"Investing for the Future: Honoring ERISA's Promise to Participants"
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House Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions U.S. House of Representatives
Follow its sittingsSpeaker 2
Mister chairman, we just returned from a two-week 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. And I held several town halls with these constituents, people were concerned with the harm that the Trump administration has been causing over the past 100 days, including 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 its worst April performance since 1932. We remember what happened in 1932, which obviously matters for workers participating in ERISA-covered retirement plans.
And JPMorgan Chase's CEO, Jamie Dimon, warned in his annual shareholder letter that tariffs will likely increase inflation and cause many to consider a greater probability of a recession. The Trump administration is also cutting thousands of jobs at the Social Security Administration and reducing access to phone service. This is anticipated to hurt the agency's ability to serve the public and recipients of Social Security that they paid into and could amount to a backdoor cut as benefits delayed are often benefits denied. Meanwhile, Republicans and 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 UC Berkeley, California could expect to see 10 to 20,000,000,000 fewer federal dollars per year to Medi Cal, our state's Medicaid program.
The labor center estimates that a loss of this magnitude could threaten health care for many of the nearly 15,000,000 Californians currently enrolled in Medi Cal, 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 low-income Americans. We can do better. I 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 money to finance an unexpected $400 expense, such as a car repair or a medical bill. At a minimum, we must support policies that increase workers' wages and strengthen their ability to organize and collectively bargain. The data is clear that unionized workers have greater access to retirement plans and higher participation rates than our nonunionized counterparts. But we shouldn't stop there. We must strengthen and protect social security.
We also must address inequities and discriminatory barriers in the labour market. I hope we have a productive conversation this morning, and focus on meaningful solutions for workers and retirement plan participants. I yield back.
Speaker 1
Thank you, gentlemen, for yielding. Pursuant to committee rule eight, see 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 5PM, 14 days after this hearing. Without objection, the hearing record will remain open for fourteen 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 Mike Max M.
Shawzenbach, the Siegel family professor of law at the Northwestern University Pritzker School of Law in Chicago, Illinois. Our second witness is Mister Charles Crane, the managing vice president for policy for the National Association of Manufacturers in Washington, DC. Our third witness is mister Brandon Rees, the deputy director of corporations and capital markets for the American Federation of Labor and Congress of Industrial Organizations, AFLCIO. Our last witness is mister Ike Brandon, the president of 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 3-minute summary of your written statement. The clock will count down 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. Pursuant to committee rule eight d and committee practice, however, we will not cut off your testimony until you reach the 5 minute mark. I would also like to remind the witnesses to be aware of their responsibility to provide accurate information to the subcommittee. I will first recognize professor Shawsonbach for your testimony.
Speaker 3
Good morning. Thank you for the opportunity to appear before you today. I'm Max Schanzenbach, professor of law at Northwestern University. ESG investing under ERISA 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 ERISA, which provides working Americans access to our deep and efficient capital markets, while protecting retirement savings through the imposition of fiduciary obligations.
In 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 puts ESG investing on an equal footing with any other active investing strategy. There 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 trade-off, and that this will continue forever. That idea is contrary to longstanding 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. At 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 torts and other legal and regulatory risks are financially unimportant. Secondly, the bill continues to allow for the so-called tiebreaker, a rare case in which nonpecuniary factors may be considered when two investments are otherwise financially equal. But the bill requires enhanced documentation and provides greater clarity of language than the present regulations.
Enhanced documentation ensures that an ERISA fiduciary is loyal, always acting for the exclusive purpose of providing pecuniary benefits under the plan, a cornerstone of ERISA. Enhanced documentation also ensures that the tribe tracker is credibly established and regularly assessed. This is a standard of care or prudence, another cornerstone fiduciary obligation under ERISA. 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.
In addition, the bill clarifies essential language regarding a tiebreaker, defining a tie between investment alternatives to be when pecuniary factors are 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 any financial interests. Its beneficiaries do. They must benefit from 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 QDIAs, by a simple prohibition against including any fund as a QDIA that considers nonpecuniary factors. The QDIA is where workers' retirement funds are placed when the worker does not specify an investment when investing in defined contribution plans. In many, if not most, plans, this is the 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. As 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 questions.
Speaker 4
Thank you, Mister Chairman, Ranking Member Desanje, 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. Publicly 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-size-fits-all governance standards. Manufacturers have to counter proxy firms' errors, their outsized influence, and their political agendas. And 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 shareholders. Whether companies push back or fall in line, these market actors' outsized influence is, at best, a distraction from more productive uses of time and capital.
