[Federal Register Volume 87, Number 30 (Monday, February 14, 2022)]
[Notices]
[Pages 8289-8292]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-02798]



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DEPARTMENT OF LABOR

Employee Benefits Security Administration

Z-RIN 1210-ZA30


Request for Information on Possible Agency Actions to Protect 
Life Savings and Pensions from Threats of Climate-Related Financial 
Risk

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Request for Information.

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SUMMARY: The Employee Benefits Security Administration (EBSA) is 
issuing this Request for Information (RFI), in furtherance of the 
Executive Order on Climate-Related Financial Risk, to solicit public 
input on EBSA's future work relating to retirement savings and climate-
related financial risk. EBSA's efforts will focus on agency actions 
that can be taken under the Employee Retirement Income Security Act of 
1974 (ERISA), the Federal Employees' Retirement System Act of 1986 
(FERSA), and any other relevant laws, to protect the life savings and 
pensions of U.S. workers and families from the threats of climate-
related financial risk.

DATES: Submit written comments on or before May 16, 2022.

ADDRESSES: You may submit written comments, identified by Z-RIN 1210-
ZA30, to either of the following addresses:
    [ssquf] Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions for submitting comments.
    [ssquf] Mail: Office of Regulations and Interpretations, Employee 
Benefits Security Administration, Room N-5655, U.S. Department of 
Labor, 200 Constitution Avenue NW, Washington, DC 20210, Attention: 
Request for Information on Possible Agency Actions.
    Instructions: All submissions received must include the agency name 
and Regulatory Identifier Number (Z-RIN). Persons submitting comments 
electronically are encouraged not to submit paper copies. Comments will 
be available to the public, without charge, online at 
www.regulations.gov and www.dol.gov/agencies/ebsa and at the Public 
Disclosure Room, Employee Benefits Security Administration, Suite N-
1513, 200 Constitution Avenue NW, Washington, DC 20210. Warning: Do not 
include any personally identifiable or confidential business 
information that you do not want publicly disclosed. Comments are 
public records posted on the internet as received and can be retrieved 
by most internet search engines.

FOR FURTHER INFORMATION CONTACT: For information pertaining to this 
Request for Information, contact Fred Wong or Colleen Brisport Sequeda, 
Office of Regulations and Interpretations, Employee Benefits Security 
Administration, (202) 693-8500. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

I. Background

A. Climate-Related Financial Risk

    On May 20, 2021, President Biden signed Executive Order 14030 on 
Climate-Related Financial Risks (the Order). The Order outlined a 
whole-of-government approach to mitigating climate-related financial 
risk and to safeguarding the financial security of America's workers, 
families, and businesses from the threat that climate change poses to 
their life savings. Section 4 of the Order directed the Department of 
Labor (Department) to ensure the resilience of workers' life savings 
and pensions through a series of actions.
    Those actions included directing the Department to ``consider 
publishing, by September 2021, for notice and comment a proposed rule 
to suspend, revise, or rescind `Financial Factors in Selecting Plan 
Investments,' 85 FR 72846 (November 13, 2020), and `Fiduciary Duties 
Regarding Proxy Voting and Shareholder Rights,' 85 FR 81658 (December 
16, 2020).'' Pursuant to the Order, on October 14, 2021, the Department 
proposed a rule under ERISA to empower plan fiduciaries to safeguard 
the savings of America's workers by making it clear that fiduciaries 
may consider climate change and other ESG factors when they make 
investment decisions and when they exercise shareholder rights, 
including voting on shareholder resolutions and board nominations.
    In addition, on October 15, 2021, the Administration released a 
comprehensive, government-wide strategy to measure, disclose, manage, 
and mitigate the systemic risks climate change poses to American 
families, businesses, and the economy in the form of a report entitled 
``A Roadmap to Build a Climate-Resilient Economy.'' \1\ The report 
points out that climate change poses serious and systemic risks to the 
U.S. economy and financial system. As outlined in this report, the U.S. 
government is using all of its tools to properly account for and 
mitigate climate change-related financial and economic risks, as 
climate impacts are already affecting American jobs, homes, families' 
hard-earned savings, and businesses. In a report issued on October 21, 
2021, the Financial Stability Oversight Council (FSOC) identifies 
climate change as an emerging threat to U.S. financial stability.\2\ 
That report includes recommendations to U.S. financial regulators 
laying out actions to identify and address climate-related risks to the 
financial system and promote the resilience of the financial system to 
those risks.
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    \1\ See FACT SHEET: Biden Administration Roadmap to Build an 
Economy Resilient to Climate Change Impacts [verbar] The White House 
(available at https://www.whitehouse.gov/briefing-room/statements-releases/2021/10/15/fact-sheet-biden-administration-roadmap-to-build-an-economy-resilient-to-climate-change-impacts/) (Oct. 14, 
2021).
    \2\ See https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf.
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    This RFI is intended to further the goals of the Order and the 
Roadmap by assisting the Department in identifying steps that it can 
take under applicable law to further protect the life savings and 
pensions of U.S. workers and families from the threats of climate-
related financial risk.

