bad 401k options at new job

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jables
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Joined: Sat Mar 18, 2017 1:47 pm

bad 401k options at new job

Postby jables » Sat Mar 18, 2017 2:26 pm

I just became eligible for my company's 401k. The good news is we get a 4% match and 6% Profit Sharing every year from the company. The bad news is we are with John Hancock and the fees are horrendous. We are a small company with about 20 employees so i'm sure that is part of the reason for higher fees. I do have some money in IRA accounts invested in Index Funds (S&P 500, Total US Market, and Bond Fund), so really just trying to boil it down where i can get ripped off the least in my 401k.

The numbers below are the ER for each fund. Right now i have money going to the Vanguard Small Cap Index, Vanguard Growth Index, and Vanguard Value Index Funds. There are several funds with slightly lower ER (500 Index and Mid Cap Index funds), but they are managed by John Hancock and I'm wary of hidden fees. The Vanguard Funds have been slightly outperforming these JH funds slightly even though they have a slightly higher ER listed. I can't figure out if the listed ER includes all fees or if there are possibly additional fees hidden somewhere so i went with the Vanguard Funds because i figured they were a safer bet to avoid fees I might not be able to see easily. Am i doing the right thing or should i put my money in funds other than the Vanguard options listed below? I'm obviously using the traditional ultra low index funds in my accounts outside of this 401k so i can accommodate my desired asset allocation outside of just the 401k. I'm planning on putting in the amount needed to get the 4% match (we get PS regardless), then maxing IRA, then putting any additional back to the 401k.

Thank you in advance for any insight and advice you might have!

Intl Equity Index Fund 1.22 Foreign Large Blend
Pru Jennison Mid Growth Fund 1.61 Mid-cap Growth
Small Cap Index Fund 1.18 Small Blend
Vanguard Small Cap Grow Index 1.18 Small Growth
500 Index Fund 1.13 Large Blend
Capital Appreciation Fund 1.38 Large Growth
Capital World Growth & Income 1.54 World Stock
EuroPacific Growth Fund 1.59 Foreign Large Growth
Mutual Global Discovery 1.84 World Stock
John Hancock Disciplined Value 1.35 Large Value
JH Disciplined Value Mid Cap 1.42 Mid-cap Value
Mid Cap Index Fund 1.16 Mid-cap Blend
New Perspective Fund 1.55 World Stock
Parnassus Core Equity Fund 1.62 Large Blend
The Growth Fund of America 1.43 Large Growth
Vanguard Growth Index Fund 1.18 Large Growth
Vanguard Value Index Fund 1.18 Large Value
American Balanced Fund 1.38 Allocation--50% To 70% Equity
Capital Income Builder 1.39 World Allocation
DFA Inflation-Protected Sec 1.22 Inflation Protected Bond
Real Return Bond Fund 1.40 Inflation Protected Bond
Strategic Income Opp Fund 1.35 Multisector Bond
John Hancock Stable Val 1.55 Ultrashort Bond

cuda74360
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Joined: Tue Jul 31, 2007 7:04 pm

Re: bad 401k options at new job

Postby cuda74360 » Sat Mar 18, 2017 6:23 pm

You can't compare the Vanguard funds in your plan to the Hancock '500 Index Fund' or the Hancock 'Mid Cap Index Fund', as they track different indexes.

I'm in a similar situation, and use the 500 Index Fund as the sole holding in my 401k. Use your IRA's for your other asset classes.

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Duckie
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Re: bad 401k options at new job

Postby Duckie » Sat Mar 18, 2017 6:34 pm

jables, welcome to the forum.

jables wrote:Am i doing the right thing or should i put my money in funds other than the Vanguard options listed below?

The best options appear to be:
  • 500 Index Fund 1.13 -- Large caps, 80% of US stocks
  • Small Cap Index Fund 1.18 -- Small caps, 14% of US stocks
  • Intl Equity Index Fund 1.22 -- International stocks, mostly developed markets
  • John Hancock Stable Val 1.55 -- Depending on the current interest rate
Unless the Stable Value fund is very good, I'd focus on the two US stock funds with a ratio of 85% 500 Index and 15% Small Cap Index.

sawhorse
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Re: bad 401k options at new job

Postby sawhorse » Sat Mar 18, 2017 10:44 pm

Wow, those are bad even for a small employer. Your employer is clearly passing along its administrative costs to you in the form of higher expenses. You do get a match, however, which isn't that common among small employers.