At worst, it's a real threat to business growth and shareholder returns, which ultimately undermines ERISA beneficiaries' retirement security. See, in the ERISA context, the institutions that are hiring proxy firms are, in many cases, doing so to help them vote the shares held by the ERISA plan. Similarly, institutions that are voting in favor of ESG shareholder proposals or pursuing ESG investments may be managing ERISA plan assets. To put it simply, using plan assets to pursue nonfinancial 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 ERISA. That's why manufacturers support appropriate guardrails to ensure that ERISA fiduciaries are acting in plan participants' best interests when making investment and voting decisions.
The DOL, 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 ERISA plan's proxy voting and use of proxy advisory firms. Unfortunately, as has been discussed, the Biden administration largely rescinded both of those rules. But just last week, Chairman Allen introduced legislation to codify the reforms from the first Trump administration.
This bill is crucial because the sole duty of ERISA fiduciaries is to provide long-term returns that support manufacturing workers and their families in their retirement years. Now is the time for Congress and the DOL to stand up for these workers and ensure that ERISA plans are operating in their participants' best interest.
Speaker 5
Chair Allen, ranking member Desalnier, thank you for the opportunity today to testify on behalf of the AFL CIO and our 15,000,000 union members. In recent years, we've seen a politicization of retirement plan investment decisions. But this is not coming from the fiduciaries. Rather, certain politicians have sought to turn the investment decisions of retirement plan fiduciaries into a culture-war issue. Specifically, 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.
While 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. If enacted, this bill will restore the first Trump administration's flawed attempt by the Department of Labor to distinguish between so-called pecuniary and nonpecuniary factors when making investments. These previous rules were impermissibly vague because there's no universally accepted definition of what is a pecuniary versus a non-pecuniary consideration. This distinction is the financial equivalent of debating how many angels can dance on the head of a pin.
Speaker 5
pin. This misguided bill also effectively disenfranchises retirement plans from voting proxies. Since the Reagan administration, retirement plan fiduciaries have been encouraged by the Department of Labor to manage proxy votes as a plan asset subject to ERISA's fiduciary duties. The chairman's bill reverses this Reagan-era Arissa interpretation by imposing an unworkable prohibition on casting proxy votes that promote so-called nonpecuniary benefits, and requiring a burdensome economic cost-benefit analysis before voting. As a result, ERISA 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 are patently unconstitutional. Proxy 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. Legislative 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.
Speaker 6
Great. Mister chairman, ranking member, thank you very much for the invitation to be here. The last time I testified in this room, my daughter threw up on my tie right before I came here, and I had to borrow the tie of one of these staffers here. So, RJ, if you're watching, I'll bring your tie back. I just want to, besides the records that will be submitted for the records, I just want to say two things about ESG investing in general based on some research I did with Robert Jennings, a former colleague of mine when I was a professor at Indiana University.
And, you know, the first point is, look. Everybody who is making their own investment decisions has every right to consider whatever factors they want in making their decision. But I do think it's problematic when fiduciaries start taking into account things that might not be pertinent to long term economic growth. And I think that's what's been going on with ESG. And so the first point I'd like to make is that the research suggests that the idea that there's no loss from ESG investing is, I believe, mistaken.
And, you know, the first point is that if you look at the typical ESG fund, the management fee is significantly higher than it is for the typical index fund. You know, the beauty is as all of us in this room probably have money in the TSP. The beauty of TSP is that its management fees are close to zero. The typical ESG fund has, according to Morningstar, a management fee about 0.1% higher than other funds. The analysis I did with professor Jennings suggests that that's probably closer to one quarter of a percentage point.
The second thing to think about in terms of the problem with ESG investing is that not only does it have a higher management fee, because decisions have to be made about what stocks are and are not included in a fund. And instead of an index fund where you automatically go with the market index, you have to regularly make decisions about what does and does not belong based on long term decisions of these companies. But the other problem is that as you, and this is almost a physics rule. The more you narrow a portfolio, necessarily, the higher the risk and the lower the return you're gonna get. Right?
So this is a point that Matt Levine has made all the time in a former column, a current columnist for Bloomberg News. If you're leaving out entire sectors of the economy, you're going to be missing something of what's going on. So, and then the last point I'd like to make is, you know, people think, oh, point one tenth of a percentage point or one quarter percentage point doesn't seem like a very big deal. But, you know, thanks to the miracle of compound interest over the 30 or 40 year career of a worker, that's actually quite big. So a friend of mine, Jason Furman, who was head of the council of economic advisers for the Obama administration, put out a study in 2016 looking at the fiduciary rule, where he observed that if you talk about a quarter point reduction in the rate of return, you're talking about a reduction in total retirement wealth upon retirement of about 10 to 12%.
So I think the excuse that these things might be quite small is no excuse to pursue this. Thank you.
