Offering environmental, social and corporate governance (ESG) options in 401(k) plans may increase contribution rates, a new survey found.
“Offering plan participants ESG investment options would not only appeal to purpose-minded investors, but it could also help to motivate some participants to save more toward their retirement,” said Deb Boyden, head of U.S defined contribution at Schroders.
“Surprisingly, four in 10 participants didn’t know if their plan offered any ESG options, which indicates the need for greater plan communications, because once investors know they have the option, they seem eager to invest.”
According to the Schroders 2021 U.S. Retirement Survey:
- Thirty-seven percent of defined contribution plan participants said they are offered ESG-related investment options by their employer, while 40 percent said they didn’t know.
- Of those who were aware of their ESG options, nine out of 10 said they invest in them.
- Further, of those who said their DC plan did not offer ESG investment options or who did not know, 69 percent said they would or might increase their overall contribution rate if it offered ESG options. Only 31 percent said they would not.
“Despite regulatory overhang, demand for sustainable investment retirement options continues to rise,” said Sarah Bratton Hughes, head of sustainability, North America, for Schroders.
“Looking ahead, taking ESG adoption from ambition to action will require a greater emphasis on education by plan sponsors, so participants understand the purpose of ESG and how sustainable investments can be used to build retirement savings.”
Among the other survey findings:
- During the COVID-19 crisis in 2020, 33 percent of plan participants said they increased their contribution rate, while 10 percent said they decreased it and 57 percent left their contribution rate unchanged.
- Almost three in four plan participants said the COVID-19 crisis will have no impact on when they plan to retire, while 17 percent said they plan to retire earlier and 9 percent said they plan to retire later.
- Plan participant respondents said their retirement age goal was 63 on average, compared to 65 among those without a plan.
- Asked how confident they were in their ability to smartly invest their assets in retirement, 42 percent of plan participants said they were “very confident” compared to 18 percent without a DC plan.
- Four in 10 plan participants feel their retirement plan is fully on track, while just 14 percent without a DC plan said the same.
- Plan participants are in growth mode. Fifty percent said “grow my assets” was their primary investment objective compared to 21 percent without a DC plan, who were far more likely (56 percent) to say their objective was generate steady income.
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