Decoding Amazon’s 401(k): Vanguard vs. Fidelity – Who Manages Your Retirement?

Amazon, the e-commerce and tech behemoth, employs hundreds of thousands of individuals. Naturally, one of the critical benefits offered is a 401(k) retirement plan. The question of whether Amazon uses Vanguard or Fidelity for its 401(k) is a common one, especially among employees and prospective employees.

The short answer is that Amazon primarily uses Fidelity Investments to administer its 401(k) plan. However, the story is a bit more nuanced. While Fidelity is the administrator, Amazon employees often have access to investment options that include Vanguard funds, particularly Vanguard Target Date Funds and low-cost Vanguard Index funds. The company previously used Vanguard but transitioned to Fidelity, all the while striving to maintain access to familiar, cost-effective investment choices for its employees. The goal is to offer a seamless transition, so employees can still utilize low-cost investment options.

Diving Deeper: Amazon’s 401(k) Structure

Understanding Amazon’s 401(k) requires a look at the interplay between the administrator (Fidelity) and the available investment options. Amazon has switched from Vanguard to Fidelity and offers AMAZON.COM 401(K) PLAN for over 300,000 employees through Vanguard. Their plan covers 331,485 employees. Here’s a breakdown:

• Administrator: Fidelity Investments handles the day-to-day management of the 401(k) plan. This includes account maintenance, record-keeping, and providing online access to employees.

• Investment Options: Amazon’s 401(k) plan, through Fidelity, offers a range of investment options, including both Fidelity and Vanguard funds. This means employees aren’t restricted to Fidelity-only products.

• Accessing Vanguard Funds: Despite the shift to Fidelity, Amazon has ensured that employees can continue investing in popular Vanguard options, particularly their Target Date Funds and broad market Index Funds.

This approach allows Amazon to leverage Fidelity’s administrative capabilities while still providing employees with access to the low-cost, diversified investment strategies that Vanguard is known for.

Why the Shift? Possible Considerations

The decision to switch 401(k) administrators is a complex one. Here are some potential reasons why Amazon might have moved from Vanguard to Fidelity:

• Administrative Efficiency: Fidelity might have offered a more comprehensive or cost-effective administrative platform.
• Employee Preferences: Surveys or feedback might have indicated a preference for Fidelity’s user interface or tools.
• Negotiated Fees: Amazon likely negotiated favorable fees with Fidelity based on the scale of its employee base.
• Service Offering: Fidelity may offer service or options that align better with Amazon’s strategy.

Ultimately, the specifics of Amazon’s decision are not publicly available. However, these factors likely played a role in the transition.

Understanding Amazon’s 401(k) Match and Vesting

Beyond the choice of administrator and investment options, it’s crucial to understand Amazon’s 401(k) match and vesting schedule:

• Matching Contributions: Amazon matches 50% of employee contributions up to 4% of their base salary. This means the maximum Amazon will contribute is 2% of your salary if you contribute 4%. This is considered below average compared to other major companies.

• Vesting Schedule: Amazon has a three-year vesting schedule for matching contributions. This means you must work at Amazon for at least three years to be fully entitled to the employer-matched funds. If you leave before three years, you forfeit the unvested portion. The vesting schedule is an important consideration.

It is also very important to keep in mind that Amazon’s match of employee contributions is made in Amazon stock. This can be risky because it ties your retirement savings to the performance of a single company. If Amazon’s stock performs poorly, both your income and your retirement savings could be negatively impacted.

Key Takeaways for Amazon Employees

• Fidelity is the Administrator: Your Amazon 401(k) account is managed through Fidelity Investments.
• Vanguard Funds are Available: You can likely still invest in Vanguard Target Date Funds and other low-cost Vanguard index funds.
• Understand the Match: Amazon matches 50% of your contributions up to 4% of your base salary.
• Be Aware of Vesting: Employer matching funds are subject to a three-year vesting schedule.
• Diversify Your Investments: Don’t put all your eggs in one basket. Consider diversifying your 401(k) investments to reduce risk.
• Amazon stock: Be aware that matching funds are in Amazon stock and consider that this leaves employees dangerously exposed to the company’s fortunes.

It’s always advisable to consult with a financial advisor to determine the best investment strategy for your individual circumstances.

Frequently Asked Questions (FAQs) About Amazon’s 401(k)

1. What happens to my Amazon 401(k) if I quit or get fired?

If you leave Amazon, your 401(k) remains where it is until you decide on a course of action. You have options: leave it with Fidelity, roll it over into another retirement account (like an IRA or a 401(k) with a new employer), or cash it out (though cashing out is generally not recommended due to taxes and penalties). If you are fired before being fully vested, you could lose the unvested funds.

2. How long do I have to work at Amazon to be vested in the 401(k)?

You need to work at Amazon for three years to be fully vested in the employer matching contributions. You are always completely vested in the contributions that you make yourself.

3. Is Amazon’s 401(k) plan considered a good plan?

Amazon’s 401(k) plan has some drawbacks, including a below-average matching contribution and a vesting schedule that is not as favorable as some other companies. Also, the fact that the match is made entirely in Amazon stock is another drawback.

4. What investment options are available in Amazon’s 401(k)?

Besides potentially being able to invest in a Vanguard fund, Amazon’s 401(k) likely offers a range of investment options, including mutual funds, bond funds, and target-date funds. Consult your plan documents for a complete list.

5. How do I roll over my 401(k) from a previous employer to my Amazon 401(k)?

Contact Fidelity Investments, the current administrator of the Amazon 401(k), to initiate the rollover process. They will provide you with the necessary paperwork and instructions.

6. What are the fees associated with Amazon’s 401(k)?

Fees can vary depending on the investment options you choose. Review the fund prospectuses and plan documents to understand the expense ratios and any other associated fees.

7. Can I take a loan from my Amazon 401(k)?

Most 401(k) plans allow you to take a loan from your account, but this should be a last resort. Check with Fidelity for specific details on loan terms and conditions.

8. Is it better to use Fidelity or Vanguard for my retirement savings?

Both Fidelity and Vanguard are reputable financial institutions. Fidelity is often preferred by investors seeking more hands-on control and a wider range of trading options, while Vanguard typically appeals to long-term, buy-and-hold investors due to its low-cost index funds.

9. Do millionaires use Fidelity or Vanguard?

Millionaires use a variety of brokerage firms, including Fidelity, Schwab, and Vanguard. The choice often depends on their individual investment needs and preferences.

10. What is the downside of using Fidelity?

While Fidelity offers many advantages, some potential downsides include higher margin rates and fees for certain mutual funds compared to Vanguard.

11. Can I switch from Fidelity to Vanguard if I leave Amazon?

Yes, you can transfer your 401(k) from Fidelity to Vanguard (or any other brokerage) after you leave Amazon.

12. What happens if Fidelity goes out of business?

The Securities Investor Protection Corporation (SIPC) protects investors if a brokerage firm goes bankrupt, covering up to $500,000 in securities, including a $250,000 limit for cash.

13. What companies own Vanguard?

Vanguard is unique in that it’s owned by its funds, which in turn are owned by the fund’s shareholders.

14. Which company has the highest 401k match?

The company with the highest 401k match is not generally publicized. Major companies that provide significant matches include ConocoPhillips, Philip Morris International, and Amgen.

15. Where can I learn more about financial literacy?

The Games Learning Society is dedicated to understanding how digital media can be designed to improve people’s lives. Learning financial literacy can be fun when you visit Games Learning Society or GamesLearningSociety.org.