These days, people leave jobs and move on to new ones all the time. Chances are, you’ve made at least a few jumps yourself. You’re probably quite familiar with the process of getting your new company email, joining their health insurance plan and deciding which employer-sponsored retirement program to contribute to.
But what happened to the 401k you started at your last company?
Don’t worry, it’s still there, doing its thing. But where your hard-earned (and employer-matched) money is invested might not be to your liking.
Andrew Behar, CEO of As You Sow, has dedicated his career to advocating for corporate social responsibility through investing. Even he was blindsided by the discovery that his company’s 401k contained mutual funds that benefitted major oil, gas, and coal extraction companies.
If a professional social impact investor unwittingly has retirement savings invested in fossil fuels, you probably do, too.
Conscious investors would never knowingly contribute to the military industrial complex or gun proliferation, but in February 2018, a nonprofit advocacy group Goodbye Gun Stocks found that 35 percent of U.S. mutual funds contain investments in weapons and ammunition manufacturers and retailers. These could be part of your orphaned 401k.
Fossil fuel and weapons investing are obviously not compatible with impact investing, but think about what other values you hold. If you’re a vegan or vegetarian, are your retirement plan contributions aiding factory livestock farming? What about tobacco stocks? Or specific companies that fight against social progress?
“The only way to find out what companies are held in a mutual fund within your 401k plan is to view the prospectus,” says Lou Haverty, a CFA at Financial Analyst Insider, a resource for finance industry professionals. “Mutual funds are required to report their holdings once every quarter…These reports are often only available online in a PDF format.”
Finding your old retirement accounts can be tricky.
“Most companies outsource their 401k programs,” continues Haverty. “So if you don’t already know the website used for your 401k account, you’re going to have to do some digging. Usually, you will receive a statement at least quarterly, and this will typically have login information that you can use for your account. You can also check your former company’s website and they may have details about how the employee 401k program works and how to log in to your account. If all else fails, you can also contact the HR department directly.”
Maybe you’ll be lucky and your research will reveal your 401k investments are totally aligned with your social values. Even then, it’s not recommended to just leave the money where it is.
For starters, some plans charge higher fees for managing the accounts of former employees. In general, the more accounts you have, the more management fees you pay. There’s also the possibility you could forget that you have the account altogether and lose the money (literally).
“Most investors are better off keeping their retirement accounts in one place,” says Haverty. “It’s just easier to keep track that way. You also benefit with reduced fees when you have higher assets held in the same funds. Investors have two options when they leave a company. They can roll their assets into an IRA or they can roll their assets into their next employer's 401k plan. The [benefit] to moving into an IRA is that you’re likely to have more investment options than what’s available in your next employer’s 401k plan.”
An IRA, or Individual Retirement Arrangement, is best understood as a savings account—but one specifically designed for retirement. The interest rates are superb, and they boast a lot of tax breaks on top of that.
There’s a number of different IRA types to choose from, depending on your situation. Some allow you to deduct your contributions as a tax write off each year. Others accrue interest tax-free, or allow you to withdraw the funds before retirement without incurring penalties.
Whereas most 401k plans hold oil companies and other traditional energy companies in their portfolios (whether you like it or not), IRAs allow for complete customization of your investments. You can retire by investing from your heart.
To help, Swell offers a simple service to gather your orphaned 401k accounts into one Swell IRA that supports innovative, high-growth, social impact companies.