Speaker 1
Thank you. Thank you, Mr. Brown. Under committee rule nine, we will now question witnesses under the five-minute rule. I will recognize myself for 5 minutes. Mister Crane, in July 2020, 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.
Why is the only appropriate objective for an ERISA retirement plan ensuring that the participants have a sound and secure retirement?
Speaker 4
For manufacturing workers who are depending on an ERISA 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. So if you're an ERISA 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 ERISA.
Speaker 1
You mentioned my bill, the Protecting Prudent Investment of Retirement Savings Act. What protection does that bill provide?
Speaker 4
So your bill would require that ERISA plan managers make decisions based on 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 ERISA beneficiaries' retirement security.
Speaker 1
Professor Shassenbach, the term pecuniary comes from a unanimous Supreme Court decision that outlines the duty of loyalty. That decision states that Arisa'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 fiduciary's investment decision?
Speaker 3
Yes. So I think an important part of the statute of the proposed bill is, 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, which should be laser focused on risk and return, and it cabins off anything that isn't affecting risk and return. So it's hard enough to make investment decisions and build a plan, menu, and monitor the plan menu.
And 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 the prevailing understandings of ERISA in the law right now.
Speaker 1
Professor, some ERISA defined contribution plans allow participants to direct their investments from a menu of investment options. Is this menu constructed and maintained by ERISA plan fiduciaries? And if so, how is it constructed and maintained?
Speaker 3
So I don't think ERISA specifies an exact process, but I can probably give you an answer from sort of what best practices are at the moment. So when you're creating a defined contribution plan, typically, the employer appoints an investment committee who are ERISA fiduciaries. They may be employees of the firm. And then they often retain an investment adviser 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. If you find a product that is similar or equal but has a lower fee structure, you may have an obligation to put that in the plan. And so creating a structure where there's typically quarterly meetings, and a professional investment adviser is how that's executed.
Speaker 1
So 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?
Speaker 3
Right. So I think, that's an important part of this legislation that I don't think has been spoken to yet. So there's something called a brokerage window, allows plan participants to, and it depends on the scope of the window. You can broaden it to individual stocks, or you can keep it limited to classic mutual funds. But it allows a participant to go outside the plan menu that's been constructed 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 a consumer warning label on their decision to do so. And 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 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. They 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 probably a lower fee structure is, I think, helpful.
Speaker 1
Okay. Great. Well, I yield back. I'm out of time. And, we're ready to go on, mister Court.
I have to take your question.
Speaker 7
Thank you, Mr. Chairman. Thank you to the witnesses for being here today. I must say, there's something kind of surreal about this hearing today. There definitely is a lot of concern out there by our constituents in terms of their retirement security. 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.
This morning's GDP numbers came out for the first quarter, for the first time in three years. Our economy contracted. If you look again at the stock market, I'm looking at your phone right now. I mean, every indicator, S and P, Nasdaq, S and P, Dow, are all down. 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.
Investors usually shift to US paper, to US bonds. But, unfortunately, we're seeing a really disturbing trend of where investors are actually moving away from US paper, US bonds. And, the job numbers that came out this morning from ADP, the private labor market trackers shows that, in the month of April, 62,000 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.
It's because of the reckless tariff policies that have been put into place. One of Mister Crane's members from Connecticut, Stanley Black and Decker, this morning announced that they're raising the price of those iconic made in America tools. Its headquarters is in my colleague's district in New Britain, Connecticut, by high single digits because of tariffs. Okay? So this problem is not slowing down.
It's not just a passing phase. It's actually gaining momentum. And to quote Mister Crane, Congress should stand up for workers. What we should do is claim our article one powers to basically control tariff policy, and grab the steering wheel away from the executive branch. This is happening today in the Senate.
They're taking up a measure to use under the emergency powers law that the president cited to take back Congress's authority under tariffs. And speaker Johnson and the Republican majority in the house should join that effort in terms of, again, protecting the retirement savings of our constituents. Like mister, Dessonier, when I was home, and I'm sure the rest of my colleagues, they heard a lot about what's happening to people's 401k plans, you know, burning up because of policy, not because of external factors, not because of economic, you know, catastrophes, but because of policy decisions that are being made in Washington. And the attack on Social Security is just another layer of insecurity that's being added here. So, mister Riest, on that point, I mean, through, you know, world wars, recessions, the crash in 2009, through the pandemic, the one pillar for retirement security in this country has actually been the Social Security system.
So when we talk about, again, your constituents, your, and working families in general, I mean, this attack in terms of hollowing out the infrastructure, the Social Security, which Doge has been conducting, and having 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 to working families in this country in terms of retirement security?
Speaker 5
Thank you for the question, Congressman. You're absolutely right that this is 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. You've got we've got working people 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.
