CalSavers: ESG option attracts just 0.4% of assets as pioneering Californian scheme approaches first year

CalSavers members shun ESG option, so far

California’s ambitious auto-enrolment workplace pension scheme, CalSavers, has attracted just 0.4% of funded accounts to its hard won ESG option since its launch in July, the scheme’s Executive Director, Katie Selenski has told RI. 

This low figure, however, does mark an increase from the 0.1% ($1,372) of assets invested in the fund at the end of December, revealed in a January review of the scheme conducted by consultant Meketa Investment Group. 

 CalSavers’ ESG offering is managed by London-based Newton Investment Management and Mellon Investment Corporation – both are subsidiaries of US custody and investment management giant BNY Mellon. 

The former runs the active equities segment and the latter a passive fixed income strategy as part of a blended approach designed to keep costs to 15 basis points, which is covered by the scheme’s members.

But Meketa’s review revealed that just eight out of the 4,050 members had selected the ESG option at the end of 2019.

Meketa said the CalSavers ESG Balanced Fund has “posted positive results and kept pace with its benchmark”, returning 7% since its inception in July. 

CalSavers’ overall portfolio stood at $1.42m in December – up from $423,997 in July – but is predicted to swell to $98bn in assets over the next 15 years.

State Street Global Advisors manages the four main investment options, including the default option, which accounted for 84.7% ($1.2m) of assets as of December.

Ahead of the scheme’s roll-out in July CalSavers’ Selenski warned that the ESG option would find it a “challenge” to gain traction due to the well-documented inertia of members switching from defaults in retirement plans.

But the ESG fund might not have existed at all were it not for the commitment of the CalSavers board, which at the time included then California State Treasurer, John Chiang, a strong advocate for its inclusion.

The initial search for an ESG provider was abandoned due to the quality of bids, particularly around costs, following a tendering process in August 2018.

"It’s too early to know how the uptake of any given non-default option will look beyond these early adopters" – CalSavers’ Katie Selenski

But a subsequent feasibility study conducted by Meketa and pushed by members of CalSavers’ board resulted in the search being reinstated.

Meketa was recently selected alongside Blackrock to oversee New York City’s divestment strategy. 

Nineteen fund managers competed in CalSavers’ second tendering process in December 2018, with Franklin Templeton, Northern Trust, Nuveen and Schroders making the shortlist alongside the winning Newton/Mellon bid.

Speaking to RI about the low uptake of the ESG option, Selenski told RI that CalSavers is “proud” to be the “only program of our kind offering this option”.

“It’s too early to know how the uptake of any given non-default option will look beyond these early adopters, but in any case it isn’t our role to judge the investment decisions of our savers,” she said. “We’re laser focused on getting employers onboarded and their workers saving for their futures.”

BNY Mellon has not commented at the time of writing.

Last week, a long-running case brought against CalSavers by conservative lobby group Howard Jarvis Taxpayers Association was dismissed by the US District Court for the Eastern District of California.

The group argued that CalSavers was invalidated by the federal Employee Retirement Income Security Act (ERISA) but Judge Morrison C. England disagreed, ruling that ERISA does not preempt CalSavers.