Political uncertainty steering 401(k)s away from ESG
With Congress seeking to tamp down on ESG and the first401(k) lawsuit over ESG having been filed, some employers are scared about the idea of including sustainable investment options in their retirement plans.
More than 70% of retirement plan consultants and aggregators say that political uncertainty is a leading reason why their clients avoid funds that consider ESG factors, according to results of a survey this week from Pimco. Such funds aren’t used much in retirement plans, and a recent rule from the DOL that addresses the issue has not yet had much effect, the bond-fund specialist found.
Despite getting an OK from the Department of Labor to include funds with ESG criteria, most consultants and retirement plan aggregator firms said they have not changed their stances. The data show that just over half (52%) of institutional consultants recommend sustainable funds to retirement plan clients, with none saying they are more likely to do so because of the new rule. While 38% of aggregators said they had previously recommended those options, another 13% have started to because of the DOL’s stance, according to the report.
Plan advisers “are very cautious” on ESG, said Fred Barstein, CEO of The Retirement Advisor University. “They’re being more responsive than proactive — which is also the case with retirement income, which is much less controversial.”
It comes down to what plan sponsors want, and that can vary, Barstein noted. “It depends on the type of company, the type of plan and the location. If you’re a 403(b) plan in Northern California, it might be a little different than if you’re a regular 401(k) in the South.”
The paper, Pimco’s U.S. Defined Contribution Consulting Study, is based on responses during the first
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