And I thank you for calling for congress to assert its article one powers to take back authority from president Trump, to restore these jobs, and restore our public sector employees.
Speaker 7
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.
Speaker 8
I thank the gentleman. I recognize the gentleman from Florida, Mr. Fine. Well, thank you.
Speaker 9
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. My perspective on this notion is that, you know, stock markets, invest for the long haul. Before I was a politician, that's sort of what I did.
Was reasonably good at making money, not so good at politics. 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. They're just a terrible idea when we choose to respond. I'm still trying to figure that one out.
But I wanna focus on the subject matter here of ESG. And, mister Rees, you talked a lot about politicization and paranoid delusions. I wanna make sure that I don't have any of those. My father is someone who is a public employee. He was a professor for many years.
He benefited from all these funds. It's what drives his retirement. And, fortunately, he benefits now. He's 76 years old. But as he went through his career and those funds were invested on his behalf, 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 financial returns be the sole criteria that a financial manager should use to be making those financial decisions?
Speaker 5
Congressman, it's been clear since ERISA was passed in 1974 that the primary duty of fiduciaries is to maximize risk adjusted 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.
Speaker 9
So you said primary duty. What would their secondary duties be? So 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 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?
Speaker 5
Well, ERISA establishes fiduciary duties for retirement plan fiduciaries, which is the duty of loyalty, the duty of prudence, the duty to diversify portfolio assets, and the duty to follow plan documents.
Speaker 9
Well, diversity of investments will be part of maximizing return. If you put all your eggs in one basket, I think you're taking 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. I don't want paranoid delusions.
So, 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. Should they ever say, you know what? I could maximize, I could make a little bit more money for the people who are depending on this.
I'm not gonna 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.
Speaker 5
Well, ESG issues are often relevant to financial considerations. I'll give you a real-life example. Tesla stock price peaked after President Trump's election last November. However, since Elon Musk has gotten involved in politics, Tesla's customers have been appalled. They've been appalled by his alleged Nazi salute at the 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?
Speaker 9
Great question. I actually am a 3 time owner of a Tesla. It's the car that I drive. I bought them, apparently, it wasn't cool for conservatives to own Teslas. Apparently, now it is.
My colleagues in the Florida legislature gave me a hard time back then about doing it. I actually was there in the arena when Elon Musk made the arm movement that so many Democrat politicians seem to make all the time, and no one seems to be bothered by that. I would note that as a Jewish member of the legislature, I find the notion that it was a Nazi salute to be quite offensive. But that aside, if the investment manager believes that Elon Musk's activities are gonna have a deleterious effect on the stock performance, then that would be a reason 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 one of those things. So I'll wrap up with this. I see my time wrapping up. It's your position that investment managers should always be investing in order to maximize performance. There's never a reason why they shouldn't.
Speaker 8
Gentlemen, time has expired. I recognize now the gentleman from California, Mister Tucano.
Speaker 10
Thank you, Mr. Chairman. Thank you to the witnesses for being here. Mister Rees, why is considering environmental, social, and governmental factors, or otherwise ESG, important when making long-term investment decisions?
Speaker 5
Thank you. ESG factors are financially relevant 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.
Speaker 10
So a majority of fiduciaries agree with you. Recent surveys found that 90% of institutional investors, 85% of chartered financial analysts take environmental, social, and governance or ESG factors into account when making investment decisions. Mister Rees, what are the risks of ignoring ESG factors when making long-term investment decisions?
Speaker 5
Well, RISA requires that fiduciaries act as prudently as a prudent expert would act under similar circumstances. And as you've noted, prudent experts in our capital markets consider ESG risks all the time because they are financially material to investment returns.
Speaker 10
Heightened politicization of retirement plan investment decisions. It has been the subject of several committee hearings, markups, and multiple court cases. And 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. Mister Rees, is this politicization of ESG factors coming from fiduciaries?
The fiduciaries? It's not. Attacks, unquote, woke, 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 that does not align with a certain ideology. I'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-19 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. Mister Rees, what impact has the stock market volatility had on the retirement investments and pension plans of your constituency?
Speaker 5
Well, it's been devastating. President Trump's Liberation Day announcement of reciprocal tariffs erased $6,000,000,000,000 in market capitalization from the stock market. It threw the bond market into a tailspin.
Speaker 5
I represent the AFL-CIO. We support tariffs, but not how President Trump is implementing them on an ad hoc and arbitrary basis that's undermining investor confidence in the United States.
Speaker 10
So they're members of Labour unions. They're working men and women. Thank you. Yesterday, Republicans in this committee advanced their budget reconciliation proposal that makes avenues that makes pathways out of student debt far less successful. Last week, the Republicans on the Energy and Commerce Committee were expected to gut Medicaid.
Will these Republican budget reconciliation measures improve outcomes for retirees?
