▶ 0:08:57Good morning. The subcommittee on health, employment, labor, pensions will now come to order. I note that a quorum is present. Without objection, the chair is authorized to call a recess at any time. Today's hearing is about protecting the retirement savings of American workers from the previous administration's attempt to water down ORSA's cornerstone fidiciary principle that investments are made in the financial interest of workers and retirees.
▶ 0:09:24During President Trump's first administration, the Department of Labor finalized rules with clear guidelines on investing and proxy voting. But the Biden admin uh Biden Harris administration revoked those protective rules and replaced them with weak rules that threaten the retirement savings of all Americans. As justification for revoking the Trump administration rules, the Biden Harris DO was misleading. Some would say they outright lied.
▶ 0:09:51At that time, do said it was its rule was needed to clear up any uncertainty surrounding whether a fiduciary under Orisa may consider ESG and other factors in making investment in proxy voting decisions under the Trump's standard uh Trump's rule standard.
▶ 0:10:10The Biden Harris administration repeatedly cited concerns and confusion raised in secret by unnamed stakeholders regarding whether climate change and other ESG factors may be treated as monetary factors under the Trump rule. The the misleading justifications the Biden Harris DO gave for revoking the Trump rule range from cherrypicking history to outright misstating the facts.
▶ 0:10:34DO do's real aim was to cast doubt on the Trump rules to bolster credibility for its own abrupt break with Orisa's core fidiciary duties by creating an overly broad tiebreaker rule. The Biden Harris administration allowed retirees savings to be used to finance the latest pet policy goals of the left.
▶ 0:10:55In fact, the previous administration stated in the preamble to the proposed rule, for many years, the department's non-regulatory guidance was recognized that under the appropriate circumstances, a risk of fidiciaries can make investment decisions that reflect climate change and other ESG considerations, including climate related risk, and choose economically targeted investments selected in part for benefits apart from their investment return.
▶ 0:11:23This statement is so far from Orisa's duty of loyalty and the Supreme Court's express statement of Orisa's duty of loyalty that it calls for immediate action to protect the retirement savings of American workers. Americans invest to secure their future, not to fund the Green New Deal or leftist pet projects. Fidiciaries governed by Orisa should not be allowed to make investments they know will not pay dividends.
▶ 0:11:50A fidiciary's most important responsibility is to make investments that are in the financial interest of workers and retirees. The mission of DO's employee benefit security administration is to ensure the retirement health and other workplace benefits of American workers and their families.
▶ 0:12:09Instead of upholing this mission, the Biden Harris do deliberately confused invest confused investing for the purpose of providing benefits with attempting to invest to advance partisan social and political goals. Congress reacted swiftly. Within the first three months of 2023, the House and Senate passed a Congressional Review Act resolution to nullify the Biden Harris administration's ESG and proxy voting rule.
▶ 0:12:38However, when the CRA resolution reached President Biden's desk, he vetoed it. And last week, I introduced the uh protecting prudent investment of retirement savings act, which seeks to codify that those who manage other people's retirement savings under Orisa must prioritize maximing maximizing returns for a secure retirement rather than political or social impact using risky ESG factors.
▶ 0:13:07Americans hard-earned retirement savings should never be jeopardized by politically motivated mismanagement. Unfortunately, the Biden Harris administration made this possible with an overreaching rule that allows fidiciaries to aggressively invest retirees money and ESG funds which often chain charge steeper fees, carry higher risk and have lower returns.
▶ 0:13:30The Protecting Prudent Investment of Retirement Savings Act would codify that retirement plan sponsors must make investment decisions solely based on returns, ensuring Americans hard-earned savings are invested sensibly. I look forward to discussing this legislation and other efforts to protect Aristo plan participants saving for their retirement. With that, I yield to the ranking member for an opening statement. Thank you, Mr.
▶ 0:13:58chairman and I want to thank the witnesses before um the hearing or at the start of the hearing. Today's hearing is expected to focus on what's called environmental social governance or ESG factors when making investments and retirement plans covered by Orisa. Let's be clear about what ESG factors are.
▶ 0:14:17If a company is exposed to certain risks such as sea level rise because of climate change, child labor violations, a record of poor corporate governance, or mistreating workers, its stock could suffer over time. Retirement plan professionals must consider a long-term horizon when making investment decisions.
▶ 0:14:39As workers often contribute for decades before driving driving drawing down on what they save, it should be considered a best practice for retirement plan professionals to appropriately weigh ESG factors appropriately. And that premise should not be controversial, or at least committee Democrats don't think it should be. It's prudent. In the words of a former Republican president, prudence.
▶ 0:15:06There is no Biden era mandate for retirement plans to invest in ESG funds. Let me repeat that. There is no mandate for retirement plans to invest in ESG funds. In fact, the Biden era ESG ESG rule does not change the fiduciary standard to which professionals making investment decisions for retirement plans are bound. The rule has been upheld twice by federal district court, most recently in February.
▶ 0:15:36In his opinion, the judge who was nominated by President Trump wrote that the Biden er era rule quote does not violate Orisa's text because it never permits fidiciaries to deviate from exclusively achieving financial benefits for the beneficiaries alone. Close quote. And to be clear, consideration of ESG factors is entirely consistent with making a profit.
▶ 0:16:03Black Rockck which is the world's largest asset manager has stated that its quote investment conviction is that incorporating sustainable related factors which are often characterized and grouped into ESG car categories into investment decisions can provide better risk adjusted returns to investors over the long term. Close quote from BlackRock.
▶ 0:16:30Last Congress, the committee considered two bills that would codify two rules from the first Trump administration that would establish needless barriers for the consideration of ESG related investments and proxy voting. These bills were premised on the Republicans mistaken view that they know best when it comes to ESG investing.
▶ 0:16:52Committee Democrats oppose these bills because we trust the professionals who are legally bound to make prudent decisions on behalf of retirement plan participants. Mr. Chairman, we just returned from a two-eek district work period and I held several town hall meetings in the district I represent, a district that is the fifth wealthiest by household income in the United States.
▶ 0:17:17And I held several when I held the several town halls with these constituents, people were are concerned with the harm that the Trump administration has been causing over the past 100 days, including there to their investment portfolio. President Trump's reckless tariffs have spurred chaos in the financial markets. The Wall Street Journal reported that the Dow Jones is headed for the for its worst April performance since 1932.
▶ 0:17:45We remember what happened in 1932, which obviously matters for workers participating in Orisa covered retirement plans. And JP Morgan's Chase's CEO Jaime Diamond warned in his annual shareholder letter that tariffs will likely increase inflation and cause many to consider a greater profitability of a recess probability of a recession.
▶ 0:18:09The Trump administration al is also cutting thousands of jobs at the social administration and reducing access to phone service. This anticip this this is anticipated to hurt the agency's ability to serve the public and recipients of social security that they pay into and could amount to a backdoor cut as benefits delayed are often ben benefits denied.
▶ 0:18:34Meanwhile, Republicans in Congress still appear intent on cutting Medicaid to help pay for their massive tax cuts for the rich. According to the UC Berkeley Labor Center at Cal at UC Berkeley, California could expect to see 10 to 20 billion fewer federal dollars per year to medical, our state's Medicaid program.
▶ 0:18:56The labor center estimates that a loss of this magnitude could threaten health care for many of the nearly 15 million Californians currently enrolled in medical and and it could lead to as many as 217,000 job losses in the health care sector amongst other industries. The combined efforts of these policies will be devastating for retirees and lowincome Americans. We can do better.
▶ 0:19:24I believe retirement security is fundamentally aligned with workers wages. The more people earn, the easier it is for them to plan and save for retirement. It is incredibly hard for workers to do much on their own for retirement. When according to the Federal Reserve, many would struggle to come up with the with the money to finance an unexpected $400 expense, such as a car repair or a medical bill.
▶ 0:19:49At a minimum, we must support policies that increased workers wages and strengthen their ability to organize and collectively bargain. The data is clear that unionized workers have greater excess access to retirement plans and higher participation rates than their non unionized counterparts. But we shouldn't stop there. We must strengthen and protect social security. We also must address ine inequities and discriminatory barriers in the labor market.
▶ 0:20:18I hope we have a productive conversation this morning and focus on meaningful solutions for workers and retirement plan participants. I yield back. Thank the gentleman's for yielding. Uh pursuant to committee rule 8C, all members who wish to insert written statements into the record may do so by submitting them to the committee clerk electronically in Microsoft Word format by 5:00 p. p.m. 14 days after this hearing.
