Wife's John Hancock 401(k) Total Expenses

[SteffanW]

Hey guys.

Regarding my wife's work 401(k), I'm seeing a quarterly charge of $629.29 for "general administrative charges defined as "Your share of Plan fees for administrative services such as record keeping, consulting and administration." Below the total I highlighted a portion stating, "Additional charges associated with the plan's administrative expenses for the quarter were paid from the total annual operating expenses of the investment options in which you are invested." The total in she has in the plan was $164,652.68 for last quarter.

That means the annual administrative fee as a % comes to (4x$629.29)/$164,652.68 = 1.53%.
Is the statement, "Additional charges associated with the plan's administrative expenses for the quarter were paid from the total annual operating expenses of the investment options in which you are invested" referring to the ERs on the funds?

Does that mean the total cost consideration is with fund ERs in ADDITION to the 1.53%? Just looking for verification.

[pizzy]

Yes. Expense ratio + admin fee.

That admin fee is very high.

[Silk McCue]

The fees are definitely high.

https://www.employeefiduciary.com/blog/ ... s_amp=true

Cheers

[SteffanW]

With those fees does it even make sense to invest beyond the match at this point?

[Stinky]

Hey guys.

Regarding my wife's work 401(k), I'm seeing a quarterly charge of $629.29 for "general administrative charges defined as "Your share of Plan fees for administrative services such as record keeping, consulting and administration." Below the total I highlighted a portion stating, "Additional charges associated with the plan's administrative expenses for the quarter were paid from the total annual operating expenses of the investment options in which you are invested." The total in she has in the plan was $164,652.68 for last quarter.

That means the annual administrative fee as a % comes to (4x$629.29)/$164,652.68 = 1.53%.
Is the statement, "Additional charges associated with the plan's administrative expenses for the quarter were paid from the total annual operating expenses of the investment options in which you are invested" referring to the ERs on the funds?

Does that mean the total cost consideration is with fund ERs in ADDITION to the 1.53%? Just looking for verification.

Wowie zowie! Those expenses are exceptionally high.

I agree that there are additional plan fees beyond the 1.53%. I expect that those should be included in the expense ratios of the underlying funds, which you should be able to find somewhere on the website or in the materials.

I wouldn't invest in this plan beyond the amount to get the maximum match.

[SteffanW]

The fees are definitely high.

https://www.employeefiduciary.com/blog/ ... s_amp=true

Cheers

Yeah, thanks. I looked at that earlier today. Now I just have to figure out if it makes any sense to invest beyond the match. The fees are higher than the match now. The ERs are around 0.5% for a total of around 2% in fees.

[SteffanW]

Hey guys.

Regarding my wife's work 401(k), I'm seeing a quarterly charge of $629.29 for "general administrative charges defined as "Your share of Plan fees for administrative services such as record keeping, consulting and administration." Below the total I highlighted a portion stating, "Additional charges associated with the plan's administrative expenses for the quarter were paid from the total annual operating expenses of the investment options in which you are invested." The total in she has in the plan was $164,652.68 for last quarter.

That means the annual administrative fee as a % comes to (4x$629.29)/$164,652.68 = 1.53%.
Is the statement, "Additional charges associated with the plan's administrative expenses for the quarter were paid from the total annual operating expenses of the investment options in which you are invested" referring to the ERs on the funds?

Does that mean the total cost consideration is with fund ERs in ADDITION to the 1.53%? Just looking for verification.

Wowie zowie! Those expenses are exceptionally high.

I agree that there are additional plan fees beyond the 1.53%. I expect that those should be included in the expense ratios of the underlying funds, which you should be able to find somewhere on the website or in the materials.

I wouldn't invest in this plan beyond the amount to get the maximum match.

I know. It’s off the charts right? Thanks for that.

[Kenkat]

I would not invest more than the minimum to get the full company match. 2%+ in fees is terrible.

[pizzy]

The fees are definitely high.

https://www.employeefiduciary.com/blog/ ... s_amp=true

Cheers

Yeah, thanks. I looked at that earlier today. Now I just have to figure out if it makes any sense to invest beyond the match. The fees are higher than the match now. The ERs are around 0.5% for a total of around 2% in fees.

Is she maxing out the 401k? If not, what is her annual contribution in dollars? What is your tax rate? Is she making traditional or Roth contributions?