Speaker 10
Let me close by underscoring this. Retirees are facing immediate dire consequences to their financial health because of the policies of this administration. Yet, we're spending our committee time restricting fiduciaries from using the decision-making tools at their disposal simply because the majority here might not agree with them. I wanna 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.
Speaker 8
I thank the gentleman, and I recognize the gentle lady from Connecticut. Miss Hayes?
Speaker 12
Thank you. Everybody deserves to retire with dignity. We've had several hearings. So I welcome the opportunity to continue to do that. Individuals and their trusted advisers should be free to make investment decisions that best reflect their values and them the highest return on investment. Environmental, social, and governance factors, or ESGs, can encompass a wide range of risks and opportunities in an investment portfolio.
Workers may not want their savings to go toward a company that is polluting the environment, diverting resources from struggling neighborhoods, or violating labour 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 ERISA. In 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 don't offer investors real choices when deciding how their savings will be used for retirement. Mister Reese, in your testimony, you said the 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 investors?
Speaker 5
Thank you for the question, Congresswoman. ERISA, since it was enacted, has regulated the investment process and for fiduciaries in making investment determinations. It is not dictated the investment decisions or prohibited or required specific types of investments. And that's been true in our capital markets since the nineteen fifties, since modern portfolio theory was developed. Prior to modern portfolio theory, investors, fiduciaries were required to invest in a legal list, which would have permitted investments.
There was government control over fiduciary decision-making. Now that was not in the best interest of plan participants and retirees because the prudence of a portfolio should be evaluated as a whole and not based on the individual investment securities. So 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.
Speaker 12
Exactly. And I think that how investments are made matters. Tesla is a perfect example. I heard my colleagues say it's no longer cool to drive a Tesla. I think people still appreciate 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 that people are at odds with. It is the company that people are at odds with. In 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.
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 for American workers?
Speaker 5
So half of all working Americans in the United States do not have access to a retirement plan through their employer. They don't have an individual retirement account. For 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 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.
Speaker 12
Thank you. And, 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.
Speaker 8
I thank the gentlelady, and I recognize myself for five minutes of questioning, and thanks to the panel for being here. Professor Sean Zanbak, Congress enacted ERISA to protect the benefits of American workers. Under ERISA, as you know, investment fiduciaries have a duty to invest exclusively for the purpose of providing benefits and defraying reasonable expenses under the plan. Why is this duty so important in protecting retirement benefits?
Speaker 3
Because the fiduciary duties are pushing the investment committee, the people who have discretion to invest ERISA assets to focus laser-like on risk and return. And so without that, there's less guidance for these fiduciaries, and they may choose to follow policy preferences of their own without consideration of the benefits for the workers.
Speaker 8
Could you discuss whether it would violate ERISA's cornerstone duty of loyalty for an investment professional to be motivated to produce a benefit, right? For a third party or to be motivated by his or her own sense of ethics when investing someone else's retirement benefits. Right.
Speaker 3
So 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 $50 for himself. Nor can he reach in and take out $50 and give it to a favored charity. Okay? We understand that that's self-dealing.
That's a violation of fiduciary obligation. It is no different if the fiduciary impairs the investment returns so as to produce the same benefit for third parties. It's all a breach of the duty of loyalty and has been widely understood to be such in trust investment law for generations.
Speaker 8
A point to ponder and to remember. Yeah. Thank you, Mr. Crane. 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 on planned performance. Please, if you would, explain the importance of retirement plan participants being able to trust that their long-term savings will be protected over any other considerations, so that they can enjoy a stable sense of retirement.
Speaker 4
More than 85% of manufacturing workers are eligible to participate in a workplace retirement plan. These are, as the subcommittee knows, defined benefit, defined contribution plans governed by ERISA. Their 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 retirement security.
Speaker 8
Thank you. Mister Brennan, 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. What are your views on whether investment professionals managing retirement savings should be chosen based exclusively on their qualifications to manage these investments?
Speaker 6
Let me talk about this in the context of the Pension Protection Act, was passed in 2006, and I was a staff economist on the Senate Finance Committee. One of the things we struggled with was what the default investment was going to be at the time. And I'm not sure we got it right, but one of the things that everybody on both sides clearly wanted is to make sure that those are 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. And I think everybody understood at the time that allowing something to be actively managed, and most ESG funds kinda fall into that category. That's gonna cost you something, because you're gonna have to pay a management fee.
And, you know, was a study I cited by Jason Furman that even very small, even a 0.25 percentage point difference in the rates of return can, over a lifetime, diminish the amount of savings by final savings by as much as 10%.
Speaker 8
Significant impact. So yes. Yeah. Well, thank you. I now recognize the ranking member of the full committee, mister Scott from Virginia.