▶ 0:20:46And without objection, the hearing record will remain open for 14 days to allow such statements and other extraneous material noted during the hearing to be submitted for the official hearing record. I'll now turn to the introduction of our four distinguished witnesses. Our first witness is Professor Ma Max M. Shazenbach, the Seagull family professor of law uh at the Northwestern University Pricksker School of Law in Chicago, Illinois.
▶ 0:21:16Our second witness is Mr. Charles Crane, the managing vice president for policy for the National Association of Manufacturers in Washington DC. Our third witness is Mr. Brandon Ree, the deputy director uh corporations and capital markets for the American Federation of Labor and Congress of Industrial Industrial Organizations, AFL CIO. Our last witness is Mr.
▶ 0:21:41Ike Brandon, the president for Capital Policy Analytics based here in Washington DC. We thank the witnesses for being here today and we look forward to your testimony. Pursuant to committee rules, I would ask that you each limit your oral presentation to a threeminut summary of your written statement. The clock will count down for uh from three minutes as committee members have many questions for you and we would like to spend as much time as possible on those questions.
▶ 0:22:10Pursuant to committee rule 8D and committee practice, however, we will not cut off your testimony until you reach the five minute mark. I would also like to remind the witnesses to be be aware of their responsibility to provide accurate information to the subcommittee. I will first recognize Professor Sha Shawenbach for your testimony. Good morning. Thank you for the opportunity to appear before you today.
▶ 0:22:38I'm Max Shenbach, single family professor of law at Northwestern University. ESG investing under ORISA and trust law has been a focus of my research for several years. I have developed a healthy and informed respect for the regulatory framework of Orisa, which provides working Americans access to our deep and efficient capital markets while protecting retirement savings through the imposition of fiduciary obligations.
▶ 0:23:04In my opinion, the Protecting Prudent Investment of Retirement Savings Acts makes three important contributions to existing law and I will spend a minute on each one. First, this legislation rightly clarifies that all investing strategies must be justified only based on financial or pecuniary benefit which which puts ESG investing on an equal footing with any other active investing strategy.
▶ 0:23:30There is a strange belief out there that ESG is magic, that somehow so-called ESG factors can be used to do good and improve risk and return without tradeoff, and that this will continue forever. That idea is contrary to long-standing financial theory and experience in capital markets. Yet, this belief has misled many people, even some sophisticated actors, into believing that somehow fiduciary obligations are different under ESG investing. They are not.
▶ 0:24:00At the same time, nothing in the legislation discourages risk and return ESG investing. Investing for financial return based on ESG factors. Few would argue that mass toxic environmental tors and other legal and regulatory risks are unimportant. Secondly, the bill continues to allow for the so-called tiebreaker, a rare case in which non-puniary factors may be considered when two investments are otherwise financially equal.
▶ 0:24:29But the bill requires enhanced documentation and provides greater clarity of language than present regulations. Enhanced documentation ensures that an Orisa fiduciary is loyal, always acting for the exclusive purpose of providing pecuniary benefits under the plan, a cornerstone of Orisa. Enhanced documentation also ensures that the tribreaker is credibly established and regularly assessed. This is a standard of care or prudence.
▶ 0:24:58another cornerstone fiduciary obligation Orisa. The event of a tie between investment alternatives is unlikely and it is even less likely that such a tie will continue to persist as economic conditions change given the rarity of tiebreakers placing the burden of proof on the fiduciary to establish one makes complete sense and is a standard approach in fiduciary law.
▶ 0:25:22In addition, the bill clarifies essential language regarding a tiebreaker, defining a tie between investment alternatives to be when pecuniary factors were not sufficient to choose between them and requiring the choice to be consistent with the interests of the beneficiaries. The current regulation states that the two investments, by contrast, must equally serve quote the financial interests of the plan. The problem with this language is that the plan does not have financial interests. Its beneficiaries do.
▶ 0:25:50they must be benefited by the investment choice. While I believe that a court should read quote financial interests of the plan to mean its beneficiaries, I am unsure of whether a court will. Third, the legislation protects workers in qualified default investment alternatives or QDAS by a simple prohibition against including any fund as a QDIA that considers non-puniary factors.
▶ 0:26:15The QDIA is where workers retirement funds are placed when the worker does not specify an investment in def in in when investing in defined contribution plans. In many if not most plans, this is a majority of defined contribution savers. This protective rule is justified for two reasons. First, workers who default into a plan may be there because they have not put thought into their investment choices.
▶ 0:26:41As such, they are more likely than not unaware of the social factors being used in a fund and they may well disagree with them. Second, some investors may rely on the default option on the belief that the defaults are wisely chosen to provide diversification and appropriate risk and return. I thank the subcommittee for the opportunity to testify and I look forward to your Thank you. I now recognize Mr. Crane for your testimony. Thank you, Mr.
▶ 0:27:10Chairman, Ranking Member Dier, and members of the subcommittee. My name is Charles Crane, and I'm the managing vice president of policy at the National Association of Manufacturers. More than 85% of manufacturing workers are eligible to participate in a workplace retirement plan. These Americans have probably never heard of a proxy advisory firm, and they likely would be shocked to hear that their pension or 401k plan assets could be used in a way that could undermine their own retirement security.
▶ 0:27:40Publicly traded manufacturers, though have long understood the risk that proxy advisory firms pose to everyday Americans retirement security. Public companies, after all, are the targets of proxy firms one-sizefits-all governance standards. Manufacturers have to counter proxy firms errors, their outsiz influence, their political agendas.
▶ 0:28:00and manufacturers are intimately familiar with proxy firms conflicts of interest such as when companies have to pay ISS for consulting services in order to avoid a negative ISS recommendation. Manufacturers of course also face pressure from ESG activists who pursue political and social agendas at the expense of the business and its Whether companies push back or fall in line, these market actors outsized influence is at best a distraction from more productive uses of
▶ 0:28:30time and capital. At worst, it's a real threat to business growth and shareholder returns, which ultimately undermines ORISA beneficiaries retirement security. See, in the Orisa context, the institutions that are hiring proxy firms are in many cases doing so to help them vote the shares held by the Orisa plan. Similarly, institutions that are voting in favor of ESG shareholder proposals or pursuing ESG investments may be managing Orisa plan assets.
▶ 0:28:57To put it simply, using plan assets to pursue non-financial ESG goals or blindly outsourcing the voting power that comes with those plan assets to unregulated and conflicted proxy firms represents a significant threat to a fiduciary's obligations under ORISA. That's why manufacturers support appropriate guard rails to ensure that ARISA fiduciaries are acting in planned participants best interests when making investment and voting decisions.
▶ 0:29:26The DO during the first Trump administration finalized rules to do just that. One rule required fiduciaries to make investing decisions based solely on pecuniary factors. Another required appropriate due diligence when it comes to Orisa Plan's proxy voting and use of proxy advisory firms. Unfortunately, as has been discussed, the Biden administration largely rescended both of those rules. But just last week, Chairman Allen introduced legislation to codify the reforms from the first Trump administration.
▶ 0:29:57This bill is crucial because the sole duty of Orisa fiduciaries is to provide long-term returns that support manufacturing workers and their families in their retirement years. Now was the time for Congress and the DO to stand up for these workers and ensure that ORISA plans are operating in their participants best interest. Thank you uh Mr. Crane. Next I recognize Mr. Ree for your testimony.
▶ 0:30:26Chair Allen, Ranking Member Donier, thank you for the opportunity opportunity today to testify on behalf of the AFL CIO and our 15 million uh union members. In recent years, we've seen a politicization of retirement plan investment decisions. But this is not coming from fiduciaries. Rather, certain politicians have sought to turn the investment decisions of retirement plan fiduciaries into a culture war issue.
▶ 0:30:57Specifically, these political attacks seek to limit the freedom of retirement plan fiduciaries to make investments and devote proxies by considering environmental, social, and governance or ESG risks.
▶ 0:31:11While prudent experts may reasonably disagree over the importance of ESG risks to investment returns, these differing views are an inherent part of our capital markets where investors trade securities based on their differing investment views, time horizons, and risk tolerances. The Protecting Prudent Investment of Retirement Savings Act is the latest example of this misguided effort to prohibit ESG investing.
