John Hancock for small business 401k?

Ask your investment, budget, and other money related questions here
Post Reply
Hristo Botev
Posts: 92
Joined: Tue Jul 17, 2018 3:42 am

John Hancock for small business 401k?

Post by Hristo Botev » Thu Sep 06, 2018 10:42 am

I don't know the details of the plan yet, but the small business I started working for a few months ago (which is only about a year old at this point) has been looking to set up a 401k plan in part to satisfy me, as I've made it a habit over the past several years to always max out my 401k contributions for the year. I wasn't involved with the vetting of who was being picked to run the business's 401K, but it sounds like it's going to be John Hancock, with which I'm not familiar (I've had good experiences with employers in the past with Fidelity and, not surprisingly, Vanguard). I'm sure that they went with John Hancock because it can be really expensive for a small business to set up a 401k program, but from a quick glance online it sounds like a lot of people have some serious problems with John Hancock (including the likes of John Oliver, apparently). Any thoughts/experiences with John Hancock out there? Also, any help with how I'd go about calculating whether the income tax savings justify a high fee/cost 401k plan? Thanks!

User avatar
Riggerjack
Posts: 2539
Joined: Thu Jul 14, 2011 3:09 am

Re: John Hancock for small business 401k?

Post by Riggerjack » Thu Sep 06, 2018 10:57 am

Very cool question, and I can't help much.
Also, any help with how I'd go about calculating whether the income tax savings justify a high fee/cost 401k plan?
Go to firecalc, in the tab for portfolio adjustment, at the top is a field for expense ratio. Enter other information, then adjust the expense ratio to see exactly how this works, shown in Monte Carlo projections.

Play with it a bit, to get a feel for it. It's a great tool. Then go to portfoliocharts.com to map out allocations.

Or maybe you have already done that, in which case, I can't help at all. Either way, good luck.

suomalainen
Posts: 473
Joined: Sat Oct 18, 2014 12:49 pm

Re: John Hancock for small business 401k?

Post by suomalainen » Thu Sep 06, 2018 12:25 pm

Given your tax bracket, I'd assume the income tax savings far exceeds the highest possible fees/costs of a plan (to you). Assume 25% tax rate so $100 annual pretax investing vs $75 annual posttax investing. Assume call it 4% returns in pretax account vs 5% returns in posttax account (same investments, but assume 1% fees). You will always come out ahead pretax with those assumptions (well, 47 years to break even). Assume 2% fees, so 4% vs 6% and it still takes you 26 years to break even on a post-tax account.

I can't say anything about Hancock's options to you nor what they likely charge the employer. My 401k options are through Prudential, but there are index options that charge 0.05% and I think the highest active options are in the 0.6% range.

User avatar
Chris
Posts: 611
Joined: Thu Jul 22, 2010 2:44 pm

Re: John Hancock for small business 401k?

Post by Chris » Thu Sep 06, 2018 11:47 pm

I had JH when I was with a small employer. Yeah, their fees suck. But it was only a one-year relationship.

The tax savings will be significant though. If I were you, I'd contribute and then check into doing a rollover on an annual basis. You should check to see if they whack you with a fee for that too.

slowtraveler
Posts: 673
Joined: Sun Jan 11, 2015 10:06 pm

Re: John Hancock for small business 401k?

Post by slowtraveler » Fri Sep 07, 2018 5:30 am

Employee Fiduciary has far better fees. You also pick your own funds like Vanguard or Fidelity index funds or even Wellesley.

arcyallen
Posts: 54
Joined: Sat Jan 20, 2018 11:20 am

Re: John Hancock for small business 401k?

Post by arcyallen » Fri Sep 07, 2018 8:52 am

John Hancock is a full-service option. That means you can get advice from them. That advice will cost more than the low/no advice options like Vanguard and Fidelity. In my experience, they've been a fine option. Last I knew they offered American Funds (which I am an unabashed fan of) as one of their investment options . Often, a "John Hancock 401k" will actually be serviced by a Financial advisor from a firm like Edward Jones. If that's your case that means you and the employees would have someone to sit down with face to face and discuss things.

Either way, from a tax perspective yes, it's usually worth it.

Augustus
Posts: 520
Joined: Sat Apr 02, 2016 10:15 am

Re: John Hancock for small business 401k?