Speaker 11
Thank you. Thank you, Mr. Chairman. Mister Brennan, you've talked about the average fees and returns. Do some ESG funds charge lower fees than some non-ESG funds?
Speaker 11
Well, on average, are there some ESG funds that charge less than some non-ESG funds?
Speaker 6
To my knowledge, there are no, so if you look at TSP, which probably most of us participate in, if you have an index fund at TSP, it charges almost nothing. In fact, I think it is now.
Speaker 11
We found one low fund, but there are no non-ESG funds that charge more than any ESG funds?
Speaker 6
Sure. There are probably some ESG funds that charge less than some actively managed funds.
Speaker 11
Okay. And do some ESG funds have higher historic returns than some non-ESG funds? Yes. Then why should the lower fee, higher return ESG funds be excluded from plans where the higher fee, lower returns are included.
Speaker 6
So this gets back to the point I was talking about with, chairman Wahlberg, is that, if people 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 are making some kind of default. You want that default to be in something that is SAFE and is gonna get the highest long term rate of return, and that's where passively managed funds enter. And in general.
Speaker 11
But you could have a higher fee actively managed non-ESG fund as the default.
Speaker 11
It'd be legal. If some don't want ESG factors to be considered at all. If you're investing in a real estate 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?
Speaker 6
I think that can be done and is done without having to resort to the metrics of an ESG fund.
Speaker 11
Well, you have to consider environmental factors. Mister Rees, are there studies about returns and fees on ESG funds that you're aware of?
Speaker 5
Yes. So in my written testimony, I cite a study that reviewed over 2,000 academic papers, 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 respond to Mr. Brannan's testimony, it's misleading to compare actively managed ESG funds to index funds. And I would point out that the selection of index funds can also take into consideration ESG metrics.
I would point you to president Trump's lay secretary of labor Eugene Scalia's decision in 2020 when he ordered the federal retirement thrift savings investment board to reverse its decision to invest in an international stock index that included Chinese equities. In taking this action, presumably, the secretary did not intend to subordinate the interests of federal workers to the nonpecunary goal of national security. But now does Congress want to prohibit private sector retirement plans from making a similar decision?
Speaker 11
Can you discuss some of the high-fee private equity investments or cryptocurrency investments that have higher fees than ESG funds?
Speaker 5
Yeah. It's deeply ironic that Republicans would seek to prohibit actively managed ESG funds in retirement plans at 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.
Speaker 8
I thank the gentleman, and I personally want to wish you a happy birthday and many more.
Speaker 8
I now recognize the chairman of merit emeritus of this committee, as well as the chair of the rules committee, Miss Fox.
Speaker 13
Thank you, Mister Chairman, and happy birthday, Bobby. Thank you. I wanna thank our witnesses for being here today, too. Mister Crane, why were a risk of fiduciaries allowed to delegate such critical decisions, such as board selection and policy decisions, to proxy advisory firms that are not bound by a Arissa's duties of prudence and loyalty and may instead promote politically motivated ESG goals?
Speaker 4
Thank you for that question. I think it goes straight to the heart of the first Trump administration's DOL rule and chairman Allen's legislation. Proxy advisory firms are conflicted. They are under-regulated. They have specific agendas that they utilize their voting power to achieve, and it absolutely undermines the risk of fiduciary obligations if they're blindly outsourcing their voting decisions to those proxy advisory firms.
Speaker 13
Thank you. What transparency exists around the criteria proxy advisory firms use to make voting recommendations, and how do we know these criteria prioritize fiduciary duty over ideological preferences?
Speaker 4
Frankly, there's very little, if any, transparency at all around how proxy advisory firms determine their standards for public companies and then how they make their voting recommendations. 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.
Speaker 13
Thank you. Professor Schottenbach, given 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?
Speaker 3
Well, I think I'd have to distinguish between whether they're using ESG factors to improve risk and return, 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. And if it stops, it needs to drop the investment. If it's a nonpecuniary factor that's being used, I think it's just basically prohibited under the duty of loyalty. And then the only knife-edge point is a question of this tiebreaker, which the bill still permits. So I hope that's responsive.
Speaker 13
If participants in ERISA 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?
Speaker 3
Well, I think that's one of the protective features of the duties of loyalty and care under ERISA. You can think of the duty of loyalty as a process, or, sorry, as a motive test. The fiduciary has to be offering this option or making the investment because it thinks it's in the best financial, best pecuniary interest of the beneficiary. And then the care issue arises as a process test. Did they follow a reasoned process and have a reasoned explanation for why they chose to offer that particular investment?
