ESG target date lands in group 401(k)

The Natixis Sustainable Future Funds will be part of the Sustainable Futures ESG Group Plan Solution

One of the only ESG target-date series in the US will be the centerpiece of a group 401(k) from Transamerica, FuturePlan and LeafHouse Financial Advisors.

That product line, the Natixis Sustainable Future Funds, will be part of the Sustainable Futures ESG Group Plan Solution, the companies announced Wednesday.

It’s new ground for the all-in-one funds that are designed to help workers invest their retirement savings on autopilot. Despite some indications of demand from plan participants and much product development by fund providers, target-date funds that incorporate ESG have been all but nonexistent in 401(k)s.

Its inclusion in the group plan could become a major mandate and distribution opportunity for the Natixis series, which is currently used in at least 270 retirement plans. The development also comes as the Department of Labor is shifting its stance on the use of ESG investments in retirement plans, including ESG target-date funds as suitable options.

“Investment professionals are increasingly incorporating ESG data into their investment process, and plan participants are indicating a strong preference for choices that are sustainable, responsible or ESG driven,” Liana Magner, head of retirement and institutional in the U.S. at Natixis Investment Managers, said in the announcement. “We are committed to helping plan advisers understand the crucial role ESG can play in retirement plans, and we’re pleased to partner with Transamerica in making it even easier for investment professionals to have access to ESG options in their retirement plans.”

This year marks the Natixis series’ five-year anniversary — a significant development, given that 401(k) fiduciaries generally want to see a track record for investments they select, particularly for those that are used as a plan’s default. The funds were the first ESG target-date series in the country.

One other provider, BlackRock, has launched an ESG target-date line. That series, LifePath ESG Index, debuted in 2020. The non-ESG version of that series, Lifepath Index, has three stars awarded by Morningstar and an analyst rating of gold, although the ratings firm does not currently have a qualitative rating for the newer ESG series.

Meanwhile, the Natixis series has five stars from Morningstar but a neutral analyst rating. Over five years, the 2030 fund in the series has had an average annualized total return of 10.1%, compared with 8.6% for the S&P Target Date 2030 Index, according to Natixis.

That product was selected as the qualified default investment option by LeafHouse, which is the 3(38) investment fiduciary for the plan, meaning that it has complete discretion for choosing the investment options.

The newly announced 401(k) is a group plan structure, not a pooled employer plan, according to Transamerica, which is the record keeper for the plan. Ascensus’s FuturePlan is the third-party administrator.

“The Sustainable Futures ESG Group Plan Solution allows employers and their financial consultants who seek an ESG approach to lighten the administrative and fiduciary burdens of sponsoring a retirement plan,” Darren Zino, senior managing director of US retirement distribution at Transamerica, said in the announcement. “This benefit allows them to focus on their business growth while offering a crucial benefit to their employees.”