B. Employee Retirement Income Security Act of 1974

    The Employee Retirement Income Security Act of 1974, as amended 
(ERISA), covers retirement plans (including traditional defined benefit 
pension plans and individual account defined contribution plans such as 
401(k) plans) and welfare benefit plans (e.g., employment based medical 
and hospitalization benefits, apprenticeship plans, and other plans 
described in section 3(1) of Title I) of most private-sector employers. 
The goal of Title I of ERISA is to protect the interests of 
participants and their beneficiaries in employee benefit plans. Plan 
sponsors must design and administer their plans in accordance with 
ERISA. Among other things, Title I of ERISA requires that sponsors of 
private employee benefit plans provide participants and beneficiaries 
with adequate information regarding their plans. Also, those 
individuals who manage plans (and other fiduciaries) must meet certain 
standards of conduct, derived from the common law of trusts and made 
applicable (with certain modifications) to all fiduciaries. The law 
also contains detailed provisions for reporting to the government and 
disclosure to participants. Furthermore, there are civil enforcement 
provisions aimed at assuring that plan funds are protected and that 
participants who qualify receive their benefits. Title II of ERISA

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contains standards that must be met by employee retirement benefit 
plans in order to qualify for favorable tax treatment.
    The administration of ERISA is shared among the U.S. Department of 
Labor (Department), the Department of the Treasury and the Internal 
Revenue Service (IRS), and the Pension Benefit Guaranty Corporation 
(PBGC). The Department administers Title I of ERISA, which contains 
rules for reporting and disclosure, vesting, participation, funding, 
fiduciary conduct, and civil enforcement. The IRS administers Title II 
of ERISA, which was codified in the Internal Revenue Code (Code) and is 
periodically amended to establish requirements that must be met by 
employee retirement benefit plans to qualify for favorable tax 
treatment. Some of the Code provisions are parallel to some of the 
Title I rules. Title III is concerned with jurisdictional matters and 
with coordination of enforcement and regulatory activities by the 
Department and IRS. Title IV covers the insurance program for defined 
benefit pension plans and is administered by the PBGC.
    Prior to a 1978 reorganization, there was some overlapping 
responsibility for administration of the parallel provisions of Title I 
of ERISA and the tax code by the Department and the IRS, 
respectively.\3\ As a result of this reorganization, the Department has 
primary responsibility for reporting, disclosure, and fiduciary 
requirements; and the IRS has primary responsibility for participation, 
vesting, and funding issues. However, the Department continues to have 
a role in those areas and works with the IRS on matters that materially 
affect the rights of participants, regardless of primary 
responsibility.
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    \3\ 5 U.S.C. App. (2018).
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C. Federal Employees Retirement System Act of 1986

    The Federal Employees' Retirement System Act of 1986 (Pub. L. 99-
335) (FERSA) established the Federal Employees' Retirement System 
(FERS) for Federal employees, postal employees, and Members of 
Congress. The FERS has three elements: (1) Social Security; (2) the 
FERS basic retirement annuity and FERS supplement; and (3) the Thrift 
Savings Plan (TSP), which is a tax-deferred retirement savings plan 
similar to cash or deferred arrangements established for private-sector 
employees under section 401(k) of the Code. FERSA also established in 
the executive branch the Federal Retirement Thrift Investment Board 
(FRTIB) to be responsible for administering the TSP. The Department 
exercises specified statutory authority under FERSA. For example, EBSA 
is charged with establishing a program to carry out audits to determine 
the level of TSP compliance with FERSA requirements relating to 
fiduciary responsibilities. In addition, FERSA also provides the 
Department with authority to prescribe regulations regarding fiduciary 
responsibility and prohibited transaction provisions to carry out 5 
U.S.C. 8477.