And so even if they think, for example, initially that it's a tie and they can satisfy with the additional documentation that it was in fact a tie, which is, I think, something of a unicorn. But assuming that they do that, they have to continue to monitor the investment over time. And given that financial factors, you know, the economy changes so rapidly, it's unlikely to be a tie indefinitely. And so then they'd have to follow a process to remove it from the investment options or divest from the investment when they make that conclusion.
Speaker 13
Thank you. Mister Brannon, 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?
Speaker 6
So I would say that, anytime people aren't making an active decision and the money's just being put into some kind of default, they should be made aware of what 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.
Speaker 8
I thank the gentlelady, and I recognize the gentleman from New York, Mr. Manion.
Speaker 14
Thank you, Mr. Chairman. Today's hearing is fundamentally about choice, about whether fiduciaries charged with maximizing retirement security under ERISA 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 the company's long-term performance. I wanna make one thing clear.
Nobody here is suggesting a mandate to prioritize ESG information over financial returns. Simply permitting ESG considerations under ERISA 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. Frankly, 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, sowing doubt in those very systems while imposing erratic tariff policies that have sent 401k balances tumbling.
If we're serious about protecting America's retirement, we should start by holding the administration accountable. Mister Rees, could you please elaborate on how that accountability can and should occur, including as it relates to congressional oversight?
Speaker 5
Yes, congressman. It's vitally important that Congress assert its Article One powers over the federal budget to restore funding for the Social Security Administration and rehire 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.
Speaker 14
Thank you. And what do you make of these continued discussions around ESG, 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?
Speaker 5
It's a distraction 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 the government.
Speaker 8
I thank the gentleman. I recognize the gentle lady from Pennsylvania. Miss Lee.
Speaker 15
Thank you, Mr. Chairman. Proxy voting and shareholder meetings is an issue of economic freedom and workers' access. And I don't usually often take that stance, but in this particular instance, it is, undeniably true. Prohibiting proxy voting and a risk of plans is a way of shutting the boardroom doors to low- and middle-income 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 companies' bottom line. And 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 ERISA 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 met managed on your behalf.
So, historically, the person that manages your employer or union-sponsored retirement plan has been able to attend these critical shareholder meetings and vote on behalf of and in the best interest of the shareholders they represent. This gives working folks a seat at the table to ensure that their retirement money is protected. Mister Reese, could you please provide examples of instances when proxy voting benefits participants and beneficiaries?
Speaker 5
Yeah. Thank you, Congresswoman. 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. 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.
And it's just unacceptable that the chairman's bill 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 cost-benefit analysis prior to casting proxy votes. It's far cheaper and simpler to just decide how you're going to vote. I don't understand why the majority wants to disenfranchise private-sector retirement plans. It's unconstitutional, and it's gonna hurt the retirement security of working people, as you described.
Speaker 15
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. We talk about whether a company should reinvest a $20,000,000 profit into a business or the CEO salary, that impacts workers' retirement money. Mister Reese, in your testimony, you discuss 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?
Speaker 5
Yes. So the freedom for retirement plans to vote proxies is an 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 state corporate laws assume that shareholders will be voting proxies. If you don't vote proxies, shareholders don'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 of voting on environmental, social, and corporate governance shareholder proposals.
That would hurt the retirement security of working people, and it has more in common with the 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 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. Ronald 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.
Speaker 15
Well, and I'll let us end on that note because time does fly. But, I thank you so much for your testimony today, and now you're back.
Speaker 8
I thank the general lady, and I recognize the ranking member of this subcommittee, Mister Deshaunet from California.
Speaker 2
Thank you, Mr. Chairman. Mister Reese, I've 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, the chairman and I got into a little disagreement about what the budget and what will actually happen. It's happening in energy and commerce right now. The cuts to Medicaid, I quoted also from the Kaiser Family Foundation analysis of the effect on workers' benefits, and specifically health care. 80 to 65 percent of people who receive Medicaid of working age are working full time. Another 20% work part-time.
Of the remaining 15%, almost 10% are caregivers for family members. So what is that kind of cut? In addition, as we're talking about bet 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, as some of my colleagues have promised that they will.
Speaker 5
Thank you for the question, Congressman. As a Berkeley alumnus, let me first say, go bears. Over 70,000,000 working people in the United States are enrolled in Medicaid, 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. Moreover, these cuts will push health care costs from the uninsured onto health and welfare plans in the form of increased hospital costs from uncompensated care.
Nearly one-fifth 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.
Speaker 2
And follow-up on that. These people are working. So if we're adding required paperwork and bureaucracy for them to prove that they're working 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 the support system basic needs. The LAO came back and said you're spending more money on preventing fraud than we identified in fraud.
This seems like a similar situation where the majority is 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.
