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June 30, 2007

Seeing Retirement Investment Through Green-colored Glasses
    by Anne Moore Odell

A new report shows that Americans have more SRI retirement choices than ever before, but it remains to be seen if people chose to put their savings in socially and environmentally screened funds. -- Unless you've looked at your retirement contribution plan carefully, you might have missed the opportunity to invest in a socially responsible fund.

Please support
our sponsorsA new report from Mercer Investment Consulting prepared for the Social Investment Forum (SIF) shows that one out of five workers already have a socially responsible option as part of their defined contribution (DC) plans. The report also says that the number of retirement plans offering screened funds is on the rise.

In addition, Mercer released a new resource guide for DC plan sponsors of companies that are interested in adding an SRI option to their retirement plans.

The report, entitled "Defined Contribution Plans and Socially Responsible Investing in the United States," states that 19% of defined contribution plans surveyed now include a SRI option. Moreover, 41% of all plan sponsors surveyed that aren't presently offering SRI options are planning to within the next three years. Mercer's research was based on a questionnaire answered by plan sponsors, administrators, and consultants.

"Socially responsible retirement options are becoming a fixture of corporate America's retirement plans," said SIF CEO Lisa Woll. "This is good news for investors and their employers. More and more Americans are interested in SRI funds because they offer a way to save for retirement, improve corporate responsibility, and achieve significant environmental and social goals. Companies that offer them are providing a real benefit to their employees," she added.

According to the report, the demand for SRI retirement options is rising. One reason is because more businesses are aligning their retirement plans with their missions and SRI options reflect their corporate responsibility goals. Employees are also asking for companies to include SRI choices. Currently, health care and government organizations top the businesses inclined to add an SRI option.

"The survey results and anecdotal evidence points to a trend of seeing a retirement plan as an extension of an organization's mission and/or commitment to social responsibility," said Craig Metrick, US lead for Responsible Investment, Mercer Investment Consulting.

"In addition, there is increasing public concern around climate change and other environmental, social and governance issues in the press, and increasing evidence that SRI options do not underperform or conflict with fiduciary duty," Metrick concluded. He also noted that he has seen a marked increase in requests specifically for environmentally friendly options for DC plans.

Dave Stangis, Director of Corporate Responsibility at Intel, has followed the rise of SRI retirement options and took part in the news conference with the release of the report. He told, "What the report does is shed light on what is happening. It is clearly a trend that employees are interested in and this report is the first time we've seen it called out in a report."

SRI fund performance is assessed using the same criteria as non-SRI funds the report found. Plan sponsors and advisors use, for example, past performance, and fund volatility to evaluate SRI funds. The funds' positive and exclusionary screens are also considered one of the most important factors for fund evaluation.

Actively managed domestic large-cap equity SRI mutual funds are the most demanded by plan sponsors. Most surveyed said that asset allocation/lifecycle mutual funds are the most appealing and appropriate socially responsible funds.

Yet misconceptions about the financial track records of SRI funds still exist among some plan sponsors. SIF sees the growing interest in SRI as an opportunity to help educate companies, employees, and plan sponsors about SRI.

To help companies, sponsors, and advisors better understand SRI retirement investing, SIF charged Mercer to create a resource guide directed toward plan sponsors that outlines how to include an SRI option in their retirement plan. The guide clearly lays out six steps to adding an SRI option: Step #1: Gauge interest in adding an SRI option; Step #2: Increase your knowledge of SRI; Step #3: Check with your consultant and/or plan administrator: Step #4: Make the case: Addressing performance and fiduciary concerns; Step #5: Choose a fund (and monitor performance; and Step #6: Educate participants.

Although the response to Intel's offering of SRI options in the retirement plans has been very positive, Stangis told the actual number of employees signed up for the SRI options is very small. Of the roughly 50,000 participants in Intel's DC plans, only 1,000 participants have chosen the SRI options.

The reasons why Intel's employees haven't picked the SRI choices are varied Stangis explained. When Intel restructured their retirement plans several years ago, adding Calvert Equity and Calvert Bond as the SRI choices, they also added many different funds, upping their retirement choices to more than 70 funds. "The uptake is that people don't go in and change their fund allocation that often," Stangis said. "People want the choice and people are asking about socially responsible funds."

The research provided by Mercer for the SIF was undertaken with the support of project partners: AltruShare Securities, Calvert, FTSE Group, Neuberger Berman, Northern Trust and TIAA-CREF. SIF, the national association for the social investment industry, has more than 600 members that include banks, community investing institutions, financial planners, foundations, mutual fund companies, and research companies.

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