Want to boost 401k plan participation and contribution rates?
Might want to consider adding socially and environmentally responsible investments to the portfolio, and then make sure the plan participants know about it.
Investment selection can be a key factor in influencing participation and increasing employee contributions to their 401k plan, according to a 2019 Defined Contribution Plan Participant survey from Natixis Investment Managers.
Participants see making a more personal connection to their portfolio as a savings incentive, the survey found. For three-quarters of U.S. workers, this means ensuring that their investments are aligned to their personal values.
Demand is so strong, in fact, that 61% of workers said they would be more likely to contribute, or increase contributions, to their workplace retirement savings plan if they knew their investments were doing social good.
This is especially important among Millennials, where two-thirds of workers say making this connection would incentivize them to start saving or increase their plan savings.
The survey of 1,000 workers with access to a company-sponsored defined contribution found 75% believe it is important to make the world a better place while growing their personal assets, but they also see a strong financial reason for investing this way.
Almost the same number (74%) see a profit motive, saying they believe that companies that provide clean water and clean energy present significant growth opportunities.
The survey says this is where Environmental, Social and Governance (ESG) funds could fill an important role, but only 13% of those not currently invested in ESG-focused funds say their company’s retirement plan currently offers ESG investment options.
Given that 62% of workers overall say they are concerned about the ESG records of the companies they invest in, failing to offer these investments could amount to a significant oversight for plan sponsors who are concerned with both participation and contribution rates.
In fact, six in 10 simply say that they would like to see more socially responsible investments in their plan offering.
According to an April 9 article on CNBC about the survey, the main reason many employers are hesitant to add investments based on ESG criteria is that they don’t want to be perceived as “imposing their morals” on their employees’ investment choices.
The article also mentions regulatory concerns as another obstacle to including ESG funds in plan sponsor lineups.
But ultimately, if employee demand for more ESG options continues to gain momentum, more advisors and plan sponsors will likely be willing to fight through the obstacles to deliver for them.
SEE ALSO:
- ESG Investments Face ‘Headwinds’ in 401ks
- New ‘Green Deal’: Partnership Launches Eco-Conscious 401k Plan
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.