is likely that the primary focus will be on SEC proxy rules, as the House Republican’s ESG working group’s memorandum reflects. But an effort to reduce the effect of, e.g., “climate activism,” on corporate policy and election of corporate directors through yet another DOL fiduciary regulation is likely.
Regulatory freeze
Finally, as the Biden Administration did in 2021, it is likely that President Trump will issue an Executive Order on the day he takes office that effectively freezes all agency regulatory activity, including at DOL, IRS and the Pension Benefit Guaranty Corporation, pending review by officials of the new Administration.
Once the new Congress is organized, we will review key committee leadership and the Administration’s staffing of key policy positions.
We will continue to follow these issues.
