February 13, 2003
Calvert Foundation Offers Community Investment in Self-Directed IRAs
by William Baue
The Calvert Foundation has partnered with PENSCO Trust Company to offer Calvert Community
Investment Notes for use in self-directed individual retirement accounts.
Socially responsible investors have not been able to allocate any part of their individual
retirement accounts (IRAs) to community investing--until recently. This month, the Calvert Social Investment Foundation,
the nonprofit arm of the mutual fund company Calvert Group, established a mechanism for investing
self-directed IRAs in Calvert Community Investment (CCI) Notes.
have most of their money in retirement vehicles," said Calvert Foundation Senior Associate
Elizabeth Glenshaw. "If we can establish a trend, then we can leverage a lot of retirement dollars
to support community development. I'm hoping it's a template that's infectious."
investments offer the benefit of exempting interest, dividends, and profits from taxation until the
time of withdrawal, which maximizes the amount of money working in the present. Self-directed IRAs
allow investors to choose, either by themselves or in conjunction with their investment advisers,
how to allocate their retirement funds.
CCI Notes support disadvantaged communities
throughout the country and the world by funding affordable housing, small and micro businesses, and
community services. These social returns often counterbalance the financial returns, which tend to
be slightly under market rate. Because of the below market rate returns, government regulations
have prohibited community investment through IRAs.
"Community investment is considered a
non-standard type of asset," Ms. Glenshaw told SocialFunds.com. "We had to make sure that the
community investing didn't have charitable intent."
Calvert Foundation self-directed IRAs
guarantee a three percent return on a rolling one-year basis. In the context of the bear market of
the past three years, when many equity investments have yielded negative returns, a three percent
yield hardly seems like charity.
"We're giving the best investment return we can within
this investment class," said Ms. Glenshaw.
Through a discussion on a community development banking listserv, the Calvert
Foundation was able to identify New Hampshire-based PENSCO Trust Company as the perfect custodian for community
investment through self-directed IRAs.
"PENSCO was so willing to work with us; that was
half of it," explained Ms. Glenshaw. "The other half of it was their sound organization, their sole
specialization in self-directed IRAs, and their passion for this work."
IRAs allow for a large degree of flexibility. A whole spectrum of IRAs is available, including the
traditional, Roth, and rollover IRAs. Roth IRAs allow investors to contribute after-tax dollars
that are tax-exempt upon withdrawal, and rollover IRAs allow investors who are changing employers
to roll existing 401(k) retirement savings into IRAs.
Also, investors can choose one of
eight regions in the U.S. for their community investments, or they can direct their community
investment allocations to the international arena. The Calvert Foundation supports 150 community
development financial institutions (CDFIs) worldwide.
"The idea of the targeting is to be
able to direct the money to your back yard," said Ms. Glenshaw.
These advantages do have
a cost, however. The set-up cost is $50, and there is an additional annual fee of 30 basis points.
"I always thank the initial investors for being pioneers," said Ms. Glenshaw. "My hope is
that if enough of these pioneers step forward, then we can come back and reduce the costs."