▶ 0:31:40If enacted, this bill will restore the first Trump administration's flawed attempt by the Department of Labor to distinguish between so-called pecuniary and non-punary factors when making investments. These previous rules were impermissibly vague because there's no universally accepted definition of what is a pecunary versus a non-punary consideration.
▶ 0:32:05This distinction is the financial equivalent of debating how many angels can dance on the head of a pin. This misguided bill also effectively disenfranchises retirement plans from voting proxies. Since the administration, retirement plan fiduciaries have been encouraged by the Department of Labor to manage proxy votes as a plan asset subject to Orisa's fiduciary duties.
▶ 0:32:33The chairman's bill reverses this Reagan era ORISA interpretation by imposing an unworkable prohibition on casting proxy votes that promote so-called non-punary benefits and requiring a burdensome economic costbenefit analysis before voting.
▶ 0:32:51As a result, Orisa fiduciaries will be coerced into abstaining from voting, thereby silencing the ownership voice of retirement plan participants and beneficiaries in our capital markets. We also note that the bill's proposed restrictions on proxy voting by private sector retirement plans is patently unconstitutional.
▶ 0:33:15Proxy voting is a form of free speech and imposing a burdensome requirement on proxy voting regarding ESG issues is a clear first amendment violation. And given that proxy votes are valuable assets, compelling retirement plans to give them up is a taking without just compensation under the fifth amendment. Congress should not be playing politics with workers retirement savings.
▶ 0:33:42Legislative proposals to restrict the freedom of private sector retirement plans to invest in vote proxies have more in common with a totalitarian command economy than a free market system. We urge Congress to address the genuine retirement security issues that we face in our nation rather than paranoid delusions about so-called woke ESG investing by retirement plan fiduciaries. Thank you.
▶ 0:34:12Lastly, I recognize Mr. Brandon for your testimony. Great, Mr. Chairman, ranking member. Thank you very much for the invitation to uh be here. Uh the last time I testified in this room, my uh daughter threw up on my tie right before I came here and I had to borrow a uh the tie of uh one of the staffers here. So, uh R.J., if you're watching, I'll bring your tie back.
▶ 0:34:34Um, I just want to besides the records that will be submitted for the records, I just wanted to say two things about um, ESG investing in general uh, based on some research I did with uh, Robert Jennings, a former uh, colleague of mine when I was a professor at Indiana University. And and um, you know, the the first point is uh, look, everybody uh, who is making their own investment decisions has every right to uh, consider u whatever factors they want in making their decision.
▶ 0:34:59But I do think it's problematic when uh fiduciaries start taking into account things that might not be uh pertinent to um uh long-term economic uh growth. And uh and I think that's what's been going on with ESG. Um and so the first point I'd like to make is is that the research suggests that um uh the idea that there's no uh loss from ESG investing is uh I believe mistaken.
▶ 0:35:27And you know the first point is that if you look at um the typical ESG fund the management fee is uh significantly higher than it is for uh the typical index fund. Um you know the beauty as as all of us in this room probably have uh money in TSP the beauty of TSP is that its management fees are close to zero. uh the typical ESG fund has a uh according to Morning Star has a management fee about 0.1% uh higher than uh other funds.
▶ 0:35:57Uh the analysis I did with uh professor Jennings suggests that that's probably closer to uh one quarter percentage point. Um uh the second thing to think about in terms of uh uh the problem with ESG investing is that um not only does it have a higher management fee because decisions have to be made about what stocks are and are not included into a fund and instead of uh an index fund where you automatically go with uh the market index and you have to regularly make decisions
▶ 0:36:27about what does and does not belong based on uh long-term decisions of these companies. Um but the other problem is that as you uh and this is almost a uh a physics rule, the more you narrow a portfolio necessarily, the higher the risk and the lower return you're going to get. Right? So this is a a point that Matt Lavine uh has made all the time in uh a former column a current columnist for a Bloomberg News.
▶ 0:36:52If you're if you're leaving out entire sectors of the economy, you're going to be missing something of what's going on. So, um, and then the last point I'd like to make is, you know, people think, well, point one/tenth of a percentage point or one quarter percentage point doesn't seem like, uh a very big deal, but, um, you know, thanks to the miracle of compound interest over, uh, the 30 or 40year career of a worker, uh, that's actually quite big.
▶ 0:37:18Uh so a friend of mine Jason Ferman who was uh head of the council of economic adviserss uh for the Obama administration uh put out a study in uh 2016 looking at the fiduciary rule where he observed that if you talk about a quarter point reduction in the rate of return uh you're talking about a reduction in total uh uh retirement uh wealth upon retirement of about uh 10 to 12%.
▶ 0:37:44So, um I think the excuse that these things might be uh quite small is uh is is no excuse to pursue this. Thank Thank you. Thank you, Mr. Brandon. Under committee rule nine, we will now question witnesses under the fiveminute rule. I will recognize myself for five minutes. Mr. Ukraine.
▶ 0:38:09In July of 2020, let uh uh in a July 2020 letter to the Department of Labor, the National Association of Manufacturers wrote that many ESG focused funds have a stated goal of subordinating investor return or increasing investor risk for the purpose of achieving political and social objectives.
▶ 0:38:30Why is the only appropriate objective for an ORISA retirement plan ensuring that the participants have a sound and secure retirement? For manufacturing workers who are depending on an ORISA plan, whether it's a defined benefit or defined contribution plan, they need that plan and their families need that plan to be there for them when they retire.
▶ 0:38:51So if you're an ORISA fiduciary and you're making decisions on behalf of that plan, whether it's what investments to choose how to vote the proxies or whether to rely on a proxy firm, you need to be making those decisions in the best interest of those plan participants so that the plan savings, the plan's assets are there for them when they retire. And that's absolutely the bedrock of Orisa. Uh you mentioned uh my bill, the protecting prudent investment uh of retirement savings act. Uh what pro protection does that bill provide?
▶ 0:39:21So your bill would require that Orisa plan managers make decisions based in plan participants best interests both by investing based only on pecuniary factors which are those that are relevant to the long-term performance of those assets and ensuring that those fiduciaries are undertaking appropriate due diligence when it comes to both proxy voting and potential use of service providers like proxy firms. Both of those steps would be critically important to protecting ORISA beneficiaries retirement security.
▶ 0:39:50Professor Shassenbach. Uh the term pecuni pecuniary comes from a unanimous Supreme Court decision that outlines the duty of loyalty. That decision states that Orisa's requirement to act for the exclusive purpose of providing benefits means financial benefits such as retirement income. Can you explain why pecuniary is the right term to govern a fidiciary's investment decision? Uh yes.
▶ 0:40:19So I think an important part of the statute of the proposed bill is uh provides a definition of what a pecuniary factor is and it ties it back to risk and return right so it focuses the fiduciary's attention uh which should be laser focused on risk and return and it cabins off these uh anything that isn't affecting risk and return.
▶ 0:40:46So, it's hard enough to make investment decisions and build a plan menu and monitor the plan menu. Uh, and p pushing the fiduciary to say we're only going to focus on financial factors is I think sound policy. It is also most consistent with prevailing understandings of Orisa in the law right now. Yeah. And it's common sense as well. I don't disagree.
▶ 0:41:12Uh, professor, some ORISA defined contribution plans allow participants to recre their invest investments from a menu of investment options. This menu constructed and maintained by Orisa plan fidiciaries and if so, how is it constructed and Um, so the I don't think Orisa specifies an exact process, but I can probably give you an answer from sort of what best practices are at the moment.
▶ 0:41:39So when you're creating a defined uh contribution plan, uh typically the employer appoints an investment committee who are ORISA fiduciaries. Um they may be employees uh of the firm. Um and then they often retain uh an investment advisor to advise them on the construction of the plan. But it's not just constructing the plan that's important. It's the ongoing monitoring too. So if you're offering a mutual fund that has been offering subpar returns, you have a fiduciary obligation to remove it.
▶ 0:42:09If you find a product that is similar or equal but has a lower fee structure, uh you may have an obligation to put that into the plan. And so creating um uh a structure where there's typically quarterly meetings uh and a professional investment advisor is how that's executed.
▶ 0:42:28So if a participant instead chooses to make his investment selections through a brokerage window, why should that participant be informed that the plan's investment experts have not selected the investments in the brokerage window as being appropriate for a retirement savings portfolio? Right? So I think um that's an important part of this legislation that I don't think has been spoken to yet. So there's a something called a brokerage window which allows plan participants to uh and it depends on the scope of the window.
