Products November 23, 2022

Investment Product and Service Launches

Hartford Funds launches new factor-based equity ETF; BenchMine creates free search engine for 401(k) industry plan data; and Corebridge Financial introduces Dimensional Index designed for Power Series of Index Annuities.

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Hartford Funds Launches New Factor-Based Equity ETF

Hartford Funds announced the launch of the Hartford Disciplined US Equity ETF, a U.S. large-cap, product. HDUS is designed to address growing client demand for a strategy with broad, representative core equity exposure that seeks to deliver enhanced relative total returns while minimizing uncompensated active risks. HDUS is the firm’s seventh multifactor ETF and sixteenth ETF across the firm’s product suite.

Key highlights and details about the Hartford Disciplined US Equity ETF Fund include:

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  • Leverages a rules-based process that seeks to target balanced and consistent exposure over time across value, momentum, quality and dividend yield while simultaneously controlling for total active risk and volatility level
  • Construction that is designed to perform in a variety of market environments by utilizing a diverse set of return drivers and yield enhancement within a controlled active risk framework
  • Potential for lower costs and tax efficiency by taking advantage of the ETF structure and index rebalancing properties
  • Tracks its total return performance against the Hartford Disciplined US Equity Index, which is comprised of a select list of U.S. large-cap equities. The custom index was designed and constructed by Hartford Funds and is rebalanced semi-annually
  • Trades on the New York Stock Exchange with an expense ratio of 0.19%

BenchMine Creates Free Search Engine of 401(k) Industry Plan Data

BenchMine, a comparative analytics engine powered by OnlyBoth’s AI innovations, has launched a free search tool that highlights the strengths and weaknesses of more than 54,000 retirement investment plans. BenchMine draws on Department of Labor 401(k) data for 2021, transforming a complex dataset into easy-to-understand comparisons of each plan’s costs, performance and other key characteristics.

BenchMine was previously made available to Defined Contribution Institutional Investment Association and Plan Sponsor Institute members. Raul Valdes-Perez, co-founder and CEO of OnlyBoth, has made the search and analysis of 401(k) data from 2021 free and open as a resource for plan sponsors, providers, participants and all stakeholders to deepen their understanding of the options and opportunities at every level of the 401(k) industry.

BenchMine analyzes 2021 Department of Labor 401(k) data made publicly available in late October. Users can search more than 54,000 plans that total more than $6.6 trillion in assets. The included plans start at $1 million and are explored computationally for days. Four analytics engines can then quickly generate targeted insights.

  • Benchmarking Engine reveals how a plan performs in its asset class, industry, geography or other characteristics.
  • The Comparison Engine provides a side-by-side look at the characteristics and qualities of up to 10 plans.
  • The Scoring Engine scores a plan based on the discovered benchmarking insights, which then enables a ranking.
  • The Discovery Engine lets users do simple data lookups, but also access with richly diverse queries the hundreds of thousands of stored insights.

BenchMine creates and stores benchmarking insights, enriched with links to related plans and supporting context.

Corebridge Financial Introduces Dimensional Index Designed for The Power Series of Index Annuities

Corebridge Financial Inc. announced the introduction of the Dimensional U.S. Foundations Index, created for use exclusively in the Power Series of Index Annuities, Corebridge’s family of fixed index annuities.

The Dimensional U.S. Foundations Index will be distributed through Market Synergy Group, one of the nation’s largest networks of independent marketing organizations.

The Dimensional U.S. Foundations Index emphasizes diversified exposure to small-cap, value and high-profitability stocks to pursue higher expected returns than the overall market. The index also evaluates price changes in commodity futures and targets widening yield spreads in U.S. Treasury bonds to help generate higher growth potential while maintaining a targeted level of volatility. Dimensional combines its research-driven approach with historical data from Salt Financial’s truVol Risk Control Engine, a patent-pending tool that captures higher-frequency, intraday data to adapt more quickly to changing trends across equities, fixed income and commodities.

The Power Series of Index Annuities are issued by American General Life Insurance Company, a subsidiary of Corebridge Financial, Inc., formerly known as AIG Life & Retirement. These annuities offer tax deferral, principal protection against down markets, growth potential through a diverse range of index interest accounts and guaranteed lifetime income options to help consumers prepare for retirement. Guarantees are backed by the claims-paying ability of AGL.

Compliance November 23, 2022

ESG Is Now Permissible, But Not Required, Under ERISA

The DOL rule is designed to reduce legal uncertainty and obstacles to ESG investment.

