As you’re probably already aware, Publix recently announced a significant change to your 401(k) Smart Plan. The company has decided to only allow you to invest up to 25% of your contributions into Publix stock. Until now, it’s been 100% and most of you have taken advantage of this, partly because it was a simple and convenient way to purchase the stock, but primarily because you believe in the company. Publix has also let you know if you ever sell the Publix stock in your account, you will only be able to repurchase up to the 25% maximum.
Based on posts I’ve seen on the various Publix related Facebook pages and elsewhere on social media, along with phone calls I’ve personally received from existing clients, a lot of you would like to know why Publix is making these changes. With a change of this magnitude, associates may be concerned. I’ve seen comments like “Voya isn’t making any money on the plan”, “Publix is getting ready to go public” or sold, etc.
I have no specific information about Publix’ plan, but I do have experience managing 401(k)’s and I thought my insight may be helpful.
First you need to understand the regulatory environment surrounding retirement plans in general and 401(k)’s specifically. In October 2010, then President Obama proposed the expansion of the “investment advice fiduciary” rule, to Individual Retirement Accounts (IRA’s) through the Department of Labor (DOL). Until that time, investment advisors managing IRA’s had what is known as a fiduciary duty when IRA’s were fee based, but on commission-based accounts, they were held to a lower “suitability” level
Even though the new “DOL Fiduciary Rule” was never fully implemented, it had a profound effect on the financial services industry because it shined a light on what was and was not in the clients best interest and was leading to commission-based IRA’s requiring a fiduciary responsibility for the first time. The industry immediately began to struggle with how the commission side of the industry could act in client’s best interest, and it’s being sorted out now.
However, the managers and trustees of 401(k)’s have always been required to abide by a fiduciary standard. This was required by the Employee Retirement Income Security Act of 1974, also known as ERISA. In other words, ALL 401(k)’s are required by law to always do what was in the employees’ best interest.
This brings us to Publix’ 401(k) Smart Plan. I’ve seen numerous Publix 401(k) Smart Plan statements over the last 20 years and most Publix associates invest primarily in Publix stock inside their plans. Publix is the only seller of shares TO you, and the only buyer of shares FROM you, every dollar invested in Publix stock goes right back into the company.
Consider this… if you as an associate are investing 10% of your paycheck into Publix stock, you’re essentially giving 10% of your paycheck back to the company for future delivery, hopefully at a higher price. While this makes you a true “investor” in the company, it creates a massive conflict of interest - which under ERISA and the Investment Advisor Act of 1940, must either be disclosed, mitigated, and/or eliminated altogether.
Many plans offer only limited investment options which are highly scrutinized before they are added to the plan. In 401(k)’s, company trustees are required to protect employee investors from themselves if necessary.
Years ago, I met with a former Publix Pharmacist who had gone to work for Target. When he moved his 401(k), Target would only let him invest a maximum amount of 25% in Target stock. Think about this - since Target is publicly traded, they simply don’t have the same conflicts of interest when their employees invest in Target stock. Why, because the company doesn’t receive the proceeds.
Keep in mind when a Target employee buys shares on the open market, another investor selling those shares receives the proceeds. But Target still limits the amount of stock their employees can purchase in their 401(k).
At some point it’s likely the Officers of Publix and/or the Trustees of the 401(k) either realized or were told by regulators that they needed to mitigate or eliminate this conflict of interest which meant limiting your ability to purchase the stock your account.
Remember, we’re here to help! Please feel free to call or email if you would like to discuss these changes, or you can visit www. Retirefrompublix.com and click the “Schedule a 15 min no obligation phone call with Mike”.
This blog contains opinions of Michael P Henderson, CFP® CKA® and does not represent the views or opinions of Publix Super Markets, Inc. or Independent Advisor Alliance LLC.
The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investment advice and financial planning services offered through Independent Advisor Alliance LLC, an SEC Registered Investment Advisor.