Post by Augustus » Sun Sep 09, 2018 9:08 pm

Vanguard has small business plans, I use them for my small business, here's a synopsis: https://www.fundera.com/blog/vanguard-small-business

You'll save a ton on fees. Not sure if it's in the realm of possibility to get them to use vanguard? Would save them money.

Hristo Botev
Posts: 92
Joined: Tue Jul 17, 2018 3:42 am

Re: John Hancock for small business 401k?

Post by Hristo Botev » Mon Sep 10, 2018 12:36 pm

Augustus wrote:
Sun Sep 09, 2018 9:08 pm
Vanguard has small business plans, I use them for my small business, here's a synopsis: https://www.fundera.com/blog/vanguard-small-business

You'll save a ton on fees. Not sure if it's in the realm of possibility to get them to use vanguard? Would save them money.
Ugh; wish I'd had some input in the plan selection process. I wasn't told about who'd they gone with until after they signed the papers. We've got an information meeting scheduled for a couple weeks, and it should be interesting to hear the rep answer my questions about investment options, expense ratios, etc., and whether or not there are any fees associated with me just rolling over my 401k balance to Vanguard every year to avoid JH's fees.

Augustus
Posts: 520
Joined: Sat Apr 02, 2016 10:15 am

Re: John Hancock for small business 401k?

Post by Augustus » Mon Sep 10, 2018 2:53 pm

Hristo Botev wrote:
Mon Sep 10, 2018 12:36 pm
whether or not there are any fees associated with me just rolling over my 401k balance to Vanguard every year to avoid JH's fees.
I don't think you're allowed to roll over to another account until employment is terminated unfortunately. Are they planning to do matching? If they're not matching I think you're better off declining the 401k and setting up your own ira. I think you're also unable to set up an IRA if you're currently enrolled in a 401k, so declining becomes the better choice IMO, unless they have good matching to offset high fees and lack of control. I have never been impressed with the funds in any 401k I've ever been offered.

User avatar
Chris
Posts: 611
Joined: Thu Jul 22, 2010 2:44 pm

Re: John Hancock for small business 401k?

Post by Chris » Mon Sep 10, 2018 10:06 pm

Augustus wrote:
Mon Sep 10, 2018 2:53 pm
I don't think you're allowed to roll over to another account until employment is terminated unfortunately.
This is certainly unfortunate. You can roll over money that was previously rolled into the 401k, but you can't do an in-service withdrawal until a "triggering event".
Augustus wrote:
Mon Sep 10, 2018 2:53 pm
I think you're also unable to set up an IRA if you're currently enrolled in a 401k
You can open an IRA while contributing to a 401k; that's the basis of the backdoor Roth strategy. It's the deduction on the IRA contribution that is affected by participation in a 401k plan.
Augustus wrote:
Mon Sep 10, 2018 2:53 pm
so declining becomes the better choice IMO, unless they have good matching to offset high fees and lack of control
While annoying, a 401k still has the benefit of a higher contribution limit: $18.5k. Maxing that out, at a tax rate of 25%, generates enough tax savings to cover a lot of fees.

arcyallen
Posts: 54
Joined: Sat Jan 20, 2018 11:20 am

Re: John Hancock for small business 401k?

Post by arcyallen » Tue Sep 11, 2018 3:51 am

Some of the (incorrect) advice/statements here illustrates the value of good professional advice. Like Chris said, you -can- have an IRA and a 401k. And, yes, some employer sponsored plans DO allow in-service rollovers but you have to ask the plan administrator to see if they allow it.

It's amazing how much bad advice is out there. I've seen incorrect (or, at best, very poorly worded) info on the IRS website itself. My favorite example: You can take out your Roth contributions at any time, for any reason, without a penalty or tax, period. I'd say half the FIRE sites I've read get this one wrong.

Hristo:

Augustus
Posts: 520
Joined: Sat Apr 02, 2016 10:15 am

Re: John Hancock for small business 401k?

Post by Augustus » Tue Sep 11, 2018 10:30 am

arcyallen wrote:
Tue Sep 11, 2018 3:51 am
Some of the (incorrect) advice/statements here illustrates the value of good professional advice. Like Chris said, you -can- have an IRA and a 401k. And, yes, some employer sponsored plans DO allow in-service rollovers but you have to ask the plan administrator to see if they allow it.

