Given the results of the U.S. Presidential Election, certain regulatory items at the Department of Labor will likely be modified or abandoned altogether.

These include DOL initiatives on environmental, social and governance (ESG) investing, investment advice fiduciary standards, qualified professional asset manager (QPAM) eligibility, and the definition of independent contractor; while others, such as efforts to promote employee stock ownership plans (ESOPs) will likely continue.

ESG Factors

Most industry observers agree that the Biden ESG rule is in trouble, but there is a similar consensus that it doesn’t matter much either way.

The Biden administration clarified in November 2022 that plans may use ESG considerations in investment decisions, provided those decisions were still prudent. It also permitted plans to use collateral factors as a tiebreaker between two investments provided those investments both equally served the interests of the plan.

This rule has been challenged in the courts, primarily by actors in the fossil fuel industry and Republican-led state governments, and litigation is ongoing.

The Trump rule, which would likely return in some form if Trump were to win, required plans to only use “pecuniary factors,” and could only use collateral factors to break a tie if two investments were “indistinguishable.”

In practice, there is not much daylight between these two rules. Kendra Isaacson, a principal at Mindset and a former Senate staffer, notes that “the rules are very similar; the actual rule, not the rhetoric or the preamble.”

Michael Kreps, the chair of the retirement services group at Groom Law Group and also a former Senate staffer, agrees and describes the distinction between the two as “superficial.” He says that “I am skeptical that these changes have actual impact on day-today investing,” and “people are already making decisions based on the economics.”

Though the Trump rule limited plans to pecuniary factors, ESG considerations as used in retirement plans normally tie back to an economic basis and use ESG as a measure of long-term risk and growth potential alongside other data points, rendering the point moot in practice.

Additionally, the distinction between “indistinguishable” and “equally serves the interest of the plan,” is also null in practice, because if two investments equally serve the interest of the plan, then from the point of view of a plan fiduciary, they are functionally indistinguishable.

Though the ESG rule back and forth has been compared to a game of ping-pong, it may be something more like a game of ping-pong between two mimes playing without a ball.

The rhetoric around ESG will remain much the same under a Trump presidency. Project 2025, a policy agenda written by the Heritage Foundation describes ESG as “a relatively recent strategy promoted by large asset managers that focuses not only on a company’s bottom line, but also on the company’s compliance with liberal political views on climate change, racial quotas, abortion, and other issues.”

Though Trump has distanced himself from Project 2025 in public, it could be influential on his administration.

Retirement Security Rule

The Retirement Security Rule is all but certain to be abandoned by a Trump-Vance administration. DOL funding bills originating from the Republican-controlled House have called for it to be defunded and the previous Trump administration abandoned the last fiduciary rule in 2017.

Kreps says that a Trump administration is unlikely to defend the rule in the courts and Isaacson goes further to say that “the rule would not be defended” by a Trump DOL.

ESOPs

Isaacson notes that “ESOPs are pretty popular on the Hill,” and a Trump administration would likely continue to promote ESOPs and to produce an adequate consideration regulation. It is hard to say if it would be the same as the one that the Biden DOL sent to OMB recently, since it hasn’t been published yet.

Project 2025 also lists ESOP adequate consideration as a priority and says a Trump DOL should “improve access to ESOPs” by providing “clear regulations for ESOP valuation and fiduciary conduct.”

QPAM Exemption

Isaacson says that the Biden-era QPAM exemption update could also be “on the chopping block.” Specifically, the part of the rule that says a QPAM risks disqualification for foreign convictions and foreign deferred prosecution agreements for certain offenses.

Independent Contractor Definition

The Biden-era independent contractor rule, which makes it harder for employers to classify workers as contractors instead of employees would also be in danger. The rule was also unpopular with Republicans in Congress and Isaacson says, “there would probably be a reversal.”

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