what to do when your 401(k) or 403(b) doesn't offer values-aligned funds
“When your intention is clear, so is the way.”
A fulfilling decision is one made with intention.
Decisions ask us to close many doors in pursuit of one. A closed door can bring happiness, guilt, excitement, regret. The way forward—intention—births our experienced emotion.
what’s happening with our 401(k) and 403(b) plans?
Employer-sponsored retirement plans—like your 401(k) or 403(b)—prevent many of you from investing with your values. As of 2023, just 6.4% of 401(k) plans offered an ESG fund, jumping to nearly 40% of 403(b) plans. This stat is less surprising when you remember 403(b)s were designed for the non-profit sector. At 6.4% for 401(k) plans, this is in contrast to a recent survey revealing that 75% of 401(k) participants want ESG options. Limited access to align your investments with your values is a major restriction, but it doesn’t end there.
On top of a lack of options, your day-to-day efforts might stand at odds with the investments offered by your employer. If you’re someone who’s mindful about the environment (recycling, pasture-raised eggs, leave no trace) but your 401(k)/403(b) doesn’t offer an ESG fund, your money is probably invested in companies you spend each day fighting (Exxon, Chevron, BP). Now there’s an ever-present, strange loop going on: You spend time and money to help conserve the environment, you invest to retire into your ideal life, and those investments support the financial operations of the companies harming the environment. If you now feel trapped (support harmful companies vs. risk your ideal future), I have good news for you: There’s a better answer.
the jist
The employer-sponsored retirement plan landscape sits on a contradiction of values: 75% of 401(k) participants want ESG options, while only 6.4% of plans offer an ESG fund. The percentage of 403(b) plans offering an ESG fund jumps to 40%, but that is still less than half. For the values-aligned investor, this presents an issue with only a few solutions.
The participant can abstain completely from the employer-sponsored plan, but that might forsake them from employer matching contributions. So, there are two options: maximize the match and keep contributions in cash or maximize the match and invest contributions in non-values-aligned funds.
The way forward is about intention. Whether you hold your contributions in cash or non-values-aligned funds, you can still uphold your values. Outside of your 401(k)/403(b), you can invest with your values in an IRA or taxable brokerage. And, you can advocate for changes within your employer-sponsored plan’s investment options by talking with your plan sponsor (aka, your employer).
why this is so common (how 401(k)/403(b) menus get built)
Before exploring what that answer is, let’s understand why this happens in the first place.
Both 401(k) and 403(b) plans are governed by ERISA: The Employee Retirement Income Security Act. This act was established back in 1974 and sets the Duty of Prudence and Loyalty. These duties legally bind plan sponsors (employers, investment committees) to act in the sole interests of their plan participants as well as act with care, skill, and diligence. And this is where the political whiplash comes from. Just about every administration since 2008 has volleyed a different interpretation of whether or not ESG funds fulfill or violate the duties set forth within ERISA.
2008—George W. Bush
The Department of Labor (DOL) strongly discouraged ESG funds in employer-sponsored plans, taking the stance that plan sponsors must focus on financial criteria.
2015—Barack Obama
The DOL removed the discouragement of incorporating ESG funds if they were economically relevant; ESG was now framed as legitimate financial considerations.
2020—Donald Trump
The DOL reversed course and required plan sponsors to include funds based solely on “pecuniary factors”—financial risk and return; ESG was no longer viewed as financially relevant.
2022—Joe Biden
And reverse! The DOL changed course again and explicitly permitted ESG criteria in fund selection.
2025—Donald Trump
The DOL no longer supports the 2022 Biden era explicit-permission-ruling but has not finalized a formal ruling on ESG in employer-sponsored plans.
Think of this as the highly contentious Marty Supreme vs. Koto Endo table tennis match: Two fierce players ping-ponging the ball back and forth with speed. If I were a bystander (plan sponsors in this metaphor), I wouldn’t want to go anywhere near that ball in fear of undesired consequences. And that’s what we’ve seen. Plan sponsors aren’t including ESG funds—despite 75% of 401(k) plan participants desiring them—in fear of regulatory backlash. But, you’re not powerless.
look at what options you do have (you may be closer than you think)
Fund providers have started to drop the “ESG” label with all the regulatory back-and-forth. If a fund was named something like, “U.S. Large Sustainability Fund” or “Global Clean Fund” it held the risk of higher scrutiny. Some people avoided the fund because of its ESG leaning while others questioned whether it lived up to its name. Because of this, your 401(k)/403(b) might appear ESG-thin, but is it?
Let’s look at this fund: Parnassus Core Equity Fund. Unless you recognize the Parnassus name, you could easily assume this fund has nothing to do with ESG. But, Parnassus is one of the pioneers in the values-aligned investing space! Same with the Calvert Equity Fund and others. You get the point—the name alone doesn’t tell the whole story.
Remember this when reviewing your 401(k)/403(b) investment options. The funds offered to you might not appear values-aligned, but take a deeper look at them. While combing through your investment menu, use a ratings platform, like Invest Your Values, to see how each fund actually stacks up. Just click that link and use the search bar to find your fund. It might align with your values more than the name suggests!
your options
Okay, you’ve checked and there’s no values-aligned funds available to you in your employer-sponsored plan. As we noted earlier, this shouldn’t surprise you. The vast majority of these plans do not offer any ESG funds. But, there’s always a bright side—you just have to know where to look.
If your 401(k)/403(b) offers no values-aligned funds (and you’ve double checked with Invest Your Values), you have three options: 1) maximize the employer match and be okay with a small portion of your total portfolio not being values-aligned, 2) use a self-directed brokerage account (SDBA) if offered through your plan, or 3) talk directly with your plan sponsor and request values-aligned funds. Let’s peel back this onion.
