401(K) and 403(B) Retirement Accounts Overview
401(k) and 403(b) retirement accounts are employer sponsored tax-sheltered retirement accounts. 401(k)s accounts are traditionally for employees of private corporation. 403(b)s are for employees of non-profits organizations. 457s retirement accounts are for public sector and some non-profits. You receive a tax deduction at the time you deposit money into the account and are only taxed when money is withdrawn (tax deferred).
Employer sponsored retirement accounts, such as 401(k) and 403(b) retirement accounts, often feel opaque to investors. Investors are typically offered a limited number of fund options, typically crafted exclusively around the employees expected retirement date.
Employers act as retirement “plan sponsors”. They select a “plan provider”– the investment firm which provides services to administer and maintain the retirement plan. The person or people at your employer who oversee the process, the “plan administrator”, then select, or at least approve, a limited number of funds to offer to employees.
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 issues (ESG).
Roadmap to Getting a Sustainable Fund Option in Your Employer Sponsored Retirement Plan
Employers have the ability to offer sustainable retirement account fund options. If your employer does not offer you a sustainable fund option, you have the right to request that your employer add an option in alignment with your sustainability priorities. Employee demand is a major driver for employers adding a sustainable option to their retirement plan offerings.
A roadmap for the process of encouraging your employer to add a sustainable investing retirement fund option is:
- Determine who in your organization is the plan administrator.
- Rally a group of colleagues who are also interested in having a sustainable fund option.
- 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?
- Meet with the plan administrator, define your criteria, and request a sustainable fund option which meets your criteria be offered to employees. Alternatively, you can request that 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.
Solo 401(k) Plans
Solo, or one-participant, 401(k) plans are traditional 401(k) plans which cover business owners with no employees, or that person and his or her spouse. With a solo 401(k), you select the investments which are in your account. Therefore, you can invest in the sustainable investing options which fit your priorities.
Photo by Anukrati Omar