[SteffanW]

The fees are definitely high.

https://www.employeefiduciary.com/blog/ ... s_amp=true

Cheers

Yeah, thanks. I looked at that earlier today. Now I just have to figure out if it makes any sense to invest beyond the match. The fees are higher than the match now. The ERs are around 0.5% for a total of around 2% in fees.

Is she maxing out the 401k? If not, what is her annual contribution in dollars? What is your tax rate? Is she making traditional or Roth contributions?

Yes, she is maxing out. Effective tax federal is 16.8%. Effective state is 2.2%. Marginal federal is 24%. Marginal state is 9.3%. All for 2022 tax rates. Maxing out back door Roth IRA.

[pizzy]

The fees are definitely high.

https://www.employeefiduciary.com/blog/ ... s_amp=true

Cheers

Yeah, thanks. I looked at that earlier today. Now I just have to figure out if it makes any sense to invest beyond the match. The fees are higher than the match now. The ERs are around 0.5% for a total of around 2% in fees.

Is she maxing out the 401k? If not, what is her annual contribution in dollars? What is your tax rate? Is she making traditional or Roth contributions?

Yes, she is maxing out. Effective tax federal is 16.8%. Effective state is 2.2%. Marginal federal is 24%. Marginal state is 9.8%. Maxing out back door Roth IRA.

Is her 401k pre-tax or Roth?

[SteffanW]

The fees are definitely high.

https://www.employeefiduciary.com/blog/ ... s_amp=true

Cheers

Yeah, thanks. I looked at that earlier today. Now I just have to figure out if it makes any sense to invest beyond the match. The fees are higher than the match now. The ERs are around 0.5% for a total of around 2% in fees.

Is she maxing out the 401k? If not, what is her annual contribution in dollars? What is your tax rate? Is she making traditional or Roth contributions?

Yes, she is maxing out. Effective tax federal is 16.8%. Effective state is 2.2%. Marginal federal is 24%. Marginal state is 9.8%. Maxing out back door Roth IRA.

Is her 401k pre-tax or Roth?

Tax deferred.

[pizzy]

Here is an article posted in another thread today by goblue100 that may be helpful:

https://scottburns.com/dont-assume-tax- ... d-for-you/

[arcticpineapplecorp.]

What do you expect from an insurance company? Every 401k plan i've seen affiliated with an insurance company has had exhorbitant fees.

Could be time to campaign for a better 401k plan.

[SteffanW]

Here is an article posted in another thread today by goblue100 that may be helpful:

https://scottburns.com/dont-assume-tax- ... d-for-you/

Thanks for the article. I’ll read it. Just to clarify, you’re thinking she should only be contributing to max the match, yes? Those tax rates I gave were MFJ btw. She makes around 70K before taxes.

[pizzy]

Here is an article posted in another thread today by goblue100 that may be helpful:

https://scottburns.com/dont-assume-tax- ... d-for-you/

Thanks for the article. I’ll read it. Just to clarify, you’re thinking she should only be contributing to max the match, yes? Those tax rates I gave were MFJ btw. She makes around 70K before taxes.

I think it’s a tough spot. You can defer 34% of taxes. You pay a 2% fee. What is the maximum match? Does it offset the fee?

Another way to look at it, if the fees were 0%, but there was no match, would you still contribute the max? I would.

[SteffanW]

Here is an article posted in another thread today by goblue100 that may be helpful:

https://scottburns.com/dont-assume-tax- ... d-for-you/

Thanks for the article. I’ll read it. Just to clarify, you’re thinking she should only be contributing to max the match, yes? Those tax rates I gave were MFJ btw. She makes around 70K before taxes.

I think it’s a tough spot. You can defer 34% of taxes. You pay a 2% fee. What is the maximum match? Does it offset the fee?

Another way to look at it, if the fees were 0%, but there was no match, would you still contribute the max? I would.

That’s a good point. However, the fees are not exceeding that match by around $500 and that effect is only going to get worse faster with the more she puts in there.

[pizzy]

Here is an article posted in another thread today by goblue100 that may be helpful:

https://scottburns.com/dont-assume-tax- ... d-for-you/

Thanks for the article. I’ll read it. Just to clarify, you’re thinking she should only be contributing to max the match, yes? Those tax rates I gave were MFJ btw. She makes around 70K before taxes.

I think it’s a tough spot. You can defer 34% of taxes. You pay a 2% fee. What is the maximum match? Does it offset the fee?

Another way to look at it, if the fees were 0%, but there was no match, would you still contribute the max? I would.