It's amazing how much bad advice is out there.
please enlighten me as to the purpose of a traditional ira that you can't deduct because you already have a 401k. for what it's worth, i think your advice sucks as well.

chris makes a good point though with regard to deduction limits. i'm eligible for a SEP IRA, so 401ks don't have much appeal to me, given the limits for SEP are very high and i get lower fees through vanguard.

arcyallen
Posts: 54
Joined: Sat Jan 20, 2018 11:20 am

Re: John Hancock for small business 401k?

Post by arcyallen » Tue Sep 11, 2018 2:55 pm

Augustus wrote:
Tue Sep 11, 2018 10:30 am
please enlighten me as to the purpose of a traditional ira that you can't deduct because you already have a 401k. for what it's worth, i think your advice sucks as well.
Why do you think you can't deduct a Traditional IRA contribution because you already have a 401k? You can do both. Keep in mind there are income limits like many plans, but it's generally deductible.

What part of that advice sucks?

Augustus
Posts: 520
Joined: Sat Apr 02, 2016 10:15 am

Re: John Hancock for small business 401k?

Post by Augustus » Tue Sep 11, 2018 3:51 pm

arcyallen wrote:
Tue Sep 11, 2018 2:55 pm
Why do you think you can't deduct a Traditional IRA contribution because you already have a 401k? You can do both. Keep in mind there are income limits like many plans, but it's generally deductible.

What part of that advice sucks?
The part about how it doesn't apply to the OP because he's above the cut off, making the traditional ira nondeductible, which means that he can't do both, which means you gave bad advice.

arcyallen
Posts: 54
Joined: Sat Jan 20, 2018 11:20 am

Re: John Hancock for small business 401k?

Post by arcyallen » Tue Sep 11, 2018 8:06 pm

Augustus wrote:
Tue Sep 11, 2018 3:51 pm
The part about how it doesn't apply to the OP because he's above the cut off, making the traditional ira nondeductible, which means that he can't do both, which means you gave bad advice.
First off, I don't see anywhere on this thread where he mentioned his tax bracket. If I missed it, feel free to point out where.

Second, the benefit to a non-deductible IRA (if that was his situation) is tax deferred growth. Instead of the growth getting eaten every year by taxes, those taxes would be delayed. As good as a deductible contribution? No. Better than a regular brokerage account? Yes.

Augustus, if you don't like being corrected, that's your issue. I wasn't a jerk about it. I can either read a post with incorrect data (your post, or anyone's post) and say "Hey, actually, it's like this, not that", or let people continue to believe the bad info. I'm just trying to get facts straight for everyone. Never mind "advice", everything I've said here is true. I'm sure you, too would rather know the facts than the fairytales.

One of the very first posts I made on the ERE forums (viewtopic.php?f=3&t=9401&start=26) was actually inaccurate, and someone corrected it immediately. I was thankful, not spiteful.

Augustus
Posts: 520
Joined: Sat Apr 02, 2016 10:15 am

Re: John Hancock for small business 401k?

Post by Augustus » Wed Sep 12, 2018 11:53 am

why arcyallen, i was merely correcting you, you should be thankful not spiteful. i was marveling because it's amazing that there is so much bad advice out there. people really ought to pay for professional advice. i'm sure you, too would rather know the facts than the fairytales. i can either read a post with incorrect data, or let people continue to believe bad info.

unless OP is wildly exaggerating in his journal, he's above the cut off, which is what i was pointing out in my original post, not sure why you're throwing a fit over it.

Hristo Botev
Posts: 92
Joined: Tue Jul 17, 2018 3:42 am

Re: John Hancock for small business 401k?

Post by Hristo Botev » Wed Sep 12, 2018 1:57 pm

Thanks all for the extremely helpful guidance. I'm now loaded with questions I can lob like mortars at the poor schmuck non-fiduciary JH sends to give us an introduction to our 401k. I should have made this clearer in my question, but my wife and I file jointly and our combined income puts us in a position where we can get no tax benefits to an IRA, apart from 401ks. I should have also said that my wife maxes out her 401k, which took her some getting used to since with the monthly contributions ~$1,541/mo. to the 401k, plus all the health (& dental, vision) insurance deductions, there isn't much left to her paycheck. Our tax deferment strategy in the past has been to max out 401ks ($37,000/year) as well as HSA and 529 contributions (for state deductions). I suspect that it will still make sense from a tax perspective for me to contribute my $18,500 max to the JH 401k, even if the fees/expense ratio is high. But I should have some more clarity next week.

Post Reply