Have you proposed using another 401k provider? Vanguard might not be an option; it wasn't for my husband's very small employer. ADP does their payroll, and they also offer a 401k plan, so that's what his employer uses. I've also heard about Ubiqiuity and I think there's one called Employer Fiduciary or something like that.

selters
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Re: bad 401k options at new job

Postby selters » Sun Mar 19, 2017 5:34 am

cuda74360 wrote:You can't compare the Vanguard funds in your plan to the Hancock '500 Index Fund' or the Hancock 'Mid Cap Index Fund', as they track different indexes.



I disagree. Vanguard Growth Index Fund + Vanguard Value Index Fund = Vanguard Large-Cap Index Fund

There may be some overlap for the most "blendy" stocks, but apart from that, a 50/50 split between these two funds will equal the Vanguard Large-Cap Index Fund, which holds the 611 largest public companies in the US. The Vanguard Large-Cap Index Fund and an S&P 500 index fund will perform pretty much equally well. I'm sure the John Hancock 500 Index Fund is a well run fund too, but the Vanguard two fund option is reasonable too.

I mostly support the original poster's solution, but I'd just drop Vanguard Small Cap Grow Index and do 50/50 between Vanguard Growth Index Fund and Vanguard Value Index Fund.

cuda74360
Posts: 84
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Re: bad 401k options at new job

Postby cuda74360 » Sun Mar 19, 2017 9:45 am

selters wrote:
cuda74360 wrote:You can't compare the Vanguard funds in your plan to the Hancock '500 Index Fund' or the Hancock 'Mid Cap Index Fund', as they track different indexes.



I disagree. Vanguard Growth Index Fund + Vanguard Value Index Fund = Vanguard Large-Cap Index Fund

There may be some overlap for the most "blendy" stocks, but apart from that, a 50/50 split between these two funds will equal the Vanguard Large-Cap Index Fund, which holds the 611 largest public companies in the US. The Vanguard Large-Cap Index Fund and an S&P 500 index fund will perform pretty much equally well. I'm sure the John Hancock 500 Index Fund is a well run fund too, but the Vanguard two fund option is reasonable too.

I mostly support the original poster's solution, but I'd just drop Vanguard Small Cap Grow Index and do 50/50 between Vanguard Growth Index Fund and Vanguard Value Index Fund.


So it makes more sense to hold 2 funds, at higher cost, just to "pretty much equal" the performance of a single fund?

selters
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Re: bad 401k options at new job

Postby selters » Sun Mar 19, 2017 12:47 pm

cuda74360 wrote:
So it makes more sense to hold 2 funds, at higher cost, just to "pretty much equal" the performance of a single fund?


With Vanguard's owner-friendly structure and expertise in index fund management and, it is not completely unreasonable to expect Vanguard to close the 5 basis point gap to the S&P 500 fund. I'm thinking of the securities lending that Vanguard does and Vanguard's history of being able to track their benchmark indexes very closely. I also think it is reasonable to expect Vanguard to be around as a mutual fund company for the foreseeable future. That may not be the case with many of the other smaller mutual fund companies out there. In addition, 600 stocks is more diversified than 500.

With that being said, I have nothing bad to say about John Hancock. I'm sure their S&P 500 index fund is just fine. Going 100% into that fund is not a bad recommendation at all.

jables
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Re: bad 401k options at new job

Postby jables » Mon Mar 20, 2017 2:24 am

thanks for the help everyone. I really appreciate the insight. Am i safe to assume the Expense Ratio is including all fees or is it still possible for John Hancock to hide fees elsewhere? I tried to read all of the fine print, but i feel like there was still a little bit of ambiguity there. Or maybe it is just me being overly skeptical. I know we don't pay the typical TPA fees associated with 401k plans because of company work relationships so we are at least getting a break there.

If i can be sure there are no other hidden fees possible then it seems like i should just put it all in the 500 index fund because it is the lowest ER and diversify in my IRA where I have more and better options to get the proper AA I'm looking for.

deltaneutral83
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Re: bad 401k options at new job

Postby deltaneutral83 » Mon Mar 20, 2017 8:29 am

jables wrote:thanks for the help everyone. I really appreciate the insight. Am i safe to assume the Expense Ratio is including all fees or is it still possible for John Hancock to hide fees elsewhere? I tried to read all of the fine print, but i feel like there was still a little bit of ambiguity there. Or maybe it is just me being overly skeptical. I know we don't pay the typical TPA fees associated with 401k plans because of company work relationships so we are at least getting a break there.

If i can be sure there are no other hidden fees possible then it seems like i should just put it all in the 500 index fund because it is the lowest ER and diversify in my IRA where I have more and better options to get the proper AA I'm looking for.