That’s a good point. However, the fees are not exceeding that match by around $500 and that effect is only going to get worse faster with the more she puts in there.

What is the match percentage of salary?

[lakpr]

1) Yes, it does not make sense to contribute to the 401(k) beyond the maximum match. Even the Wiki says, as a thumb rule, if the fees exceeds 1.7% it does not make sense to participate in the plan.

A reasonable rule-of-thumb is to consider investing in a taxable account if the product of the extra costs and the number of years you will stay in the plan exceeds one and a half times your combined federal and state tax rates on qualified dividends over your working career. That is, if you pay 1.70% expenses rather than 0.20%, and you pay 15% federal tax on qualified dividends, plus 5% state tax, you should still invest in the plan unless you are reasonably certain that you will stay with the employer for more than 20 years for a net loss of 30% (actually 26% because of compounding).

Section "Expensive or Mediocre Choices" at this link: https://www.bogleheads.org/wiki/401(k)

2) Since the fees levied are a percentage of the balance in the plan, invest in only funds that provide the slowest growth, basically invest the entire amount into bonds and stable value funds available in the plan. Compensate by investing in stock funds in YOUR plan and backdoor-Roth IRA.

3) See if you can borrow the maximum amount allowed from the plan, and invest it in a taxable account. You may have to do some math about whether this makes sense.

4) Ask your wife to start actively looking for another job.

[goingup]

I would be loathe to end participation in a workplace retirement plan. Ask yourself if she would have saved $165k for retirement if it weren’t for the automatic payroll deductions. The tax deferment is another big benefit.

Just to clarify, are you reading a quarterly fee listed in the quarterly statement?

[passive101]

What do you expect from an insurance company? Every 401k plan i've seen affiliated with an insurance company has had exhorbitant fees.

Could be time to campaign for a better 401k plan.

My employer uses Principal for my 401k and it says the fee is .25% plus the fund fees. They don't have a lot of good options but do have a vanguard s&p 500, small cap, mid cap, and everything else including all international are high expense ratios.

But some are decent. I think it depends on what funds they decide they want to offer.

[SteffanW]

Is the addition of a Self Directed option to the plan feasible? Could that avoid the administrative fees?

[BanquetBeer]

Hold on now. Is the fee a % or flat admin fee per account?

Also, does she plan to stay forever? Because when she changes jobs she can roll her 401k into new account or IRA with lower fees. Is it worth giving up tax deferred space for a 1.5% (or there about a) fee for ~5 years? Truly at 70k/yr, there are plenty of comparable jobs she could change to with similar or more compensation.

[Joey Jo Jo Jr]

That Scott Burns article was eye opening. But one thing not discussed by him or others is the strong asset protection of employer based plans. In my field that’s important to me, but otherwise I would be questioning my own JH expense ratios, which appear to be an extra 1% above the cost of the underlying funds (with about 50 employees). Plus I ought to be able to get the next level of firm owners to switch one the senior group retires in 5-10 years.

Can’t quite get my head around the logic of the Wiki rule of thumb, but I seem to be below the really bad zone.

[Mr.BB]

For a comparison, my DW 401k charges on her 401k is around $30 a year or so.

[gtrplayer]

There was an episode of Last Week Tonight with John Oliver a while back where he found out John Hancock did his company’s 401k and he fired them after finding out the fees.

https://youtu.be/gvZSpET11ZY

[Target2019]

What investment fund choices has she made? What else is available? You may be able to lower some of that exorbitant fee.

I would look at the tax implcations if you forego going beyond the match. I would be leaning towards "just the match."

[pizzy]

For a comparison, my DW 401k charges on her 401k is around $30 a year or so.

For another comparison...

403b/457b through Corebridge has an .18% annual admin fee, charged quarterly

Fund Options used:

Vanguard Total Bond Market Index I VBTIX .04%
Fidelity® 500 Index FXAIX .02%

[Mr.BB]

There was an episode of Last Week Tonight with John Oliver a while back where he found out John Hancock did his company’s 401k and he fired them after finding out the fees.

https://youtu.be/gvZSpET11ZY

I remember that episode. It was great!

[Stinky]

Is the addition of a Self Directed option to the plan feasible? Could that avoid the administrative fees?

I think you’d need to talk to the plan administrators to see about that.

Personally, I wouldn’t get my hopes up on a self directed option. The plan administrators are showing a disregard for the financial well being of the participants by having the participants shoulder a huge part, if not all, of a high priced provider’s fees.

