RSU and 401(k) Benefits for Facebook Employees

With the recent news of Facebook's slowdowns and layoffs, it is time to assess your company's benefits and transition strategy in order to avoid tax consequences.

This post will focus on your benefits, whereas our Meta(Facebook) Transition page describes the 401(k) rollover process.

Despite the turmoil currently affecting many employees, Meta (Facebook) has historically offered its employees some of the best benefits in the industry. Meta (Facebook) offers exceptionally competitive RSU compensation and 401K matching contributions. These monetary benefits have helped employees maintain their financial security and motivation.

Facebook offers its employees a variety of additional incentives, including life insurance, access to TurboTax, tax consultations, autism coverage, dependent care FSA, fertility benefits, and a second medical opinion.

Let's explore the pertinent details regarding your Facebook retirement benefits.

What is a Facebook RSU exactly?

RSUs are becoming increasingly prevalent in corporate America. National Association of Stock Plan Professionals and Deloitte's 2021 survey reveals that 86% of U.S. public companies grant RSUs, up from 3% in 2000. In a recent survey of 325 companies, 72% of respondents reported using RSUs in their long-term incentive compensation programs, up from 47% ten years ago and 4% twenty-one years ago. Similarly, the prevalence of restricted stock decreased significantly, from 32% of companies in 2009 to 14% of companies in 2019. The restricted stock unit is a direct benefit provided by Facebook (Meta) (RSU). An RSU offers employees a business share or cash payout at a future date or dependent on performance conditions.

As a form of compensation, Facebook gives RSUs to its employees in the form of company shares. RSUs are subject to a vesting schedule, which means that until the RSU vests, the employee does not possess the stock in its entirety. During the vesting term, the stock is unsellable. Once the stock vests, its FMV is assigned and it becomes taxable compensation for the employee. The employee may sell any shares they own upon vesting.

The RSU will be designated as a Facebook equity grant in your offer letter or most recent business review. This prize is monetary in nature. When beginning employment, your grant is converted into RSUs based on the corresponding financial amount.

You earn RSUs as you advance in your Facebook career. Each RSU represents one share of common stock in Facebook. The value of Facebook's stock fluctuates daily, whereas the value of your RSUs corresponds to the value of Facebook's stock on the date you become vested.

Facebook uses the following formula to convert your financial offer to RSUs:

Contribute the dollar amount according to the average closing price of Facebook shares for the month preceding your graduation.

In order to establish the value of your Facebook restricted stock units, if your computation yields a fractional share, it must be rounded up to the next whole number.

Case in point:

If you commenced trading on September 1, 2020, you would investigate the average price of Facebook stock from August 1 to August 31 of that year, which was $268.78. If the value of your award is $1,500, you would receive:

$1,500/$268.78 = 6 shares (rounded up from 5.58)

RSU Vesting

Facebook provides a four-year RSU vesting scheme with three options. Facebook has four annual vesting dates: February 15, May 15, August 15, and November 15. Your initial vesting date is the earliest of the four dates listed above that occurs after your date of hire.

Then, your vesting will depend on whether you are on Vesting Schedule A, Schedule B, or Schedule C:

• Schedule A - Quarterly earnings of 1/16th of your RSUs for four years.
• Schedule B - You receive 1/12th for the first quarter, 1/16th for the second and third quarters, and 2/48th for the fourth quarter.
• Schedule C - You receive 5/48ths of your RSUs in the first quarter, 1/16th in each of the following quarters, and 1/48th in the last quarter.

Related Article | 5 Facts About Your Restricted Stock Units

Significant details about Facebook Restricted Stock Units

There are never any redemption fees related to RSUs. According to the above schedule, after four years of service you become fully vested and earn the value of one capital share (times the number of RSUs). Even if the share price falls, you will still be in a favorable position.

On the vesting date, ordinary income taxes are due. Facebook immediately deducts the appropriate taxes upon vesting.

You could be eligible for an equity refresher award in the first quarter after your first year. A refresher equity grant provides you extra opportunity to invest in Facebook via RSUs, in addition to your first equity award. These are determined by an employee's performance and/or Facebook's need to reinvest in its workforce.

Vesting RSUs are comparable to a cash bonus. Consider these equivalent to a normal bonus. You owe taxes on the shares as if they were cash, and if you promptly sell them, you will obtain cash.

Understanding Your Tax Implications as a Facebook Worker

For all other forms of payment, the IRS demands payment. RSUs are no exception.

There is no taxable event when you are first issued RSUs (also known as a Grant). You are not obligated to pay taxes on RSUs until you have actual control over them as Facebook shares.