Just max the match.
We’re not talking about matching clothes here—we’re talking about (essentially) free money. A lot of these plans offer an employer match on your contributions. This might read something like, “100% match on your first 4% of contributions” (meaning they match every dollar you put in, up to 4% of your salary). While this doesn’t directly improve your plan’s values alignment, it helps optimize your current financial gain—which can later be invested with your values. Let’s see that in action:
Imagine your salary is $75,000 and you contribute 2% ($1,500) to your pre-tax 401(k)/403(b) plan each year. Since your plan provides a match of 100% on your first 4% of contributions, your employer will also contribute 2% into your plan. That’s an extra $1,500 for investing your own money, but you’re leaving an additional 2% of “free money” on the table by not maxing the match. If you increase your contribution rate to 4%, your employer will also contribute 4%—or $3,000.
Use a SDBA.
A minority of 401(k)/403(b) plans offer a self-directed brokerage account (SBDA). This account allows you to access a broader universe of investment options by connecting your employer-sponsored plan into a traditional brokerage account. And you keep all the benefits of your plan. There’s a bit more paperwork and sometimes associated fees for using this, hence why not many people use it even when offered. But if offered in your specific plan, it’s an opportunity to have more or stronger values-aligned investment options.
Advocate for more options
The investment options in your 401(k)/403(b) are decided by a few different people, with one being your plan sponsor—aka, your employer. If there are no values-aligned options in your plan and no SDBA, ask for them! These options aren’t included for various reasons, but one of them is a perceived lack of interest. If you (and some coworker friends would be great) request these additions, you might have some luck. An easier ask to start with is for a SDBA, but it’s well within your right to request specific funds. Below is a sample email you can use today.
Subject: Request to Add a Values-Aligned Fund to Our Retirement Plan
Hi [Name],
I'd like to request that our [401(k)/403(b)] plan add at least one values-aligned investment option for employees who want to avoid industries like fossil fuels, tobacco, or weapons manufacturing.
A low-cost index fund with basic ESG screens would accomplish this without disrupting the existing lineup. If it's helpful, Invest Your Values (investyourvalues.org) is a free tool that rates mutual funds and ETFs on a range of environmental and social criteria—it may be a useful starting point for your review.
What would the next steps look like to get this on the investment committee's agenda?
Thank you,
[Your Name]
split the strategy—401(k) for the match, IRA for the values, and advocating for better options
Even if you have zero values-aligned investment options in your 401(k)/403(b) and no SDBA, that’s not a sign to ditch your employer-sponsored plan. It does, however, ask you to be more intentional with how you proceed.
The first question to ask yourself: to what extent will I avoid investment if it goes against my values? If you want to avoid all investment options in your plan, you can still contribute and maximize the employer match. You’ll just keep the contributions in cash (this will show as a money market fund in your plan’s options). The catch: abstaining from investment in your 401(k)/403(b) means you’ll receive no financial growth on those contributions. If you don’t want to forgo financial growth but still uphold your values, there’s another option.
As noted earlier, you can use your employer-sponsored plan just to max the match. Once the match is maximized, you can invest in outside accounts however you desire. Meaning, even with your and your employer’s contributions invested, your values are still upheld in outside accounts. Depending on your total investment contributions across all account types, this might leave your 401(k)/403(b) at a small percentage of values-misaligned investment.
Don’t forget: advocating for better options is your right. Whether you choose to forgo investment return and leave your 401(k)/403(b) in cash, or you invest your contributions, you can regularly advocate for values-aligned investment options.
the caveats
Not all values-aligned investments are created equal. Some have high fees attached to them and some are heavily greenwashed. Greenwashing refers to when a fund is designed to appear environmentally and socially beneficial, but is actually full of harmful companies. Before investing in any values-aligned/ESG investment (and any investment, really), check under the hood to see how it’s designed: fees, holdings, history, etc.
the takeaway: a limited 401(k) isn't the end of the road
At the end of the day, as of 2023, just 6.4% of 401(k) plans offer values-aligned investment options. This jumps to nearly 40% for 403(b) plans, but that’s still less than half. Plan participants—you—are often asked to decide between financial growth and upheld values. The easiest decision for us when we feel powerless is to abstain completely from participation. But you are powerful.
Whether you decide to maximize the match and keep it in cash or invest it, advocating for better investment options is your right, and something I can support you on. While this can be a slow process, remember what else you can do: double check your current investment options with Invest Your Values (they might be better than you think) and invest in outside accounts like your IRA or a brokerage account (this increases your values-alignment across your total portfolio). The way forward is intentional.
Disclosures:
Just Advising LLC is a Registered Investment Adviser in the state of North Carolina. Advisory services are only offered to clients or prospective clients where Just Advising LLC and its representatives are properly registered or exempt from registration. Justin Horowitz is an investment adviser representative of Just Advising LLC. The firm is a registered investment adviser and only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.
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The information presented on this post is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Comments should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell the investments mentioned. A professional adviser should be consulted before implementing any of the strategies discussed. Investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's portfolio. All investment strategies can result in profit or loss.
Environmental, Social, and Governance (ESG) investing is qualitative and subjective by nature. There is no guarantee that the criteria used or the investments selected will reflect the beliefs or values of any particular investor. ESG strategies may limit the types and number of investment opportunities available, which could cause a portfolio to underperform the broader market or other strategies that do not utilize ESG criteria. Past performance of ESG-related investments is not an indicator of future results, and there is no assurance that an ESG-oriented approach will result in better performance or lower risk.
