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Morningstar, PAi ESG-Focused PEP Goes Live

ESG Investing

Morningstar Investment Management and Plan Administrators, Inc. (PAi) have announced the launch of the Morningstar ESG Pooled Employer Plan (PEP) designed to select funds that limit exposure to material environmental, social and governance (ESG) risks.

The launch of the PEP coincides with the Department of Labor’s final rule permitting plan fiduciaries to consider ESG information in selecting plan investments. The DOL’s rule became effective Jan. 30, 2023.

“The Department of Labor ruling is a great win for employers and advisors as it gives them options to choose investments that not only provide an appropriate diversification and return profile but also gets employees engaged with their retirement savings and comfortable that their investments are being mitigated against long-term ESG risk,” stated Brock Johnson, president of Global Retirement and Workplace Solutions at Morningstar Investment Management. “We selected the PEP format for this offering as it levels the playing field for companies that do not have access to or cannot afford to hire specialized advisors and experts to help them select and manage ESG options.”

According to the announcement, Morningstar Investment Management will serve as the 3(38)-investment manager of the PEP, while PAi Trust Co. will serve as the pooled plan provider (PPP).

The PEP will be offered on PAi's CoPilot recordkeeping platform, which, among other things, engages participants by providing event-based alerts, as well as a Years of Retirement tool showing participants how many years their savings will last, not just how much they have saved.

“With the rollout of PEPs, there is now a retirement vehicle available that can help to reduce some of the employer's fiduciary responsibilities, making it easier for small business owners to offer a 401(k) to their employees,” added Amy Hermann, director of sales and marketing of PAi. “This PEP creates an ideal, specialized structure—with access to the Morningstar expertise, data, and selection process—that is especially useful for investors focused on ESG.”

As part of selecting and managing the investment lineup, Morningstar Investment Management also provides an additional ESG analysis that includes both manager interviews and a review of each fund's Morningstar Sustainability Rating. This approach, the announcement notes, is supported by PAi's open architecture platform, which allows Morningstar Investment Management to consider a wide range of investments.

The firm has also designed a custom target-date model for this PEP that uses the underlying investment lineup. The model will serve as the target-date investment and can be used as the default investment option.