Does Twitter Have A Great 401K Plan?
Now whether you are an employee or executive at Twitter I would like to say that full disclosure: I am simply presenting facts on Twitter's 401k plan. How am I getting these facts? Well it is all public information on the DOL website where you can do a form 5500 search on any company of your choosing. These form 5500's are required by the Department Of Labor. They disclose all kinds of information from the plan provider they are using to the types of mutual funds in the plan. They even disclose admin costs! So as you can see it is quite easy for anyone in the world to look into any company's plan and start benchmarking the performance of the plan holistically. In regards to the facts I display, I will also show alternative things we can do to the plan to make it better. You need to remember that these form 5500's filed annually are like tax returns. Which means the only information we have on the plan is from the date it was filed. There is no way we can possibly look at the current information on the plan unless we have the login credentials of the 401k plan administrator over at Twitter. However 9 times out of 10, companies do not make big changes in the plan that would hinder our analysis. Even if half the information is true and has not been changed to date, there is still a few fixable things we could do to the plan. What I mean by this is the investment menu is most likely the same, the plan provider and expenses are also most likely the same. Of course the asset sizes would increase as employees continue to contribute. The 2021 filing is going to be due soon, so we are not even sure how much in assets has changed in the plan last year. Anyways...onwards!
Plan Provider
Now if you simply went to the DOL website I have linked and typed in "Twitter" in the search bar, you would see the form 5500 filings. From there you can simply download the latest 2020 filing for Twitter's 401k plan and have a read for yourself. I will be going through pages from this download if you would like to follow with me. The first notable thing would be on page 4. We can see that the service provider for Twitter is "The Vanguard Group Inc.". Now I am actually a big fan of Vanguard in general. They understand that investing in low cost index funds is the key to a healthy retirement but are they a great 401k provider overall? Well plansponsor.com does an annual survey of approximately 3,000 defined contribution (DC) plan sponsors. So this independent and fair survey is asked amongst 3000 companies providing plans for their own participants. They are asked how their DC(401k) plan provider such as Fidelity, Vanguard, Charles Schwab etc. is treating them overall. DC plan providers are measured and evaluated according to feedback from their own clients. Major DC plan providers are rated in the various client categories they serve, and benchmark information is collected for plan sponsors to gauge their plans against their peers. We can see that twitter is considered a large market plan since it is a plan that has an asset range between 200 million - 1 billion in current assets. Twitter clocked in at 440 million according to its 2020 filing. On page 12, it shows the assets were 306 million million in the beginning of 2020 and they ended at 440 million at the end of 2020. So roughly speaking Twitters 401k assets are increasing by 136 million a year! Not bad. I'm rambling now but onto the rankings of DC providers:
Vanguard did not even make this survey for some weird reason. None of the clients decided to report about their thoughts on Vanguard. So what is this supposed to mean? Does it mean that Vanguard is bad? Well who knows. That is up to you to decide. If you happen to be a participant in Twitters 401k plan, it would be great to see how Vanguard's services rank against other providers. Here is the top 5:
Services could mean anything such as calling customer service and asking them general questions. It could also be based on the overall timing and quality of the service you have received as a participant, how good the online planning tools are for participants and so on:
Well what about if your are the plan sponsor? This is the company sponsoring the plan. In this case it would be Twitter. Now lets say you are the person administering the plan, usually this is the CEO/CFO/HR or the benefits analyst in some cases. Maybe this person is wondering who has the best overall recordkeeping platform. This makes it easy for them to manage the plan and do all other streamlined functions with ease. You would be surprised how outdated plan provider platforms could be. Anyways here is those rankings:
So we can see once again the top 7 in rankings in terms plan administration, plan design flexibility and much more. Well now to transition into my favorite part of the plan...
