This week, world events triggered fiduciaries to consider their responsibilities as global unrest took a turn most had never anticipated. As guardians of college savings, ABLE and retirement assets in State-run Investment Programs, the urgency to examine important components of the State programs – from investments to privacy and security – was clear.
Once the realization set in, the fundamental question became how should fiduciaries approach these tasks?
Several states have already begun to act by either cutting or re-evaluating their ties to Russia. Perhaps the most aggressive action came in Connecticut where Shawn T. Wooden, the State Treasurer and Sole Trustee for the State’s pension funds, announced that Connecticut would reallocate roughly $218 million of Russian-owned assets.
Unlike public funds that typically have direct investments in equities and fixed income, 529, ABLE and State-run Retirement Programs invest in registered mutual and exchange-traded funds. For that reason, Administrators of these State-run Investment Programs cannot impact fund holdings per se. While the spotlight is on public pension funds right now, Administrators of 529, ABLE, and State-run Retirement Programs will not be spared from the duty to act as well.
So, what should State Administrators be doing right now? As a start, we recommend huddling with your Investment Managers, Program Administrators and other financial services partners and asking several key questions:
- What exposure does the Plan have to Russian investments? Investment Managers should identify which portfolios hold Russian investments and provide the specific amounts of allocations.
- Which Plan investments have no exposure to Russia? Be prepared for socially minded participants to inquire about moving their investments – this is real-time ESG investing.
- What general messaging should be delivered to worried participants? How can communications make the situation as understandable as possible, without crossing the line of providing specific investment advice?
- Do any of the Plan’s investment options track an index? If so, has that index dropped Russian securities? How will the Plan’s funds respond? For instance, on March 2nd, both MSCI and FTSE announced plans to drop Russian companies from their indices.
- Do any of the Plan’s holdings include sanctioned securities? How will the Investment Manager handle this, and what will the impact be to participants?
- Are Plan Administrators and other financial service providers implementing increased cybersecurity measures? What threats are being evaluated and prepared for? What inconveniences, if any, will this cause for participants? As an aside, if the perceived threat of cyber security breaches is heightened, this might be the right time to assess and implement security upgrades where possible.
These inquiries are certainly not comprehensive but should provide a solid start.
State-run Investment Programs represent important pieces of future financial security for families across the country. The call to action heard around the world to respond to the Russia-Ukraine crisis provides the opportunity and impetus for State Administrators as fiduciaries to ask important questions and implement any measures necessary to reinforce the stewardship of their Plans. Let us know if you would like to explore these important issues more deeply.