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What Dept. of Labor proposal means for your 401k

The Department of Labor has announced a proposal to amend "investing duties" regulations currently in place. Christine Hurtsellers, CEO of Voya Investment Management, joins The Final Round panel to discuss how this could impact retirement planning.

Video Transcript

- A new proposal out from the Department of Labor looks to impose stricter limits on ESG investment in retirement plans. To discuss the implications of this, we're joined by Christine Hurtsellers. She's the CEO of Voya Investment Management. Christine, it's great to have you on tonight. Let's talk about the ruling that came out earlier this month. Walk us through what the changes are in this proposal.

CHRISTINE HURTSELLERS: Well, the Department of Labor put out a proposal or essentially responded to the concept of ESG investing because, as you know, it's becoming more and more popular and profound here in the United States, and essentially, the DOL, the Department of Labor, was saying-- you know, as a fiduciary, they're really putting a higher bar or level of standards on somebody that's designing a plan for their employees if they want to include ESG investments. And so just to single-out ESG investments specifically in that way, you know, we do not think is a good thing and in the best interest of plan participants.

- What specifically does that mean, though, for retirement plans? It's not saying you can't necessarily invest in it, but what exactly is ESG defined as in this plan? And what are the implications for an actual investment.

CHRISTINE HURTSELLERS: Well, you know, ESG can take many different flavors, if you will. So, again, you know, ESG, Environmental Social Government-- those are the factors that you think about, and there are all kinds of things you can do with an ESG investment, what you would call more exclusionary, meaning I don't want energy or carbon emissions. Or you can just have ESG-aware investment process behind the product.

So it's a very broad continuum of what a plan participant can choose from or what the fiduciary who's overseeing that for them can include, and so, again, when you think about ESG investments as well, they perform very well. They've been in Europe for literally tens of years, right. We have over 10 years of data on how these assets or these investments have performed when you think about ESG, and Morningstar recently has shown some strong statistics that ESG funds have out-performed their index or non-ESG counterparts.

- So we're still talking about a proposal here. What specifically are you calling on the Department of Labor to do? Because to your point, you've also looked at where investors stand on this in terms of being able to get that return on is she investing in their retirement plans. It's certainly a popular move, so what exactly are you asking the Department of Labor to do?

CHRISTINE HURTSELLERS: Well, essentially, not single-out, you know, ESG investing as a higher bar for qualitative judgment that the plan design or the employer has to consider because there is always judgment as far as how you design the plan, what target dates you apply as an example of the investment line up. So judgment is required for any employer that's designing.

So to single out ESG as sort of a higher bar that you have to prove, you know, that it's definitely better than the index counterpart doesn't seem like the right answer. Number one, it's proving itself to be that way, and then number two, when we surveyed our clients, 67% of our clients-- and, again, Voya is one of the largest retirement administrators in the country. 76% want their employer to consider ESG, and we also found 68% percent of those people said-- 60%, rather, said, I am more likely to save if you have these offerings in my plan.

And why that's so important is, listen, we are in a world of what we call negative interest rates, right. What that means is that, you know, rates are lower than inflation, and that really penalizes savers. That means now people are going to have to save more than ever just to stay even and get to the retirement goals and so, again, putting things in place where clearly we see a lot of alignment with employee values-- it just isn't logical to us.

- Christine, just to push back a little bit, I think, kind of as you alluded to, ESG has gotten a lot of hype, a lot of buzz, but also a lot of scrutiny where there are some firms that have been created specifically, explicitly to focus on that line of investing. And the returns are not necessarily guaranteed, right. The returns are not necessarily going to be higher.

When you think about this added layer of scrutiny, could that possibly be a positive thing that will be a bit more critical and will be able to define ESG in a more comprehensive, robust way?

CHRISTINE HURTSELLERS: Yeah, I would say-- you know, the issue you're bringing out is more of what we would call greenwashing or people putting products in place and saying that either their investment process considers ESG, as an example, but not really following through with that. And so, again, going back to the judgment aspect of the fiduciary or a person overseeing the plan, it's very important to actually look at the factors, look at, is that investment manager truly using a rigorous, robust process to consider it?

And, again, the data shows, as Morningstar has indicated, MSCI-- there are different places that have shown that if you have a quality ESG fund, it does outperform the broader market, and it's not episodic. It's not simply in COVID because energy underperformed. Truly, what it's trying to get at is thinking very hard about, are you doing the right thing, are you a good employer, and are you taking care of your environment?

It's not just that. It's also, are you well-governed? Do you have good risk controls in place? So all these things make a lot of sense for good strategic investments, and that is under the label of ESG.

- Christine Hurtsellers, Voya Investment Management CEO, thanks so much for your time today.

CHRISTINE HURTSELLERS: Thank you very much.