Investment Lineup
So if you scroll all the way down on the downloaded form 5500 to page 39, you will see a list of the investment lineup within Twitters 401k plan. Included also is the current assets listed at the time of filing for each mutual fund. Here is a screenshot here, I did the best I can to fit everything on the page:
One thing that I found odd right away was why is Twitter, who is using Vanguard as a plan provider; have target date funds from T.Rowe Price? You would think Vanguard would have provided their own low cost index funds that they preach proudly but they don't. Well lets use an example target date fund. If we look at the T.Rowe 2050 I class target date fund, you would see through simple googling that it has an expense ratio of .45%. The expense ratio in ELI5 terms is simply the cost for owning that particular fund annually. So if you had 100 dollars in that T.Rowe 2050 fund, you would pay 45 cents a year for owning it. Not much right? Well its actually a lot because it adds up over years and the goal for a large plan is to make sure the participants are getting the best possible. These days the DOL is cracking down on any company that cannot justify the fees it is putting on its participants. So maybe this fund is justified because its performance is better than a cheaper alternative 2050 index fund? Lets see:
Above you will see a chart comparing the T.Rowe Price 2050 Class I Fund $TRPMX to the low cost alternative which I chose for this example to be the Schwab Retirement 2050 Index Fund $SWYMX. The blue line indicating T.Rowe's performance versus the gold indicating Schwab's performance. We can see here that in 5 years the Schwab target date fund out performed T.Rowe. Great right? Well yes, but its not just about returns. If you set the chart setting to MAX, you will see that both funds are pretty much on par with each other. So there is no difference? Wrong. There is a difference. The difference is the cost to participants. The Schwab 2050 alternative has a .08% expense ratio, so 8 cents for every 100 dollars. That is a big difference for participants. How different? Put it this way, do you see page 39 in the form 5500? The current assets reported from the T.Rowe 2050 fund was $52,871,002. If we were to change this T.Rowe 2050 fund to the Schwab alternative, participants in total would save 5.4 million over a 10 year span! Fees add up and when you are a large market plan with over 5800 participants like Twitter. It is important for them to ask themselves if everything in the plan is optimized to fiduciary standards. This is what matters in large employer plans these days. Participants are not active hedge fund managers making 50 trades a day. These are plans with the investment objectives of picking a fund, "setting it and forgetting it". It is also important for you as the plan sponsor to make sure the investment menu is as low cost and high performing as possible. I personally calculated a little over 10 million in mutual fund optimizations we can do to twitters fund lineup but that would be too much unnecessary info to put into this post. Plus I think I made my point already. Now onto diversification...
Now the picture above shows the next two funds I want to talk about in Twitters investment menu. That being Vanguard Total Bond Market Index Admiral $VBTLX and the Pimco Total Return Institutional Class $PTTRX. The goal of a great 401k plan is to make sure the investment menu is diverse. We need to eliminate any chance for participants to make a mistake. As the participant, you don't want to pick a mutual fund that happens to be the same thing as another fund. In this case, these two funds have high correlation with one another. This means that the majority of investments in the Vanguard Total Bond fund is identical to the Pimco Total Return fund. So if there are participants in the plan accidently invested into both of these funds, then they are essentially wasting their time and money. Why is that? Well because there is no added benefit to having two identical funds. This violates fiduciary responsibility on Twitter's part. In my opinion they should just remove one of them. Funny enough, just like with good restaurants having few items on the menu means it must be great quality food. The same applies to investment menus in a 401k plan. Less options in the investment menu means less room for error on the participants. Participants are more likely to pick better options and get higher returns if they have a smaller investment menu to choose from.
Closing Thoughts
Now of course I said a lot here but I would like to reiterate that everything I showed and mentioned here is objective and available to the public by simply using google. Do I think Twitter should leave vanguard? Probably not. Unless the participants and plan administrators at Twitter do actually have a problem with their service. Should Twitter optimize the investment line up? I would say yes. At the end of the day, these are retirement plans with peoples retirement goals in mind. These contributions are sitting in mutual funds for likely 20-30 years growing and compounding. So we need to ensure that it is in the best and cheapest fund possible because the fees in the plan could get into the millions in just 10 years time.
I would like to point out that I am not affiliated with any of the companies I mentioned here. I am simply an independent company 401k advisor and fiduciary. Maybe I have too much free time on my hands. If you are a plan sponsor and would like me to do a free analysis of your plan, feel free to reach out on my LinkedIn or email me at sam@nyxmoros.com
P.S: Twitter please don't sue me, maybe hire me instead? haha :)
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