I was only three when Saigon fell, and the Vietnam conflict effectively concluded, so today is the period of the highest political division in my memory. Politics appears to have surpassed policy and philosophy differences and even eclipsed identity. Expressing political positions and views has long since escaped voting booths and campaign yard signs. Political expression can now be expressed in the car you drive or the beverages you drink.
The data is pretty straightforward, there is no credible correlation between the performance of equity markets and the political party in power (however, you may choose to measure it). For the record, markets have performed better with Democratic presidents and with Republican-controlled Senates, but even that misses the point: correlation is not causation.
Despite that data, politics is increasingly finding its way into retirement plan committee deliberations, as in many other areas. In just the last month, committees have asked of us, or have been asked by participants…
- Given that the president campaigned on tariffs, why did we not get out of the market prior to their being announced?
- How much exposure do our funds have to China (foreign adversaries)?
- How much exposure do we have to TSLA in our investment options?
The significant differences in approach from both parties in addressing investments in retirement plans and regulatory oversight have been stark.
Democratic Priorities – Over the last decade, investment issues prioritized by Democratic administrations have been:
- Inclusion of ESG risks and disclosures in the evaluation of investment risks (SEC and DOL)
- Concerns over cryptocurrency fraud and volatility (DOL)
Republican Priorities – Over the same decade, investment issues prioritized by Republican administrations have been:
- Restrictions on investment decisions that include anything other than pecuniary factors (DOL)
- Broadening of investment flexibility in private equity and cryptocurrency (Congress)
- Divestment from companies controlled by foreign adversaries (State Legislatures and Presidential Directive)
Above and beyond these governmental directives, participants on both sides of the political divide wish to see money they control allocated or not allocated to companies that match or do not have their values.
We frequently say that committees struggle not because they don’t know the answer to a question but because they don’t agree on the question. From a regulatory perspective, that would appear to be where we live today as rules and priorities change from administration to administration.
However, developing investment menus that match the needs of a population has been complicated long before the political divisions of today. Participants of different faiths may be restricted in their faith in how they may invest. For instance, Sharia investing is for those who observe the prohibition regarding the receipt of interest, excessive uncertainty, and investments in forbidden activities.
Developing an appropriate investment menu for a specific population should best be left to the fiduciaries overseeing the plan representing the participants within the plan rather than being regulated in a one-size-fits-all approach based on political preference. It may be reasonable for an organization with a large Muslim population to select and review, as part of a larger array, products that will allow their employees to participate in and benefit from their retirement savings programs. No two situations will be identical; most broad rules designed to prescribe a specific approach miss the mark.
It is also true that the current pressure exerted on fiduciaries by the plaintiff's bar means that the federal government needs to create reasonable safeguards for plan sponsors to execute their fiduciary duties that can survive one administration to the next.
I hope that the current level of political division will reduce with time, but until that time, I hope that rules and regulations relative to retirement plan investing can become settled, allowing plan fiduciaries to meet the needs of their population rather than chasing the politics of the moment.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.