Some 401(k) plan managers and other investment fiduciaries will now be able to offer investment options that take into account environmental, social, and governance (ESG) issues like climate change and social justice initiatives. This is thanks to a new regulation that was recently released by the White House. Tens of millions of Americans nationwide could see their retirement investing completely changed as a result of the action.
Over the next year or two, some employees may not notice any changes to their 401(k) and other retirement options, but others will soon find themselves forced to choose from a small number of ESG-focused investment funds, effectively forcing some employees who want to take advantage of the tax advantages provided by 401(k) plans to contribute to ideas they disagree with.
How can you guard against being forced to invest in ESG funds? First, let them know that you are not interested in ESG investing by communicating with your employer, pension fund manager, or other fiduciaries who are in charge of your retirement accounts. The Biden rule only permits fiduciaries to offer ESG investments; it does not mandate them.
Second, under the new Biden regulation, employers are allowed to make an ESG fund the default selection for workers with 401(k) accounts. As a result, workers who typically choose certain 401(k) investments voluntarily may soon have their hard-earned money automatically invested in an ESG fund. The change won’t even be noticed by many employees. Make sure to submit your own 401(k) elections if you want to prevent this from happening in the upcoming years.
Third, if your employer or pension manager severely restricts your options, making it difficult to avoid ESG investing when making 401(k) contributions, think about other investment opportunities that would give you more control over your money. For instance, a better choice might be an individual retirement account or IRA.
The goal of Biden’s most recent regulatory change is to direct more funding—possibly trillions of dollars—toward the causes that he and other progressives support. Start preparing right away if you don’t want your money to be used to support ESG initiatives.
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