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The Department of Labor announced the final rule on ESG investment in ERISA-governed plans Tuesday, solidifying long-awaited permission to use environmental, social and governance analysis in retirement investing, but not making it mandatory. Even as the decision came down, however, there are still details to be worked out for real-world implementation, according to multiple ERISA attorneys.

As legal authority for the rule, the DOL cites Executive Order 14030, which directed the federal government to protect pensions from climate risk, and Executive Order 13990, which instructed federal agencies to evaluate Trump-era regulations that could be obstacles to improving the environment.

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The new rule is a reversal of a rule published in the closing days of President Donald Trump’s term that intended to prevent consideration of ESG factors in investment choices for ERISA plans. In March 2021, the DOL under President Joe Biden announced it would review that rule and not enforce it in the meantime. The new rule clarifies that ESG factors may be considered in investment choices, among other changes.

One such change was that the Trump-era rule did not allow qualified default investment alternatives (QDIA) to take ESG into account, whereas the new rule permits it, according to Alex Ryan, a partner at the law firm Willkie Farr & Gallagher.

Plans may also consider “collateral benefits” as a tiebreaker if both investments in question would equally serve the interests of the plan, whereas the Trump-era rule required the investments to be economically indistinguishable, which is a higher standard.

This new standard allows non-financial concerns to be used as a “tiebreaker,” though Elizabeth Goldberg, a partner at the law firm Morgan Lewis, says those sorts of situations are relatively rare.

The new rule also allows plan sponsors to include investment menu options that take participants non-financial interests and preferences into account, as long as those menu options are still prudent. This provision is intended to increase plan participation by allowing sponsors to provide investment incentive beyond economic returns.

It is not clear, however, how participant preferences are to be measured in order to support a prudent investment option that might not have been included absent those expressed preferences.

Bradford Campbell, a partner at the law firm Faegre Drinker, says it is unclear if a sponsor should wait for explicit requests, or if it should send out surveys to gauge participant interest in certain funds.

Goldberg says these options still cannot sacrifice returns or take on additional risks, but it will take more time for it to become clear what sponsors can consider adequate participant demand or interest.

David Levine, co-chair of the Groom Law Group’s plan sponsor practice, agrees that it will take some time for the precise meaning of the rule to be understood. When asked if participant demand for certain investments could be a defense against possible ERISA-related litigation, his response was that all involved will “have to see how this plays out.”

Ryan says the DOL has not spelled out a process for sponsors to solicit or receive participant preferences for this purpose, and it ultimately may vary from employer to employer. This menu provision might provide some cover for sponsors who like to consider employee preference in investment options.

Several industry actors came out quickly in support of the new rule.

Charlie Nelson, the chief growth officer at Voya Financial said the menu provision could help firms attract competitive talent since many younger workers are seeking ESG-informed retirement options. Ceres, a sustainability non-profit, said that the new rule makes it easier to invest in ESG, which is a positive because climate risk impacts financial performance.

The Insured Retirement Institute said it had been concerned about the initial rule proposal but is glad to see that the group’s recommendation of permitting ESG strategies rather than requiring them was ultimately accepted.

Campbell of Faegre Drinker explains that the perceived neutrality of the final rule, as opposed to the proposal, makes it less likely to be revoked or significantly modified by a future Republican administration.

He noted however, that this depends in part on who the next Republican president might be. Having already tried to remove ESG considerations from ERISA plans, Trump could do so again if he were elected in 2024, Campbell says. Since this new regulation is a formal rule, instead of interpretative guidance, it would be more difficult to reverse, as any anti-ESG administration would have to go through the normal notice and comment process to approve a new rule.

Goldberg concurs and adds that the rule adds some useful clarity for her foreign clients whose domestic laws require fiduciaries to account for ESG. Notable members of the Republican Party do not agree that this new rule is “neutral,” however. Rep. Virginia Foxx, R-North Carolina and the ranking member of the House Committee on Education and Labor, released a statement Tuesday in which she said the Biden administration was prioritizing political considerations over retirement security.

“The Biden administration’s new rule jeopardizes the financial security of many retirement savers, especially workers and retirees who may be put into ESG investments by default,” she said in the statement. “The new rule overturns the strong protections implemented by the Trump administration, which guarded retirement savers from investment managers seeking to advance social and political objectives unrelated to the financial benefits to workers and retirees. The Biden administration is choosing its climate and social agenda over retirees and workers. This is bad news.”

On the Democratic side of the aisle, Sen. Patty Murray, D-Washington and the chair of the Senate HELP Committee, said in an emailed statement that, “Financial security is about planning for the future, and you just can’t plan for the future if you aren’t allowed to consider the environmental, social, and governance factors that are shaping it.”

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