EBSA to Discuss Small Business Retirement Plan Options
The Department of Labor’s Employee Benefits Security Administration (EBSA) will conduct a webcast for small businesses and their retirement benefit services providers on August 6.
Internal Revenue Service (IRS) experts will also join the
hour-long EBSA webcast, called “Choosing a Retirement Solution for your Small
Business.” The webcast will provide small business owners and human resources
professionals with practical information and helpful tips to assess and compare
the qualified retirement plan options that are available.
Service providers will have the opportunity to learn about
operating a successful retirement savings plan in the small and micro markets.
Responsible investing may include socially responsible
investing (SRI), as well as environmental, social and governance investing
(ESG). “SRI and ESG are both types of responsible investing,” Earle Allen, vice
president of Cammack Retirement Group, tells PLANADVISER. “SRI uses a process
of negative screening to eliminate companies from potential investment based on
the products or services they deliver or the actions they take. ESG investing
tries to identify companies that follow green procedures as a complement to
products and services it provides.”
Investment experts note that considerations for ESG
investments can involve anything from an investment’s carbon footprint to its
sensitivity to potential resources of energy shortages (see “Looking
Ahead Responsibly”). They also note that responsible investing is not a
passing trend and that plan sponsors need to think about how to integrate such
options into their investment selection process (see “Paper
Examines Responsible Investing”).
The New York-based Allen, who wrote a paper about
responsible investing, notes that one limitation of such investments,
specifically SRI ones, is that the negative screening process can result in a
significantly restricted pool of potential companies from which to choose. Plan
sponsors may also be concerned that responsible investments in general may not
perform as well as other non-responsible investments, he says. “This may cause
a fiduciary problem for them. So, if the participant demand is not there, plan
sponsors are typically reluctant to undertake that potential risk for limited
benefit.”
To address these concerns, Allen says, “Plan sponsors should
first identify participant interest in having responsible. Assuming the demand
is there, plan sponsors need to analyze the available options. There are
responsible investments that are competitive in terms of performance, which is
key to avoiding potential fiduciary problems from the Department of Labor. Once
implemented, plan sponsors must remain vigilant in their ongoing review to make
sure the selected options remain competitive, or replace them if they are not.”
To
maintain diversification among responsible investments, Allen explains,
“Careful analysis by plan sponsors is critical. Competitive standards can be
met with responsible investments in many asset categories, such that a
diversified array can be crafted. However, the more responsible investments
offered, the more potential risk for underperformance and need to search for
replacements. This is why plan sponsors frequently just offer a balanced fund
that enables the participant to diversify his or her account all in one
responsible investment.”
As a way to address the potential for lower returns, Allen
says plan sponsors could include responsible investments in the lowest group of
a tiered array and expressly indicate that those funds are not carefully
reviewed. However, he cautions, there is no guarantee that such a plan would
pass scrutiny by the Department of Labor. “It has yet to be tested,” Allen
says. “We strongly encourage plan sponsors to speak with legal counsel before
implementing such a plan.”
To gauge participant demand for offering responsible
investments, Allen recommends, plan sponsors check with their human resources
or finance departments to see if any comments have been received from
participants regarding a desire to invest in responsible options. They could
also issue a survey to receive feedback from employees about their interest.
Before choosing which responsible investment options to
offer in their retirement plans, Allen says, “The plan sponsor should start by
deciding if they want the investments to be guided by a particular mission,
such as no alcohol, or firearms, or lab animal testing, etc. and use a negative
screening process, or if it is more interested in ESG type investing. If there
is no specific social agenda, the plan sponsor will have more options from
which to choose, and thus presumably a better chance for finding competitive
options.”
Beyond the social criteria, Allen says, the plan sponsor
should use the same investment criteria it uses for any other fund related to
performance, fees or process. From this screening process, they will find funds
that meet both the social and performance criteria to be eligible for inclusion
in the plan.