▶ 0:42:58You can broaden it to individual stocks or you can keep it limited to class of mutual funds. But it allows a participant to go outside the plan menu that's been constructed uh by this investment committee with the advice of the investment adviser and then they're sort of on their own. It's no longer a curated plan. And so the bill, as I understand it, continues to allow people to do that, but it puts what I would call like a consumer warning label on their decision to do so.
▶ 0:43:25And I think one important part of that label is that it warns them that they may pay higher fees. I mean, one advantage of these plans is that, you know, you may have a lot of money in an individual mutual fund because of all the participants choosing it, and you get a lower fee as a result. You get a volume discount essentially. when you go outside, you're probably paying essentially a retail uh fee. And one of the, and I can say this anecdotally, there's evidence that people sometimes use this window and they kind of pick something very similar or maybe even identical to what's in the plan.
▶ 0:43:55They just pay a higher fee. So, at least giving them that warning that they're leaving something that's been curated under fiduciary obligations and that has a probably a lower fee structure is um is I think helpful. great. Well, I yield back. I'm out of and ready. Uh, thank you, Mr. Chairman. Thank you um to the witnesses for being here today. I must say um there's something kind of surreal about this hearing today.
▶ 0:44:25Um there definitely is a lot of concern out there by u our constituents in terms of their retirement security. Uh but what they're concerned about is watching this economy get lit on fire by the reckless policies of this administration. and we're seeing it unfold in real time as we're sitting here right now. Uh this morning's GDP numbers came out for the first quarter for the first time in three years. Uh our economy contracted.
▶ 0:44:50Uh if you look again at the stock market and you can looking at your phone right now, I mean every indicator S&P, NASDAQ, S&P, uh Dow are all down. Uh but what's really disturbing is that the yield on bonds is going up. I mean which is not normal in terms of what happens when equities go down. uh investors usually shift to to uh US paper to US bonds.
▶ 0:45:14Uh but unfortunately we're seeing a really disturbing trend of where investors are actually moving away from US paper, US bonds. Um and um uh the the job numbers that came out this morning from ADP, the the private um labor market uh trackers shows that uh in the month of April, 62,000 uh job increase. really one of the lowest numbers since the end of the pandemic. So, this is all sort of happening right now. We all know why.
▶ 0:45:44It's because of the reckless tariff policies uh that have been put into place. One of Mr. Ukraine's uh members uh from Connecticut, Stanley Black & Decker, the this morning announced that they're raising the the price of um this iconic Made in America tools uh headquarters is in my colleagues uh district in New Britain, Connecticut by high single digits because of tariffs. Okay, so this this this problem is not slowing down. It's not just a passing phase.
▶ 0:46:14It's actually gaining momentum. And to quote Mr. Ukraine, Congress should stand up for workers. What we should do is claim our article one powers to to basically control tariff policy uh and grab the steering wheel away from the the executive branch. This is happening today in the Senate. They're taking up a measure to to use under the emergency powers law that the president cited to take back Congress's authority under tariffs.
▶ 0:46:43and Speaker Johnson and the and the Republican majority in the House should join that effort in terms of again protecting the retirement savings of our constituents like Mr. um Danier when when I was home and I I'm sure uh the rest of my colleagues, they heard a lot about what's happening to people's 401k plans, you know, burning up uh because of policy, not because of external factors, not because of economic, you know, catastrophes, but because of policy
▶ 0:47:13decisions that are being made um in Washington. and um the the attack on social security is just another layer of uh insecurity that's being added here. So Mr. Reese on that point I mean through you know world wars through uh recessions through uh the crash in 2009 through the pandemic the one pillar for retirement security in this country um has actually been the social security system.
▶ 0:47:44So when we talk about again your constituents, your uh and working families in general, I mean this this attack in terms of hollowing out the infrastructure of the social security which Doge uh has been conducting uh and having uh Elon Musk calling it a Ponzi scheme and something that he wants to quote unquote eliminate which he said on Fox News. Can you talk about what that means um to working families in this country in terms of retirement security?
▶ 0:48:14Thank you for the question, Congressman. You're absolutely right that this is uh going to be devastating for the retirement security of working people. The Social Security Administration staffing levels are the lowest level currently prior to these cuts that we've seen in 50 years.
▶ 0:48:28You've got we've got working people who who are applying for social security benefits across this country queuing up in line trying to get their hard-earned benefits because of these reckless cuts that Elon Musk and Doge have been making all for the purpose of saving money to fund President Trump's tax cuts for rich billionaires like Elon Musk. That is unacceptable and we need to stop it.
▶ 0:48:55And I thank you for calling for Congress to assert its article one powers to take back authority uh from President Trump to restore these jobs uh and and restore our public sector employees. Thank you. Again, I have a lot of respect for the chairman. This is a legitimate issue that we can debate, but honestly, it's like fiddling while Rome burns in terms of what the real threat to retirement security is. I yield back. I thank the gentleman. And I recognize the gentleman from Florida, Mr. Fine.
▶ 0:49:27Well, thank you and thanks for putting me at the front of the line. Not sure what I did to deserve that. It's my first opportunity to ask questions. And thank you all for being here. Um, my perspective on on this notion is that, you know, stock markets, you invest for the long haul. Um, before I was a politician, that's sort of what I did. It's reasonably good at making money, not so good at politics. And and so while I understand the concerns about tariffs, I think the president's trying to fundamentally reorder how economics work. Apparently tariffs are a great idea when other countries do them.
▶ 0:49:56They're just a terrible idea when we choose to respond. I'm still trying to figure that one out. But I want to focus on the subject matter here of ESG and and Mr. Ree, you talked a lot about politization and and and paranoid delusions. I I want to make sure that I don't have any of those. So my father is someone who was a public employee. He was a professor for for many years. He benefited from one of these funds. It's what it's what drives it's what drives his retirement and fortunately he benefits now he's 76 years old but but as he went through his career and those funds were invested on his behalf.
▶ 0:50:26Um do you think there are any times when an investment manager should make a decision on how to invest those funds that's driven by anything other than what would maximize the returns that he would get when he needs those funds? or should or should financial returns be the sole criteria that a financial manager should use to be making those financial decisions?
▶ 0:50:47Congressman, it's been clear under since Orisa was passed in 1974 that the primary duty of fiduciaries is to maximize riskadjusted investment returns in order to protect the retirement security of plan participants and beneficiaries. They may also consider collateral benefits under the all things being equal test that was previously referenced in the professor's testimony. So you said primary duty. Um what would their secondary duties be?
▶ 0:51:17So that implies if there's a primary duty, there are other duties that they have other than making sure that my father gets the maximum return when he when it's time when it was time for him to retire. What are those secondary duties that they have that they should be spending their time on other than making sure that my father and other public employees like him get as much money as they can? What are those secondary duties that they should have?
▶ 0:51:37Well, Orisa establishes fiduciary duties for uh retirement plan uh fiduciaries, which is the duty of loyalty, the duty of prudence, the duty to diversify uh uh portfolio assets and the duty to to follow plan documents. Well, diversity of of investments would be part of maximizing return. If you put all your eggs in one basket, I think you're taking a a pretty big risk. Can you think of any examples ever? So, if I'm an investment manager, I just want to make sure I understand.
▶ 0:52:07I don't want paranoid delusions. So, I um can you think of any example ever? So, an investment manager sits down and he's got those funds and his job is to maximize out for the benefit of those workers who are doing their jobs and hoping that when they get to 65 or whenever it is, they have those funds. Should they ever think about anything other than maximizing the return that they're making? You know, some feel-good social environmental benefits that may or may not be good things or not.
▶ 0:52:34Should they ever say, you know what, I could maximize I could make a little bit more money for the for the people who are depending on this. I'm not going to do that because of these environmental or social or you'd agree they should never think about environmental or social issues if that would take away from the maximization of the return that they would get on that investment. Well, ESG issues are often relevant to financial considerations, and I'll give you a real life example. Uh Tesla's stock price peaked after President Trump's election last November.
▶ 0:53:04However, since uh Elon Musk has gotten involved in politics, uh Tesla's customers have been appalled. They've been appalled by his alleged Nazi salute at inauguration day. They've been appalled by his involvement in the Department of Government Efficiency. As a result, Tesla's earnings fell by 71% in the first quarter of this year. Its stock price fell by 36% in the first quarter. So, I ask you, Congressman, how should a retirement plan fiduciary weigh the controversial political activities of Elon Musk?
