Data & Research February 23, 2023

CAPTRUST Survey Shows Nonprofits Ignore Benefits of Select Investments

New research shows organizations often overlook alternative assets, ESG and DEI.

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Nonprofit organizations consistently ignored the benefits of alternative investments, environmental, social, and governance investing and diversity, equity, and inclusion initiatives, according to CAPTRUST’s 2022 Endowment and Foundations Survey.

Of 169 nonprofit organizations surveyed by CAPTRUST, 37% did not allocate resources to alternative investments, with 10% of those reporting that they did not see a benefit in doing.  

“With a range of strategies available and numerous potential rationales for investments, many nonprofits may benefit from exploring this asset class,” CAPTRUST Director James Stenstrom wrote in the report. 

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However, alternative assets ranked first among asset allocations organizations most expect to increase, with 82% of organizations expecting to increase their allocation. Only 18% of organizations expected their allocation to alternative assets to decrease. Alternative investments presented the most lopsided expectation compared to the other asset allocations with less interest, such as cash, domestic equity, fixed income and international equity.  

ESG As Detractor 

Organizations that adopted ESG versus those that did not have significantly contrasting attitudes towards mission-aligned investments, according to CAPTRUST. Nonprofits that had not adopted ESG were 3.4 times more likely to think the initiative would detract from their performance.  

The most common obstacle for organization’s adopting ESG was potential performance impact, as reported by 32% of respondents. This was followed by 26% of organizations citing the inability to track specific impacts as a barrier. Overall, the number of nonprofits allocating to ESG decreased in 2022. 

Both groups, however, expected their organization to adopt ESG in the future, with 28% expecting an increase and only 6% expecting a decrease.  

Respondents identified anti-pornography as the top personal priority guiding their ESG, impact, and mission-aligned investment. This was followed by pro-racial minority equity, pro-religion, Pro-human/worker’s right 

DEI Not a Focus 

CAPTRUST also found foundations and endowments were faltering on their DEI efforts. Although 82% said DEI increases effectiveness, the initiative was ranked as the lowest concern by a wide margin. Eighty percent of respondents felt neutral, low concern or extremely low concern about DEI.  

Furthermore, 96% of nonprofits said they prioritized DEI when recruiting for their boards, but only 16% had any diverse board members. Overall, diverse talent represented only 6% of all boards.  

“Our largest survey effort to date, CAPTRUST’s 2022 Endowment & Foundation Survey expands on techniques pioneered in previous years’ edition,” said James Stenstrom, director of CAPTRUST, in the letter from the editor. “We have worked to identify not just what nonprofits are doing, but why. By understanding peer thought processes, organizations can use the collective wisdom of the sector to inform their own decision-making.”  

Products February 23, 2023

WTW Announces PEP With Eye Toward Increased Plan Outsourcing

The global retirement plan advisory is using its expertise with multi-employer plans in the U.K. to the U.S. market as backed by recordkeeper Transamerica.

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Willis Towers Watson has entered the U.S. market for pooled employer plans on a bet that outsourcing of retirement plan management and administration will increase for small-to-medium sized plan sponsors.

WTW announced its LifeSight PEP on Thursday with a goal of providing an offering that simplifies 401(k) plan sponsorship for employers at a lower plan cost and reduced operational and fiduciary burden. Transamerica, which has background in providing multiple employer plan solutions, will be overseeing the administration and recordkeeping for the PEP.

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“We have decades of experience in retirement programs here in the U.S. and globally, and in talking with our clients and our colleagues, we wanted to bring the best of WTW across what a defined contribution plan can deliver,” says Michele Brennan, LifeSight U.S. business leader for WTW.

WTW, headquartered in London, is running the PEP through Lifesight, its defined contribution multi-employer pension trust. Brennan says the firm is launching the PEP in part due to the trend toward outsourced retirement plans globally, ranging from superannuation pension benefit funds in Australia, master trusts in the U.K., and outsourced chief investment officer services in the U.S.

“This is now the continuation of fully outsourcing, and an employer is able to do that now,” she says.

SECURE Act to SECURE 2.0

PEP’s received fanfare in the initial SECURE Act as a way for small businesses to offer workplace retirement plans with the cost-saving and administrative advantages of a larger plan. But the pandemic hit shortly after passage at the end of 2019, which some industry watchers say stalled PEP growth.

The offering has since begun to gain traction in 2022 and into 2023, according Robb Smith, president of RS Fiduciary Solutions and one of the founders of PEP-HUB and PEP-RFP.com. As of early 2023, there are more than 100 pooled plan providers listed with the U.S. Department of Labor and over 300 PEPs registered by these plan providers, according to Smith’s analysis. That compares to 80 registered pooled plan providers and 170 registered PEPs in late 2021.

PEPs got another push from SECURE 2.0 legislation at the end of last year, which now allows them to be used by nonprofit 403(b) retirement plan sponsors. PEPs  are also, however, competing in a small retirement plan market with a number of firms championing relatively cheap 401(k) plan offerings with fiduciary coverage and ease of use, as well as programs like the Starter 401(k) plan, created by SECURE 2.0, that offers two new plan design options for employers that have no retirement plan.

Small Plan Competition

Those small plan firms, such as Ubiquity, Vestwell, and Icon Savings Plan, have recently reported strong growth due to small plan demand. Just this week, a new competitor called Arnie launched its business touting cheap plans and ease of implementation.

Smith, whose Fiduciary Solutions also provides compliance and monitoring services for employers, this week launched a tracking service for PEP-adopting employers called the PEP Surveillance Report. The service provides quarterly data for an employer to monitor their PEP and PEP provider.

The new WTW PEP will leverage the firm’s advice and implementation of retirement plans for employers, including overall plan design, governance, investments, outsourced chief investment officer, administration and employee engagement.

“I do feel that the defined contribution plan being outsourced will provide a meaningful difference for employers of all sizes,” Brennan says.

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