Reader Responses November 2, 2015

SURVEY SAYS: Thoughts About Economically Targeted Investing

What some call “socially responsible investing” has been slow to make its way into retirement plans.
Reported by

Last week, the Department of Labor (DOL) issued a piece of guidance Labor Secretary Thomas Perez says will significantly expand the use of environmental, social and governance (ESG) investing principals—what the Department prefers to call economically targeted investments (ETIs)—under the Employee Retirement Income Security Act (ERISA).

A regular PLANSPONSOR contributor, Michael Barry, immediately offered his views about what may be a problem with the DOL’s stamp of approval on this type of investing for retirement plans.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Last week, I asked NewsDash readers, “Do you think the DOL’s guidance is a positive or negative for retirement plan sponsors and participants, and what is your reaction to Michael Barry’s thoughts about it?”

The majority (55%) of responding readers say the DOL’s guidance about economically targeted investing in retirement plans is a negative for both defined benefit (DB) and defined contribution (DC) plans and participants. Only 15% say it is a positive for both. One-quarter of respondents were neutral, saying it is neither a positive or negative. While no one said it was positive for DCs and negative for DBs, 5% indicate it is a positive for DBs and a negative for DCs.

Reaction to Michael Barry’s column, “The Problem with ESG Investing,” was expressed by few, but all were vehement; they agree with him.

Comments about Michael Barry’s column 

    In principal, I agree with Michael Barry's column but I imagine there will be some PR issues with participants if they are not offered enough of a variety in their fund options if they do not like the ESG fund(s) offered. No one is saying they have to invest in those funds.

    I agree that trustees should not be using other people's money in the form of participant contributions and balances to be influencing public policy.

    Spot on. Said what most are afraid to say. Thank you for writing it.

    Wise words, as usual. I would also like politics to stay, as much as it can, out of the retirement industry.

    I agree - the new guidance just muddies the waters

    Thank (pick a deity of your choice), for the straight talk. Need more bull-by-the-horns, no fancy dancing zone kind of explanations regardless of the "feelings".

    Required reading.

    My guess is that so-called "progressives" were highly offended, while "conservatives" were cheering him on. Here's the bottom line, and it's (still) in the DOL's most recent pronouncement (though you have to read past the flowery oratory that they use to introduce it - as Barry points out): Any investment criteria other than the standalone prudence of the investment itself is a violation of ERISA's fiduciary obligations. That isn't what Secretary Perez wants you to believe, but it remains what the law says, despite the attempted misdirect. And much as they might like to try and change that, the law is (still) the law.

    I totally agree with his points and would go on to say that any time someone from the government proposes something, go the other way. Everything they do is for political expediency and not the good of the retirement system and plan participants.

    General comments about economically targeted investing in retirement plans were vehement as well, and again, most see it negatively. However, there was some distinction between having a trustee decide such investments for a plan (as in DB plans) and offering choices to DC plan participants. “Sitting on a larger pile of money may be of small importance if the planet becomes unable to support life,” one reader said. “People should be able to invest their own money in any silly, misguided and/or well-intentioned social cause they want,” said another. Several agreed that participants should be able to invest this way, but suggested they do so in vehicles other than their employer-sponsored retirement plan. Editor’s Choice goes to the reader who made this point: “This is not the reason people aren't saving for retirement… We have a bigger problem on our hands!”

    Much appreciation to all those who responded to the survey! 

    Verbatim 

    Seems okay but will never work in our plan as we are a multiple employer plan with adopting employers from very different segments of the economy.

    Seems to me that it unnecessarily expands the fiduciary liability of a trustee that allows these types of funds in an ERISA plan. I have always told people that if they want to buy these investments in their personal IRA or a brokerage account, that is great, but they do not pass the prudence test for an ERISA plan. Many of these investments may not be diversified enough under ERISA. Also, many of them really use accounting gimmicks to "accomplish" their stated agenda. What if a participant in a plan sues under ERISA because there are investments in the plan with a public policy goal the participant does not agree with? Do trustees really want to have one more thing to worry about?

    Fiduciaries should be charged with maximizing returns for the Plan not worrying about the economic benefits besides returns. How many months of this clown president do we have left????

    Very bad idea. Has no place in retirement plans. If individuals want to invest that way, they are free to choose. Don't force your political agenda on my retirement.

    This is a personal choice and not good for retirement investment.

    Verbatim (cont.) 

    So long as such investments are an option available to participants in addition to a menu of other portfolios choices, I see it as an enhancement to the plan. It would be up to each employee to weigh whether such an investment choice is worthwhile to them. They may find that taking on more investment risk or accepting lower returns is acceptable when considering the totality of the effects of their investment choices. Sitting on a larger pile of money may be of small importance if the planet becomes unable to support life.

    It's hard enough to accumulate retirement savings without the Federal government passing judgment on investments which will be a political game. Liberals in government need to BUTT OUT!

    This is not the reason people aren't saving for retirement. This is not going to get people to flock to an investment adviser. We have a bigger problem on our hands!

    Retirement investing is about retiring, not politics!

