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I want it so why can't I have it?

I want it so why can't I have it?

| April 15, 2024

I enjoyed reading Mary Mazonnis article on employees wanting their 401(k) plans to align with their values. Consulting firm, GlobeScan and climate policy think tank, InfluenceMap surveyed 5,000 retail investors and found that 89% "either 'strongly' or 'somewhat' support investment funds putting money behind companies in the clean energy space." Further, the research showed that "87% support funds actively encouraging the companies in their portfolios to act on climate change". This demand certainly is heartening.

My firm, Green Retirement, Inc., has been advocating for values-aligned investments in 401(k) plans since 2006. I then thought about a February 2024 working paper by UCLA Anderson's Jane Danyu Zhang, a PhD candidate. Zhang notes her research found that fewer than 15% of 401(k) plans offer an ESG fund. She then looks at the role politics plays in creating the gap between what 401(k) participants want and what their 401(k) plans offer. Politics plays a role but there are other contributing factors.

Here are a few thoughts on why so few 401(k) plans offer values-aligned funds as well as some possible solutions where appropriate.

  1. Does your retirement plan offer the full universe of investment choices or a small sampling? This might be an obvious question but believe it or not, some retirement plan providers offer a limited selection of investment choices. You might desire values-aligned investments but they might not be part of the plan universe of investment choices. Ask the person in charge of your 401(k) plan if the plan provider offers"open architecture". Open architecture providers offer a much larger universe of investment choices. If the answer is "yes" to open architecture, you can then ask the follow-on question of whether values-aligned funds are included in that universe.

  2. Has anyone expressed their desire for values-aligned funds to the 401(k) Investment Committee and/ or the 401(k) financial advisor? Again, this might be obvious to many but a silent desire is hard to act on, right? As an employee, you have a right to make your voice heard on the plan investments.

  3. How familiar are the Investment Committee and/ or the financial advisor with values-aligned investments? It could be that the plan provider is open architecture and includes values-aligned investments but that the Committee and/ or the financial advisor are not familiar with this arena. It is important to ask as that can be the first step towards change.

  4. It must also be acknowledged that there is a limited universe of values-aligned 401k investment choices relative to traditional investments. The values-aligned universe continues to expand, partly drive by demand!

  5. Anderson's Zhang also dives into the world of politics and its impact on values-aligned funds being offered in 401(k) plans. Of the 1,700+ 401(k) plans Zhang studied, she found that 8% of 401(k) plans based in areas overseen by a liberal-leaning US Circuit court offered ESG funds. In areas overseen by a more conservative Circuit Court, only 2% of 401(k) plans offered ESG funds.

On an interesting follow-on note, Zhang's study finds that in 401(k) plans with an ESG fund offering, participants save more through increased payroll contributions. And isn't that part of the purpose of a 401(k) plan - to try to help employees retire with dignity?

As I re-read the end of Mary's article, I couldn't help but think about a discussion in 2017 with a founder of the Tea Party. Her point was that everyone can share a concern about climate change and nature. The hunter and the fisherman want a clean outdoors just as much as an environmentalist. The time to act is now and 401k values-aligned investment choices are part of that conversation.