When compensation is acknowledged or cannot be recovered by the employer, the IRS requires tax payment. After RSU shares vest (become yours), Facebook cannot take them back, and you must pay ordinary income taxes on the shares' fair market value at the time of vesting. You must pay taxes even if you do not sell the shares of stock you now own.

Normally, when RSUs vest, the corporation deducts state and federal income taxes. Check this withholding so that you do not receive an unexpected tax bill during tax season.

How much tax will you owe on the RSU stock that has become vested?

• Federal income tax

• levy on state income (if your state has income tax)

• SSI Contributions

• Medicare Tax

The restricted stock is provided to you at no cost, but upon vesting, it generates a taxable event for which you will be required to pay ordinary income taxes on the gain between the fair market value when granted and the fair market value when vested.

Facebook deducts the normal amount of taxes from each employee's salary who is eligible. If you are in a different (higher) tax bracket, though, you may owe additional taxes at tax time. Consult your tax professional so that you are aware of the consequences of being vested.

What taxes are imposed on the increase or gain? 

Following the sale of the stock, you will be obliged to pay capital gains tax. Once your Facebook shares have vested, you are free to sell them, but any capital gains are subject to additional taxation. If you sell the shares for more than it was worth on the date of vesting, you will suffer a tax liability.

When shares are held for less than a year from the date of vesting, short-term capital gains are taxed at the individual's ordinary income tax rate. Retain for more than one year after vesting to pay only long-term capital gains tax rates (0, 15, or 20%). In addition, if your income is sufficiently enough, you may be subject to a 3.8% Net Investment Income Tax.

How to Understand Your Meta(Facebook) 401k Match

Facebook matches employee donations of up to 7 percent of their income at a significant 50 percent. Participant accounts in the Plan are always fully vested.

Meta will match your 401(k) contributions dollar-for-dollar, up to fifty percent of the IRS's maximum contribution limit, beginning on January 1, 2022. Formerly, the company matched 50% of your typical 401(k) contributions up to 7% of pay. If you are above the age of 50, Meta will match your catch-up contribution dollar-for-dollar, up to 50 percent of the IRS federal maximum. This is a $3,250 contribution increase to your 401(k) (k). Rarely will an employer match the catch-up contribution. Your income at Meta comprises your base salary, overtime compensation, and any other income, such as commissions and bonuses. The 401(k) match does not include incentives for Meta RSUs.

For instance:

• Under 50 donors can contribute $20,500 and Meta will contribute $10,250.
• Over 50 contributors can contribute $27,000, and Meta will match $13,500.

Meta's 401(k) plan provides 19 investment options, including mutual funds and unit investment trusts. In addition, Brokerage Link accounts are an option. Fidelity is the administrator of the plan.

Where do Meta(Facebook) Employees invest their money?

Facebook Provides for Its Workers Financially.

RSUs are an excellent incentive for Facebook employees. So long as you understand the tax implications of the investment and make the necessary arrangements with your tax advisor, it can be more advantageous than standard stock options.

More Frequent RSU and 401k Meta-Questions:

Can vested Facebook RSUs be canceled?

Vesting indicates ownership of the stock. Even if you leave the company, Meta (Facebook) cannot typically revoke your vested shares.

Will RSUs improve my eligibility for a mortgage?

If you want to include your RSU income in your mortgage application, you must sell your vested shares annually. Lenders will look for a pattern of RSU sales over the past number of years.

How do I optimize my Meta (Facebook) 401k?

While attempting to optimize your Meta (Facebook) 401k, you should prioritize reaching the maximum annual contribution limit. Meta began matching employee contributions of up to the IRS-mandated maximum of $20,500 in 2022. Therefore, if a Meta employee contributes $20,500 in 2022, the employer will match the contribution with $10,250.

In most cases, this will result in increased wages for employees. It is essential to note, however, that employees with high salaries may receive a smaller contribution due to the fixed cash cap rather than the % limit. If your base income is $300,000, for example, the $10,250 match only represents a 3.4% match.

RSU appears on the W2 form?

RSUs appear on Form W-2. The total value of your vesting RSUs will appear as taxable wages on your W-2. When your RSUs vest, Meta (Facebook) has the option to deduct taxes from your compensation. Consequently, you won't be required to pay quarterly estimated taxes, and you won't have to pay a substantial amount of taxes when filing your taxes.

What is a Facebook Meta (Catch-Up) Contribution?

The maximum amount you can contribute to your 401k at Meta depends on your age. If you are 50 or older, you can contribute an additional $6,500 per year as a "catch-up contribution," bringing the total to $27,000. Unlike many firms, Meta's 401k match includes catch-up contributions. Therefore, the majority of employees who contribute the maximum to their 401(k) will receive $10,250 in matching funds, while those over the age of 50 will receive $13,500. Therefore, increasing 401k contributions should be a greater priority for employees in this age group.

