Fiduciary Responsibility and ETIs: A Conflict?

The U.S. Department of Labor (DOL) recently issued Interpretive Bulletin 08-1, which warns plan fiduciaries against selecting investments to promote public policy preferences. The notice specifically addresses economically targeted investments (ETIs), which create economic benefits apart from their investment return. The bulletin replaces Interpretive Bulletin 94-1 and clarifies and formalizes the DOL’s position.

The notice states that under the Employee Retirement Income Security Act (ERISA), fiduciaries of employee plans may not select investments based on factors other than the economic interests of the plan. So before investing in an ETI, the fiduciary must compare it with alternative investments in terms of the effects on the portfolio’s diversification, liquidity and potential risk/return. According to the DOL, fiduciaries who fail to conduct (and document) a concurrent analysis will be vulnerable to ERISA challenges.