Speaker 5
That's right, congressman. It's essentially an effort to deprive working people of access to health insurance, and that's gonna hurt not just working people, it's gonna hurt our economy as a whole as our working age population is less healthy, being deprived from preventative care, and also creating tremendous economic uncertainty for working families who are faced by crushing medical debt.
Speaker 2
And that's on top of hearings we've had in this committee about the erosion of employer employee health care plans, where the amount of denials, unusually 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, older Americans have to work. So how does that affect if you can't get through to Social Security, the retirement system, and people who are working but are eligible for Social Security?
Speaker 5
Well, it's a benefit cut. It's a cut. If you're unable to get your promised Social Security benefits because 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 working people. More 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 a secure retirement after a lifetime of hard work. And for us to be talking about cutting the Social Security Administration as is currently happening under President Trump is going to create a deep hole for working people who are being deprived of their hard earned Social Security benefits.
Speaker 2
It's we were talking about information right now so people can get a reasonable expression of analysis, whether it's by the right or the left, about investments. Jamie Dame Johnny Dame Jamie Damon, as I mentioned, said that this administration's policy on tariffs will increase inflation and is more likely to add a recession. Can you briefly comment on that?
Speaker 5
Yes. President Trump's Liberation Day tariff announcement trimmed six, it effectively liberated $6,000,000,000,000 in stock market valuation, including from millions of working people's retirement accounts.
Speaker 1
Okay. Thank you again to all of our witnesses for their testimony. I believe we've wrapped up questioning now, and I will ask the ranking member, do you have a closing statement?
Speaker 2
I do, Mr. Chairman. I wanna thank the witnesses again, and 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 the scale and disenfranchise retirement plan fiduciaries from considering ESG factors or voting proxies. They are not. House Republicans are bound by law to make prudent investments for plan participants.
Mister chairman, I ask unanimous consent to enter into the record the following items. A report by the shareholder rights group entitled shareholder proposals and essential investor rights.
Speaker 2
Number two, the Street Journal article I mentioned entitled Dow headed for worst April since 1990 through 1932, as investors send no confidence signal.
Speaker 2
Actually, number three, BlackRock's comment later expressing support for ESG investing.
Speaker 2
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.
Speaker 2
And lastly, a statement on today's hearing from the Americans for Financial Reform Education Fund.
Speaker 2
I wanna thank the chair. Mister chairman, we are 100 days into this new administration, and workers and families in the district I represent and around the country are tired of the chaos and turmoil in the thoughtless policy. The 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 cutting Medicaid. That's not progress, and we can do better.
We are better than this. I yield back.
Speaker 1
I thank the ranking member for your closing statement. And, again, I want to thank the witnesses for your testimony. Obviously, you know, we brought up a lot of interest in, you know, what the administration's trying to do here. I will note that, at election date, in November 2024, the national debt had increased for that year to date $2,350,000,000,000. I will also note that during the previous administration, $8,000,000,000,000 was spent and added to the economy.
Borrowed funds, that does not include the other dollars that were spent and doled out to consumers to buy products and whatnot to, I guess, shore up the economy. As of today, the debt to date is about 1,600,000,000,000.0. And, we you know, by my calculation, that's a savings of about $600,000,000,000. And anybody in this room that thinks that we can sustain that, I'd like to have a solution. It's impossible.
37,000,000,000,000 in debt. Now, you know, we all need to take responsibility for that. Okay? I'm not passing the torch one way or the other. Something's got to be done.
The other thing is we're running trillion-dollar trade deficits. Trillion dollars. 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 charging us multiple tariffs, and they can do business here?
It will. You know, again, somebody's got to take this on. And, so we can talk about the implications and everything else, but it's gotta be fixed because it's unsustainable. Wealth is pouring out of this country, and it must stop. Because, yes, our retirement is at risk.
Now what is gonna be interesting is, right now, we're in transition. This 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 gonna take more than a hundred days for those guys to crank up and get with it because just six years ago, we had the greatest economy in the history of our lifetime.
And this administration, the current administration, was able to pull that off. And so, you know, we can talk about this right now, but, again, 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. It needs to be an all in, cumulative, effort to make this happen, because you, you know, you've got or you've got to reduce, we've gotta balance this budget, and we gotta pay this debt off. And, because we cannot continue to put this burden on the future of our children and grandchildren. It's clear a good man leaves an inheritance for his children's children, and I'm just glad to be a part of it.
I'm glad to be able to work with my great colleagues here, as we look to solutions to make this happen. And a big part of that is retirement plans, ERISA. And, I wanna thank our witnesses for your expert testimony today. The Biden administration ESG rule ignores the current law and judicial precedent. Under ERISA, a retirement plan fiduciary must act solely in the interests of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses.
Republicans are committed to protecting the retirement savings of workers, retirees, and their families. I 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.
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