    It stands to reason, then, the next legal battle will be the plan didn't include the PC-de jour investment option of some group who feels they're now the target of the then current "ism" and needs its 15 minutes. We had the same problem with United Way donations and, as a result, have a list arms-length long (and a blank space in case we missed one) for "personal" designations. Dang, and I can remember a time when I was less cynical. I think Spock said it best, that the needs of the many outweigh the wants of the few. (Yeah, I know. I paraphrased it for cryin' out loud - so sue me)

    This makes more money available strictly to serve political agendas and that's bad.. What will the lefties say when conservative trusts just want to invest in defense and security firms because they can make such a "killing" (?!) on escalating world violence?

    Our industry has not conquered the basics of investing with participants and now we’re spending time on political investing? What’s next, equal time for the sin stock funds which seem to have a good showing at a high fee? The investment community is constantly telling people to invest to win, maximize your return, and now we want to add but “invest with your heart” This is a silly industry and we’ll soon have some “great thinkers” looking at the other end and promoting the so called VICE Funds. Someone give the DOL something else to do!

    It really matters on how the guidelines are used. ESG is important, but as a guideline, not as a rule.

    Dress it up anyway you want - ETI is just a euphemism for what we used to call "socially responsible" investing. People should be able to invest their own money in any silly, misguided and/or well-intentioned social cause they want. But you don't get to use my/our money to "vote" YOUR conscience. Do that on your own time and dime.

    The only things that a fiduciary should consider when selecting funds for their plans is the soundness of the fund, its expected returns, the cost to participants and the fund managers. The rest of the DOL's position is nothing but political crap.

    NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Asset International or its affiliates.
    Deals and People October 30, 2015

    Retirement Industry People Moves

    New hires at Towers Watson and Commonfund, and TRA signs on to VMS recordkeeping and investment platform.
    Reported by

    Aongus O’Gorman has joined Towers Watson in Sydney and will cover a range of hedge fund and other diversifying strategies. He was previously managing director of Round Tower Solutions, a boutique consultancy focused on investment governance, process improvement and product management.

    Abbas Alighanbari has joined the London office, where he will be involved in a range of hedge fund strategies, initially focusing on long/short equity. Previously, he was at International Asset Management, where he researched and conducted quantitative and qualitative analysis on a broad range of hedge fund strategies and assisted in managing client portfolios totaling $4.1 billion.

    For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

    Victoria Vodolazschi will focus on long/short equity, macro and systematic strategies in the New York City office. She was previously a consulting strategy specialist at PivotalPath, where she evaluated hedge fund managers and helped build the firm’s investment and operational due diligence process.

    Brad Morrow, Towers Watson’s Americas region head of manager research, cites the three managers for their substantial experience.

    NEXT: Commonfund names new chief investment officer. 

    Commonfund, an investment manager for endowments, foundations and the public sector, has appointed Mark Anson its new chief investment officer. He will start in January.

    Anson is currently CIO of the Robert Bass Family Office. Previously, he has served as CIO of the California Public Employees’ Retirement System (CalPERS) and the British Telecom Pension Scheme and as president of Nuveen Investments. 

    Anson will serve on Commonfund’s operating committee and will chair the investment policy and asset-allocation committees. He will report to Catherine Keating, president and chief executive of Commonfund, who cites Anson’s track record and experience as an institutional investor. “He has been both a leader and innovator across asset classes, particularly in alternative investing,” she says.

    Anson holds a bachelor’s degree in chemistry and economics from St. Olaf College, as well as master’s and doctoral degrees in finance from Columbia University, and a Juris Doctor from Northwestern. He holds designations as a Chartered Financial Analyst (CFA), Chartered Alternative Investment Analyst (CAIA) and Certified Public Accountant (CPA). He has published numerous journal articles and financial textbooks and is the author of the “Handbook of Alternative Assets,” the textbook used for the CAIA certification program. He serves on the Board of the CAIA Association and has also served on the CFA Institute Board and the New York Stock Exchange’s Investor Advisory Board to the Chairman.

    NEXT: TRA integrates with Vertical Management Systems’ platform.

    The Retirement Advantage Inc. (TRA) is the most recent third-party administrator (TPA) to integrate with the recordkeeping and investment management platform of Vertical Management Systems Inc. (VMS).

    With an automated cloud-based recordkeeping platform that integrates brokerage, trust and custody accounting systems, VMS provides solutions to address the needs of retirement advisers, plan sponsors and plan participants. TPAs can offer their services in an integrated fashion to the VMS community of advisers, plan sponsors and participants.

    According to TRA President Matt Schoneman, the firm’s advisers have spoken favorably of Retirement Revolution’s ability to facilitate the provision of individually tailored investment guidance to participants while providing investment flexibility and full fee transparency to stay compliant with pending regulatory changes. Integrating with the VMS platform boosts TRA’s support of advisers and plan sponsors, Schoneman says.

    Robert Ward, chief revenue officer of VMS, describes TRA as a forward-thinking TPA whose experience, insights and national influence will help to innovate the Retirement Revolution's next generation retirement solutions.

    TRA services more than 4,500 plan sponsors, 300,000 plan participants, and has $4.5 billion of plan assets under administration.

    VMS provides data, financial networking and account aggregation technology.

     

    -Jill Cornfield and John Manganaro

    «