Has There Been a Climate Change for ESG Investing in DC Plans?

Roughly a year ago, the Labor Department issued a proposed new rule on “Financial Factors in Selecting Plan Investments” – but that, as they say, was then.  That said, workable, consistent definitions of ESG remain fluid, and perhaps as a result, the adoption rate among defined contribution plans has been tepid—and the take-up rate among participants even lower. Fewer than 3% of plans offer an ESG option, according to the 63rd  annual Plan Sponsor Council of America survey, and less than 0.2% of plan assets have been invested in those options.  On the other hand, at least one recent participant survey suggests that workers would not only invest in ESG options—if they knew about them – but that they might contribute MORE.    

But – a lot has changed since the Labor Department’s proposed rule; a final rule that seemed to walk back (some) the harsh rhetoric in the preamble to the proposed rule, a new Administration that first froze enforcement, and then just last month issued an Executive Order that directed the Secretary of Labor to reconsider rules that that would have barred consideration of ESG factors.  All this at a time when retail trends suggest growing interest in the option.

This week, we’re curious as to what, if any, impact all of this may have had on YOUR your experience with ESG offerings, whether your plan sponsor client and prospects have an appetite for this option (or more of this option), and what you think the future holds…now.

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* 1. What's YOUR take on the Trump Administration's rule with regard to ESG options on the DC plan menu - with its emphasis on pecuniary factors (please only pick one)?

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* 2. What's YOUR take on the Biden Administration's Executive Order directing the Secretary of Labor to reconsider rules that would have barred consideration of ESG factors in investment decisions.(please only pick one)?

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* 3. What's YOUR take on the suitability of ESG options on a defined contribution/401(k) plan menu (please only pick one)?

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* 4. Has your sense of things with regard to ESG's suitability on a defined contribution/401(k) plan menu changed during the past year?

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* 5. Are you actively recommending ESG options to your plan sponsor clients/prospects?

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* 6. How - if at all - generally speaking has your position on actively recommending ESG options to your plan sponsor clients/prospects changed in the past year?

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* 7. Are your plan sponsor clients/prospects proactively asking about ESG options?

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* 8. Have those requests picked up over the past year?

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* 9. Are your plan sponsor clients/prospects acting on implementing ESG options?

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* 10. When the plan(s) you work with add an ESG option, what has, generally speaking, been the participant response?

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* 11. The original rule proposed by the Trump Administration singled out ESG as inappropriate for a QDIA/default investment option.  Do you think ESG investments (say, an ESG-focused target-date fund series) are appropriate as a QDIA?

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* 12. OK, last question; how're you doing (check all that apply today)?

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* 13. Other comments about ESG, your feelings about ESG, plan sponsor perspectives on ESG, the impact of the Labor Department's FABs on ESG adoption, the impact of the Trump Administration's proposed (and then final) rule on ESG adoption, the Biden Administration basically moving to undo the Trump Administration's actions, the the enthusiasm (or lack thereof) among participants for the option, the amount of action versus interest in the alternative, or life in general?

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* 14. What is your role working with retirement plans?

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* 15. What size plans do you PRIMARILY work with?

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* 16. Suggestions for future survey questions?  Seriously - what would you like to know about/from your fellow NAPA-Net readers?  Or what would you like to be asked?

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* 17. All responses are confidential, of course - but just in case you would like a response - or want me to know you responded - or just want to say hi - here's your chance to do so (don't forget your email)!

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