Problem: misalignment between values in the 401K fund options that company’s provide to their employees as benefits, compared to the values stated at the company itself. I think this issue is highly overlooked but it’s kind of understandable why.
From the corporation’s side, the fund options will be driven by the costs of setting up the plan and administering it, so they may be less incentivized to provide more options and they will work towards achieving tax credits to offset the plan costs. I have personally looked into this from an employer perspective, and naturally I was only thinking about what plans would be able to integrate with current company benefit admin applications, and how to keep costs low! From the employee’s side, the instinct will be to choose the classic large funds that have been around awhile so as to show a long history of return %, take advantage of tax deductions, and to be more interested in what the employer is willing to match – after all this is deducting money from that paycheck of yours!
A couple weeks ago, As You Sow & ImpactPHL held an event (http://www.impactphl.org/events-archive/401k) tackling this problem. As You Sow has created six “Invest Your Value” online tools (and a seventh on it’s way to evaluate Prison Free funds) which allows you to input the fund tickers from your 401K investments and see how they grade for: Fossil Fuels, Gender Equality, Guns, Deforestation, Weapons, and Tobacco. As You Sow provides a report card for the fund you input across the 6 categories, and then online tools for each category provides specifics for why it graded that way.
So I tried this exercise for myself: I looked at the first corporate 401K I started investing in about a decade ago and ran a report card for the largest fund in that holding, and it was not pretty: it was a Fidelity fund and it was poorly grade in Fossil fuels, deforestation, weapons, and tobacco. It did grade well for gender equality and firearms, so that’s something to build upon! This is a fascinating tool though: the grading process is explained in great detail, there are funds that are recommended based on better report cards, and the tool is free! Try the exercise yourself: www.asyousow.org/invest-your-values
Now it is up to companies (AND you, the personal investor) to weigh the grading system and the financial returns to come up with a better balance that will more align with company & personal goals! I think a further step with this type of evaluation tool is the integration into the plan administration itself to better provide companies & individuals guidance on the value measurement when they are actually choosing the funds for their plan. Please comment with any experience you have had. How is your current allocation measuring up?