PLANSPONSOR - February/March 2019 - 16

Upfront
Embracing
ESG TDFs
SIMILAR to other trendsetting retirement
plan sponsors, United World
College (UWC)-USA has an enthusiasm
for institutional excellence that overflows
to its employee benefit and financial wellness
policies. As a result, the school has
become one of the first plan sponsors to
embrace environmental, social and governance
(ESG) investing principles within
its defined contribution (DC) plan's default
investment option.
The plan's automatic features also
include a guaranteed retirement income
component, made possible via TIAA's
custom model portfolio services, as well
as glide path consulting from LongView
Asset Management.
" Our core belief as an institution
is that education is an incredible force
that can work beyond itself to create
broad social change and improvement, "
says Victoria Mora, Ph.D., United World
College (UWC)-USA president.
According to Mora, UWC-USA
makes all of its decisions and policies with
its broader mission in mind. This includes
decisions and policies to do with employee
compensation and retirement benefits.
So, as interest in ESG has gained
momentum, Mora and UWC-USA have
seen " a wonderful opportunity to align
what we're doing for employees' retirements
with what we are helping our
students to learn every day. "
In basic terms, the default investment
product that UWC-USA offers retirement
plan participants is a custom target-date
solution that weighs ESG factors directly
as part of its asset-allocation process and
includes an automatic in-plan retirement
income component for educators who
enter retirement.
Douglas Lynam, director of educator
retirement services at LongView, credits
Mora and her colleagues for being
willing to try something new. In fact,
he and Mora have a strong rapport that
has inspired stakeholders to embrace an
innovative strategy for the plan's default
investment scheme.
" When we were looking at this plan
as a potential client, we saw a big opportunity
to help UWC-USA understand its
fiduciary duty and how it could implement
its mission while also improving
retirement outcomes for employees, "
Lynam says.
" We naturally had a lot of discussions
about the Department of Labor [DOL]'s
fiduciary duty requirements under ERISA
[Employee Retirement Income Security
Act] and what the law says and doesn't say
about the use of ESG investing programs. "
Employing language adopted by a
growing number of institutional asset
managers that have embraced ESG, Lynam
says, " [LongView] knows ESG-thinking is
a benefit to performance, lowering risk as
it helps to improve diversification.
" Sustainability and environmental
issues are absolutely material to longterm
investment decisions being made
16 PLANSPONSOR.com February - March 2019
Art by Blair Thornley
today, and those include decisions about
the qualified default investment alternative
[QDIA] in retirement plans, " he says.
" The data and research are clear that ESG
can give you a performance edge when
implemented effectively. "
As to why the custom model portfolio
approach is best in this case, Lynam
suggests there are " still only a limited
number of options out there for an off-theshelf
ESG TDF [target-date fund]. "
" Especially when it comes to the price
of the prepackaged options, we felt that was
more expensive than what we'd normally
recommend as a default investment, " he
says. " When we looked closely at the TIAA
model portfolio approach, the light went
on. We realized we could create a custom
portfolio that incorporated ESG and retirement
income at the same time, while,
from the user perspective, appearing to be
essentially a low-cost TDF. "
He continues, " The price is down
to 27 basis points [bps], which we feel is
pretty spectacular for the value the client
is getting, especially considering this is a
$1.8 million plan. It's a small plan sponsor
taking the lead here. " -John Manganaro
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