D. Executive Orders

    The President's May 20, 2021, Executive Order 14030 on Climate-
Related Financial Risk (the Order) states that the ``intensifying 
impacts of climate change present physical risks to assets, publicly 
traded securities, private investments, and companies,'' and that ``the 
global shift away from carbon-intensive energy sources and industrial 
processes presents transition risks to many companies, communities, and 
workers.'' \4\ Furthermore, the Order points out that the failure to 
appropriately and adequately account for and measure these physical and 
transition risks threatens the competitiveness of U.S. companies and 
markets, and the life savings and pensions of U.S. workers and 
families. The Order sets forth the policy of the Administration to 
advance disclosure of climate-related financial risk (consistent with 
Executive Order 13707 of September 15, 2015), and to act to mitigate 
that risk and its drivers.
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    \4\ 86 FR 27967 (May 25, 2021).
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    Section 4(a) of the Order directs the Department to identify agency 
actions that can be taken under ERISA, FERSA, and any other relevant 
laws to protect the life savings and pensions of U.S. workers and 
families from the threats of climate-related financial risk.\5\
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    \5\ Id at Section 4(a).
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    The May 20 Executive Order complements the President's January 20, 
2021 Executive Order 13990 on Protecting Public Health and the 
Environment and Restoring Science to Tackle the Climate Crisis, which 
acknowledges the Nation's ``abiding commitment to empower our workers 
and communities; promote and protect our public health and the 
environment,'' and sets forth the policy of the Administration to 
listen to the science, improve public health and protect our 
environment, and bolster resilience to the impacts of climate 
change.\6\
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    \6\ 86 FR 7037 (January 25, 2021).
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    This RFI is limited to the matters within the scope of section 4(a) 
of Executive Order 14030, as addressed in the Request for Comments 
section of this document. This RFI does not solicit comments on 
recently proposed amendments to the Department's Investment Duties 
throughout regulation (29 CFR 2550. 404a-1) published on October 14, 
2021.\7\ That proposal was published after the Department, pursuant to 
the two Executive Orders,\8\ conducted a review of final rules adopted 
in late 2020 that amended the Investment Duties regulation and created 
uncertainty as to whether a fiduciary may consider climate change and 
other environmental, social, or governance (ESG) factors in selecting 
investments and investment courses of action, and exercising 
shareholder rights, such as proxy voting.\9\ The comment period on that 
proposal ended December 13, 2021.
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    \7\ 86 FR 57272 (October 14, 2021).
    \8\ Executive Order 14030 Section 4(b) and Executive Order 13990 
Section 2.
    \9\ See ``Financial Factors in Selecting Plan Investments,'' 85 
FR 72846 (November 13, 2020), and ``Fiduciary Duties Regarding Proxy 
Voting and Shareholder Rights,'' 85 FR 81658 (December 16, 2020).
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II. Request for Comments

General
    1. Please provide your views on how EBSA should address and 
implement the action items set forth for EBSA in Executive Order 14030 
on Climate-Related Financial Risk. Specifically, what agency actions 
can be taken under ERISA, FERSA, and any other relevant laws to protect 
the lifesavings and pensions of U.S. workers and families from the 
threats of climate-related financial risk?
    2. Executive Order 14030 uses the phrase ``climate-related 
financial risk'' to encompass a wide variety of risks under two broad 
categories: Physical risks and transition risks. What are the most 
significant climate-related financial risks to retirement savings and 
why?
Data Collection Regarding ERISA-Covered Plans
    3. Should EBSA collect data on climate-related financial risk for 
plans? If so, please specify with as much precision as possible what 
information EBSA could and should collect, potential sources of such 
information, as well as how EBSA should collect it.
    4. Should EBSA use Form 5500 Annual Return/Report (``Form 5500'') 
to collect data on climate-related financial risk to pension plans? For 
example, EBSA could add questions to the Form 5500 to collect data on 
climate-related financial risks to retirement plans and

