September 26, 2020

How to Get Socially Conscious Funds Into Your 401(k)

Then, consider starting small, with a single request: Add a socially responsible fund that focuses on large American companies. Socially conscious funds have crept into the mainstream over the past couple of decades, and funds that focus on big American companies are a more mature area of socially conscious investing. (This makes sense; many investors prefer to invest in companies they know best, and companies in the United States disclose a decent amount about themselves.)

You don’t necessarily need to have a specific fund in mind. Many employers will have multiple outside parties helping run and shape their retirement plan, and those experts can help pick a fund.

But if you are inclined to make suggestions, Carole M. Laible, chief executive of the fund and investment manager Domini Impact Investments, suggested a few parameters. First, larger employers will often decline to consider funds that do not have three- or five-year track records. They may also want to see at least $150 million already in the fund, and they won’t want a big influx of money from their colleagues causing that employer’s plan to own more than 5 to 10 percent of the fund’s total shares.

All of this reluctance relates to that fiduciary duty requirement. Employers worry a fair bit about being sued for violating that duty if they make the wrong fund choices. It does happen: Jerome Schlichter has made a living helping employees sue everyone from Johns Hopkins University to Ameriprise. So I asked him how he’d suggest employers avoid getting sued while still embracing E.S.G. funds.

Mr. Schlichter suggested an augment-but-do-not-replace approach. Already have a bare-bones index fund of large American stocks in your plan? Carefully choose and then add a single E.S.G. fund covering that same sector, instead of swapping it into the plan and ditching the index fund. That way, you have neither limited anyone’s existing choices nor taken away an index fund that is likely to have very low fees.

Marla J. Kreindler, a benefits specialist and Chicago-based partner with the law firm Morgan, Lewis Bockius, offered another suggestion: Consider a brokerage window. This allows employees to, in effect, have their own investment account within their workplace retirement plan. There, they can choose from the whole universe of available mutual funds — social, antisocial or otherwise.

Still not getting anywhere? At that point, it may be tempting to resort to threats: “Worried about legal exposure? Large numbers of energy companies may go under or see their stocks underperform over a generation. You’ll be on record having blown me off in 2020 when I asked for a fund that excluded them.”

Article source: https://www.nytimes.com/2020/01/10/your-money/esg-funds-retirement-401k-plan.html?emc=rss&partner=rss

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