Investing May 2, 2022

Millennials Will Make Impact Investing Mainstream

As younger investors attain more wealth, doing good will matter as much as making a profit, says Fidelity Charitable.

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Impact investing will likely become a mainstream investment strategy as millennials attain more wealth, according to a Fidelity Charitable study that found that 61% of millennial investors already practice impact investing, compared with only one-third of all investors.

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“We find that investors are increasingly interested in aligning their investments with their broader values and desire for social change,” Scott Nance, vice president of impact investing at Fidelity Charitable, said in a statement. “And the trend toward values-based investing will only grow as millennials come to control a larger share of wealth.” 

Although impact investing typically differs from traditional investing in that it prioritizes achieving social good over financial returns, the study treats ESG investing as a subset of impact investing.

The study found that while millennials are in the lead when it comes to impact investing, older generations are starting to catch on. Only one-third of all investors engage in impact investing, but 40% of non-participating investors said they will consider making their first impact investment within a year, while 60% said they aren’t likely to consider it.

The study observed that the main barrier keeping many investors on the sideline is a lack of knowledge, rather than disagreement over the concept of impact investing. It found that 39% said they weren’t participating because they didn’t know enough about impact investing, while 14% said investment decisions should be based only on returns, and another 14% said they didn’t believe impact investing was an effective way to solve problems.

“As investors gain more experience and options continue to become more accessible, many investors plan to increase their impact allocation,” says the report. “A significant portion of those who haven’t yet made an impact investment say they are likely to consider doing so in the next 12 months—further reinforcing that the strategy is gradually becoming more mainstream among everyday investors.”

Among investors of all ages who currently participate in impact investing, the most common method was through mutual funds or indexes made up of companies screened for certain established criteria, which was cited by 45% of respondents. The next most common way, which was named by 43% of respondents, is avoiding investments in individual companies or industries they feel have a negative impact.  Other methods include investing in private funds that focus on companies with social or environmental benefits (36%); investing in small businesses or start-ups that focus on social or environmental benefits (36%); participating in peer-to-peer financing or microloans (20%); and providing loans to charitable organizations (20%).

“Younger generations bring a new mindset to their everyday decisions—seeking to align their choices with their values, including financial and investment decisions,” says the report. “As these investors continue to grow their wealth, impact investing could quickly shift from an emerging trend to a mainstream practice.”

Compliance May 2, 2022

Plaintiffs Retry UPS Annuity Conversion Lawsuit

The refiled lawsuit argues that the defendants are failing to provide alternative forms of pension benefits that are ‘actuarially equivalent’ to the standard single life annuities that participants earn.

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Participants and beneficiaries in the pension plan of the United Parcel Service of America have refiled an Employee Retirement Income Security Act lawsuit against the company in the U.S. District Court for the Northern District of Georgia.

The new complaint represents the plaintiffs’ second try in arguing their case. It closely represents their original complaint, filed in early 2020, but features some important changes.

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The plaintiffs suggest that UPS pension plan fiduciaries committed multiple ERISA breaches while calculating the value of joint and survivor annuity benefits to be paid out of the company’s pension plan relative to the value of the plan’s standard single life annuity option. Plaintiffs in such cases say the defendants have failed to pay JSA benefits in amounts that are “actuarially equivalent” to a standard SLA benefit. Such actuarial equivalence is required by ERISA.

The first ruling in the case, filed in late August 2020, sided firmly with the UPS defendants in rejecting the lawsuit. Despite the complexity of the issues at hand, the decision numbered just 20 pages, and it focused exclusively on the fact that the plaintiffs did not exhaust all the potential administrative remedies, which the court determined they must first explore before litigation would be appropriate.

While it advances the same core arguments as the original complaint, the new suit also addresses the question of administrative remedies. It states that the plaintiffs exhausted all administrative remedies under the plans by filing claims in accordance with the retirement and pension plan documents. It notes that administrative claims were submitted in September 2020—immediately after the first decision. According to the complaint, the claim and review process finished in February 2022, when the UPS retirement plan committee and board of trustees denied the appeals filed by plaintiffs, pursuant to the terms of the plans.

As articulated by the plaintiffs, the calculation of the payment amounts of a JSA benefit utilize certain actuarial assumptions that are applied to determine a “conversion factor” that is, in turn, used to determine the “present value” of the future annuity payments. These assumptions are based on a mortality table, which is used to predict how long the participant and beneficiary will live, and the current interest rate, which is used to discount the expected payments based on the expected future earnings on the principle.

In this case, the plaintiffs say their employer is knowingly using outdated mortality tables and inflated interest rate assumptions that lead to a conversion factor that undervalues the JSA benefit relative to the SLA. They say this is the case because mortality rates have generally improved over time, with advances in medicine and better collective lifestyle habits. Thus, people who retired recently are expected to live longer than those who retired in previous generations. By the same token, older mortality tables predict that people near—and past—retirement age will die at a faster rate than current mortality tables.

According to the lawsuit, the UPS defendants calculate the JSA conversion factor, and thus the value of the JSA offered to participants when they retire, using inappropriate mortality assumptions from the 1960s through the 1980s. The suit additionally claims the company uses outdated interest rate assumptions that further dampen the present value of the JSA benefit.

The full text of the new complaint is available here.

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