Retiring Green

Social(k) is the 401(k) that Cares

If you have strong social and environmental values, chances are you want those values to carry over into your investment portfolio. That’s easy to do these days as an individual, but what about your 401(k) retirement plan? A range of green businesses, from organic clothing companies with 25 employees, to big solar companies with several hundred, are casting about for a 401(k) retirement plan that offers employees green investment options.

Although socially responsible investing (SRI) has grown tremendously over the past 10 years—it’s the fastest growing segment of professionally managed assets—SRI options for retirement plans are still only offered to 20 percent of employees. But that’s changing. Sixty-eight percent of employees say they want SRI options (according to a 2002 Calvert/Harris Interactive survey) and a 2007 Social Investment Forum survey found that 60 percent of defined benefit plan sponsors plan to include an SRI option by 2010.

High Stakes

With $2.5 trillion invested in 401(k) plans in the U.S.—amounting to the retirement assets of 50 million people—there are big numbers at stake, but often only one or two funds to choose from. Paul Hilton of Calvert says, "SRI options are available in one of five retirement plans now and will be available in three of five plans in three years. It’s a matter of simple supply and demand. Corporations are responding to the increasing desire of Americans to invest with their values."

Health care and government agencies are so far most inclined to include an SRI option. Actively managed U.S. large-cap equity mutual funds are in greatest demand from plan sponsors, but we"ll be seeing actively managed income, balanced, and asset allocation mutual funds added in the coming years.

Intel is one multinational that’s offered SRI retirement plan options since 2000. Dave Stangis, director of corporate responsibility, says, "In 2000, we were trying to create a culture of corporate social responsibility and it made sense for us to practice what we preach by including this option in our retirement plan. In addition, Intel is a top holding in many SRI mutual funds and we wanted to reinforce that with our employees. It’s a way for us to be a role model."

One-Stop Shop

Still, most plans give employees only a limited number of funds to choose from, usually from SRI leaders Calvert and Domini. That’s where Social(k) comes in. Retirement-plan consultant Rob Thomas started Social(k) in 2005 to offer the full array of SRI options to 401(k) plans. So far, the online retirement platform offers 140 SRI funds and 800 conventional funds. Thomas" goal is to offer as many funds as possible and become the one-stop shop for retirement investing. Companies can choose to offer either Social(k) alone or as a second option alongside their existing 401(k) plan.

Thomas says he conceived of the idea while attending the Natural Product Expo, the primary conference for the natural products industry. He heard stories from frustrated green businesses: "My employees look at me and say, "I"m working for you because we have shared values, so why are you asking me to buy funds that hold Wal-Mart, Halliburton and ExxonMobil?""

What stands out about Social(k) is that it offers a win-win solution for everyone involved. SRI mutual funds love it because they’re now included in 401(k) plans—a huge market for them, one from which they were formally excluded. Many of the SRI mutual funds either don’t have the time to clear the bureaucratic hurdles necessary to get onto traditional 401(k) platforms or don’t want to pay the 35 to 40 basis points to be there. Only the larger funds, such as Domini and Calvert, have the resources to go through that exercise.

SRI financial advisors love it because it offers them new business. A client with an individual account may also have a business that needs a 401(k). Unlike a plain vanilla 401(k)—the same product offered by dozens of companies—advisors have a clearly differentiated product to sell in Social(k). And employees love it because they can choose from a wide range of SRI funds for their retirement plans. Thus far, most of Social(k)’s customers are small organizations with a sustainable mission, such as, Organic Trade Association, Portland Energy Conser-vation, and SRI funds Pax World Funds, Winslow Management and the Women’s Equity Fund.

Social(k) is a wonderful example of a green business rising to fill an unmet need. Clearly, Americans are asking for ways to put their money where their values are, which is translating into ever greater options for their retirement portfolios.

RONA FRIED is the founder and president of