SRI Options in DC Plans Will Grow

Within three years, socially responsible investment (SRI) options in defined contribution retirement plans by 2010 will have 60% market penetration.
A survey by Mercer Investment Consulting released by the Social Investment Forum found 19% of DC plans already include an SRI option and 41% of all DC plan sponsors are not currently offering SRI options but expect to be doing so within three years. The report also said that the number of pension consultants with clients requesting SRI fund recommendations has increased significantly over the last three years and health care and government organizations are, so far, the employers most inclined to add an SRI option as compared with all survey respondents.
The report concludes: “As institutional investors continue to consider environmental, social and governance issues within their investments and as these issues retain their prominence in the news, Mercer Investment Consulting believes that overall demand for socially responsible investment options by DC participants will grow. In addition, certain types of organizations may see growth in SRI because of their mission, their commitment to sustainability, or because they employ a workforce with beliefs aligned with the tenets of SRI.”
According to a news release about the data, predictions for SRI growth are strong: 81% of plan administrators, 72% of consultants, and 47% of plan sponsors predict an increasing or steady demand for SRI over the next five years. The main forces behind this demand include a desire to align retirement plan offerings with the mission of the employer (e.g., a focus on corporate social responsibility), internal staff recommendations, and employee/participant requests for SRI options.
Actively-managed domestic large-cap equity SRI mutual funds are seeing the greatest demand from plan sponsors. In addition to this type of fund, respondents from all three groups said that actively managed income, balanced, and asset allocation/lifecycle mutual funds were most appropriate for SRI options. However, misperceptions about the competitive track record of SRI and fiduciary issues still exist among some plan sponsors and need to be addressed, according to the survey.
The report said that in evaluating the funds, plan sponsors and their advisers typically use the same evaluation criteria for SRI funds as for non-SRI funds. Past performance, volatility, and positive and exclusionary screening are viewed as the most important factors for fund evaluation. Plan sponsors and consultants/advisers primarily use non-SRI indexes to evaluate SRI fund performance.
The research was undertaken with project partners AltruShare Securities, Calvert, FTSE Group, Neuberger Berman, Northern Trust and TIAA-CREF. A total of 129 US plan sponsors, 16 DC plan administrators and 38 consultants participated in the surveys, which were undertaken by Mercer Investment Consulting (plan sponsor and administrators), and PLANSPONSOR magazine (survey of consultants/advisers).
The Mercer Investment Consulting survey was sent to potential respondents representing public, corporate, faith-based, health care, and other plan types.
The majority of the plan sponsors offer 401(k) plans, are corporate organizations with less than 25,000 plan members, and have less than $5 billion in assets. Overall, the responding plan administrators are the largest providers in terms of size of assets and number of accounts. A cross section of advisers/consultants and advisers responded to the consultant survey sent by PLANSPONSOR magazine, including large and small organizations, institutional consulting firms, and financial advisers.
The Social Investment Forum ( is the national association for the social investment industry.