In ERISA fiduciary law, pecuniary factors in fiduciary investment decisions are the financial considerations — things a fiduciary prudently determines will have a material effect on an investment’s risk or return — that must drive the choice of plan investments. The term comes from a 2020 Department of Labor rule that drew a sharp line between pecuniary and non-pecuniary factors. That terminology was removed in December 2022 and replaced with a broader “risk and return analysis” standard at 29 CFR 2550.404a-1. The core principle has not moved: a fiduciary cannot sacrifice participants’ retirement security to pursue goals unrelated to the plan’s financial interests.
What “Pecuniary Factors” Meant Under the 2020 Rule
The 2020 Department of Labor rule defined pecuniary factors as those a fiduciary prudently determines will have a material effect on the risk or return of an investment, based on appropriate investment horizons consistent with the plan’s objectives and funding policy. Non-pecuniary factors — anything else — could be used only as a tiebreaker when financial analysis produced no clear winner between competing investments, and the fiduciary had to document that decision.
The rule was widely interpreted as discouraging any consideration of environmental, social, or governance factors, even where those factors had genuine financial relevance. A fiduciary looking at a company’s carbon exposure as a long-term financial risk could do so under the rule’s own terms, but the labeling itself cast suspicion on that kind of analysis.
Why the Terminology Changed in 2022
In December 2022, the DOL finalized a replacement rule that deleted the pecuniary and non-pecuniary labels entirely. The Department concluded the old terminology had created a “chilling effect” on financially beneficial investment choices by treating ESG-related analysis as inherently suspect. The 2022 rule reframed the standard around a general “risk and return analysis” and clarified that climate-related and governance factors are simply financial factors like any other when they affect an investment’s prospects.1Federal Register. Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights
So if you are searching for “pecuniary factors” today, the word itself no longer appears in the operative regulation. The underlying concept — that investment decisions must be driven by financial considerations relevant to risk and return — is still the law.
What Qualifies as a Financial Factor Today
Under 29 CFR 2550.404a-1 as currently written, a fiduciary’s investment decision must be based on factors the fiduciary reasonably determines are relevant to a risk and return analysis, using investment horizons that match the plan’s objectives and funding policy.2eCFR. 29 CFR 2550.404a-1 – Investment Duties In practice, that covers things like projected cash flows, debt levels, liquidity, how an asset fits the broader portfolio for diversification, and macroeconomic conditions affecting interest rates or inflation.
Whether any particular consideration qualifies is fact-specific. The weight a fiduciary gives to any factor should reflect a reasonable assessment of its impact on risk and return. The regulation also makes clear what a fiduciary cannot do: “subordinate the interests of the participants and beneficiaries in their retirement income or financial benefits under the plan to other objectives,” or “sacrifice investment return or take on additional investment risk to promote benefits or goals unrelated to” those financial interests.2eCFR. 29 CFR 2550.404a-1 – Investment Duties
Where ESG Factors Fit
The current regulation explicitly says risk and return factors “may include the economic effects of climate change and other environmental, social, or governance factors” when those effects are relevant to a particular investment.2eCFR. 29 CFR 2550.404a-1 – Investment Duties The qualifier is financial materiality. A fiduciary analyzing whether a company’s carbon exposure creates long-term financial risk is doing exactly what the regulation contemplates. A fiduciary picking that company’s stock because they personally support environmental policy is not.
The line between the two sits where it has always sat under ERISA: at the question of whether the fiduciary is pursuing the plan’s financial interest or something else. ESG factors can be inputs to a risk-and-return analysis. They cannot replace it.
The Tiebreaker for Non-Financial Considerations
The regulation preserves one narrow situation where a factor unrelated to investment returns can affect the decision. If a fiduciary prudently concludes that two or more competing investments equally serve the plan’s financial interests over the appropriate time horizon, the fiduciary may select one based on “collateral benefits other than investment returns.”2eCFR. 29 CFR 2550.404a-1 – Investment Duties The DOL has offered one concrete example: an investment that helps maintain employment in a way that leads to continued contributions to a multiemployer plan.1Federal Register. Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights
The investments do not have to be identical. The question is whether they equally serve the plan’s financial interests, which the DOL has described as “an inherently factual question.”1Federal Register. Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights The guardrail is absolute. A fiduciary cannot accept reduced returns or greater risk to secure a collateral benefit. If one investment offers even a marginally better risk-adjusted return, the tiebreaker cannot be invoked.