▶ 0:53:34Great question. Um, I actually am a three-time owner of a Tesla. It's the car that I I drive. I bought them when apparently it wasn't cool for conservatives to own Teslas. Apparently, now it is. my my colleagues in the Florida legislature gave me a a hard time back then um about doing it. I actually was there uh in the arena when when Elon Musk uh made the the arm movement that so many Democrat politicians seem to make all the time and no one no one seems to be bothered by that. I would note that as a as a Jewish member of the legislature, I find the the notion that it was a Nazi salute to be quite offensive.
▶ 0:54:05But that that aside, um if if if if a investment manager believes that Elon Musk's activities are going to have a dilitterious effect on the stock performance, then that would be a reason for them for them not to invest. But it wouldn't be because of economic it wouldn't be because of environmental or social reasons. It would be of those things. So I'll wrap up with this. I see my time wrapping out. It's your position that investment managers should always be investing always in order to maximize performance. There's never a reason when they shouldn't. Absolutely. Thank you.
▶ 0:54:37Gentleman's time has expired. I recognize now the gentleman from California, Mr. Tano. Thank you, Mr. Chairman. Thank you to witnesses for being here. Mr. Ree, uh why is considering uh environmental, social, and governmental factors or otherwise ESG uh important when making long-term investment decisions?
▶ 0:54:59financially relative to three Mike you thank you because ESG factors are financially relevant uh to financial performance and it would be the equivalent of sticking your head in the sand to ignore environmental social and governance risks when making investment decisions. So a majority of fiduciaries agree with you.
▶ 0:55:19Recent surveys found that 90% of institutional investors, 85% of chartered financial analysts take environmental, social, and governmental or ESG factors into account when making investment decisions. Mr. Ree, what are the risks of ignoring ESG factors when making long-term investment decisions?
▶ 0:55:39Well, Orisa requires that fiduciaries act as prudent as an a prudent expert would act under similar circumstances and as you you've noted, prudent experts in our capital markets consider ESG risks all the time because they are financially material to investment returns. Thank you. In recent years, there's been a heightened politization of retirement plan investment decisions. It has been the subject of several committee hearings and markups and multiple court cases.
▶ 0:56:09And let me reiterate, the current Biden rule, which has stood up to multiple court challenges, merely permits ESG factors to be considered when making investment decisions. Nothing in the current rule obligates ESG investing. Mr. Ree, is this politicization of ESG factors coming from fiduciaries? of fiduciaries.
▶ 0:56:32It's not um attacks on quote unquote woke uh have gone beyond merely banning books or asserting curriculum control. Now, it seems to me that politicians are reaching into Americans retirement accounts and investment portfolios to make sure that no one is investing their money in a manner which does not align with a certain ideology.
▶ 0:56:55I'd like to use my remaining time to talk about some factors that are having real time impacts on retirees investments. President Trump's policies have resulted in the highest market volatility since the COVID pandemic. A week and a half ago, the Wall Street Journal suggested that the Dow Jones Industrial Average was headed for its worst April performance since 1932. Mr.
▶ 0:57:20What impact has the stock market volatility had on the retirement investments and pension plans of your constituency? Well, it's been devastating. Uh President Trump's Liberation Day announcement of reciprocal tariffs erased $6 trillion in market capitalization from the stock market. It threw the bond market into a tail spin. Let's be clear. Who is your constituency? I represent the AFL CIO.
▶ 0:57:48support tariffs, but not how President Trump is implementing them on an ad hoc and arbitrary basis that's undermining investor competence in the United States. So, they're members of labor unions. They're working working men and women. Thank you. Yesterday, Republicans on this committee advanced their budget reconciliation proposal that makes avenue makes that makes pathways out of student debt far less accessible. Last week, the Republicans on the Energy and Commerce Committee are expected to gut Medicaid.
▶ 0:58:17Will these Republican budget reconciliations measures improve outcomes for retirees? No, it'll be devastating. Uh, let me close by underscoring this. Retirees are facing immediate dire consequences to their financial health because of the policies of this administration.
▶ 0:58:35Yet, we're spending our committee time restricting fiduciaries from using the decision-making tools at their disposal simply because uh the majority here might not agree with them. I want to ask all Americans, would you like more politicians involved in your financial planning? Should the members of this committee be making the decisions for you, or would you prefer to trust the experts? I yield back, Mr. Chairman. I thank the gentleman.
▶ 0:59:06Now I recognize the gentle lady from Connecticut, Miss you. Everybody deserve to retire with dignity and we've had several hearings, so I welcome the opportunity to continue to do that. Individuals and their trusted advisors should be free to make investment decisions that best reflect their values and offer them the highest return on investment.
▶ 0:59:28Environmental, social, and governance factors or ESGs can encompass a wide range of risks and opportunities in an investment portfol portfolio. Workers may not want their savings to go toward a company that is polluting the environment, diverting resources from struggling neighborhoods, or violating labor laws. In 2020, the Trump administration issued a rule which limited the consideration of ESG factors in retirement plans governed by the Employee Retirement Income Security Act or Orisa.
▶ 0:59:57In 2022, the rule, in my opinion, was correctly reversed by the Biden administration, ensuring that fiduciaries can focus on all relevant factors when making investment decisions for their clients. Trump administration and Republicans on this committee are pursuing many culture wars that offer investors that don't offer investors real choices when deciding how their savings will be used for retirement. Mr.
▶ 1:00:26Ree, in your testimony, you said enforcement of the Trump rule would impose undue regulatory burdens on retirement plan fiduciaries. Can you discuss how ESG related factors are sometimes necessary considerations for retirement investors? And can you elaborate a little on how enforcement of the 2020 ESG rule would be costly for Thank you for the question, Congresswoman.
▶ 1:00:52Um, Orisa since it was enacted uh it um it has has regulated the investment process and uh for fiduciaries in making investment determinations. It has not um it has not dictated the investment decisions or prohibited or required specific types of investments. uh and that's uh been true in our capital markets uh for since the 1950s since uh modern portfolio theory was developed.
▶ 1:01:22Prior to modern portfolio theory uh investors uh fiduciaries were required to invest in a legal list uh which uh of permitted investments. Uh there was government control over fiduciary decision-making. uh now that was not in the best interest of uh plan participants and retirees because the prudence of a portfolio should be evaluated as a whole and not based on the individual investment securities.
▶ 1:01:49So ESG risks are real and they do have a material impact on investment returns be that climate change, respect for human rights or corporate governance issues like excessive executive compensation. Exactly. And I think that how investments are made matters. Uh Tesla is a perfect example. I heard my colleague say it's no longer cool to drive a Tesla.
▶ 1:02:12I think people still appreciate uh lower emissions or electric vehicles or being environmentally conscious, but it matters how we do that. It matters how companies operate and how they engage with communities. So the product is not what is at at at at that people are odd at odds with. It is the company that people are at odds with.
▶ 1:02:39In 2023, there were over 143,000 social security beneficiaries in my district, including more than 14,000 disabled workers and 7,000 children. The administration with many of the cuts led by Elon Musk and Doge has laid off 7,000 workers within the Social Security Administration and is closing field offices across the country.
▶ 1:03:02How have layoffs How have these cuts and layoffs under this administration impacted the millions who rely on programs administered by the Social Security Administration? And what can we do to increase retirement benefits um for American workers? So half of all working Americans in the United States do not have access to a uh retirement plan through their employer. Uh they don't have a individual retirement account.
▶ 1:03:28For these workers, they depend 100% on social security for their retirement security after a lifetime of hard work. Cutting the social security administration is effectively a benefit cut by frustrating the ability of working people to ear to receive their hard-earned social security benefits. And the fact that these cuts are being made for the sole purpose of tax cuts for rich billionaires like Elon Musk is simply unconscionable. Thank you.
▶ 1:03:56And again, how these things are being done matters because what I'm hearing at home is the unpredictability and the uncertainty. People are asking questions that are not being answered and that is quite frankly scaring the American people. With that, I yield back. I thank the gentle lady. I recognize myself for five minutes of questioning and thanks to the panel for being here.
▶ 1:04:19Uh, Professor Shaun Zenbach, um, Congress enacted Orisa uh to protect the benefits of American workers. Under Orisa, as you know, investment fiduciaries have a duty to invest exclusively for the purpose of providing benefits and deferring reasonable expenses under the plan. Why is this duty so important in protecting retirement benefits?