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their service providers. For instance, the Form 5500 could try to 
collect information about whether and how plan investment policy 
statements specifically address climate-related financial risk, whether 
service providers disclose or meet metrics related to such financial 
risks, and whether and how plans have factored climate-related 
financial risk into their analysis of individual investments or 
investment courses of action. Similarly, the Form 5500 could try to 
collect data on whether, and how, plan fiduciaries voted on proxy 
proposals involving climate-related financial risk. If you think EBSA 
should use the Form 5500 to collect this, or similar, information, 
please specify the data that should be collected, how it should be 
presented as part of the Form 5500, and how collecting that data or 
information would help protect the life savings and pensions of U.S. 
workers and families from the threats of climate-related financial 
risk.\10\
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    \10\ The Department solicited comments on this topic in 2016, 
but received very limited information. See 81 FR 47534, 47564 (July 
21, 2016). This RFI is revisiting the question in light of section 
4(a) of Executive Order 14030.
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    5. Other than the Form 5500, are there other methods of collecting 
data on climate-related financial risks to plans that EBSA should 
consider? For instance, should the Department conduct an information 
request/survey on plan sponsor or employee awareness of such risks, and 
if so, should that information request categorize the information based 
on plan size, e.g., large plans versus small plans, or segmented in an 
other way?
    6. Should administrators of ERISA plans be required to publicly 
report on the steps they take to manage climate-related financial risk 
and the results and outcomes of any such steps taken, in a form that is 
more easily accessible to the public, and timelier, than the Form 5500? 
If so, what alternative to the Form 5500 could be used for such a 
report, how should this report be compiled, what should be the 
contents, and how should it be made available to the public?
ERISA Fiduciary Issues
    7. Changes in the financial markets, particularly an increased 
number of metrics and tools allowing for additional analyses of 
investments, give ERISA plan fiduciaries more information on which to 
make decisions on climate-related financial risk factors in evaluating 
the merits of competing investment choices. Some private sector sources 
are developing structured ESG research data for evaluating corporate 
performance. What are the best sources of information for plan 
fiduciaries to utilize in evaluating such risks with respect to plan 
investments? Are there difficulties or challenges in obtaining such 
information or comparing information from different sources? If so, 
what is the source or sources of those difficulties or challenges, and 
what are the solutions?
    8. Do any guaranteed lifetime income products (e.g., annuities) 
help individuals efficiently mitigate the effects of at least some 
climate-related financial risk? If so, what mitigation measures do 
these products take? Would such products constitute a safe and 
efficient strategy to transfer climate-related financial risk from the 
participant/employee to the insurer/guarantor? If so, should EBSA take 
steps to facilitate the inclusion of these products in ERISA-covered 
defined contribution plans? If so, what steps should be taken and what 
products should be considered, and why? Are there climate-focused 
annuities that plans could offer?
FERSA
    9. 5 U.S.C. 8438 defines the specific types of investments that are 
permissible under the TSP. Given the scope of 5 U.S.C. 8438, what 
specific actions relating to FRTIB's consideration of ESG factors, 
including climate-related financial risks, when making investment 
decisions could and should EBSA take, consistent with EBSA's authority 
and role under FERSA, and why? \11\
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    \11\ 5 U.S.C. 8438(f).
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    10. The Executive Director and the members of the FRTIB are TSP 
fiduciaries, and are subject to the fiduciary responsibility and 
prohibited transaction provisions set forth at 5 U.S.C. 8477.\12\ FERSA 
requires the Department to, among other things, establish a program to 
carry out audits to determine the level of compliance with these 
standards and obligations.\13\ Those responsibilities have been 
delegated to EBSA, which implements a risk-based audit program that 
identifies risks and vulnerabilities, assesses the likelihood of harm 
from these risks and vulnerabilities, and considers the magnitude of 
potential damage associated with the various risks and vulnerabilities. 
FERSA also provides the Department with specific authority to prescribe 
regulations to carry out 5 U.S.C. 8477.\14\ How can EBSA best conduct 
an audit program, consistent with its authority and role under FERSA, 
that identifies and assesses the risks and vulnerabilities posed to TSP 
by climate change? What types of questions should the audit program 
answer? What data sources should EBSA use to answer them?
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    \12\ 5 U.S.C. 8477(a)(3), (b) and (c).
    \13\ 5 U.S.C. 8477(g)(1).
    \14\ 5 U.S.C. 8477(f).
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    11. What policies and practices do managers of sovereign wealth 
funds or public pensions, in the United States or overseas, follow to 
help mitigate climate-related financial risks, and are these policies 
and practices significantly different from the policies and practices 
of managers of ERISA-covered plans? Which of these policies and 
practices could the Department or the FRTIB incorporate into their 
obligations under FERSA?
    12. A 2021 GAO Report recommended that FRTIB conduct a rigorous 
audit of TSP's exposure to climate-related financial risk. What data, 
if any, should FRTIB collect on TSP's exposure to climate-related 
financial risk? What types of data, if any, should it collect from 
asset managers regarding climate-related financial risk?
    13. What information, if any, should the FRTIB collect on asset 
managers' policies, including their consideration of climate change and 
ESG factors in their stewardship and investment decision-making, and 
how their actual behavior corresponds to their stated policies? How 
could this data inform FRTIB's own decision-making and management of 
TSP?
    14. What actions, if any, should the TSP's asset managers, take to 
incorporate climate-related financial risk, consistent with FERSA's 
terms and their duty of prudence?
    15. The TSP's fund offerings rely on passive index investing. Is 
there evidence that the indices relied upon by the TSP systematically 
underestimate or overestimate the risks associated with climate change, 
or that the market fails to appropriately factor in the risks 
associated with climate change in pricing publicly-traded assets?
    16. What analysis could FRTIB undertake to inform whether other 
possible indices may better take into account the risks posed by 
climate change? What analysis could FRTIB perform to weigh this feature 
against other characteristics of these indices such as their fees? What 
actions could FRTIB take to consider climate change and other material 
ESG factors in directing investment selection decisions for the TSP, 
consistent with FERSA's statutory requirement that indices be 
``commonly recognized'' and a ``reasonably complete representation'' of 
the market?

