Joe Biden used his presidential veto power March 20 to stop a Congressional rollback of a new Labor Department rule. The November 2022 rule makes it clear that retirement fund managers are allowed to consider environmental, social and governance (ESG) factors when they decide on which investments pension funds make, or which mutual funds to offer as defaults to participants in 401(k) retirement savings plans.
The veto drew immediate praise from the national AFL-CIO. Some of the largest union pension funds are leaders in using stock investments to reward good corporate behavior and punish corporate abuses like excess CEO pay. The DOL rule makes it clear that considering those factors doesn’t automatically violate pension trustees’ fiduciary duty to benefit retirees. Previously, during the Trump administration, the Department of Labor for the first time published a rule saying the opposite, that retirement fund managers couldn’t base investment decisions on anything but financial returns. That rule made it legally risky for trustees to favor ESG based mutual funds. Biden’s new DOL rule reverses the Trump-era rule.
Republicans in Congress tried to overturn Biden’s new DOL rule using the Congressional Review Act, a law that lets a new Congress overturn federal regulations that are issued near the end of a previous congressional session with a simple majority vote (avoiding the Senate’s self-imposed three-fifths supermajority rule.) The rollback passed 216-204 in the House and 50-46 in the Senate. The vote was along party lines except that three Democrats that joined Republicans: Jared Golden (Maine) in the House and Joe Manchin (West Virginia) and Jon Tester (Montana) in the Senate.
Three days after Biden’s veto, Republican House leaders held another vote, but picked up only three more votes from Republicans who hadn’t been present during the previous vote—well short of the two-thirds required by the U.S. Constitution to override a president’s veto of acts passed by Congress.
