Respondents to PLANSPONSOR's 2016 Participant Survey who work for organizations that offer DC plans were twice as likely to have established retirement goals as employees without access.
Greater awareness of retirement and financial concepts and a better
perception of employer generosity are some of the value employees get
from defined contribution (DC) plans, according to PLANSPONSOR’s 2016
Participant Survey.
The survey found respondents working for
organizations that offered DC plans were twice as likely to have
established retirement goals as employees without access (30.8% vs.
15.3%). The percentage of participants who “don’t know” how much income
they need to replace in retirement dropped by more than 40% (from 43.2%
to 24.5%) when respondents had access to a DC plan.
Further,
employees without access to DC plans were almost twice as likely to wish
their employer offered more financial education at work (66.7% vs.
39%).
The percentage of respondents with more than $250,000 in retirement
savings was nearly double for those with a DC plan than for those without
(22.9% vs. 12.6%). On the other hand, 60.1% of those without a DC plan reported
their retirement savings was less than $50,000, compared to 36.9% of those with
a DC plan.
Defined contribution plans also improve employee
perceptions as to the generosity of benefits offerings. Employers
offering the plans were more than twice as likely (39% vs. 17.5%) to
have their benefits described as “generous” or “very generous” as
companies that did not offer a retirement plan.
Employers
unconvinced of their value might consider this more direct finding:
58.9% of respondents without access to a DC plan were at least “somewhat
likely” to participate in such a plan if one was offered.
In March, PLANSPONSOR surveyed 1,035 employed adults ages 23 and older
regarding their access to and usage of defined contribution plans. More
results from the 2016 Participant Survey can be found here.
Enthusiasm about environmentally responsible investing has
bloomed in the wake of recent DOL rulemaking, but a new TIAA survey shows a
knowledge gap persists.
The Department of Labor moved
the better part of a year ago to encourage wider use of environmental, social
and governance (ESG) investing factors by retirement plan fiduciaries, both in
defined contribution (DC) and defined benefit (DB) plan contexts.
Speaking to reporters at the time, Labor Secretary Thomas Perez
said the new guidance essentially returns the ESG investing paradigm “back the
way things worked between 1994 and 2008.” While the regulatory outlook for ESG
is still
somewhat complicated from the perspective of ERISA plan sponsors and
advisers, the move by DOL was taken to give significantly more freedom to plan
officials to implement ESG thinking without risking lawsuits.
Rather than ESG, Perez and DOL favor the term ETI, short for
“economically targeted investments,” but “we’re talking about the same thing here when
we say ESG, SRI [socially responsible investing] or ETI,” Perez explained.
“Whatever term you favor, ETIs are investments that are selected for the
benefits they create, for example environmental or social benefits, in addition
to the investment return to the employee benefit plan investor.”
New research from TIAA shows the definition and proper role of
ESG/ETI is still far from universally understood among the plan participants investing in plans governed by the Employee Retirement Income Security Act (ERISA).
In fact, about 40% of investors recently polled by TIAA report they are unsure
if they even currently own responsible investments within their portfolios,
highlighting just how low the general knowledge level around ESG investing is.
Perhaps more startling, says Amy O’Brien, managing director
and head of TIAA Global Asset Management’s Responsible Investment team, is that even many advisers seem to lack deep knowledge about ESG themes.
“Even with interest in social impact growing, and the
availability of more responsible investment options than ever before, greater
than one in three investment advisers concede that they are not able to
adequately evaluate performance of responsible investments,” TIAA warns. “These
findings … expose a fundamental challenge to the investing category—the lack of
understanding among investors and advisers of what responsible investing really
is.”
Strictly speaking, under the DOL’s new guidance ESG
investing factors can still only serve as a tiebreaker when considering
economically similar investments. As Perez has clearly reiterated, “fiduciaries
still may not accept lower expected returns or take on greater risks in order
to secure collateral benefits.” But under the new paradigm, the DOL directly
acknowledges that environmental, social, and governance factors “may have a
direct relationship to the economic and financial value of an investment.” When
they do, these factors are more than just tiebreakers, but rather are proper
components of the fiduciary’s analysis of the economic and financial merits of
competing investment choices.
NEXT: Other points of
ESG confusion
According to TIAA, many advisers are still coming to terms with
this solution to the ESG Catch 22.
As the preamble to the DOL’s latest guidance states, the
requirements of Sections 403 and 404 of ERISA “do not prevent plan fiduciaries
from investing plan assets in ETIs if the ETI has an expected rate of return
that is commensurate to rates of return of alternative investments with similar
risk characteristics that are available to the plan, and if the ETI is
otherwise an appropriate investment for the plan in terms of such factors as
diversification and the investment policy of the plan. Some commenters have
referred to this standard as the ‘all things being equal’ test.” Yet at the same time, the rulemaking “does not in any way supersede the investment duties regulatory standard of 29 CFR § 2550.404a-1, nor does it
address any issues that may arise in connection with the prohibited transaction
provisions of ERISA.”
Rather, Perez explained, the new rulemaking “confirms the
department's longstanding view that plan fiduciaries may invest in ETIs based,
in part, on their collateral benefits so long as the investment is appropriate
for the plan and economically and financially equivalent with respect to the
plan's investment objectives, return, risk, and other financial attributes as
competing investment choices.”
Taking all this together, TIAA predicts that advisers will have more success getting
clients to trust and use ESG investments only as they build up their own
knowledge base about ESG pros and cons. Now is the time to learn such things, because almost three-quarters of investors say they would be “more likely to
work with an adviser who could give them competitive investment returns from
investments that also made a positive impact on society, and 65% of investors
would be more likely to stay with an adviser who could discuss responsible investing
with them.”
Meanwhile, just 45% of advisers believe this would be the
case, TIAA explains, and they often choose not to address responsible investing
options with their clients. “Over three in five investors (61%) indicated that
their adviser had not brought up the topic of responsible investing in the past
twelve months. This disconnect suggests that too many advisers forgo a chance
to develop stronger relationships with their clients as a result of not
communicating about these strategies.”
NEXT: Better
communication and education needed
One clearly positive sign emerging from the research is that a
strong majority (75%) of advisers reported an interest in learning more about
responsible investing options to better serve their clients. In addition, the TIAA
research indicates a variety of valuable opportunities for advisers moving forward in doing this work,
especially as it pertains to coaching clients on the interplay of ESG factors and portfolio
performance.
For example, TIAA finds investors are clearly doubtful of
the availability of best-in-class products in the ESG market, giving advisers an opportunity to help them find and purchase high-quality products. “In fact, more
than one in four affluent investors and advisers responded that responsible
investment options are very limited or that the category lacks quality choices,”
TIAA finds. “Even more notably, over half (51%) of financial advisers believe
responsible investing does not provide the same rate of return as other investment
strategies, while 57% of investors believe responsible investing offers a lower
rate of return than other strategies.”
Simply put, these broadly negative categorical statements around ESG are untrue,
TIAA concludes.
“More investors are considering the balance between
leveraging their assets to have a social or environmental outcome while seeking
competitive performance. According to our recent socially responsible investing
performance analysis, indexes that follow SRI guidelines delivered long-term
performance returns comparable to the broad market benchmarks,” O’Brien
explains. “Incorporating environmental, social and governance criteria in
individual security selection can in fact deliver market-competitive returns.”
Thinking specifically about the ERISA domain, TIAA finds the
availability of ESG investment options through workplace retirement plans “would
cause 71% of affluent investors to feel good about working for their employer.”
This is an even clearer effect among younger employees, with 90% of Millennial investors
saying they want their investments to “deliver competitive performance while
promoting positive social and environmental outcomes.”