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    17. Other than investments, are there any incentives that could be 
offered to encourage more effective incorporation of climate-related 
financial risks into TSP, using the regulatory authority delegated to 
the Secretary or other administrative authorities under FERSA?
    18. Some material suggests that when plan participants know their 
plan offers ESG options, many will invest in them. See, e.g., ESG 
Options in 401(k) Plans Could Lead to Higher Contribution Rates 
According to Schroders Survey, (May 13, 2021), available at https://www.schroders.com/en/us/private-investor/media-centre/retirement-survey-2021-esg/ (when plan participants know their plan offers ESG 
options, 90% invest in them). In a 2017 survey of TSP participants, 
twenty-two percent of respondents said they most want the TSP to offer 
a broader range of investment options. See Federal Retirement Thrift 
Investment Board: 2017 Participant Satisfaction Survey, P. 11, fig. 8 
(2017) available at https://www.frtib.gov/ReadingRoom/SurveysPart/TSP-Survey-Results-2017.pdf. Are there additional data suggesting, 
measuring, or otherwise indicating whether federal employees' prefer 
ESG-focused investments?
Miscellaneous
    19. Are there any legal or regulatory impediments that hinder 
managers of investments held in savings and retirement arrangements not 
covered by ERISA, such as IRAs, from taking steps to mitigate against 
climate-related financial risks to those investments? Does the absence 
of prudence and loyalty obligations with respect to these arrangements 
leave them vulnerable to climate-related financial risks?
    20. Should EBSA sponsor and publish research to improve data and 
analytics that ERISA plan fiduciaries could use to evaluate climate-
related financial risks? If so, what research subjects should EBSA 
sponsor?
    21. Is there a need to educate participants, especially those 
responsible for making their own investment decisions in participant-
directed individual account plans, about climate-related financial 
risks? If yes, what role, if any, should EBSA play in sponsoring and 
providing such education? In addition, what efforts, if any, should 
EBSA make to coordinate with the Securities and Exchange Commission on 
its efforts to inform and protect investors, especially individual 
investors such as plan participants, from potentially misleading 
statements about fund adherence to policies that address climate-
related financial risk (often referred to as ``greenwashing'')? \15\
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    \15\ See, e.g., SEC Division of Examination Risk Alert https://www.sec.gov/files/esg-risk-alert.pdf.
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    22. Is there a need to educate owners of IRAs about climate-related 
financial risks? If yes, what role, if any, should EBSA play in 
assisting the IRS or States (for those having state automatic-IRA 
arrangements) in sponsoring and providing such education?

    Signed at Washington, DC, this 4th day of February, 2022.
Ali Khawar,
Acting Assistant Secretary, Employee Benefits Security Administration, 
U.S. Department of Labor.
[FR Doc. 2022-02798 Filed 2-11-22; 8:45 am]
BILLING CODE 4510-29-P