I'm also with JH for my small company's 401k. I haven't been able to find if the insane ER's (my average is 1.37x) is all inclusive, I checked all my statements from this past year and there appears to be some pesky $8 fees on about half of them but I don't see anything else so unless there's some hidden fees (probably are) but then again the high ER's do the job of a good gut punch on their own.

sschoe2
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Re: bad 401k options at new job

Postby sschoe2 » Mon Mar 20, 2017 8:49 am

I agree with everyone else. Put the minimum in to get the match using the 500 index fund. Then setup your own IRA. I'd also strongly lobby your employer to find a different provider.

goingup
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Re: bad 401k options at new job

Postby goingup » Mon Mar 20, 2017 9:08 am

Pick the broadest lowest costs funds and contribute as much as you reasonably can. The automated payroll contributions of a 401K make it an easy way to build wealth. If you leave this job may be able to roll your 401K monies into a new 401K or IRA.

Sure, contribute to a Roth too, but many investors have a hard time getting that accomplished. 401K contributions require very little effort. :wink:

Alto Astral
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Re: bad 401k options at new job

Postby Alto Astral » Mon Mar 20, 2017 12:45 pm

Stick with maxing out "500 Index Fund 1.13"

I am maxing my 401k with a 500 index (cheapest they got). I balance it with an extended market fund in an old 401k. You can do something similar and hold bonds etc in Roth IRA.

enki
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Joined: Sun Mar 29, 2015 8:51 am

Re: bad 401k options at new job

Postby enki » Mon Mar 20, 2017 3:56 pm

John Hancock is horrible. We have them too, though our plan is slightly cheaper than yours.

Regarding all the fees, in my research I've found two ways they stick it to you. The first is the obviously bloated expense ratios for each fund. The second is the account administrative expense fee. You can find this in your documentation. On the JH website, goto Review->Plan Notices-> 404a-5 Plan & Investment Notice. On the second page, under Administrative Expenses, you should see how much (if anything) the plan charges for total AUM. In some cases, you might actually see a credit there (we have the same fund ERs but a .05% credit due to an advisor change they did recently).

This should, in theory, be the only fees leveraged on your account. I say in theory because of the way JH does holdings. Instead of investing directly in a fund, where you can easily see and track the value, dividends, etc., they invest in "variable group annuity contracts" which in turn purchase the mutual fund shares on your behalf. It's basically a layer of abstraction and obfuscation that makes keeping track of things much more difficult. While I haven't taken the time myself, I've read other people who have compared the fund returns versus the annuity returns and found discrepancies -- not in their favor of course -- indicating some other fees might be hidden in there.

All in all, the 401k plan sucks. I tried talking my employer into switching, but so far it has been counter productive.

jables
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Joined: Sat Mar 18, 2017 1:47 pm

Re: bad 401k options at new job

Postby jables » Mon Mar 20, 2017 8:37 pm

Regarding all the fees, in my research I've found two ways they stick it to you. The first is the obviously bloated expense ratios for each fund. The second is the account administrative expense fee. You can find this in your documentation. On the JH website, goto Review->Plan Notices-> 404a-5 Plan & Investment Notice. On the second page, under Administrative Expenses, you should see how much (if anything) the plan charges for total AUM. In some cases, you might actually see a credit there (we have the same fund ERs but a .05% credit due to an advisor change they did recently).


Fortunately this section doesn't list any additional fees. It looks like we actually have a .11 credit which i guess makes the ER suck slightly less? I don't see anything listed regarding AUM thankfully.

"Your plan has engaged John Hancock to provide record-keeping services such as educational resources, transaction processing, investment platform, quarterly statements and website tools. Dollar-based charges* are currently waived. Percentage-based charges*, if applicable, are offset by credits that have been negotiated by your plan sponsor. As a result, a credit of 0.11** is currently being applied to your account on a pro-rata basis. Any charges and/or credits will appear on your quarterly benefit statements."

So if i follow this correctly then our net Expenses are going to be the listed ER minus the .11 credit? Is that how this works?

enki
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Re: bad 401k options at new job

Postby enki » Mon Mar 20, 2017 9:34 pm

jables wrote:Fortunately this section doesn't list any additional fees. It looks like we actually have a .11 credit which i guess makes the ER suck slightly less? I don't see anything listed regarding AUM thankfully.

"Your plan has engaged John Hancock to provide record-keeping services such as educational resources, transaction processing, investment platform, quarterly statements and website tools. Dollar-based charges* are currently waived. Percentage-based charges*, if applicable, are offset by credits that have been negotiated by your plan sponsor. As a result, a credit of 0.11** is currently being applied to your account on a pro-rata basis. Any charges and/or credits will appear on your quarterly benefit statements."

