A recent DOL bulletin clarifies that you may invest in products that create a reasonable return but also help create tangible benefits like jobs and local economic stimulus.
Products called Economically Targeted investments (ETIs) seek financial returns while generating important economic or social benefits. Like many popular ETIs, Ullico's Separate Account J (known as "J for Jobs") creates economic benefits in addition to its investment returns. J for Jobs pursues competitive returns for its investors by financing real estate projects and it also creates jobs. Those jobs produce measurable positive economic impacts.
So what would prevent investors from choosing ETIs over other funds? Since 2008, one reason has been an unduly narrow view of fiduciary prudence taken by the U.S. Department of Labor. Guidance issued by DOL caused investors to think that ETIs should automatically be viewed less favorably than other investments. If you were a fiduciary for your union's pension fund, you might have thought an ETI had to meet a higher bar before you could invest.
That is not the correct view of ERISA, according to new guidance from DOL. In October 2015, the DOL clarified that ETIs can be treated the same as other prudent investments, provided the levels of risk and return are equivalent. From the DOL's recent statement: "ESG issues may have a direct relationship to the economic value of the plan's investment. In these instances such issues are not merely collateral considerations or tie-breakers, but rather are proper components of the fiduciary's primary analysis of the economic merits of competing investment choices."
The confusion caused by the DOL's 2008 guidance was not easy to overcome. The recent clarification is the result of concerted efforts by union leaders, including National Building Trades President and Ullico Secretary-Treasurer Sean McGarvey.
"In the past, fiduciaries had to specially justify collateral benefits. Now, the economic impact of these supplementary investment benefits should be a criterion for investing," says President McGarvey. "This is a big 'win' for union members. It gives investors more leeway to choose plans that also have a beneficial social impact."