Skip to main content

ESG retirement investment gets boost from DOL: What plan sponsors should consider

Plan sponsors considering environmental, social and governance (ESG) factors in their investments received promising news with the U.S. Department of Labor’s (DOL) latest update in November. Although ESG investing has received increased attention over the past few years, DOL has not been transparent in defining how qualified retirement programs should incorporate ESG-specific metrics into their selection process. Until recently, the prevailing tone of DOL’s messaging has been that ESG should be secondary to financial factors.

The Biden administration had hinted at loosening restrictions on ESG investing that were implemented during the final days of the Trump administration and forgone enforcement of those restrictions in the interim.

This latest development is a realization of those earlier signals. With the announcement of DOL’s new rule, plan sponsors can, but are not required to, include ESG factors in their investment searches. Notably, plan sponsors can include ESG factors in their assessment of their qualified default investment alternative (QDIA). QDIAs have historically held a substantial proportion of retirement assets and are subject to additional fiduciary scrutiny, so this marks a distinct and potentially consequential departure from DOL’s previous stance.

The appetite for ESG options varies. Some organizations will take the recent shift as an invitation to revamp their fund menus entirely, while others will stick with the status quo. Regardless of perspective, the following basic principles can help you assess ESG or any other options within your program:

  1. Do your research – Understand the wants and needs of your constituents and the underlying components of your investment array.
  2. Refine your analysis – The proliferation of ESG methodology has created innumerable options with nuanced characteristics, so it’s important to narrow the search where possible. Plan sponsors can identify ESG factors of particular significance, choose a screening methodology (include positive elements or exclude negative elements), or apply a scoring approach.
  3. Document, document, document – As with most committee-level work, it is very important to memorialize the process, decision points and rationale along the way. Remember, plan sponsors are not expected to have a crystal ball, but they are expected to act prudently at each point in their administration of the program.
  4. Confirm program governance alignment – Program governance documents like investment policy statements establish important guideposts for plan administration, so they should reflect any novel considerations.

This list is not exhaustive, and each plan sponsor’s approach will be unique. The final rule will be effective 60 days after publication in the Federal Register, but there’s also no guarantee that a new iteration of DOL’s position (and the industry’s associated response) is not forthcoming, so engaging a trusted advisor for assistance may be beneficial.

Have questions? We’re here to help. Reach out to HBS with any questions or to discuss your program’s approach.

The above is provided for informational purposes only and should not be construed as a recommendation. HANYS Benefit Services is a marketing name of Healthcare Community Securities Corp., member FINRA/SIPC, and an SEC Registered Investment Advisor.

Popular posts from this blog

SECURE 2.0 Discussion Series: Session One

SECURE 2.0 provisions: What we know and what’s still up in the air The SECURE 2.0 Act, signed into law in late December 2022, has factored heavily in retirement industry discourse since the final legislation was published. As with any legislation of this depth and breadth, there’s a lot to digest and the industry takes time to adjust. Our team of experienced advisors recently met to discuss some of the more nuanced provisions of the legislation, such as changes to Roth contributions, and what they could mean for plan sponsors. Panel participants included the following HBS team members: Noah Buck, Christina Bauer-Dobias, Sean Bayne, Vincent Bocchinfuso and Kathleen Coonan. Highlights of our panel’s conversation below should serve to help guide plan sponsor thinking. On Roth employer contributions NB – In addition to deferring pre-tax or Roth, plan sponsors can now allow employer contributions to be classified as Roth, is that right? VB – Correct. This is immediately available to plan s

COVID-19: Retirement and Benefit Plan Resources

As the COVID-19 crisis continues to unfold, we are closely monitoring news and updates from top sources. We’ll be updating this section as new developments unfold. Here are several key articles and links to help plan sponsors and administrators navigate the COVID-19 impact to retirement and benefit plans: Retirement Plans 4 Key CARES Act Provisions for Retirement Plan Sponsors Markets React to Coronavirus   Important Considerations for Retirement Plan Sponsors during the Coronavirus Pandemic In Fed We Trust Participant Education Services: Timely Help from a Safe Distance CRDs 100% Taxable for New York State and Local Income Tax Purposes in 2020 IRS Permits Remote Notarization of Participant Elections   Employee Benefits CARES Act Expands Health Coverage Rules Understanding the Historic $2 Trillion Stimulus Package Employee Compensation and Benefits During Closures and Furloughs DOL Clarifies Exemptions to Coronavirus Paid Leave Laws Small Business Exemption to

SECURE 2.0 Discussion Series: Session Two

The retirement industry has been buzzing since the SECURE 2.0 Act was signed into law last December. This new, comprehensive legislation has sparked a lot of discussion. As with any major reform, it will take time for the industry to fully adapt and understand all its implications. Following our April 11 webinar on the first three months of the industry’s response, our team reconvened to discuss some of what we have heard from our client and vendor partners and to respond to some of the great questions we heard from attendees. Panel participants included the following HBS team members: Noah Buck, Christina Bauer-Dobias, Sean Bayne, Vincent Bocchinfuso and Kathleen Coonan. The Discussion SB – Throughout the webinar, I wanted to stress two things: 1) confusion about where to start and what is expected from plan sponsors is normal; and 2) even more than three months in, this is a developing situation and people should expect changes as time goes on. With those in mind, engagement through