Given that, I don’t see why the administrators would be inclined to actually help the participants by allowing them to reduce or avoid the high fees through a self directed option.

But it’s definitely worth a try.

[homebuyer6426]

If your wife plans on changing jobs, roll that 401k into an IRA at that point. Then you'll avoid the fees.

[dbr]

Is the addition of a Self Directed option to the plan feasible? Could that avoid the administrative fees?

I think you’d need to talk to the plan administrators to see about that.

Personally, I wouldn’t get my hopes up on a self directed option. The plan administrators are showing a disregard for the financial well being of the participants by having the participants shoulder a huge part, if not all, of a high priced provider’s fees.

Given that, I don’t see why the administrators would be inclined to actually help the participants by allowing them to reduce or avoid the high fees through a self directed option.

But it’s definitely worth a try.

Naturally my plan that does have a self-directed option at Schwab also has zero basic fees and a range of reasonable funds at low as Vanguard or lower costs. For all that I have most of the money at Schwab because the plan does not have a TIPS fund. I hold mostly SWRSX at 0.05 % ER and no transaction costs. There is a nominal fee for the brokerage link though, which is only fair to cover the extra bookkeeping, plan transactions, and plan reporting.

I think you are right that company management that operates in the interests of the employee is one thing and the other is not. A solution is to find employment elsewhere.

[SteffanW]

I wrote this to my wife including actual costs with expense ratios. The ERs aren't as bad as I thought but it's still REALLY bad (I get that the funds could be allocated in cheaper options a bit more):
Match: $2,084.04
Current Administrative Fees based on Jan 2023 to March 2023 statement:
4x$629.29 = $2,517/yr
Administrative fees expressed as a % of the portfolio:
(4x$629.29)/$164,652.68 = 1.53% (This is the base administration fee, which will go up over time, prior to considering expense ratios of any funds. That means it doesn’t matter what fund you pick. You’re in trouble before you start, and it gets worse over time the more you invest.)
Hidden fees in fund Expense Ratios (ERs) you’re in (The fees within the funds you don’t see on the statement):
BlackRock LifePath Index 2045: 65.59% ($164,652.68)(ER 0.09%) = $97.20
JH Disciplined Value Intl Fund: 5%($164,652.68)(ER 0.60%) = $49.40
Small Cap Index Fund: 4.75%($164,652.68)(ER 0.07%) = $5.47
Blue Chip Growth Fund: 5.84%($164,652.68)(ER 0.52%) = $50.00
John Hancock Disciplined Value: 4.64%($164,652.68)(ER 0.45%) = $34.38
Total Stock Market Index Fund: 15.21%($164,652.68)(ER 0.14%) = $35.06

Total Annual Fees: 4x$629.29 + $97.20 + $49.40 + $5.47 + $50.00 + 34.38 + 35.06 = $2,788.67/year

Total Annual Expense on 401(k), which increases over time, as a %: $2,788.67/164,652.68 = 1.69%

How much you are paying for the privilege of a 401(k) after match:
$2,788.67 – $2,084.04 = $704.63 (this number increases over time, and you don’t get to see any of your match because it gets gobbled up by excessive fees. You literally have pay more than the value of your entire match just to be in the 401(k) at this point, which is a bit ridiculous.)

Future estimated cost to portfolio compounded over 20 years (disregarding future cost increases) at a 7% expected rate of return (This calculation doesn’t even consider future fee increases based on % in the portfolio, so the true costs are significantly worse than this. However, this calculation does disregard that you will be paying SOME administrative and fund expense ratio fees for a 401(k). They should just be significantly less.):
*I couldn't attach the screen shot but the amount comes to: $176,085.32
Again, there must be SOME costs for a 401(k) plan. It’s just that these costs are outrageously high and there are far better plans out there. 25-year compounded costs could likely be kept under $20,000. Administrative costs should be able to be kept under 0.5% and can be fee-only so they don’t increase over time based on a % of your assets in the plan. Please note, these costs may seem outrageously high, but not only are they realistic, this is an underestimation because I didn’t increase fee costs over time. Fees will accumulate regardless of whether you make future contributions. By the way, Terry has the same problem you do.

[pizzy]

How much you are paying for the privilege of a 401(k) after match:
$2,788.67 – $2,084.04 = $704.63

I think I would still pay $700/year to defer taxes at 34% on $22,500/year.