So if i follow this correctly then our net Expenses are going to be the listed ER minus the .11 credit? Is that how this works?


Yes, sort of. The ERs are still the ERs and the funds get debited accordingly. But every quarter, instead of having the admin fee taken out of your funds (pro rated across total AUM and per fund), you will see a credit of .11% credit back in the same way. So while I don't think the end result over a long period of time would be exactly the same, it's close enough to say 'yes, your ER is 11bps less'.

With that in mind, your ERs are actually less than mine. My base, on the S&P500 for example, is 1.13 with a credit of .05 (eq 1.08). Yours would equate to 1.02. Still a horrible ER, but not as bad...

JH uses different tiers (or classes) for pricing of the ERs based on account status. You can see your class, and the differences, if you pull up the fund information pop-up. For example, for the 500 fund, with a C07 tier, you would get this:
http://www.viewjhfunds.com/usa/C07/inda/index.html
Showing the 1.13 ER.
If you were C06 tier, it would look like this:
http://www.viewjhfunds.com/usa/C06/inda/index.html
Showing the 1.00 ER.
If your company really hated you, you could be a C09 with a 1.63% ER. C00, the lowest tier, brings it down to 0.03%, which I assume you need to have a ton of AUM to qualify for (which would make JH still a horrible choice).

<tangent>
However, there does seem to be a correlation between the ERs and the Admin Fees (one goes up, the other goes down) in some situations. For example, my companies 500 fund used to be a C02 level of 0.68%. Not bad, right? Except we also had a 0.50% Admin Fee, making the total 1.18%. After months of me complaining about our costs, they finally decided to do something about it. Unfortunately, it was doing something worse. They decided to bring in an EJ advisor as part of the plan to help:
1) Give employees financial advice (...)
2) Help advise the company owners on 401k decisions.
To cover the added costs for this adviser, they had to compensate him from the 401k. Fortunately however, the company decided to cover this increase in plan costs (good). Long story short, it seems the only way this could be done via JH was to recharacterize our account, dropping the Admin Fee to 0 and raising the ERs to compensate (thus bringing us from C02 to C07). However, it actually ended up slightly better, since it somehow caused an AF credit of 5bps, lowering the previous 1.18 ER (with fee) to 1.08 (with credit). All in all, I'm not sure why they did that or why it matters from a financial point of view, and I'm even more curious why yours is -11bps.

In any case, while I am not a fan of EJ, I was originally hopeful of this new advisor. Since it wasn't "technically" costing us anything, I figured there would be no harm (wrong). Plus, maybe he could get them to finally move to a cheaper 401k plan (nope). Unfortunately, not only did that not happen, it made things worse. He said he would price shop our plan (great!), but when he came back he said he couldn't get things any lower right now (WTF?!). Baffled, I asked how is that possible since there are many cheaper alternatives. Well, he only checked TransAmerica, Mass Mutual, America Funds and JH. I said "yeah, you picked the four worst possible 401k sponsors to price match, how about looking at Vanguard or Employee Fiduciary?" He said he couldn't evaluate those because, you guessed it, EJ doesn't have a compensation agreement with them. So not only do we have a crappy 401k, but we now have an "advisor" who is only able to shop us with equally crappy competitors. So we are even more locked in then before until they fire this guy. Yay us.
</tangent>

kinetic2255
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Re: bad 401k options at new job

Postby kinetic2255 » Mon Mar 20, 2017 10:07 pm

enki wrote:<tangent>
Baffled, I asked how is that possible since there are many cheaper alternatives. Well, he only checked TransAmerica, Mass Mutual, America Funds and JH. I said "yeah, you picked the four worst possible 401k sponsors to price match, how about looking at Vanguard or Employee Fiduciary?" He said he couldn't evaluate those because, you guessed it, EJ doesn't have a compensation agreement with them.
</tangent>


You missed one, VOYA. 4 years in the plan and i'm still trying to get a straight answer on my fees. Wouldn't you know they don't have a compensation agreement either! Great tangent, these situations are frustrating. OP you're not alone!

jables
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Joined: Sat Mar 18, 2017 1:47 pm

Re: bad 401k options at new job

Postby jables » Tue Mar 21, 2017 12:40 am

we used to be with Edward Jones until the whole Fiduciary thing changed. We now have the same Edward Jones advisor but now through John Hancock. I'm not sure what the exact differences were under Edward Jones vs John Hancock. I'm curious if things got better or worse? I'm guessing it has to be worse with adding in an extra layer that needs to make money.

bluebolt
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Re: bad 401k options at new job

Postby bluebolt » Tue Mar 21, 2017 7:30 am

It's hard for small companies to get good plans with low expenses. And unless your company is going to pay most of the fees (rare), employees will have to pay them.

