Sustainable Investing 401(k) Options

Adding a Sustainable 401(k) Option at a Small Business

When Susan Maiorana received information about the options for her new 401(k) plan, she was dismayed. All of the options available included investments in companies that were not aligned with her values. These companies included Exxon Mobil, an oil company that has misled the public about the impact of climate change. Also on the list was Philip Morris, the tobacco company which has misled the public about the negative effects of smoking. As Susan noted, “I didn’t want my investment funds being used to support companies that I don’t personally support.” Susan, like a growing number of employees, wanted sustainable investing 401(k) options.

Susan reached out to her employer, Friday’s Films. Friday’s Films is a small San Francisco based creative agency that, in 2014, began offering a 401(k) retirement plan to its employees. Friday’s offered the 401(k) plan through MassMutual, with the assistance of Sabre Financial Group LLC. Rosie Panzarello, Friday’s Films’s General Manager, contacted the company’s advisor at Sabre. She stated that employees had requested a sustainable 401(k) option. Soon after, Friday’s Films was able to offer its employees the Neuberger Berman Sustainable Equity Fund as a 401(k) option. “It was an easy process to add a sustainable 401(k) option. Offering a sustainable option reflects well on the employer – demonstrating that the employer is committed to doing their part to do good in the world.”

Friday’s Film Staff. Susan Maiorana is in the upper right. Rosie Panzarello is in the lower left.

Current Availability of Sustainable investing 401(k) Options

A survey by Natixis Global Asset Management found that 82% of U.S. investors would like to see investment options in their retirement plans that “reflect their personal values.” 62% of respondents also said that they would increase their retirement plan contributions if they knew that their investments “were doing social good.” Among Millennials, the percentages that would increase their contributions to socially responsible retirement plan options increases to 72%.

However, according to the Plan Sponsor Council of America annual survey, only 2.9 percent of 401(k) plans have even a single fund dedicated to environmental, social, and governance (ESG), or sustainable, issues. Therefore, there remains a need for employees to push their employers to offer sustainable retirement plan options.

What Can I do to Have a Sustainable 401(k) Option added to My Employer’s Plan?

Friday’s Films offers an example of how one motivated employee can enable the addition of a sustainable 401()k option. The process for a larger company may be more complex. A roadmap for the process of encouraging your employer to add a sustainable investing retirement fund option is:

  1. Determine who in your organization is the retirement plan administrator. The plan administrator is the person or people at your employer who oversee the process. The plan administrator selects, or at least approves, the funds offered to employees.
  2. Rally a group of colleagues who are also interested in having a sustainable fund option.
  3. Determine how your group defines “sustainable”. Is a generic ESG option enough? Is, for instance, excluding fossil fuel producers from the fund’s investments a key criterion?
  4. Meet with the plan administrator and discuss your sustainability criteria. Request a sustainable fund option that meets your criteria to be offered to employees. Alternatively, you can request those specific unsustainable corporations be removed from your existing options.

A January 2020 New York Times article provides guidance on how to collaborate with your employer to add a sustainable fund option. Fossil Free Funds provides an action toolkit, including a sample letter to your plan administrator.

Photos by Friday’s Films and Markus Spiske