In a grain field on a sunny morning, Erin Axelrod filled a pan with orange peels from her kitchen and spent wheat from a nearby brewery. Maisie, a mother goat, calmly munched her food while Axelrod squeezed Maisie’s udder until a stream of milk flowed into a metal pail.
Milking the goats located at the Wild & Radish eco-village in El Sobrante, five minutes from her home, is a weekly ritual for Axelrod, who uses the milk to make her own yogurt and cheese.
It’s also a way for her to stay on top — in as direct a sense as possible — with her retirement investments.
She invested in Wild & Radish through a 401(k), an innovative twist on the traditional retirement fund that was created by Lift Economy, a San Francisco consultancy where she is a partner.
Most 401(k) plans offer only a limited menu of mutual funds and bonds as investment options. But the one Lift created gives its five partners and employees “control of the checkbook” to invest their money in enterprises that resonate with them, while respecting regulations that allow tax-deferred money.
“I wanted my retirement savings to support local communities, food security and housing security,” Axelrod said. “I didn’t want my money anywhere near the stock market.”
As she sees it, she’s not just investing to make money for her future—she’s investing to help save the planet for everyone’s future.
Axelrod is among a group of people joining forces to reimagine retirement by investing in an effort to align it with their values. They want to direct their retirement money to projects such as solar cooperatives, land trusts, farmland trusts, community real estate, and social enterprises owned by women and people of color.
About 300 people nationwide, including many from the Bay Area, participate in Next Egg, “a community of practice” that is exploring how people can invest their retirement funds in socially responsible ways while still being in compliance with the bewildering array of tax and securities laws. It holds webinars, hosts networking discussions, runs focus groups, and provides videos, research, and links. Membership is $10 per month.
The next egg is “attracting people who are concerned about the impact of their retirement accounts on larger ecological and social issues,” Axelrod said.
Erin Axelrod holds a goat at the Wild & Radish Eco-Village in El Sobrante. Axelrod invests in the operation as part of its specialist pension fund.
Ethan Swope/The ChronicleOne of them is Jason Wiener, whose Boulder, Colo. law firm. serves social enterprises “committed to making the world a better place in a sustainable and profitable way,” he said.
He wanted to offer his staff retirement options that reflected this ethos. So he worked with a Colorado company called Qualified Pension Services (which also helped Lift Economy set up its retirement plan) to create a 401(k) with more flexibility than most, but still matching with the Employee Retirement Income Security Act, or ERISA. the law governing pension vehicles.
“From the outside it looks like a typical 401(k),” Wiener said. “We have Vanguard as the repository for all the tax-deferred initial contributions that come out of everyone’s paycheck. What’s new is a rollover system: Employees can take up to 25% of their money tax-deferred from Vanguard and roll it into a self-directed account. If they have a really cool project in the community they want to invest in, they can do their due diligence and submit a formal recommendation.”
Wiener acts as the plan’s trustee, charged with ensuring that investments meet ERISA guidelines. This makes him personally responsible for investment performance and liquidity. For example, if an employee leaves the firm or dies, they have a fiduciary duty to ensure that their funds are available. Setting up was a little more complicated than that of a standard 401(k) plan, but annual tax preparation is more difficult, he said.
Through the plan, he has invested in a dozen efforts: crowd funding, local renewable energy initiatives, other sustainability projects. “Absolutely none of them would show up in any (traditional) 401(k) or IRA portfolio,” he said.
The 401(k) alternative that Lift created allows each of its five partners/employees to serve as trustees of their money, so they have direct control without needing a person to take on the role of custodian. plan, just as Wiener did.
The Next Egg began in 2019 through a collaboration between Lift Economy and the Oakland nonprofit Law Center for Sustainable Economies.
Americans have about $39.3 trillion in retirement funds as of last year, according to Statista. The Next Egg hopes to support more people to throw their money into sustainable projects.
“Through the next Egg, we were looking at how to unlock (pension) funds to invest more locally and so people can invest money in things they care about and get it out of fossil fuels and the things that harm our Earth and exploit workers. ,” said Cameron Rhudy, a staff attorney at the Sustainable Economies Law Center.