▶ 1:04:45Uh because the the fiduciary duties are pushing the investment committee, the people who have discretion to invest Orisa assets to focus laser-like on risk and return.
▶ 1:04:58Uh and so without that uh there's less guidance uh for these uh fiduciaries and they may choose to uh follow policy preferences of their own uh without consideration of the benefits uh for the workers.
▶ 1:05:18Could you discuss whether it would violate Orisa's cornerstone duty of loyalty for an investment uh professional to be vot motivated to produce a benefit or a third party or to be motivated by his or her own sense of ethics when investing someone else's um retirement benefits right so I I think I can answer this by a pretty simple example so we all understand the duty of loyalty means that a fiduciary can't reach into the retirement pot and take out
▶ 1:05:48$50 for himself. Uh nor can he reach in and take out $50 and give it to a favored charity. Okay, we understand that that's self-deing. That's a violation of fiduciary obligation. It is no different if the fiduciary impairs the investment returns so as to produce that same benefit for third parties.
▶ 1:06:08It's all a breach of the duty of loyalty and has been widely understood to be such in trust investment law uh for a point to to ponder and to remember. Yeah. Thank you, Mr. Crane. Um, the Protecting Prudent Investment of Retirement Savings Act would caution investment fiduciaries against considering so-called ESG factors unless these factors have a financial impact uh on plan performance.
▶ 1:06:38Please, if you would explain the importance of retirement plan participants uh being able to trust that their long-term savings will be protected over any other considerations so that they can enjoy stable uh sense of retirement. More than 85% of manufacturing workers are eligible to participate in a workplace retirement plan. These are um as the subcommittee knows defined benefit defined contribution plans governed by Orisa.
▶ 1:07:04Their sole goal in participating in those retirement plans is that those assets, those benefits will be there for them when they retire. So it's absolutely crucial that the folks who are managing those plans are doing so in a way to maximize the retirement savings, the retirement security of the participants. And so in this context, what that means is making investment decisions based solely on pecuniary factors that are designed to maximize that retirement security. Thank you, Mr. Brennan.
▶ 1:07:32uh you wrote in a comment letter that and I quote because of the miracle of compound interest. My dad talked about that even small gains in returns can over three or four decades that a person saves for retirement produce significant gains in wealth. End quote.
▶ 1:07:50What are your views on whether investment professionals managing retirement savings should be chosen based exclusively on their qualifications to manage these Uh let me talk about this in the context of the uh pension protection act which was passed in uh in 2006 and I was a staff economist on the Senate Finance Committee.
▶ 1:08:13One of the things we uh struggled with uh was what the default investment was uh was going to be at the time and and I'm not sure we we got it right, but uh one of the things that everybody uh on both sides uh clearly wanted is to make sure that those were passive investments because everyone understands that if you have an index fund or something that is not actively managed, that's when you get the lowest fees.
▶ 1:08:36And I think everybody understood at the time that uh allowing something to be actively managed and most ESG funds kind of fall into that uh category that's going to cost you something because you're going to have to pay a management fee. And you know it was a study I cited uh by Jason Ferman that even very uh very small even a a 0.25 25 percentage point difference in uh rates of return can over a lifetime uh diminish uh the amount of savings by uh final savings by as much as uh 10%.
▶ 1:09:07Significant impact. So yes. Yeah. Well, thank you. Uh I now recognize um I recognize the uh ranking member of the of the full committee, Mr. Scott from Virginia. Thank you. Thank you, Mr. Chairman. Um, Mr. Brandon, you've talked about the average fees and returns. Uh, do some ESG funds charge lower fees than some non ESG funds?
▶ 1:09:38Uh, yes. In in general, ESG fees charge more than the typical index fund. Well, on average, are there some ESG funds that charge less than some non ESG Um to my knowledge there are no so if you look at at TSP which probably most of us uh participate in uh if you have an index fund at uh at TSP it it charges almost nothing.
▶ 1:10:04In fact I think it is now we found one low fund but there are no non ESG funds that charge more than any ESG funds. Sure, there are pro there are some ESG funds that charge less than some actively managed funds. Okay. And do some ESG funds have higher historic returns than some non ESG funds?
▶ 1:10:34Um then why should the lower fee higher return ESG funds be excluded from plans where the higher fee lower returns be included? Uh so this gets back to the point I was talking about with uh chairman Wahberg is that um if people uh are not making active retirement decisions and probably the majority of people who enter into retirement fund are not making an active decision, right? You you're making some kind of default.
▶ 1:11:03You want that default to be in something that's safe and is going to get the highest long-term rate of return. And that's where passively managed funds enter. in general, but but you could have a higher fee actively managed noneg fund as the It's possible, but that's not what pension it'd be it'd be legal.
▶ 1:11:27Um, if you're if some don't want ESG factors to be considered at all, if you're investing in a real estate um, development, should it be illegal to consider environmental factors such as whether or not the development will be underwater in 20 years because of environmental factors? I think that can be done and is done without having to resort to the metrics in an ESG fund.
▶ 1:11:56Well, you have to consider environmental Um, Mr. Ree, are there studies about um and fees on ESG funds that you're aware of? Uh, yes, Congressman. Can you tell us the results of some of those studies? Yes.
▶ 1:12:16So, in my written testimony, I cite a study that reviewed over 2,000 academic papers uh and it found that only 10% found a negative relationship between ESG and corporate financial performance. A majority of those studies reviewed found positive findings. And if I may uh respond to Mr. Brandon's testimony, it's misleading to compare actively managed ESG funds to index funds.
▶ 1:12:43And I would point out that the selection of index funds is can also uh uh affect can also take into consideration ESG metrics. I would point you to uh President Trump's Secretary of Labor Eugene Scalia decision in 2020 when he ordered the Federal Retirement Thrift Savings Investment Board uh to reverse its decision to invest in in an international stock index that included Chinese equities.
▶ 1:13:11uh in taking this action presumably the secretary did not intend to subordinate the interests of of federal workers to the non-punary goal of national security but now does Congress want to prohibit private sector retirement plans from making a similar Um, can you u discuss some of the um um high fee private equity investments or cryptocurrency investments that have higher fees
▶ 1:13:41than ESG funds? Yeah, it's deeply ironic that Republicans uh would uh seek to prohibit actively managed ESG funds in retirement plans at and 401k plans at the exact same time that they're pushing for expensive, risky private equity investments to be permitted in 401k plans. It's hypocritical and it's not good retirement security policy. Thank you, Mr. Chairman.
▶ 1:14:11I thank the gentleman and I personally want to wish you a happy birthday and many more. Thank you, Mr. I now recognize the chairman of Marinmeritus of this committee as well as the chair of the rules committee, Miss Fox. Thank you, Mr. Chairman, and happy birthday, Bobby. Um, thank you. I want to thank our witnesses for being here today, too. Mr.
▶ 1:14:40Crane, why were ARISA fiduciaries allowed to delegate such critical decisions such as board selection and policy decisions to proxy advisory firms that are not bound by Orisa's duties of prudence and loyalty and may instead promote politically motivated ESG goals? Thank you for that question. And I think it goes straight to the heart of the first Trump administration's DO rule and chairman Allen's legislation.
▶ 1:15:08Proxy advisory firms are conflicted. They are underregulated. They have specific agendas that they utilize their voting power to achieve and it absolutely undermines the risk of fiduciaries obligations if they're blindly outsourcing their voting decisions to those proxy advisory firms. Thank you. What transparency exists around the criteria proxy advisory firms use to make voting recommendations?
▶ 1:15:34And how do we know these criteria prioritize fiduciary duty over ideological Frankly, there's very little, if any, at all, transparency around how proxy advisory firms determine their standards for public companies and then how they make their voting recommendations. Uh, in fact, the easiest way to find out is to pay them a consulting fee if you're a public company, which illustrates the clear conflicts of interest that they have. Thank you, Professor Shotsenbach.
▶ 1:16:04Given the potential for lower returns from ESG investments, should fiduciaries be required to explain to participants the long-term financial consequences of these choices on their retirement savings? Well, I think I'd have to distinguish between whether they're using ESG factors to improve risk and return. Um, in which case they just have to continue to monitor those chosen funds or that chosen investment to make sure it's fulfilling that promise.
