The Department of Labor (DOL) recently issued an advisory opinion that Citigroup Inc.’s program to increase the racial and gender diversity of the investment managers used by the benefit plans of Citigroup and its affiliates (Citi) would not violate ERISA’s fiduciary responsibility rules. An advisory opinion is a written response from the DOL that applies well-established legal principles or interpretations to a specific set of facts submitted by an individual or organization.
Under Citi’s diversity program, corporate assets are used to pay some or all of the investment management fees for qualified managers that:
Citi intends to publicize the diversity program to the general public as well as plan participants and beneficiaries; however, individual decisions regarding investment managers will not be publicized. Investment managers who are party in interests (as defined in ERISA) will not be eligible to participate in the program.
The investment committee will select the investment managers for the plans based on appropriate selection factors (e.g., fees, credentials, assets under management, experience). The diversity program will not require the investment committee to use any particular search or selection process or to explain any decisions related to the diversity program. Further, Citi will not require any goals or quotas to be met in order for the investment management fees to be reimbursed. However, the investment managers covered by the diversity program will have an advantage in the selection process based on fees, since at least a portion of their investment management fees will be paid by Citi instead of the plans.
The DOL reached the following conclusions regarding Citi’s request for an advisory opinion to address fiduciary questions related to its diversity program:
The advisory opinion is an interpretation of established law, so it appears that the DOL’s findings in this case may be applied to similar approaches. It is important to note, however, that the advisory opinion does not create a binding precedent. The DOL could reach different conclusions for future cases.
Plan sponsors interested in implementing an approach similar to Citi’s program to support diversity or other environmental, social or governance factors should discuss the advisory opinion and its implications with legal counsel.