Erin Axelrod carries a bunch of alfalfa to feed the goats at the Wild & Radish Eco-Village in El Sobrante. Her retirement fund allows her to invest in the operation she values.
Ethan Swope/The ChronicleConventional 401(k) plans sometimes offer the option of investing in so-called ESG (Environmental, Social, Corporate Governance) funds, but some people say they can still discard a value text, for example by investing in speculative real estate that can contribute to mitigating and spiraling housing costs.
“You have ESG, SRI (socially responsible investing), impact investing, responsible investing — all these kinds of terms, but they’re really sheep’s clothing for the wolves of Wall Street who are just looking to put on a mask of pretty much the same old kind of derivative investing,” said Steven Choi, co-founder of Just Futures, a New York startup that wants to help nonprofits offer 401(k) plans with value to their workers. Derivative investing, according to his “are those that focus on extracting profits from marginalized communities, while also denying them the financial, social and cultural benefits of investment”.
Just Futures aims to launch in 2023. Initially, its 401(k)s will offer conventional investment choices that it has vetted for social and environmental factors. In a second phase, it will provide a way for nonprofit employees to channel their retirement money into private community projects, such as local credit unions.
The U.S. nonprofit sector is a huge market, comprising about 11 million workers who collect $2 trillion in wages, Choi said.
“We think there are a lot of people who work in nonprofits who will say, ‘I want to put my money where my values are,'” he said. “We’re trying to use the 401(k) to engage nonprofits and their workers. We think that people who are engaged in social justice work in their day jobs, who want their investments to match that.”
Meanwhile, there are a number of ways one can exercise practical control to channel pension funds into socially and environmentally conscious investments while retaining the tax advantages of conventional pension funds. The downside is that they require a lot of patience with paperwork, can be expensive and difficult to set up, and sometimes require a custodian or trustee to approve your investments.
• Borrowing: One of the easiest is to simply borrow from your 401(k) or 401(b), which most plans allow. People who do this have complete control over that money – as long as they pay themselves interest (premium plus 1%). Plans typically allow five years for repayment (more if the money is used for a primary residence; less if you quit your job). There may be small origination or annual fees.
• Solo 401(k): Self-employed people can set up Solo 401(k) accounts. They offer “checkbook control,” meaning owners can choose investments and assess their own prudence. As with conventional 401(k)s, the owner can also borrow from the plan. Downside: They are expensive to install. There are those that are off the shelf, but they are limited to investing in conventional portfolios.
• 401(k) with checkbook control: Companies can emulate Lift Economy and the law firm of Jason Wiener to create their own 401(k)s that give their workers more investment options. Two flavors: As with Lift, each employee can be a trustee for their share, or as with Wiener’s firm, one person can serve as a trustee.
• Self-directed IRA or employee-advised plan: These are easy to start, but require the use of a custodian who must approve the investments as “prudent” (investment talk about: the expected rate of return matches or exceeds conventional investments). Caregivers also pay fees.
• Employee Savings Incentive Match Plan (SIMPLE): Companies with fewer than 100 employees can set these up for employees. While they require the use of a custodian, sometimes employees have the opportunity to direct their investments.
• Simplified Employee Retirement IRA: Any business can set this up, but only the employer — not the employees — can contribute, and it requires the use of a custodian.
Of course, people can also invest money outside of retirement plans however they want, with an eye toward mission-driven projects. The good thing is that they have complete control. The downside is that they lose the tax-deferral advantages of ERISA governing plans. But some investments, such as solar power, can provide their own tax advantages, Axelrod said.
Supporters admit that their movement is a nascent movement.
“As businesses mature and look for more radical ways to retain talent and live their values, more may consider” these ideas, said Wiener, the Boulder attorney.
“We’ve been able to create a new and different mechanism to invent ways to invest,” Axelrod said of Lift’s self-directed 401(k). “But we don’t want this innovation to stop only with us. We need millions of jobs with innovative ways to unlock capital for communities. That’s why we’re driving people to the Next Egg platform, to build community and normalize retirement investing in community-based investing.”
Carolyn Said is a staff writer for the San Francisco Chronicle. Email: [email protected] Twitter: @csaid