▶ 1:16:34And if it stops, it needs to drop the investment. um if it's a uh uh a non-punciary factor uh that's being used um I I think it's just uh basically prohibited under the duty of loyalty uh and then the only knife edge point is a question of this tiebreaker uh which the bill still permits.
▶ 1:16:58So I I hope that's If participants in Orisa plans are unwilling to invest in ESG options, should they have the right to opt out of these investments entirely or are they effectively being forced into supporting politically driven agendas with their retirement savings? Uh well, I think that's one of the protective features of the d the duties of loyalty and care under Orisa.
▶ 1:17:24You can think of the duty of loyalty as a process or sorry as a motive test. uh the fiduciary has to be offering this option or making the investment because it thinks it's in the best financial non best pecuniary interests of the beneficiary and then the care issue arises as a process test. Did they follow a reasoned process and have a reasoned uh explanation for why they chose to offer that particular investment?
▶ 1:17:50And so even if they think for example initially that it's a tie and they can satisfy with the additional uh documentation that it was in fact a tie which is I I think something of a unicorn but assuming that they do that they have to continue to monitor that investment over time and given that financial factors you know the economy changes so rapidly uh it's unlikely to be a tie indefinitely and so then they'd have to follow a process to remove it from the uh investment options or divest from the investment uh when they make that conclusion.
▶ 1:18:21Thank you, Mr. Brandon. Is it not misleading for participants to be funneled into ESG investments through brokerage windows without clear warnings that these choices are not overseen by fiduciaries and may harm their retirement savings?
▶ 1:18:38Um, so I would I would say that uh anytime people aren't making a uh an active decision and the money's just being put into some kind of default, they should be made aware of what uh what's their investments are going into and the risks entailed and whether or not they're going into funds that might have a lower rate of return. Thank you. Thank you, Mr. Chairman. I yield back. I thank the gentle lady and I recognize the gentleman from New York, Mr. Manion.
▶ 1:19:10Thank you, Mr. Chairman. Uh, today's hearing is fundamentally about choice, about whether fiduciaries uh charged with maximizing retirement security under Orisa can consider all relevant information when making investment decisions. Environmental, social, and governance factors are not ideological preferences. They are additional data points that can impact a company's long-term performance. I want to make one thing clear.
▶ 1:19:37Nobody here is suggesting a mandate to prioritize ESG information over financial returns. Simply permitting ESG considerations under Orisa is by no means pushing an agenda, but arbitrarily restricting it is. When we're talking about long-term investments, of course, fiduciaries should be able to factor in things like climate risks and unfair labor practices.
▶ 1:20:04Frankly, the fact that we're having this hearing stems from misconceptions, if not outright misrepresentations. Meanwhile, the administration has spent the first 100 days actively weakening retirement security, undermining faith in Social Security and Medicare, sewing doubt in those very systems while imposing erratic tariff policies that have sent 401k balances tumbling.
▶ 1:20:30If we're serious about protecting America's retirement, we should start by holding the administration accountable. Mr. Ree, could you please elaborate on how that accountability can and should occur, including uh as it relates to congressional oversight? Uh yes.
▶ 1:20:49Uh Congressman, uh it's vitally important that Congress assert its article one powers over the federal budget to restore funding for the Social Security Administration and rehiring our dedicated public servants whose jobs are to ensure that working people receive the Social Security benefits that they've earned through a lifetime of hard work. Thank you.
▶ 1:21:15uh and what do you make of these continued discussions around ESG uh considering the much larger issues that we're currently facing as a country related to personal financial security, retirement planning, and our economy in general. It's a distraction uh meant to distract us from what's really happening, which is tax cuts for billionaires and cuts to the services that working people depend on in government. Thank you so much. I yield back.
▶ 1:21:44Chairman, I thank the gentleman. I recognize the gentle lady from Pennsylvania, Miss Lee. Thank you, Mr. Chairman. Um, proxy voting in shareholder meetings is an issue of economic freedom and workers access. And I don't usually often take that that stance, but in this particular instance, it it is uh undeniably true.
▶ 1:22:09Prohibiting proxy voting and ORISA plans is a way of shutting the boardroom doors to low and middle inome Americans and marginalized folks and locking these workers out of a fair opportunity for financial freedom. Shareholder meetings are of course where companies make the big decisions like whether to make a large acquisition or who should be on a company's board of directors, executive compensation schedules and other significant changes in corporate operations or policies. These decisions impact company's bottom line.
▶ 1:22:37And if you own a share or a portion of a share of a company's stock, that decision impacts your bottom line, too. That is also true if you are a stock shareholder through your work's retirement plan, whether that be a 401k, qualified union pension plan, or another Orisa covered plan. Most working-class Americans who invest in stocks do so through a retirement plan. And if you have an employer sponsored retirement plan, that plan is ma managed on your behalf.
▶ 1:23:02So historically, the person that manages your employer or union sponsored retirement plan has been able to attend these critical shareholder meetings on and vote on behalf of and in the best interest of the shareholders they represent. This gives workers, working folks a seat at the table to ensure that their retirement money is protected. Mr. Ree, could you please provide examples of instances when proxy voting benefits participants and Um, yeah. Thank you, Congresswoman.
▶ 1:23:33Uh you're absolutely right that proxy voting is vital to protecting the retirement security of working families and that's because CEOs don't always get it right. Uh my counterpart Mr. Crane represents the National Association of Manufacturers. As far as CEOs are concerned, every time shareholders vote against the management, the recommendations of corporate management, that is an error or a wrong vote or was advised by a conflicted proxy voting adviser.
▶ 1:24:01Uh and it's just unacceptable that uh the chairman's bill uh would silence those working people's voices in the capital markets through their retirement plan by imposing burdensome red tape prior to voting. This bill requires fiduciaries to do an economic costbenefit analysis prior to casting proxy votes. It's far cheaper and simpler to just decide how you're going to vote.
▶ 1:24:28I don't understand why the majority wants to disenfranchise private sector retirement plans. It's unconstitutional and it's going to hurt the retirement security of working people as you described. So proxy voting clearly benefits plan participants and beneficiaries and as some of my colleagues have shown today that considering ESG corporate environment social and governance practices does too.
▶ 1:24:51When we talk about whether a company should reinvest a $20 million profit into a business or the CEO's salary, that impacts workers retirement money. Mr. Ree, in your testimony, you discussed how proxy voting is really an issue of freedom. Congressional Republicans seemingly want to put their thumb on the scale and limit the freedom of retirement plan fiduciaries to consider ESG factors when making investment and proxy voting decisions. Would you please elaborate on that and tell us about the history of investment mandates? Yes.
▶ 1:25:18So um the freedom for retirement plans to vote proxies is inherent part of our free market system in which private actors decide how corporations are run. Investors including workers retirement plans make those decisions not the government and not politicians. And our uh state corporate laws assume that shareholders will be voting proxies.
▶ 1:25:45If you don't vote proxies, if shareholders didn't vote proxies, directors wouldn't be elected, executive compensation plans wouldn't be approved, mergers and corporate transactions couldn't be approved, and shareholders would be deprived from voting on environmental, social, and corporate governance shareholder proposals. That would hurt the retirement security of working people.
▶ 1:26:07And it has more in common with a totalitarian command economy where the government controls how investors make investments and cast proxy votes than it does with a free market system. this rule that fiduciaries uh need to be voting proxies consistent with the interests of retirement plan participants and beneficiaries not in the interest of corporate CEOs as represented by the National Association of Manufacturers was adopted by Ronald Reagan's Department of Labor.
▶ 1:26:37Ronald Reagan, who defended the free market system. And yet today, the majority in this Congress seeks to silence those private sector retirement plan votes and their freedom to invest. Well, we'll end I'll I'll let us end on that note because time does fly, but I I thank you so much for your testimony today and I yel back. I thank the gentle lady and I recognize the ranking member of this subcommittee, Mr. D. Sha from California. Thank you, Mr. Chairman.
▶ 1:27:08Um, Mr. Reese, I mentioned in my opening comments about the analysis that you see that the cuts to Medicaid based on what CBO and I will add in a previous hearing of this subcommittee, uh, the chairman and I got into a little disagreement about what the budget and what will actually happen and it's happening in energy and commerce right now. the cuts to Medicaid.