We have a pretty good plan at work with many funds (including Vanguard) with expenses less than 50 basis points - the Vanguard S&P 500 fund is 4 basis points. That said, there is a 60 basis point fee on the entire balance subtracted from individual account balances.

And that's one of the better priced plans I've seen for small companies.

deltaneutral83
Posts: 58
Joined: Tue Mar 07, 2017 4:25 pm

Re: bad 401k options at new job

Postby deltaneutral83 » Tue Mar 21, 2017 8:23 am

Alto Astral wrote:Stick with maxing out "500 Index Fund 1.13"

I am maxing my 401k with a 500 index (cheapest they got). I balance it with an extended market fund in an old 401k. You can do something similar and hold bonds etc in Roth IRA.


I looked at my JH "500 index" and it trails the S&P by a full 1% even on a ten year chart. And the ER is 1.13% which is 1% higher than I can get from VG/TDA/Schwab/Fidelity/ so a net of 2% in fees per year. Unreal.

^, If I had the opportunity to get a vanguard 500 fund for a total of 0.64 ER (60 + 4) + some admin fees I'd be shoving everything in there and calling it a day.

enki
Posts: 98
Joined: Sun Mar 29, 2015 8:51 am

Re: bad 401k options at new job

Postby enki » Tue Mar 21, 2017 10:40 am

deltaneutral83 wrote:
Alto Astral wrote:Stick with maxing out "500 Index Fund 1.13"

I am maxing my 401k with a 500 index (cheapest they got). I balance it with an extended market fund in an old 401k. You can do something similar and hold bonds etc in Roth IRA.


I looked at my JH "500 index" and it trails the S&P by a full 1% even on a ten year chart. And the ER is 1.13% which is 1% higher than I can get from VG/TDA/Schwab/Fidelity/ so a net of 2% in fees per year. Unreal.

^, If I had the opportunity to get a vanguard 500 fund for a total of 0.64 ER (60 + 4) + some admin fees I'd be shoving everything in there and calling it a day.


Really? Wow, I had no idea. I guess that might be foolishly ignorant of me, but I always assumed that an S&P 500 Index Fund should track, for the most part, the same index and be almost the same as any other sans fees. I did a quick lookup of the JFIVX fund, which carries a native 30bps ER, and compared it at Morningstar to VTSAX:
http://quote.morningstar.com/fund/chart.aspx?t=JFIVX
http://quote.morningstar.com/fund/chart.aspx?t=VTSAX
Over the 3yr graph, JFIVX appears to have 1.3% HIGHER overall returns.
But on the 1yr graph, JFIVX appears to have 1.14% LOWER overall returns.
Over an almost 5yr graph (11/2012 is when JFVIX started), I see 0.87% lower overall returns.
But none of those are annualized, just total return (by my rough calculations). I imagine the 25bps ER difference would account for a lot of that. So I'm not seeing the severity of return difference you are.

About 50% of my 401k is invested in JFIVX (1.08 ER), so if there are games being played I definitely want to know. The next best option would be VT (which I can get in my 401k for 1.28 ER), but that has a more heavy International exposure than I would feel comfortable with (at ~50%).

deltaneutral83
Posts: 58
Joined: Tue Mar 07, 2017 4:25 pm

Re: bad 401k options at new job

Postby deltaneutral83 » Tue Mar 21, 2017 11:23 am

Yea, I overlooked that it was total on that ten year return, not annualized, my mistake.

cuda74360
Posts: 84
Joined: Tue Jul 31, 2007 7:04 pm

Re: bad 401k options at new job

Postby cuda74360 » Tue Mar 21, 2017 6:59 pm

deltaneutral83 wrote:I looked at my JH "500 index" and it trails the S&P by a full 1% even on a ten year chart. And the ER is 1.13% which is 1% higher than I can get from VG/TDA/Schwab/Fidelity/ so a net of 2% in fees per year. Unreal.


It's totally normal for an index fund to trail it's index by (roughly) the same amount as it's expense ratio.

deltaneutral83
Posts: 58
Joined: Tue Mar 07, 2017 4:25 pm

Re: bad 401k options at new job

Postby deltaneutral83 » Wed Mar 22, 2017 7:47 am

Yes, I hadn't assumed my ER was baked in because I assumed that since different account had different ER's, they would not bake that part in, but it appears that it was


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