PLANSPONSOR - August/September 2019 - 51

ESG Investing
Speaking about environmental, social
and governance (ESG) investments,
Todd Kading, president and co-founder
of LeafHouse Financial, said the basic
subject can be viewed as having two
poles. On one end, ESG can be " valuesdriven, "
meaning that an investor wants
to use ESG investing approaches to
express a specific belief or intention-
e.g., addressing climate change or
workplace inequality. On the other, he
said, ESG investing approaches that are
" values-based " are embraced by investors
that see ESG as an opportunity for
risk reduction and potential long-term
outperformance.
The Department of
Labor's position is
still that fiduciaries
may not sacrifice
performance for
any outside agenda.
Given the importance of the fiduciary
duty and need to consider the
economics of a particular investment
first and foremost, retirement plans that
have, or will embrace, ESG are much
more apt to be in the values-based camp.
Brent Sheppard, a partner and
financial adviser at Cadence Financial
Management, and Rita Fiumara, senior
vice president and institutional retirement
consultant at UBS Financial
Services, stressed that the conversation
about ESG in defined contribution
(DC) plans today is much more
sophisticated than it was five or 10 years
ago. Many more ESG-labeled products
appear on the shelf, they said, and the
ESG theme is being programmed into
many funds and investment products
with no explicit ESG label. Further, plan
sponsors are running analyses of their
existing fund menus to rate them from
an ESG perspective and using this type
of thinking to help steer decisions about
tailoring the investment menu.
The Department of Labor (DOL)'s
position is still that fiduciaries may not
sacrifice performance for any outside
agenda, Fiumara pointed out. This once
was considered a hurdle to ESG, but now
many experts have observed that using
the strategy can drive outperformance.
" Corporations are recognizing their own
opportunities having to do with sustainable
practices. It's about reputation,
quality control and sustainability, " she
said. -John Manganaro
3(16) vs. 3(38) Fiduciary
Outsourcing Explained
It is still quite common for owners of
small businesses-and even for large,
sophisticated corporate organizations-
to misunderstand the fiduciary duties
attached to their tax-qualified retirement
plans.
" Many of the clients that choose to
work with us in an outsourced fiduciary
capacity have come to realize retirement
plan oversight is not part of their core
business, " said Spencer Goldstein, principal
and chief investment officer (CIO)
at Stone Street Equity. " Once their plan
reaches a certain size and they learn
more about their fiduciary duties, they
decide they don't have sufficient time,
resources or expertise in-house. For
these plan sponsors, the common goal
is to reduce the administrative burden
of the plan, saving time and potentially
reducing costs overall. "
The different flavors of fiduciary
service are named for the section of the
Employee Retirement Income Security
Act (ERISA) under which the service's
providers are regulated. Section 3(16)
service involves plan administration;
Section 3(21) service is provided by investment
advisers who have no final discretion
over plan assets; and Section 3(38)
service is provided by advisers or investment
managers having full control or
discretion over plan participants' assets.
Pete Swisher, senior vice president
and national practice leader for
Pentegra Retirement Services, Joshua
Ulmer, senior institutional consultant at
Morgan Stanley, and Goldstein observed
that fiduciary outsourcing can save
plan sponsors substantial time and can
potentially insulate them from liability
in certain circumstances. But plan sponsors
maintain a duty to kick the tires and
stay cognizant of what is happening in
the plan. On this point, they discussed
a recent federal court judgment that
concluded, in part, that retirement
plans working with outsourced fiduciaries
have a duty beyond unequivocally
accepting the advice or opinion of fiduciary
service providers.
Swisher said it is particularly
important for sponsors working with
3(16) fiduciaries to carefully study the
formally contracted scope and terms of
the service arrangement.
" A provider offering 3(16) services is
not necessarily a fiduciary, " he advised.
" And even if it is, it may only be one for
a very limited purpose. It's important to
know what you have actually outsourced
contractually versus what you're just
getting help with. Even though you
contract someone to do something, if
you haven't contracted them as a formal
fiduciary, you remain liable and responsible
as the plan sponsor. "
Ulmer noted that outsourcing can
be attractive not just to retirement plan
committees that feel stretched thin. An
ideal candidate for 3(38) engagement is
a committee that is dedicated but wants
to focus on things beyond investments,
such as financial wellness, he said. -JM
How to Save for Health
And Retirement
Health savings accounts (HSAs) are
being touted as a savings vehicle by
which to pay for health care in retirement.
But HSA participants still have
much to learn about the accounts.
Deb Culhane, CEO of Optum
Financial Services and president of
Optum Bank, observed that employees
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