How do I determine my restricted Meta stock's cost basis?

It is the responsibility of the plan that holds your RSUs to calculate their basis. For instance, if Fidelity holds your plan's equities, Fidelity should have your base information on file. By examining your account statements, you will be able to ascertain the cost basis for each fully paid share. Basis represents the value of each share at the time of vesting.

Are RSUs tradable at any moment?

RSUs can generally be sold once they have been granted. In certain instances, in order to prevent insider trading, it is prohibited to sell shares during a certain time period. Additionally, you can sell your shares during trading hours. You must inquire with Meta about any blackout periods and their duration.

Who manages my Meta 401(k) plan?

Fidelity administers Meta's 401(k) plan. Meta employees are permitted by Fidelity to invest in a variety of mutual funds, including stock funds, real estate funds, and money market funds. In addition, you will be able to acquire Meta shares via your 401(k) (k). If you already own Meta RSUs, it may be prudent to diversify your portfolio.

Should I immediately sell my restricted shares?

Due to the tax treatment of RSUs, it is typically advisable to sell vested shares as quickly as possible. This is primarily for risk management purposes. Due to the fact that you pay income tax on vested shares as they vest, a decline in the shares' value is irrelevant. You have already paid taxes on the shares, so a decline in their value will result in a tax rate that is significantly higher than if you had sold them immediately.

To avoid having an overly concentrated portfolio in a single company is another reason to sell your shares quickly. A diversified portfolio is recommended, whereas RSUs are not diversified because they consist solely of Meta shares.

You may want to consider selling some or all of your shares when they vest in order to protect yourself from a major corporate downturn and to avoid paying hefty taxes on depreciated shares. There are circumstances in which you may wish to retain certain shares, but you must consult with a financial advisor to determine the optimal course of action.

What is the meaning of Meta Mega Roth (MMR)?

Meta Mega Roth (MMR) is a post-tax 401(k) contribution that permits Meta employees to contribute in excess of $20,500 to their 401(k)s. The IRS maximum for all 401k contributions in 2022 is $61,000, which includes $20,500 in employee deferrals and $10,250 in employer matching contributions. This allows Meta employees to contribute an additional $30,250 after taxes to their 401(k) accounts. Noting that this limit does not include catch-up contributions, eligible donors may contribute up to $67,500. The Meta 401(k) plan also allows after-tax contributions to be automatically converted to Roth 401(k) contributions (k). This allows for the growth and tax-free distribution of all post-tax donations.

Can RSUs result in a capital loss?

If the price of Meta stock declines after your RSUs have vested, the Meta shares underlying your RSUs may lose value. not duplicate

What happens to an employee's RSUs when they leave the company?

You forfeit all unvested RSU shares upon leaving your employer. The vested RSU shares in your brokerage account are yours to keep, as soon as they vest they become your property.

Have you developed an RSU Strategy?

As a method of risk mitigation, selling your RSU shares as soon as they vest is one option. The funds can then be invested in a diversified portfolio of stocks or bonds. Diversification is a vital component of any sound financial strategy. Now, you may be thinking, "I will have a very difficult time selling these shares. Recent developments have been negative, and I dislike selling at rock-bottom prices." However, if you had $50,000 to invest immediately, would you invest it all in a single stock? Do you require the money if you are between jobs?

What effect will this have on the employees of Meta who will be laid off in the next round?

The good news is that if you are laid off, the portion of your RSUs that has already vested will remain yours. As Meta shares are released upon vesting, any RSUs that have become fully vested are now fully owned shares.

Sources:

1. What to do with an Early Retirement Ebook

2. Social Security Ebook

3. Lump Sum vs. Annuity Ebook

4. 401(k) Rollover Strategies Ebook

5. Closing The Retirement Gap Ebook

6. RSUs Essential Facts (Schwab.com, 2022)

7. Employee Stock Purchase Plan (ESPP): What It Is, How It Works" (Investopedia, 2022)

8. What Are Stock Options? Parameters and Trading With Examples" (Investopedia, 2022)

9. Deferred Compensation" (Calpers.ca.gov, 2022)

10. Is The Mega Backdoor Roth Too Good To Be True?" (Forbes.com, 2022)

The Retirement Group is not affiliated with nor endorsed by your company. We are an independent financial advisory group that focuses on transition planning and lump sum distribution. Neither The Retirement Group or FSC Securities provide tax or legal advice. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.