European regulator proposes sustainability, diversity requirements for retirement plans

European Insurance and Occupational Pensions Authority is seeking input from occupational retirement funds on how it should review the Institutions for Occupational Retirement Provision Directive II.

EIOPA on Friday announced the review of one of the most significant European pension laws and said it will focus on changes related to fiduciary duties and stewardship rules for workplace defined benefit and defined contribution plans, known as IORPs, as well new requirements to boost the diversity of retirement plan management boards.

Retirement fund watchdog EIOPA is also asking executives at retirement plans and industry experts about changes that are required to better facilitate the shift by plan sponsors to DC plans from DB plans, which should be included in the next iteration of the directive.

In the consultation, which will run until May 25, EIOPA is proposing additional requirements for retirement plans to consider sustainability risks in their investment decisions and to consider the potential long-term impact of their investment strategies.

Once included, the rules would mean that retirement funds — similar to other European financial institutions — will not only have to manage sustainability risks but also to consider the long-term impact of investment policies on the sustainability of economies, EIOPA said.

EIOPA is also proposing that plans should consider sustainability preferences of plan participants in their investment decisions.

The European regulator is also proposing that retirement plans promote diversity and inclusion by fostering a better representation of all genders within the management boards.

While the regulator is not changing any rules around derivatives positions for workplace plans with this review, it noted that in 2022 the U.K. plans were exposed to substantial liquidity risks.

For plans with significant derivative exposures, EIOPA is planning to enhance plans’ own-risk assessment requirements and the national supervisors review process of liquidity risk management of retirement funds.