‘America First Investment Policy’ Calls for Updated Fiduciary Standards

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The Trump administration recently issued a policy memo calling on the Secretary of Labor to “publish updated fiduciary standards” as it relates to investment in and by “foreign adversaries.”

The Feb. 21 policy memo notes that Chinese companies can use American investment to develop new technologies, some with military applications, that can undermine America’s national security interests.

As it relates to the Department of Labor (DOL) and retirement investments, the memo directs the DOL to update “fiduciary standards under the Employee Retirement Income Security Act of 1974 for investments in public market securities of foreign adversary companies,” the purpose of which is to “protect the savings of United States investors and channel them into American growth and prosperity.”

“Foreign adversaries” include China, Russia, North Korea, Venezuela, Cuba, and Iran. However, few securities from foreign adversaries, apart from China, appear in retirement plans.

The memo adds that the DOL will “restore the highest fiduciary standards as required by the Employee Retirement Security Act of 1974, seeking to ensure that foreign adversary companies are ineligible for pension plan contributions.”

One ERISA attorney speaking on background explained that this wording is vague, as it is unclear what “pension plan contributions” means in this context. However, it appears to mean that pensions would be restricted from investing in securities issued by companies based in a foreign adversary country.

Michael Kreps, chair of the Retirement Services Group at the Groom Law Group, agrees that this “language is unusual as it refers to foreign ‘contributions,’ but they might just mean investments.”

He adds, “If that’s the case, I would think their goal would be to say plans can — or perhaps should — restrict investments in companies that pose a national security risk. The challenge is that plan fiduciaries must first and foremost consider pecuniary factors when making investment decisions, and national security considerations may not always be pecuniary.”

This is not dissimilar to the consideration of environmental factors, Kreps says, because they are also “economically relevant in some cases and not others.”

“The interesting part of the policy is the direction to DOL to issue ERISA guidance. There is tension between allowing or requiring plans to restrict legal investments for national security reasons and efforts to restrict ESG investing,” Kreps notes.

The memo argues that “investment at all costs is not always in the national interest.” Some foreign adversaries “systematically direct and facilitate investment in United States companies and assets to obtain cutting-edge technologies, intellectual property, and leverage in strategic industries.”

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‘America First Investment Policy’ Calls for Updated Fiduciary Standards

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