DOL must issue ERISA guidance on ‘foreign adversary’ investments 

April 10, 2025

A presidential memorandum issued Feb. 21 directs the Department of Labor (DOL) to publish updated ERISA fiduciary standards for plan investments in public market securities of “foreign adversary companies.” The directive is part of the Trump administration’s America First Investment Policy, which is aimed at “promoting foreign investment while protecting America’s national security interests,” a fact sheet says. This article addresses questions sponsors and fiduciaries of defined benefit and defined contribution plans — as well as funded welfare plans like voluntary employees’ beneficiary associations (VEBAs) — may have about the anticipated guidance. However, sponsors or fiduciaries don’t have to take any immediate action.

While the memorandum’s scope extends beyond ERISA plans, one stated goal is restoring the “highest fiduciary standards” under ERISA “to ensure that foreign adversary companies are ineligible for pension plan contributions.” (Presumably, the reference to “pension plan contributions” means the investment of plan assets in securities issued by these companies.) To further this goal, the memorandum instructs DOL to publish updated ERISA fiduciary standards for investments in these companies. The memorandum doesn’t set a deadline for this guidance, so when DOL may act on this directive remains uncertain.

The memorandum applies to the following “foreign adversaries”:

• China, including Hong Kong and Macau
• Cuba
• Iran
• North Korea
• Russian Federation
• Venezuela

However, the memorandum doesn’t define the term “foreign adversary company” or explain what level of investment or control by these entities will cause a company to fall into that category. The anticipated guidance may provide more clarity.

Past efforts to address plan investments in problematic foreign jurisdictions have generally come from Congress enacting legislative safe harbors that allowed — but didn’t require — ERISA fiduciaries to implement investment restrictions or divest existing investment holdings:

• Section 204 of the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (Pub. L. No. 111-195) provides that ERSIA fiduciaries may divest plan assets from or avoid investing plan assets in any person they deem from credible public information to engage in investment activities in Iran.
• Section 5 of the Sudan Accountability and Investment Act of 2007 (Pub. L. No. 110-174) provided a similar safe harbor for any person a fiduciary deems to engage in investment activities in Sudan.

Both legislative safe harbors required fiduciaries to prudently conclude that taking these actions wouldn’t result in the plan receiving a lower rate of return than alternative investments with commensurate degrees of risk or accepting a higher degree of risk than alternative investments with commensurate rates of return.

DOL’s guidance on foreign adversary investments may take an approach similar to the earlier legislative safe harbors — but could be more prescriptive. The guidance may address the following issues:

• How to determine whether an issuer of public market securities is a foreign adversary company
• What conditions ERISA fiduciaries must meet when considering whether to divest existing plan investments in foreign adversary companies (including whether doing so is optional or mandatory)
• Whether similar or other conditions apply when evaluating whether a plan can (or must) avoid future investments in foreign adversary companies
• To what extent must fiduciaries evaluate indirect investments in foreign adversary companies through pooled investment funds, like mutual funds and collective investment trusts

However, unlike the prior legislative safe harbors, a DOL regulatory safe harbor would only be binding on the agency and wouldn’t necessarily prevent participants from bringing private lawsuits alleging ERISA fiduciary violations. Sponsors and fiduciaries should continue to monitor future developments.

• Presidential memorandum (White House, Feb. 21, 2025)
• Fact sheet (White House, Feb. 21, 2025)