But just a gut feeling.

[Stinky]

I wrote this to my wife including actual costs with expense ratios.

I’m sorry that you’re facing this.

Here’s what I would suggest -
—- Lobby for a better plan (mentioned upthread)
—- Don’t contribute beyond the match
—- Invest within the plan in low growth assets like fixed income. Save your high growth allocations for other accounts (taxable, IRA, etc)
—- If the plan has an option for “in service distributions”, take advantage of that to roll to an IRA. Not all plans offer thst, and there are age limitations.
—- When your wife leaves this employer, move the money to an IRA or a new employers tax deferred plan

Sorry that her employer is being a cheapskate on this plan and burdening the plan with high costs.

[Chardo]

It's not optimal, but you're probably putting too much emphasis on the fees in relation to the overall benefits and purpose. Bogleheads tend to do that. Keep contributing as much as possible, get your tax benefits, and live your life. Somewhere down the road, the employer may change the plan, or she leaves the job, or maybe in-service rollovers are permitted. You're unlikely to be in that plan forever. Reality is, again while not optimal, that plan fee will not affect your retirement in any meaningful way.

[Hank718]

Hi, does the plan allow for in service rollovers? She could roll the balance into an ira and just pay fees on whatever she accrues for the year. Maybe rollover again each year? Think you have to ask the plan administrator if these are allowed. Not sure but I think she has to be 59.5 to do this, but would be a work around...

[gtrplayer]

I wrote this to my wife including actual costs with expense ratios. The ERs aren't as bad as I thought but it's still REALLY bad (I get that the funds could be allocated in cheaper options a bit more):
Match: $2,084.04
Current Administrative Fees based on Jan 2023 to March 2023 statement:
4x$629.29 = $2,517/yr
Administrative fees expressed as a % of the portfolio:
(4x$629.29)/$164,652.68 = 1.53% (This is the base administration fee, which will go up over time, prior to considering expense ratios of any funds. That means it doesn’t matter what fund you pick. You’re in trouble before you start, and it gets worse over time the more you invest.)
Hidden fees in fund Expense Ratios (ERs) you’re in (The fees within the funds you don’t see on the statement):
BlackRock LifePath Index 2045: 65.59% ($164,652.68)(ER 0.09%) = $97.20
JH Disciplined Value Intl Fund: 5%($164,652.68)(ER 0.60%) = $49.40
Small Cap Index Fund: 4.75%($164,652.68)(ER 0.07%) = $5.47
Blue Chip Growth Fund: 5.84%($164,652.68)(ER 0.52%) = $50.00
John Hancock Disciplined Value: 4.64%($164,652.68)(ER 0.45%) = $34.38
Total Stock Market Index Fund: 15.21%($164,652.68)(ER 0.14%) = $35.06

Total Annual Fees: 4x$629.29 + $97.20 + $49.40 + $5.47 + $50.00 + 34.38 + 35.06 = $2,788.67/year

Total Annual Expense on 401(k), which increases over time, as a %: $2,788.67/164,652.68 = 1.69%

How much you are paying for the privilege of a 401(k) after match:
$2,788.67 – $2,084.04 = $704.63 (this number increases over time, and you don’t get to see any of your match because it gets gobbled up by excessive fees. You literally have pay more than the value of your entire match just to be in the 401(k) at this point, which is a bit ridiculous.)

Future estimated cost to portfolio compounded over 20 years (disregarding future cost increases) at a 7% expected rate of return (This calculation doesn’t even consider future fee increases based on % in the portfolio, so the true costs are significantly worse than this. However, this calculation does disregard that you will be paying SOME administrative and fund expense ratio fees for a 401(k). They should just be significantly less.):
*I couldn't attach the screen shot but the amount comes to: $176,085.32
Again, there must be SOME costs for a 401(k) plan. It’s just that these costs are outrageously high and there are far better plans out there. 25-year compounded costs could likely be kept under $20,000. Administrative costs should be able to be kept under 0.5% and can be fee-only so they don’t increase over time based on a % of your assets in the plan. Please note, these costs may seem outrageously high, but not only are they realistic, this is an underestimation because I didn’t increase fee costs over time. Fees will accumulate regardless of whether you make future contributions. By the way, Terry has the same problem you do.

Yikes, the admin fee is more than the company match. I’d try to show that to their HR department. Does the company realize the employee benefit is going to John Hancock’s account instead of your wife’s?

