As the retirement industry eagerly awaits new guidance from the Department of Labor regarding Environmental, Social and Governance issues, a diverse perspective panel of retirement professionals took up the issue during a Monday afternoon general session at the 2021 National Association of Plan Advisors (NAPA) 401(k) Summit in Las Vegas.
ESG issues loom large on the investment and regulatory radar of ERISA fiduciaries and advisors alike these days, and despite growing interest, there remain lingering concerns about focus definitions, benchmarking, and the implications of past and potential shifts in regulatory policies.
While Brian Graff, NAPA Executive Director & CEO, American Retirement Association, told the NAPA 401(k) Summit audience he thinks the forthcoming guidance from the Biden administration’s DOL will fall short of requiring consideration of ESG factors in retirement plan accounts, he said he was hopeful the guidance will allow ESG investments to be treated just like every other investment option.
The DOL sent its proposed rules related to ESG factors in retirement plan accounts to the Office of Management and Budget for review in August. The guidance complies with an executive order issued by President Joe Biden in May that directs the secretary of labor “to consider publishing by Sept. 2021” proposed rules related to ESG investments in retirement accounts.
The guidance from Labor’s Employee Benefits Security Administration (EBSA) seeks to either suspend, revise or rescind agency rules approved by the Trump administration last October that limited investments focused on ESG factors in retirement plan accounts and limited plan fiduciaries from voting in favor of climate-related shareholder proposals.
The Biden Labor Department abandoned the Trump-era rules in March, announcing that “until the publication of further guidance, the department will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules.”
While at least some of the advisors in the NAPA audience wondered why advisors are even messing around with ESG considerations, the consensus from the main stage panel that included former NAPA president and current 401k Specialist Top Advisor by Participant Outcomes Jania Stout, Charles Nelson of Voya Financial, Don MacQuattie of Raymond James, Karen DiStasio of Commonwealth, Joe DeNoyior of HUB and NAPA’s Graff was that advisors need to educate themselves on the topic to be ready for questions and increased interest from plan sponsors and participants.
“We are in the right position to educate plan sponsors,” Stout said. “Really in the last 12 months, companies are starting to adopt ESG principles in their corporate philosophy, and that’s opening them up to considering it.”
Nelson said the U.S. is a bit behind some other countries in embracing ESG, but added, “it’s coming fast and furious.”
He said advisors can start the dialogue by asking plan sponsors how ESG is coming into their business, and asking about diversity, equity and inclusion issues as well.
“I think this is one of the greatest opportunities for advisors as you go forward,” Nelson said, adding there are ways to bring ESG (and DEI) into the benefits equation by asking the right questions.
DeStasio said having the ESG conversation can put advisors on a different level with their plan sponsor clients, and echoed Nelson’s claim that it’s a huge opportunity for advisors to help educate plan sponsors and participants. “We are in a great position to differentiate ourselves,” she said.
There was also general agreement that with socially conscious Millennials becoming the largest demographic in the labor force, interest in ESG is bound to increase.
if the largest group in the labor force cares about where they are putting their money, Stout said that can help advisors incentivize people to save more—and that’s a good thing.
“At the end of the day, I feel like the majority of participants just want to invest in something that’s doing good for the world,” Stout concluded.
MORE FROM THE 2021 NAPA 401(K) SUMMIT:
• 401k Participants Want Guaranteed Income Options: 2021 NAPA 401k Summit
• Difficult Discussions About 401k Industry Diversity
• ‘Enormous Impact’ of Retirement Legislation Now in Washington