For Chevron executives utilizing the investment options within the Employee Savings Investment Plan 401(K) (ESIP) or the Deferred Compensation Plan (DCP), changes are coming to the list of investment options available. These updates take effect on June 1st, 2023, and could substantially impact your retirement savings if no action is taken beforehand.
Starting in June, there are some significant changes to the way you can invest within the ESIP, namely:
For most Chevron executives, these changes will execute within their 401(K) automatically, so no action is necessary. However, doing your due diligence and understanding the differences between funds and what these changes mean for you is crucial.
For example, within the new investment options is a fund called the EARNEST Partners Smid Cap Core. This fund offers exposure to both small and mid-size companies and is under active and tactile management. For those who are more comfortable with an equity-forward portfolio and increased exposure to smaller companies, the EARNEST fund could be a great investment opportunity in their 401(K).
However, you should understand your risk tolerance, your goals, and how to set up your ESIP's asset allocation before making any investment decisions. At Willis Johnson & Associates, we're working with our Chevron clients to ensure they can maintain their desired asset allocations within their accounts that will help them reach their long-term goals.
If you currently have a 401(k) with Chevron, many of your current investment selections in it may no longer be available to you once this remapping takes effect.
Any investments within the Core plan of your ESIP are subject to the new investment options. However, any investments you make in the BrokerageLink side of your 401(K) will not be affected by this new remapping.
Something to take a closer look at is the weight of various asset subclasses within each of the new funds in comparison to how your 401(K) is currently invested. While at a glance, many of the new funds seem to differ primarily by offering lower fees, they could also offer a substantially different asset allocation than what your goals require. For example, if you've been invested in the Vanguard REIT index previously, the newer Principal Diversified Real Asset fund is a mixed basket of various alternative investments instead, not just real estate. The newer PDRDX fund offers more diversification. If your investment strategy and goals significantly rely on equities or similar investments, the new Principal Diversified Real Asset fund may expose you to more fixed income than your desired asset allocation. Taking a look at the portfolio characteristics of the new investment options can help you better understand the impending changes as an informed investor.
As of June 1st, any investments in the ESIP core plan that align with the current remapping options will be auto-invested into the new funds. Before your funds drop into these new indexes, it's important to evaluate the following investment considerations and think about making the appropriate adjustments within your plan:
If, while reviewing these new investment choices, you have questions or want a second opinion about the best options for your goals, we've worked with several Chevron professionals to align their investment strategy to their goals. We offer a complimentary meeting with our team where you can get a second opinion on your portfolio and a better understanding of all the benefits and opportunities Chevron offers its employees for financial planning.
The streamlined list of funds available in the new ESIP options does not cover every asset class or asset subclass available. As mentioned above, some of the funds above, such as the Vanguard REIT Index, will have dramatic changes to the asset subclasses you'd be invested in by diversifying across several instead of solely investing in one. While we continue facing volatility in the market, being forced to invest in the new menu of available investments (which may or may not suit your needs the same way the previous options did) can have substantial impacts on your desired asset allocation, your exposure to risk, and overall performance.
While Chevron has yet to release anything publicly regarding the sweeping change in investment options, one thing we can clearly see from the remapping is that there's a shift from Vanguard funds to BlackRock investment options. With the change in investment managers also seems to come a noticeable decrease in the fees Chevron employees must pay for their ESIP investment choices. We're big believers in low-cost investment options because they enable investors to keep more of their own money instead of paying it to fund management. As such, it's reasonable to believe that Chevron made the decision out of a fiduciary obligation to its employees who participate in the ESIP plan.
There is only one key deadline to be aware of with the upcoming ESIP changes: June 1st.
However, because these changes are going into effect mid-year, many of the 401(k) decisions you made in January may need to be evaluated. Without looking into the various funds or making appropriate adjustments, you may find yourself more heavily weighted towards equities or fixed income than you'd like because of the new fund options and how they're managed. When you're saving for retirement, your 401(k) is one of the best savings tools available to you. Ensuring that the investment elections in your 401(k) reflect your risk tolerance and long-term goals is of utmost importance, especially given the market volatility we've seen in recent years.
At Willis Johnson & Associates, we actively manage our Chevron client's investments using evidence-backed strategies to ensure they maintain asset allocations that will help them reach their long-term goals. If you're interested in learning what services we provide for Chevron professionals or how to optimize the investment selections within your ESIP, contact us to connect with one of our advisors.