QOTW: Religiously-Compliant Investments

At a session at the recent PSCA national conference, an attendee wondered if other plan sponsors have received requests from participants for religiously-compliant investments to be added to the 401(k) lineup. Not many in attendance had so this week we asked our members. More than 90 percent of respondents indicated they have not received requests, and of those that have only one plan sponsor has added such a fund (and that org is religiously-affiliated itself).

The common theme in the comments was that if participants want a religiously-compliant fund (or other specialty fund) that they can do so through a self-directed brokerage window. For those who have not heard of this and would like more more information here is an article from the New York Times, and one from Morningstar.

Comments from respondents include:

• A slippery slope.  If one was added, all religions would have to be considered.
• An ESG policy should govern the use of such criteria.  Although we have not had the request to include a religiously-compliant fund, we have had requests to not receive investment income for religious purposes.
• As a faith-based organization, we were able to include this option to our participants.
• Have not explored this option
• I have actually never heard of this at all...even in newsletters. Not quite sure what it means?
• I think this is very interesting, but haven't had anyone ask
• interesting option and one as a church administrator I would find appealing.
• No interest
• Not at this time.
• not now
• Only one such request in many years.
• Our company would probably give that consideration if asked but the investment committee might be hesitant to recommend it.
• This is the first time I have heard of this issue.
• We are a church denominational plan that has screening as a part of many of our investment options, but not all.  Some participants have asked for screening on all of our funds. Our committee is committed to screening if factors do not negatively affect the performance. We consider how much of the index would be screened out if we applied screening, does our AUM permit us to cost effectively screen within a separately managed account, screening costs and are ability to screen investments, which is done easily in the USA but can be harder for foreign stock given disclosure rules.
• We are still researching available options that meet financial performance expectations for our fund line-up.
• We did not believe adding a fund to the core lineup was in the best interest of all participants, because the participant had very strict and very specific needs for the religious accommodation.  We increased the % allowed for the brokerage window to be 98% (in order to cover RK fees). The participant said he was pleased with the outcome.
• We explain to participants that the context for not adding a particular fund is rooted in the fiduciary responsibility to select the entire investment menu in the best interests of all participants collectively, not each participant individually.  They don't realize that, in order to accommodate their particular choice, we would essentially have to consider adopting a self-directed brokerage window to allow all participants the same right.
• We had a large number of request for socially-responsible funds but none for religiously-compliant funds.
• We have not had requests, but our institution has a religious affiliation and the fund lineup was constructed with this in mind.
• We have not had this request recently but we do have a self-directed brokerage window that is very widely used. When we do get request for more specialty types of investments, we generally remind a participant that there are over 9000 mutual funds available within the SDBA window that can help them fill more specialized or personal investment needs if they are not available in our core investment lineup.
• We just added a brokerage account as a fund for those seeking religiously-compliant as well as ESG funds.