Multinational investment bank Citigroup Inc has developed a unique approach for using its own employee retirement plans to meet racial diversity goals without violating stringent federal benefits laws.
Recently, the Biden administration’s primary worker benefits regulator granted Citi a rarely provided advisory opinion (Advisory Op. 2023-01A), the first one since January 2020. This advisory trails a new path for the investment bank to place a priority on diverse asset managers handling its employees’ 401(k)s. This point was highlighted by Dominic DeMatties, a partner at Thompson Hine LLP who sought the department’s input on behalf of Citi.
According to DeMatties
Regulators are already facing backlash from the right due to an allegedly pro-ESG investing rule. This could potentially set the stage for a new bout of GOP challenges to the Labor Department’s capabilities to allow socially conscious investment plans. However, the department’s methodical approach is highly grounded in years of underlying guidance that helps distinguish the roles of individuals who establish and manage an employee pension.
The DOL’s Employee Benefits Security Administration (EBSA) has been pushing back against critics for over a year. These detractors argue that the administration has undermined workers’ benefits by favoring Environmental, Social, and Corporate Governance (ESG) investing. But, the agency staunchly maintains that its rule strikes a neutral tone on ESG considerations, despite prevalent misinterpretations.
These misinterpretations, says Allison Wielobob, general counsel of the American Retirement Association, have led to a generalized misunderstanding about the function of the agency.
Wielobob said
Moreover, Citi’s Racial Equity Program covers a portion or all asset management costs that more diverse companies would typically charge its worker benefit plans. Nevertheless, the final choice on asset managers to supervise plan assets rests with fiduciaries. By lowering varied companies’ fees, Citi gives diverse service providers a competitive edge. The EBSA stressed that fiduciaries must consider multiple factors during their analysis of investment management professionals.
The agency used earlier advisory opinions and letters released over the years by Republican and Democratic administrations. This distinction clarified the line of action between an employer’s role in setting up a benefit plan and the fiduciary decisions to manage this plan under the Employee Retirement Income Security Act of 1974 (ERISA).
Public Law No. 93-406
In conclusion, the complexities and nuances encapsulated within the larger conversation of diversity, equity, and inclusion in finance, especially in regards to ESG considerations, appear to be the preliminary foundations for an advisory opinion that still has a long journey ahead. As noted by Michael Del Conte, a senior counsel at Groom Law Group Chartered,
Del Conte suggests