Participant Request to Add Asset Class

[khn]

What is a prudent response to a participant who is 'formally' requesting their employer add an ESG fund to the 401k lineup so they can invest in alignment with their moral principles?

[ESOP Guy]

Here is a related discussion with outside links that happened in 2018.  There are discussions of to what degree an employer is obligated to accommodate religious beliefs under the law.  There was a lot of disagreement you will see.  But it might help you start the research and decision process I hope:

https://benefitslink.com/boards/index.php?/topic/62193-refusal-to-participate-in-dc-plan-maybe-religous-reasons/

[Peter Gulia]

And whatever the employer or fiduciary decides (or both decide), each might want its lawyer’s advice about:

 

whether and how to document the record of what information was considered and what analysis was done;

 

communicating the decision to meet whatever duties might apply;

 

even without or beyond a duty of communication, communicating to start the running of a statute-of-limitations period on a disappointed person’s claim.

[Luke Bailey]

I have not followed the link and no little about this issue, frankly, but I would point out that there is a federal law that seeks to protect religious beliefs and would not be preempted by ERISA. There is no similar law regarding ESG, so bear in mind when you follow the link.

[Bob the Swimmer]

Years ago we set up a participant retirement investment committee with at least two clients whose participants had varied views on investments that they wanted to express and to weigh in periodically on what they thought was something that should be considered--this was always balanced with a more healthy representation on the committee of institutional knowledge and fiduciary understanding like the CFO and/or HR director --sometimes a committee of 5, just because employees liked to feel that they had a voice and it was at least listened to. Have not suggested that in a long time. There is a lot of content on ESG investment in the investment trade press generally , and for example the Calvert Funds represent social representation in a big way.

[Cardscrazy]

Yes I agree with Bob the Swimmer.  What does any investment committee do when EEs ask for a certain type of fund to be included in the fund lineup?  Whether it's emerging markets or contra funds or real estate, etc. the committee should consider the request along with its advisors and either adopt a change or disregard/table the request, but document the prudent decision-making in meeting minutes.  Then someone can call the EE and explain why...e.g., "already too many funds in the plan or we have it on our future agenda, or can't find a good fund, but will keep looking and thinking about it." 

As far as the link and someone trying to opt-out for religious or other reasons, I agree with the train of thought in the link that if you can't opt them out under a general clause (whether by amendment or if an opt-out exists in the plan already) or if you can't or don't want to find a suitable special fund to add, or other suitable compromise under the terms of the plan, you must follow the plan design and give the EE an account.  Later if they refuse the distribution of their vested account you escheat it to the state but you can look an auditor in the eye that you have maintained the plan according to its terms and the regs.  I think that's your overriding requirement as an administrator until the DOL says otherwise.  The DOL has some skin in this issue to advise on conflicting federal laws.  If one of my EEs came to me I'd call the DOL and if possible submit some formal question to them and put the burden on them.