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How to Make Your 401(k) More ‘Socially Responsible’

Socially responsible funds, which don’t invest in guns or tobacco, are becoming more common in retirement plans.

It may soon be easier for savers to do well for their retirement while doing good. The number of 401(k) plans that offer a socially responsible investing option could double in the next three years, according to a recent survey by Mercer, a human-resources consulting firm. As I reported earlier, that would mean more than a quarter of retirement plans would have an “SRI” option.

SRI funds generally avoid investing in tobacco, alcohol, or weapons companies, while favoring firms with better environmental records and more shareholder-friendly corporate governance policies. Sound good? If you’d like to see an option like this in your plan, it’s worth talking to HR: Employers that add these options generally say they did it because participants asked them to.

You’ll need to be prepared to make your case. Mercer’s survey also found that a lot of employers aren’t very familiar with SRI funds, and many said they weren’t sure whether they were allowed to add these funds to their plan, given their fiduciary responsibility to do what’s best for plan participants. The good news for values-focused savers: The Department of Labor has made it clear SRI funds are welcome in 401(k) plans, as long as the employer does the same due diligence research they’d normally do into a fund’s performance and fees, says Craig Metrick, a Mercer researcher.

If you’ve already got an SRI option in your plan, you should do your own research into performance and fees before you move your money. Studies have shown that SRI funds in general aren’t handicapped by their stricter investing criteria – but you’ll want to see how the specific fund you’re considering has done. The SRI funds most commonly offered in 401(k) plans tend to match or slightly outperform the S&P 500, so you could consider them as alternatives to core large-cap stock funds. See our story for the 5 SRI funds most frequently found in 401(k)s.


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.