[SteffanW]

How much you are paying for the privilege of a 401(k) after match:
$2,788.67 – $2,084.04 = $704.63

I think I would still pay $700/year to defer taxes at 34% on $22,500/year.

But just a gut feeling.

Well, let's do some math on it. The amount tax deferred is $7,650 at 34% of 22,500. Let's say she saves 10% being in a lower tax bracket in retirement (just a guess but who knows what actual rates will be.). $7,650 x 10% = $765 right of the bat. On top of that, the $7,650 saved from deferring taxes can be invested and will compound over time (I'll have to pay taxes on gains eventually but, even before considering the fact that I will invest the money I save from tax deferral, I'm coming out slightly ahead of the $700/yr just from being in a lower tax broken when we retire. So, that means it's worth it for now. Very soon here, however, the fees will grow to a point it is no longer worth it.
(Bonus points if anyone points out a flaw in my math )

[pizzy]

How much you are paying for the privilege of a 401(k) after match:
$2,788.67 – $2,084.04 = $704.63

I think I would still pay $700/year to defer taxes at 34% on $22,500/year.

But just a gut feeling.

Well, let's do some math on it. The amount tax deferred is $7,650 at 34% of 22,500. Let's say she saves 10% being in a lower tax bracket in retirement (just a guess but who knows what actual rates will be.). $7,650 x 10% = $765 right of the bat. On top of that, the $7,650 saved from deferring taxes can be invested and will compound over time (I'll have to pay taxes on gains eventually but, even before considering the fact that I will invest the money I save from tax deferral, I'm coming out slightly ahead of the $700/yr just from being in a lower tax broken when we retire. So, that means it's worth it for now. Very soon here, however, the fees will grow to a point it is no longer worth it.

Have you been able to figure out the calculation of the $629.29? Have you compared to the 2022 Q4 statement?

[SteffanW]

How much you are paying for the privilege of a 401(k) after match:
$2,788.67 – $2,084.04 = $704.63

I think I would still pay $700/year to defer taxes at 34% on $22,500/year.

But just a gut feeling.

Well, let's do some math on it. The amount tax deferred is $7,650 at 34% of 22,500. Let's say she saves 10% being in a lower tax bracket in retirement (just a guess but who knows what actual rates will be.). $7,650 x 10% = $765 right of the bat. On top of that, the $7,650 saved from deferring taxes can be invested and will compound over time (I'll have to pay taxes on gains eventually but, even before considering the fact that I will invest the money I save from tax deferral, I'm coming out slightly ahead of the $700/yr just from being in a lower tax broken when we retire. So, that means it's worth it for now. Very soon here, however, the fees will grow to a point it is no longer worth it.

Have you been able to figure out the calculation of the $629.29? Have you compared to the 2022 Q4 statement?

I'm not sure what you're asking. The $629.29 was the quarterly fee from January 2023 through March 2023. I didn't compare that to the Q4 statement but I'm sure it is incrementally lower because there was slightly less in the 401(k).

[pizzy]

How much you are paying for the privilege of a 401(k) after match:
$2,788.67 – $2,084.04 = $704.63

I think I would still pay $700/year to defer taxes at 34% on $22,500/year.

But just a gut feeling.

Well, let's do some math on it. The amount tax deferred is $7,650 at 34% of 22,500. Let's say she saves 10% being in a lower tax bracket in retirement (just a guess but who knows what actual rates will be.). $7,650 x 10% = $765 right of the bat. On top of that, the $7,650 saved from deferring taxes can be invested and will compound over time (I'll have to pay taxes on gains eventually but, even before considering the fact that I will invest the money I save from tax deferral, I'm coming out slightly ahead of the $700/yr just from being in a lower tax broken when we retire. So, that means it's worth it for now. Very soon here, however, the fees will grow to a point it is no longer worth it.

Have you been able to figure out the calculation of the $629.29? Have you compared to the 2022 Q4 statement?

I'm not sure what you're asking. The $629.29 was the quarterly fee from January 2023 through March 2023. I didn't compare that to the Q4 statement but I'm sure it is incrementally lower because there was slightly less in the 401(k).

Do you mind pulling the 2022 Q4 statement, just to make sure it's in line (% wise) with what you are seeing in 2023 Q1?

[shockwavesfan]

I think a lot of assumptions are being made here without a ton of information actually being known. As someone who is in the business, here are a few things that I would want to know:

1- did you look at the fees in other quarters to see if they match up with the aum percentage that you calculated for the first quarter? This could be the case where a once a year charge (like audit fees) came out of the account and inflated the fees.

