Does Tesla Have the Best Mutual Funds in Their 401K Plan?
It is always important as the plan sponsor to consider whether your mutual funds are the best. It is your duty to offer participants the best investment menu possible. While I understand plan sponsors do not know they can tune the investment menu, at the end of the day the liability still falls on them. Do you ever wonder why your plan provider only offers you inhouse investment options? Now you will see that there is in fact a conflict of interest here. Why would Fidelity offer you a Vanguard fund when they can offer you their own fund with a bloated expense ratio? At the end of the day, your plan provider does not need to have your best interest in mind but you as the plan sponsor legally do.
Now of course I will mention for the millionth time, if you want to see Tesla’s 401k investment lineup it is extremely easy. Simply go to the DOL 5500 search and type in “Tesla”. From there you will see the Tesla Inc. filing for the year of 2020. This is the best information we must go by. Form 5500’s are like tax returns; we are only able to see the previous year filed. The 2021 filings are not even due yet. However, 9 times out of 10 most companies do not change anything in the investment lineup. I mean why would they? They think it is the “best investment menu out there!”
Tesla’s Investment Menu
Behold…the investment menu that is going to take us to Mars! Or not? Let’s see. In this case we are not able to analyze and search what is the expense ratios for these collective investment trusts (CIT). Good on Tesla though, these are supposed to be more cost effective for the participants. However, it does not matter. As a plan sponsor, it is your responsibility to be prudent when selecting the investment menu and there are no excuses for even one bad mutual fund in the bunch. In this scenario It will be an easy one. The Fidelity ContraFund K Class with current assets of 44 million. With simple googling we can see its ticker symbol is $FCNKX.
The alternative better option we can suggest is $VUG, the Vanguard Growth Index. Why didn’t they suggest it? Who knows? Its in the plan providers best interest to trick…ahem I’m sorry suggest “good” mutual funds for the plan sponsor. Anyways, VUG has a 97% correlation last I checked. Which means over 97% of the holdings between both are identical to one another. Are we supposed to assume the 3% difference is proprietary holdings to bring the added value? Where is the added value? How pissed would you be as an employee who contributed to $FCNKX for 10 years, knowing it could have been 3 times more in an alternative identical fund?
I do not blame Tesla for this. I am certain it is not their fault. It is systematically the way plan providers want the industry designed. When you are a company trying to bring a 401k plan for your employees, you never question the plan providers intent. You assume the investment menu they are offering you is the best out there. Most companies do not even know they can get better options and plan providers want to keep it that way. Any real fiduciary would have made this change along time ago. Oh well.
Sammy Khalil is a 401k Fiduciary from Nyx Moros, a firm which advises on Company 401k plans. Sammy conducts full analysis by benchmarking retirement plans holistically. This ensures the entire plan is in the plan sponsor's best interest. Being independent means we can be transparent in all advice we provide. For more information please visit www.nyxmoros.com.