▶ 1:27:30Uh the I quoted also from the Kaiser Family Foundation analysis of the effect on workers benefits and specifically healthcare. 80 65% of people who receive Medicaid of working age um are working full-time. Another 20% work part-time of the remaining 15% almost 10% are are caregivers for family members.
▶ 1:27:53So what is that kind of cut in addition as we're talking about be protecting benefits and real information? How does that have downstream effects? We lose 220,000 jobs in California according to the analysis by the University of California. What's the downstream effect on the cuts to Medicaid if ENC does not identify how they will protect that uh as some of my colleagues have promised that they will? Uh, thank you for the question, Congressman.
▶ 1:28:23And as a Berkeley alumni, uh, let me first say, go Bears. Um, over 70 million working people in the United States are enrolled in Medicaid. Uh, and cutting this vital program will leave millions uninsured. Being uninsured means forgoing preventative health and increasing medical debts, which is the leading cause of personal bankruptcy in the United States.
▶ 1:28:46Moreover, these cuts will push health care costs from the uninsured onto health and welfare plans in the form of increased hospital cost from uncompensated care. Nearly 1if of all hospital revenue comes from Medicaid and the loss of this revenue will be passed on to insured patients. It's simply unconscionable in my view that these cuts will be made just to pay for tax cuts for billionaires. and follow up on that. These people are working.
▶ 1:29:16So if we're adding required paperwork and bureaucracy for them to prove that they're working uh to get Medicaid, I remember in California when I was chair of the labor committee, we got in a disagreement with the Schwarzenegger administration where they were saying there's so much fraud in support system basic needs. The LAO came back and said you're spending more money on preventing fraud than we've identified in fraud.
▶ 1:29:40This seems like a similar situation where the majority suggesting all this paperwork and bureaucracy to prove that you're working when we already know they're working in order for them to continue to get Medicaid. That's right, Congressman. Uh it's uh uh essentially an effort to deprive working people of access to health insurance.
▶ 1:30:00Uh and that's going to hurt not just working people, it's going to hurt our economy as a whole as our working age population is less healthy, being deprived from uh from preventative care uh and also creating tremendous economic uncertainty for working families who are faced by crushing medical debt.
▶ 1:30:18And that's on top of hearings we've had in this committee about the erosion of employer employee health care plans where the amount amount of denials on usually accepted claims has gone way up in the last five years. Let's talk a little bit about social security. If we cut social security staff the people who aren't working age who are supplementing and we know this has grown in this country Americans have to work.
▶ 1:30:42So, how does that affect if you can't get through to Social Security, the retirement system, and and people who are working but are eligible for Social Security? Well, it's a benefit cut. It's a cut. If you're if you're uh unable to get your promised social security benefits because uh Elon Musk's Doge has cut the Social Security Administration employment. That is going to affect our economy as a whole. It's also going to affect the retirement security of people.
▶ 1:31:13More than half of working people in this country do not have a retirement plan. They do not have an individual retirement account. They depend exclusively on social security in order to provide for secure retirement after a lifetime of hard work. And for uh for us to be talking about cutting uh the Social Security Administration as is currently happening under President Trump is is going to uh create a deep hole for working people who are being deprived from their hard-earned Social Security benefits.
▶ 1:31:44We're talking about information right now so people can get a a reasonable um expression of analysis whether it's by the right or the left about investments. Jamie Dam Johnny Dam Jamie Damon as I mentioned uh said that this administration's policy on pal on on tariffs will increase inflation is more likely to add a recession. Can you briefly comment on that? Yes.
▶ 1:32:08Uh President Trump's liberation day tariff announcement trimmed six it effectively liberated $6 trillion in stock market valuation including from millions of working people's retirement accounts. Thank you. I yield back. Okay. Uh, thank you again to all of our witnesses uh for their testimony. I believe we've wrapped up questioning now and uh I will ask the ranking member, do you have a closing statement?
▶ 1:32:38I do, Mr. Chairman. Um, I want to thank the witnesses again and um, just say there should be nothing controversial about ensuring retirement plan fiduciaries are permitted to consider ESG factors just like they appropriately weigh the other risks and benefits for investments. At a minimum, Congress should not put its thumb on scale and disenfranchise retirement plan fidiciaries from considering ESG factors or voting proxies. They are not.
▶ 1:33:07House Republicans are bound by law to make prudent investments for plan uh participants. Mr. Chairman, I ask unanimous consent to enter into the into the record the following items. A report by the shareholder rights group entitled shareholder proposals and essential invest investor right. Uh uh without objection.
▶ 1:33:30Uh, number two of the Wall Street Journal article I mentioned entitled Dow headed for worst April since 1993 through 1932 as investors send no confidence signal. Uh, without objection. Uh, actually number three, Black Rockck's comment later expressing support for ESG investing. Uh, without objection. Thank you. A report from the Joint Economic Committee Democrats entitled Trump's tariff plans would drive up costs for families and shrink the economy. Without objection.
▶ 1:34:01And lastly, a statement on today's hearing from the Americans for Financial Reform Education Fund. Without objection. I want to thank the chair. Uh Mr. Chairman, we are 100 days into this new administration and workers and families in the district I ever represent and around the country are tired of the chaos and turmoil and the thoughtless uh policy.
▶ 1:34:25The president's reckless tariffs are destabilizing financial markets, raising prices and threatening a recession. Social Security is under siege and House Republicans are plowing forward with their plan to cut taxes for the rich and pay for it by making college more expensive and gutting Medicaid. That's not progress. And we can do better. We are better than this. I yield back.
▶ 1:34:50I thank the ranking member uh for your closing statement and uh again I want to thank the witnesses for your testimony. Um obviously u uh you know we brought up a lot of uh interest in uh you know what the administration's uh trying to do here.
▶ 1:35:11I I will note uh that uh at election date uh in November of 2024 uh the national debt had in increased for that year to date trillion.
▶ 1:35:34I will also note that uh during the previous administration uh $8 trillion was spent and added to economy borrowed funds. Uh that does not include uh the other dollars that were spent and uh uh doled out to consumers uh to buy products and whatnot.
▶ 1:36:03uh to uh I guess shore up uh the economy. Uh as of today uh the debt uh to date is about trillion and uh we that you know by my calculation that's a savings of about billion.
▶ 1:36:28And anybody in this room that thinks that we can sustain that, I'd like to have a solution. It's impossible. 37 trillion in debt. Now, you know, we all need to take responsibility for that. Okay? I'm not passing the the the torch one way or the other. Something's got to be done. The other thing is we're running trillion dollar trade deficits.
▶ 1:36:56Trillion Uh that's money going right out the door. We're enriching other countries. And if you look at the trade situation, are we okay with them us multiple tariffs and they can do business here at will?
▶ 1:37:25uh you know again somebody's got to take on and uh so we can talk about the implications and everything else but it's got to be fixed because it's unsustainable. Wealth is pouring out of country and it must stop uh because yes our retirement is at risk. Now, what is going to be interesting is right now we're in transition.
▶ 1:37:55This economy is in transition from a government-funded GDP to a privately funded GDP. There was a war on oil and gas. We have now unleashed oil and gas. It's going to take more than 100 days for those guys to crank up and get get with it because just six years ago, we had the greatest economy in the history of our lifetime.
▶ 1:38:21And this administration, the current administration, uh was able to pull that off. And so uh you know we can talk about this right now but again uh you know these things have to be addressed along with what we're talking about here as far as retirement and the future of America.
▶ 1:38:44It needs to be an allin uh uh cumulative uh effort to make this happen. uh because you you know you've got to you've got to reduce we we've got to balance this budget and we got to pay this debt off and uh because we cannot continue uh to put this burden on the future of our children and grandchildren.
▶ 1:39:10Uh it's clear a good man leaves an inheritance for his children's children and uh I'm just glad to be a part of it. I'm glad to be able to work with my great colleagues here uh as we look to solutions to make this happen. And a big part of that is retirement Orisa. And uh I want to thank our witnesses for your expert testimony today.
▶ 1:39:37Uh the Biden administration ESG rule ignores the current law and judicial pre uh president. Under Orisa, a retirement plan fidiciary must act solely in the interest of the participants and beneficiaries and for the exclusive purpose providing benefits to participants and their beneficiaries and deferring reasonable expenses. Republicans are committed to protecting the retirement savings of workers, retirees, and their families.
▶ 1:40:04I look forward to continuing to work with all members of the committee on providing American workers a secure retirement. And with that, this hearing is adjourned.