Hobby lobby was vilified for its stand against abortion and the investment choices in their retirement plan actually supporting the manufacture abortifacients. During your investment committee meetings has the topic of screening your investments to align with your mission come up? If not, you aren’t alone.
When discussing investments many committee members would concede control to investment professionals that represents well-known brand-name firms. Having worked with brokers in the past I know that many of them have their own biases when it comes to investment management. Screening for social issues typically is not in their investment process. However in what the 401(k) Service Solution™ calls a Vision Session™ your goals and what success means to you and your employees is discussed. When you are evaluating investments for an ERISA 403(b) plan the focus for selection of investments should be on process. The Center for Fiduciary Studies in fact provides standards for evaluating socially responsible investments for your investment menu.
Are your 403(b) plan investments in-line with your mission?
In diverse workforces with women, minorities and people from myriad fates I think it’s important to canvass them to get an understanding of their environmental, social and governance concerns. While the RIS in ERISA stands for retirement income security that does not have to happen at the expense of one’s values.
If your organization is anti-cancer one would expect that you wouldn’t support tobacco and other known carcinogens. If you want to prevent blindness, decrease diabetes one would believe that you would not support certain concerns that may lead to these conditions. Certainly it would not be wise to spend your donors’ money on public relations campaigns trying to justify why your 403(b) plan investments were misaligned with your mission. Further, You may have conservative Christian or Muslim employees that by their faith cannot support certain companies your plan’s investment choices invests in. This may actually be a reason why they are not participating in your plan.
One-size-fits all 403(b) plan investments
There are no one-size-fits-all socially responsible investment strategies. The investment may be considered socially responsible and only screen out tobacco. That may not be a sufficient definition for you and your 403(b) plan participants. You should consider the pluses and minuses of various screens. Many people feel that environmental social and governance screens reduce return. However according to eVALUEator, a service that conducts social screens reflecting conservative faith values, 91% of US traded companies pass their screens. Ultimately retirement outcomes are far more impacted by how much your employees save than the investment returns they get. Most people have a moderate tolerance for market risk which I have found can be easily accommodated using a number of social screens.
Considering 403(b) plan screening?
- Make sure that your current advisor has expertise in social screening. You could also consider adding a adding an advisor that has expertise in this area to do the screening and maintain your current relationships for other investments and fiduciary services.
- Make sure that you are providing adequate education to your employees. However, your employees may not understand their choices.
- If you have been told that you have socially responsible choices, make sure they fit with your definition or the employee(s) interests you are trying to satisfy.
- Check to see if your platform a recordkeeper has more than one choice. Often recordkeepers are not concerned with having investments to align with 403(b) plans and their non-profit mission. You may have to put pressure on them to add more choices or look for another provider.
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This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
