Strive Asset Management to bring anti-ESG to PEP 401(k)

The firm, which is on a crusade against the use of ESG factors in investing, announced that it's launching a pooled employer plan.

Anti-ESG ETF sponsor Strive Asset Management is planning to take a crack at the retirement plan business and this week announced its intention to offer a pooled employer plan.

That firm, which was founded last year and has since launched a small suite of funds, would be the main investment provider of and adopting employer of the forthcoming PEP.

“There are a lot of people who say, ‘ESG is just not for me,’” said Anson Frericks, president and co-founder of Strive. The PEP would also be “for employers that are looking for 401(k) options that are going to maximize returns for their employees,” he said.

PEPs are a type of 401(k) structure that became available in 2021. Such plans allow unrelated employers to participate in the same plan, thus enjoying cost savings related to economies of scale they might not have alone. PEPs are overseen by a pooled plan provider registered with the Department of Labor and a 3(38) investment-selection fiduciary.

The Strive PEP does not yet have a 3(16) fiduciary that would act as the pooled plan provider, although it is in talks with the firm’s existing retirement plan provider, Newport, as one contender, said Ben Pham, the company’s chief operating officer. A webpage that included an overview of the PEP was available at the time the firm made its announcement Tuesday but was inactive as of Wednesday morning. The company attributed the outage to “a technical glitch.”

Newport, which has been a pooled plan provider since 2021, was listed as fiduciary for the PEP on an informational presentation that had been on the firm’s site. That firm, which has since been acquired by record keeper Ascensus, did not immediately respond to a request for comment.

The PEP is expected to go live during the first half of the year, Pham said.

The 3(38) fiduciary that would choose investments for the plan is Traphagen Financial Group, according to Strive. Though the investments for the plan haven’t yet been selected, they would include Strive model portfolios built primarily with the company’s line of ETFs, Pham said.

Strive has launched eight equity ETFs and is building out others for different asset classes, with two actively managed fixed-income ETFs set to begin trading next month, he noted.

Currently, the similar model portfolios Strive launched in February mostly include the company’s own ETFs, along with fixed-income funds from John Hancock.

Fee information for the forthcoming PEP is not yet available, though the investment management fees for Strive’s ETFs that would be included in the plan range from 5 basis points to 41 bps, Frericks said.

BIG BUSINESS IN PEPs

Offering a PEP is a way for small businesses to more easily provide a retirement savings option to their workers than with a single-employer 401(k), Pham said. In tight labor markets such as Ohio, where the company is based, competitive benefits are increasingly important to employers, he noted.

“We wanted to provide a solution that would be easy for small- and medium-size businesses to participate in,” he said.

Another potential allure of PEPs is that they can minimize the amount of fiduciary liability an employer has, as they are only responsible for hiring and overseeing the plan provider.

Traditional 401(k) providers have waded into the PEPs business, with key players like Fidelity already offering such plans. Last month, WTW announced that it had launched a PEP, and incumbent Aon in 2022 noted that it had attracted about $1 billion in assets for its plan.

In January, just after the Department of Labor’s new rule governing ESG in retirement plans went into effect, Morningstar announced that its ESG Pooled Employer Plan was available.

The latter plan might be ideologically opposite from the yet-to-be-released Strive PEP.

Strive executives are not fully opposed to the idea of ESG data being available, although they said they feel that asset managers have tended to weigh ESG-related risks more heavily than they should in the context of other investment risks. The firm also recognizes the reality of climate change but disputes the economic consequences of an average global temperature increase of 2 to 3 degrees C.

“That warming is not going to lead to the catastrophic economic damage that is projected by other individuals,” Frericks said.

“The need for oil and gas is not decreasing globally, it’s actually increasing,” he noted.

TRACK RECORDS

A question that arises from entirely new products is the relevancy of investment track records – something that retirement plan fiduciaries usually consider when building or changing their 401(k) menus.

Strive’s ETFs — all of which are extremely young — do not have the benefit of a three-, five- or 10-year track record that could be reviewed.

However, its products tend to be 98% to 99% similar in holdings to comparable index funds from other big providers, Frericks said. If fiduciaries want to gauge past performance, they can look at an ETF’s composition or index, he said.

In the new PEPs world, “one thing that has remained consistent is that the plan sponsor and designated fiduciaries must strive to offer investment options that align with the Investment Policy Statement (IPS) in order to mitigate risk,” Kelly Michel, principal of KME Retirement Consulting, said in an email. “The IPS should be created prudently and in the best interest of plan participants. It should include diversified investment alternatives that are reasonably priced and comply with the plan document’s terms.”

ESG factors can be helpful in the investment policy statement, Michel noted.

“PEPs cater to a diverse range of employers and employees, and there may be a subset of workers who place importance on ESG values and its potential for long-term risk reduction. However, others may believe that such concerns are noble, but when it comes to investing, issues like child labor and climate change take a back seat,” she said. “Sponsors may opt to focus on providing a diversified portfolio that includes both ESG and non-ESG funds, meeting the needs of everyone rather than following momentary political trends.”

Further, the DOL’s new rule for retirement plans emphasizes that fiduciaries must consider financial factors first but that plans have the option of including ESG factors, said Robb Smith, president of RS Fiduciary Solutions.

“The main thing the DOL has reiterated is that ‘pecuniary’ is first, foremost and always,” he said.

In requests for proposals, few advisors and employers have voiced much preference so far for ESG, placing greater emphasis on plan basics like automatic enrollment and plan design, he said.

Regarding investments’ track records, plan fiduciaries prefer more over less, he said. If funds are newer, they might require more analysis to be included, he said.

“That applies more to an actively managed fund than to a passively managed fund,” he said. “It may be less of a concern, but it is still a concern. I like three- to five-year track records.”