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Defined Contribution

FAANGs show real muscle in building up DC assets

Employees flocking to top technology companies help push assets into high orbit

Some of the biggest names in revenue growth, profit progress and market cap gains are also moving up in another financial category — defined contribution assets.

The DC plans of these companies — the famous, and sometimes infamous, FAANG stocks — won't be challenging their largest peers any time soon because the Federal Thrift Retirement Plan, Washington, has $578.8 billion in DC assets, according to the latest Pensions & Investments survey of the 1,000 largest retirement plans. Long-established DC plans of AT&T Corp., Dallas, ranked second with $65.5 billion, and Boeing, Chicago, ranked third with $64 billion, seem far away in the asset horizon — for now.

However, some of these youngsters are advancing quickly in the P&I ranking of DC assets among the largest retirement plans.

The reasons are varied but a common theme is booming employment. Facebook Inc., for example, doubled its full-time workforce between 2016 and 2018. So did Netflix Inc. Amazon.com Inc. nearly doubled its combined full- and part-time workforce during this period. Alphabet Inc., parent of Google, recorded a 38% increase in full-time employees. Apple Inc. added 14%.

Beyond raw numbers, however, the FAANGs take different approaches to managing their DC plans, including some with an aggressive approach to auto-enrollment. The plans of Alphabet and Facebook, for example, set initial auto-enrollment deferral rates at 10%, well above the more common rage of 3% to 6% at many DC plans. Participants may opt out.

Alphabet

Alphabet, Mountain View, Calif., achieved its DC asset growth without providing a company stock fund in its 401(k) plan, although it offered a self-directed brokerage account for its 98,771 full-time employees as of Dec. 31.

The company match is a dollar for dollar of a participant's annual contribution up to $3,000, or 50 cents on the dollar up to $9,000.

There is immediate vesting for participants' and company contributions.

This plan design enabled Alphabet to post DC assets of $11.4 billion in the latest P&I survey, up 63.1%, from $6.97 billion, as it jumped to 58th place from 104th in the previous survey for DC assets.

(When compared with the P&I universe of total retirement assets — defined benefit and DC — Alphabet placed 194th in this year's survey, up from 293rd in the previous survey.)

Unless otherwise noted, the results for Alphabet and other plans cited in the P&I survey are based on public documents and/or estimates for the 12 months ended Sept. 30 vs. the 12 months ended Sept. 30, 2017.

Amazon

For all its growth, Amazon.com Inc., Seattle, has a comparatively small — but surging — amount of DC assets.

The estimated total of $4.8 billion for the current P&I survey represented a 51.3% jump from the previous survey, as Amazon moved to 207th place from 287th for the most DC assets. (Among all retirement plans, DC-only Amazon placed 414th, up from 544th).

Amazon had 647,500 full-time and part-time workers in 2018, according to the company's latest 10-K statement, or nearly double the 341,000 in 2016.

Full-time workers can contribute to their 401(k) plan immediately. Part-timers who work less than 30 hours per week can contribute once they have completed 1,000 hours or more, according to the company's latest Form 5500.

The company match is 50% for each dollar up to 4% of a person's annual pay. Vesting is immediate for participants' contributions but three years for company contributions.

Amazon is the only FAANG member with a company stock fund in its 401(k) plan, representing 22% of plan assets as of Dec. 31, 2017, according to its latest Form 5500. Company stock accounted for 23% of total assets in 2016 and 28% in 2015.

Apple

Apple Inc., Cupertino, Calif., achieved a DC assets gain of 27% to $7.4 billion as the company's DC plan rose to 112th place from 144th among DC plans in the P&I survey. (When compared to P&I's total retirement universe DC-only Apple placed 294th, up from 338th.).

Apple doesn't have a stock fund in its 401(k) plan, although it does have a self-directed brokerage account.

The company auto-enrolls people at 3% of annual salary and offers automatic escalation of 1% of salary per year up to a combined total of 6%. Employees may opt out.

Apple uses the corporate match to reward tenure. For someone who has worked for less than two years, the company match is 50% on the dollar up to 6% of annual salary. For someone who has worked two to five years, the match is 75%, and an employee who has been with Apple for five or more years is eligible for 100% match. Vesting is immediate for the 132,000 employees as of Sept. 30.

Facebook

The defined contribution plans of Facebook Inc., Menlo Park, Calif., and Netflix Inc., Los Gatos, Calif., were too small for the latest P&I survey of the largest 1,000 retirement plans; the cutoff was $1.31 billion.

Facebook should make the list next year. As of Dec. 31, 2017, Facebook had DC assets of $1.29 billion, according to the latest Form 5500. That's up nearly 82% from $711.5 million the previous year.

Facebook doesn't have a stock fund in its 401(k) plan, although it offers a self-directed brokerage. The company raised its auto-enrollment initial deferral on Jan. 1, 2017, to 10% of annual salary, up from a still aggressive 7%. Employees can opt out.

The company also encourages saving via a corporate match — 50 cents on the dollar up to 7% of annual pay. Vesting is immediate for individual contributions and for the company match for the 35,587 employees as of Dec. 31, 2018.

Netflix

As for Netflix, its 401(k) plan had assets of $366 million for the year ended Dec. 31, 2017, according to the latest Form 5500. That's up 48% from $247 million in the previous year.

For its highly compensated employees, Netflix will match dollar for dollar in contributions up to 3% of annually salary. For other employees, the match is dollar for dollar up to 4%. Vesting is immediate.

The company offers a brokerage account but no company stock fund in its 401(k) plan. Netflix had 7,100 full-time employees at the end of 2018 vs. 3,500 at the end of 2016.

Microsoft

One tech old-timer, in computer speak, is Microsoft Inc., Redmond, Wash., which isn't a member of the FAANGs.

It went public in 1986, six years after Apple's initial public offering, and it has been surging in recent years to the point where it has a higher market capitalization than Apple and the other FAANGs.

Microsoft didn't move much in the P&I survey – to 23rd place from 25th place among DC assets — but it still enjoyed a healthy 15.1% DC asset increase to $21.7 billion. (Among all retirement plans, Microsoft placed 96th, up from 103rd.).

The company had 131,000 full-time employees as of June 30, 2018, up 15% over two years, according to 10-K statements.

The Microsoft 401(k) plan has a self-directed brokerage account. Since Jan. 1, 2016, it froze the company stock fund in the 401(k) plan, preventing new contributions and transfers from coming into the stock fund. Participants with 401(k) money already in the stock fund can maintain this investment, which represented 7.6% of plan assets in 2017 and 7.8% in 2016, according to the latest Form 5500 filings.

Microsoft provides participants with a matching contribution on eligible pre-tax and/or Roth contributions of 50 cents for every $1 contributed, the company's latest Form 5500 said. "The matching contribution is provided for up to 50% of the maximum annual 401(k) pre-tax and Roth contribution limit of $18,000 for 2017 and 2016," the document said.