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Expert: Proposed rule on socially-conscious retirement investments 'just isn't logical'

Dhara Singh
·Reporter

A proposed rule tightening requirements for socially-conscious investments in 401(k)s or other employer-sponsored plans shouldn’t be implemented, according to one expert.

“People are going to have to save more than ever just to stay even and to get to their retirement goals,” said Christine Hurtsellers, CEO of Voya Investment Management, recently told The Final Round. “Putting things in place, where clearly we see a lot of alignment with employee values, it just isn’t logical to us.”

Read more: How you should navigate retirement during the pandemic

This summer, the Department of Labor proposed that retirement plans under the Employee Retirement Income Security Act of 1974 can’t invest in environmental, social and governance (ESG) investing vehicles if they make the plan’s returns a lesser priority or increase risk for a non-financial objective.

The Labor Department proposed a rule tightening requirements for socially-conscious investments in 401(k)s or other employer-sponsored plans. (Photo: Getty Creative)
The Labor Department proposed a rule tightening requirements for socially-conscious investments in 401(k)s or other employer-sponsored plans. (Photo: Getty Creative)

“Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan,” said Secretary of Labor Eugene Scalia in a press release. “Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.”

But Hurtsellers said many American workers want these types of investments in their retirement portfolios.

“When we surveyed our clients, 76% want their employer to consider ESG,” Hurtsellers said. “And why that’s so important is, listen, we are in a world of what we call negative interest rates, right [and] what that means is rates are lower than inflation.”

Read more: Read more: Here's how to recession-proof your retirement plan

The returns on these investments can be profitable, too, Hurtsellers said. A recent Morningstar study showed that 72% of Morningstar equity indexes that incorporated ESG investments lost less than the market during down periods for the last five years ending in 2019. 

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Yahoo Money sister site Cashay has a weekly newsletter.

“When you think about ESG investments, as well, they’ve performed very well,” Hurtsellers said. “They’ve been in Europe for literally tens of years, and we have over ten years of data on how these assets or these investments have performed when you think about ESG.”

“If you have a quality ESG find,” she said, “it does outperform the broader market.”

Dhara is a reporter Yahoo Money and Cashay. Follow her on Twitter at @Dsinghx.

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