Beyond Alphabet Soup: Help for Plan Sponsors Considering ESG

DOL. ERISA. QDIA. ESG. Retirement plan sponsors have plenty of alphabet soup to contend with as the requirements of plan regulators – and plan participants – continue to shift. As participant demand for sustainable investment options grows and Department of Labor regulations struggle to catch up, plan sponsors are caught in the middle.

Decoding the Alphabet Soup
DOL Department of Labor US agency responsible for enforcing federal labor standards, including qualified retirement plans offered by employers.
ERISA Employee Retirement Income Security Act Protects workers’ retirement plan savings by ensuring that plan fiduciaries do not misuse plan assets.
QDIA Qualified Default Investment Alternatives Broadly diversified funds suitable for plan participants who don’t select their own investment options.
ESG Environmental, Social & Governance Investment criteria for company operations that can be used as screens and guidelines for potential investors.

Applying an ESG Lens
Fortunately, reviewing a retirement plan through an ESG lens may offer important benefits for plan sponsors and participants. Research has shown that using ESG factors can improve investment results, particularly for long-term investors. Survey data also indicates that two-thirds of Millennials, who now account for the majority of the workforce, are motivated to save more in investments they believe are socially responsible. And finally, the most recent DOL regulations acknowledge that ESG factors can materially affect the risk and return characteristics of investments held as plan assets.

So Where to Begin?
For plan sponsors, the starting point hasn’t really changed at all. Sponsors’ primary investment duty under ERISA is to act in the best interest of plan participants and beneficiaries – and accounting for ESG considerations fits under that mandate. Fiduciaries are also expected to carry out investment decisions using a prudent process, with help from an investment advisor. Retirement plan advisors are growing increasingly well-versed in identifying and applying ESG considerations and can be an excellent source of information.

Adding ESG options is one way to build a more robust retirement plan and potentially increase employee engagement. To learn more, download the Plan Sponsor’s Guide to ESG Investing.


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