How to Make Your Retirement Plan Sustainable

Timothy Yee, co-founder and Chief Retirement Specialist of Green Retirement, Inc. spoke in January 2023 on Third Act's Responsible Finance Webinar #4 on sustainable retirement plans. This Third Act blog is a summary of his remarks, resources, and tools he shared to help you find climate-friendly options to include in your employer-sponsored retirement plan.

Watch a recording of Responsible Finance Webinar #4: Retirement Plans.

The retirement plan arena is ripe to bring about change and impact for environmental and social responsibility. By retirement plans, we are referring to employer-sponsored plans like 401Ks and 403Bs, where employers offer employees a means of setting aside a portion of their pay and investing these funds – sometimes matched with an employer contribution – in various equities, bonds, and other instruments through an outside asset manager. Depending on what study you refer to and what definition is applied, retirement plans total $32 trillion dollars as of September 30, 2022. This is a large amount of capital that could be invested in projects and program that could make a significant impact in clean energy and healthy communities.

Evaluating Retirement Plan Investments

First things first. Before making changes, you will want to know what the retirement plan is currently invested in. Whether you are the person in charge of the retirement plan as an employer, a member of the plan’s investment committee, or an employee, you have a right to ask about what the plan invests in and question why it is making those types of investments. The next thing to do is be clear on the organization’s values and your own values and priorities.

Against that backdrop, consider using the Fossil Free Funds website to evaluate some of your plan’s investments. Here is an example of an investment that has more than $283 billion in fund assets: The Vanguard Total Stock Market Index Fund. As you can see from the Fossil Free Funds website’s rating for this Vanguard fund, this investment has over $114 billion invested in fossil fuel companies and receives a grade of F. In other words, it is contributing to climate change. Ask yourself how this squares with your organization’s values and your own.

You can dig a little deeper. Scroll 2/3rd of the way down the results’ screen and look at the full report card. Each of the assigned categories/ letter grades can be clicked on for more data. Do these arenas (i.e., private prisons) reflect your or your organization’s values?

Other tools are available too. In addition to the Fossil Free Funds website, you can ask your financial or plan advisor to look at Morningstar ratings on an investment’s sustainability, as well as the read the Fossil Free Fund’s Plan Sponsor Toolkit.

How to Change a Retirement Plan’s Fund Choices

Equipped with information about your plan’s investments, now let’s look at the heart of the matter: how can we change the investment choices in the retirement plan to include options that meet your environmental and social values, such as funds that do not invest in fossil fuels or prisons. 

If you are the owner or sole decision maker over the retirement plan, you can simply tell your retirement plan staff to change the plan investments to fossil fuel free. Timothy shared the example of Re:Vision Architecture, a green architecture and planning firm focused on sustainable buildings, and how the two co-founders instructed the HR person to make the needed investment changes to the retirement plan to align with the firm’s mission and purpose. The changes were accomplished in less than 45 days.

If your organization’s culture is collaborative and one that includes employee input combined with strong leadership, you might look to this example from Health Care Without Harm, a Virginia-based non-profit focused on greening the healthcare industry. This example shows the needs for firm leadership as well as how inspiring it can be to employees to see their organization living its values. Numerous internal discussions were held to make this switch to fossil-fuel-free investments as well as design an investment policy statement that reflected these values

Furthermore, your plan’s financial advisor should help with finding appropriate investments. One short cut is whether your advisor can do all the work. This is known as a 3(38) fiduciary. As a 3(38) fiduciary, your advisor will take full responsibility for researching, choosing, and implementing the needed investment switches. Ask your advisor in what fiduciary capacity they are acting. 

Lastly, your advisor should be able to tell you if your plan is “open architecture” and able to invest in any fund, rather than only in a limited set of fund choices. Open architecture plans can easily add any funds, so you can suggest climate-friendly or other funds that align with your values.

Advocate for Sustainable Retirement Plans

To succeed in changing an employer-sponsored retirement plan will likely require that many employees request more environmentally and socially responsible investment choices. So, build a coalition of like-minded employees and press for change. You can catalyze these changes. Never forget your agency and the power of one. 

 

Check-out the other webinar recordings, resource guides, blogs, and FAQs in the Responsible Finance Collection.

NOTE: THIRD ACT IS LEGALLY PROHIBITED FROM GIVING INVESTMENT ADVICE AS WE ARE NOT CERTIFIED INVESTMENT ADVISORS. WE HAVE INVITED FINANCIAL PLANNING PROFESSIONALS TO SHARE THEIR EXPERTISE. PLEASE NOTE THAT THIRD ACT DOES NOT HAVE ANY CONTRACTUAL RELATIONSHIPS WITH THE SPEAKERS, AND WE ARE NOT ENDORSING THEIR SERVICES. THESE ARE EDUCATIONAL EVENTS AND RESOURCES WHERE WE ARE SHARING INFORMATION FOR YOU TO IMPLEMENT IN YOUR LIVES IN WAYS THAT FIT WITH YOUR PERSONAL STRATEGIES, RISK TOLERANCE, AND FINANCIAL NEEDS.

About the Author:

Timothy Yee is the Chief Retirement Specialist and Co-Founder of Green Retirement, Inc., a founding B-Corporation and a minority and woman-owned financial advisory firm. Timothy focuses on sustainable, responsible, and fossil-free investment options in corporate and nonprofit retirement plans. He serves as a fiduciary for his clients, among them 350.org and Trillium Asset Management.

Timothy has extensive experience in the financial services industry, having worked as a branch manager and an executive at several banks. Timothy is an Accredited Investment Fiduciary and holds numerous FINRA registrations. He has been quoted in various media including the New York Times, Fiduciary News, and The Fiscal Times.

Timothy hosted the show, What Really Matters!, a weekly financial radio program on KKGN 960AM. He is also an ambassador for the Social Venture Network and B Corporations. Timothy graduated with honors (cum laude) from the University of California at Berkeley, Haas School of Business. Timothy’s latest passion is geocaching. He is having so much fun tracking caches wherever he goes!