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investment
products
and
services.
Meanwhile, many U.S. investors in institutional
and retail markets, say they want
access to ESG-focused investment products
and services, she said.
ESG investing has roots going
back over a century. Saynay noted that,
in 1898, the Friends Fiduciary Corp.
launched a socially responsible investing
fund that sought to meet the needs of
Quaker investors concerned about firearms
and alcohol.
" Suffice it to say, the ESG issue has
been evolving for a long time, " Saynay said.
" One thing that's new, at least here in the
U.S., is the growing conviction that ESG
investing is simply good investing. It's not
about taking a values-based position. It is,
in reality, the effort to take a full view of
externalities and risks and how important
factors could affect your returns. "
Of course, some ESG strategies
involve negative screening that simply
rejects certain stocks or entire sectors,
potentially denting performance potential,
but that is not what ESG is about in
2022, Saynay said. Modern ESG investing
is about leveraging the vast, rapidly
growing pool of data and insights that
pertain to factors directly affecting the
performance of investment portfolios.
" As a point of reference, some 90% of
S&P 500 companies are already disclosing
ESG information in their recurring statements,
and ESG issues are now a constant
topic in earnings calls, " Saynay said.
When it comes to the plan fiduciary's
perspective, she said, some degree of
caution when utilizing ESG is warranted,
because the regulatory picture is complex
and there are strict requirements for fiduciaries
under the Employee Retirement
Income Security Act. But ESG is no
longer a fringe issue, she said, observing
that ESG factors have become material to
the performance of investment portfolios,
and fiduciaries may therefore have a
duty to weigh the possibility of securing
better performance by leveraging ESG
considerations.
" Research also
shows
that
about
three-quarters of retirement plan participants
surveyed say they would increase
contributions if they could access ESG
within their workplace savings plan, "
Saynay said. " In addition, there is strong
evidence that suggests plan participants
also have a greater, stronger connection
with their workplace when [their employer]
speaks about ESG issues and offers the
opportunity to invest accordingly. "
Saynay said there is strong interest
in the idea of " ESG integration. " As she
explained it, this approach sees asset
managers utilize ESG data and frameworks
to improve portfolio outcomes-rather
than to achieve a particular social and environmental
impact. Many asset managers
thus already directly code ESG-focused
information into the valuation models they
utilize. " -John Manganaro
Selecting and Monitoring
Income Options
Plan sponsors wondering whether to
offer a retirement income option, and
which option(s) to choose, might start
with employee demographics, according
to Michelle Richter, executive director
with the Institutional Retirement Income
Council. For example, she said, plan
sponsors should consider whether their
workforce skews younger and thus has
time to ride out the market, or older, with
less time until decumulation must start.
Having goals helps the sponsor choose
among various income options, Richter
said. Will the sponsor want to keep participant
assets in the plan after retirement?
Plan fiduciaries also need to consider
whether the attributes they want in income
options match what their existing provider
offers and can administer.
The level of involvement the sponsor
prefers can also help it decide whether to
offer participants in-plan or out-of-plan
income options-e.g., options embedded
in a target-date fund or qualified default
investment
alternative,
or
standalone
products from which the participant must
choose, Richter said.
" Your job as
a plan sponsor
is to help
participants
and to monitor
the space ... "
When selecting and monitoring
income options, plan sponsors need to
understand the features of each product
type, she said. For example, nonguaranteed
in-plan solutions include stable
value/capital preservation funds. Out-ofplan
solutions include a plan-negotiated
marketplace where participants may roll
a portion of their balance into a traditional
annuity or a qualified longevity
annuity contract.
According to Richter, all in-plan solutions
have accumulation values associated
with them. Options that are direct
plan investments are group annuities.
A contingent deferral-like annuity is a
group annuity wrapped around an in-plan
target-date fund that provides income
after the TDF assets are depleted. This
option is fully liquid, but, if a participant
takes a distribution, it reduces the lifetime
income benefit, she said.
Plan sponsors must also understand
the trade-offs between income solution
types, Richter said. These include things
such as the level of income provided and
the level of distribution flexibility/liquidity.
When evaluating products from
insurance companies, sponsors should
look at the strength of the insurer and the
costs vs. the benefits of the products relative
to other solutions, Richter said.
" Participants don't understand something
that's been dominated by the insurance
space, " Richter told attendees. " Your
job as a plan sponsor is to help participants
and to monitor the space to make
sure the income options provided remain
appropriate. " -Rebecca Moore
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