Where the tiebreaker is used, documentation matters. Records should show that the financial analysis was thorough, that the competing options genuinely served the plan’s financial interests equally, how the chosen investment compared to rejected alternatives on risk and return, and how the collateral benefit is consistent with participants’ interests.
The Underlying ERISA Duties That Don’t Change
Whichever version of the investment duties regulation is in effect, the statutory floor is the same. ERISA Section 404(a)(1) requires a fiduciary to act solely in the interest of participants and beneficiaries, for the exclusive purpose of providing benefits and defraying reasonable plan expenses.3Office of the Law Revision Counsel. 29 USC 1104 – Fiduciary Duties Two overlapping obligations flow from that statute.
The duty of loyalty means a fiduciary must subordinate all outside interests to the financial security of the plan. Personal financial interests, employer preferences, political views, and social causes take a back seat. If a fiduciary stands to benefit personally from an investment decision, or feels pressure from a plan sponsor to invest in a particular way, the duty of loyalty demands those influences be set aside entirely.
The duty of prudence requires the fiduciary to act with the care, skill, and diligence a knowledgeable investment professional would use. This is a process standard. Courts evaluate whether the fiduciary followed a reasonable decision-making process, not whether the investment ultimately performed well. A fiduciary who carefully analyzes an investment and sees it later lose value has not necessarily breached their duty. A fiduciary who picks an investment on a hunch, even one that turns a profit, has.
What Happens If a Fiduciary Gets It Wrong
A fiduciary who breaches their duties faces personal exposure. Under ERISA Section 409(a), a fiduciary who violates their responsibilities is personally liable to restore any losses the plan suffered and to disgorge any profits made through improper use of plan assets.3Office of the Law Revision Counsel. 29 USC 1104 – Fiduciary Duties Courts can also remove a breaching fiduciary and impose other equitable relief. These restoration obligations come out of the fiduciary’s personal assets. The plan cannot bear the cost of fixing the fiduciary’s own mistakes.
On top of making the plan whole, the DOL can assess a civil penalty equal to 20 percent of the “applicable recovery amount,” meaning any amount the fiduciary pays to the plan pursuant to a DOL settlement or court order.4U.S. Department of Labor. Enforcement Manual – Civil Penalties – Section: 502(l) Civil Penalty A fiduciary who restores $500,000 to a plan after a DOL settlement would owe an additional $100,000 penalty.
Co-Fiduciary Liability
A fiduciary can also be held liable for another fiduciary’s breach in three situations: knowingly participating in the breach, failing to meet their own duties in a way that enabled the breach, or learning of the breach and failing to take reasonable steps to fix it.5Office of the Law Revision Counsel. 29 USC 1105 – Liability for Breach of Co-Fiduciary Members of an investment committee who go along with a problematic decision, or who spot a red flag and stay quiet, can be held personally responsible alongside the primary decision-maker.
Statute of Limitations
Actions for fiduciary breach must be filed within the earlier of six years from the last act constituting the breach, or three years from when the plaintiff first gained actual knowledge of it.6Office of the Law Revision Counsel. 29 USC 1113 – Limitation of Actions If the fiduciary committed fraud or concealed the breach, the clock extends to six years from the date of discovery. These deadlines apply to both DOL enforcement actions and participant lawsuits.
The Current Regulatory Uncertainty
The 2022 rule was immediately challenged in federal court. A group of states sued in the Northern District of Texas, and the district court initially upheld the rule. On appeal, the Fifth Circuit vacated that judgment and sent the case back for reconsideration after the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo eliminated the Chevron deference doctrine that courts had traditionally used to defer to agency interpretations of ambiguous statutes.7Justia Law. State of Utah v. Su, No. 23-11097 (5th Cir. 2024)
In May 2025, the DOL announced it would stop defending the 2022 rule and would begin a new rulemaking. As of early 2026, the 2022 rule’s text remains on the books at 29 CFR 2550.404a-1, but new rulemaking is expected. A future rule may bring back something resembling the pecuniary and non-pecuniary labels, keep the current risk-and-return framing, or do something different. Fiduciaries should consult legal counsel about how this uncertainty affects their specific investment process. Whatever the regulatory text says next, the ERISA statute underneath — the duty of loyalty, the duty of prudence, the ban on sacrificing returns for unrelated goals — is the stable ground.