Summary
Nike’s profit sharing plan appears, compared to others we have viewed, relatively appealing and shows a commitment that Nike has to its employees in helping them save for retirement. However, we offer some highlights or our critique below and have provided guidance (see specific program recommendations) to optimize the employee stock option program and the deferred compensation plan:
2017 Plan Changes
Nike changed plan sponsors in 2017. They went from the prior sponsors Hewitt and Charles Schwab to Fidelity. And, they kept Northern Trust as the custodian. In our last review we "called out" one of Nike's biggest pitfalls within the plan -the way matching contributions were structured. The matches could work unfavorably against employees who either met their maximum contribution early (maybe a big bonus) or stopped making contributions. Nike went through the effort to fix this 'miss match,' as it was described in a 2015 Oregonian article, in this 2017 change. The new plan has a year-end "True Up" where any unfavorable missed matching money is reconciled to treat the employee fairly.
- Nike’s costs for investment choices are favorable inside the the basic 401(k) plan, They are transparent and have low turnover.
- They match 100% for the first 5% of contributions and employees vest immediately.
- They offer a health savings account which is technically not part of the profit sharing plan, but these savings plans can be some of the best retirement savings plans for employees.
- Nike added the "Tune-up" feature to the plan so employees don't loose out on any matching funds with the caveat it may only be temporary for the fiscal year. Time will tell.
- Nike offers many other programs to save and grow retirement. The Employee Stock Purchase offers employees a 15% discount to the market price in Nike stock. The deferred compensation plan offers to defer taxes (except payroll taxes) until separation from the company, all be it with many rules. And, the employee stock option plan allows employees to benefit in growth at no cost.
- Nike only has 5 investment choices (outside profit sharing plan and the Nike Stock Fund) and 3 risk weighted funds that hold these 5 investments. These investment choices are limiting and in order to get more variety one needs to go to the Fidelity Brokerage Link to access more investments.
- Fidelity's Brokerage Link drives investors to Fidelity products. Generally there is nothing wrong with Fidelity products, but they don't offer some of the good inexpensive funds which makes Fidelity look like the low cost provider. This strategy drives the employees to these Fidelity funds or other more expensive funds reducing the retirement for the employee in the long run.
- Long-term disability at 60% of pay, paid as a benefit after tax and with no inflation protection is inadequate.
SPECIFIC PROGRAM RECOMMENDATIONS
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