2- what is the size of the plan? Unfortunately, plan size mainly has everything to do with the fees of the plan. Small plans that are pushing the cost of plan expenses to participants are not great. You can look this up via the efast.dol.gov and look at the most recent 5500 filing.

3- what is the fee formula? Is it a flat aum percentage? If that is the case and it is as high as you state, that is very high unless the plan is Tiny. Is it a fixed fee? If that is the case you will be better off as assets go up.

[SteffanW]

I think I would still pay $700/year to defer taxes at 34% on $22,500/year.

But just a gut feeling.

Well, let's do some math on it. The amount tax deferred is $7,650 at 34% of 22,500. Let's say she saves 10% being in a lower tax bracket in retirement (just a guess but who knows what actual rates will be.). $7,650 x 10% = $765 right of the bat. On top of that, the $7,650 saved from deferring taxes can be invested and will compound over time (I'll have to pay taxes on gains eventually but, even before considering the fact that I will invest the money I save from tax deferral, I'm coming out slightly ahead of the $700/yr just from being in a lower tax broken when we retire. So, that means it's worth it for now. Very soon here, however, the fees will grow to a point it is no longer worth it.

Have you been able to figure out the calculation of the $629.29? Have you compared to the 2022 Q4 statement?

I'm not sure what you're asking. The $629.29 was the quarterly fee from January 2023 through March 2023. I didn't compare that to the Q4 statement but I'm sure it is incrementally lower because there was slightly less in the 401(k).

Do you mind pulling the 2022 Q4 statement, just to make sure it's in line (% wise) with what you are seeing in 2023 Q1?

2022 Q4 fee is $585.07.
$585.07(4) / $150,559.96 in the 401(k) = 1.55%. It's essentially the same. There was a 0.02% drop in 2021 Q1 compared to that. Also there is a slight drop in fees once the practice portfolio hits its threshold. I was told that drops to 1.39%. Not much difference.

[SteffanW]

I think a lot of assumptions are being made here without a ton of information actually being known. As someone who is in the business, here are a few things that I would want to know:

1- did you look at the fees in other quarters to see if they match up with the aum percentage that you calculated for the first quarter? This could be the case where a once a year charge (like audit fees) came out of the account and inflated the fees.

2- what is the size of the plan? Unfortunately, plan size mainly has everything to do with the fees of the plan. Small plans that are pushing the cost of plan expenses to participants are not great. You can look this up via the efast.dol.gov and look at the most recent 5500 filing.

3- what is the fee formula? Is it a flat aum percentage? If that is the case and it is as high as you state, that is very high unless the plan is Tiny. Is it a fixed fee? If that is the case you will be better off as assets go up.

1. Looks about the same. See post above this one.
2. As of 2021, participants were 13 and Assets was $746,027
3. I asked the plan administrator about fees once. This is what he said in 2019:
The reason it is a little nebulous on the EXACT amount of fees paid by each participant is due to which investments a person chooses, as you mentioned, the expense ratio of funds… The AVERAGE FUND Cost, based on all the option available is 23 basis points. So at worst the total of all costs rolled up is 1.07 plus .57 plus .23, which is 1.87, or best could be 1.74… Soon to be closer to 1.49 (see below). Not sure you are understanding that there is a huge difference in running a 401K plan than just managing your own investments.

Certainly if you want to manage your own investments it can be done for under 1% - IF you have access to institutional funds (passive or active) AND you don’t have to pay retail sales charges to buy them, initially. It is easy to pick a plan apart when you don’t look at all the aspects of running a plan (401K or otherwise, that is regulated by ERISA). I personally have never heard of a plan being administered under 1% (when you add up admin and management – requirements to run a plan). So not sure where your data is coming from. The larger plans might be less expensive because volume gets discounted – and sometimes the EMPLOYER picks up more of the fees vs. prorate to the employees.

I am giving you the breakdown because this is public information and there is nothing to hide (and I already shared it with you). As far as the Administrative services go, there are only two COST centers and it is explained in more detail in the previous document I shared with you in 404a-5:

Record Keeping – This is mostly the services performed by John Hancock. It is no more than 1.07 as of March 2019. As stated, it goes down as assets meet certain thresholds. We expect it should be going down before the end of this year (expect .25 lower)

Ongoing Administration and Management – This is the services of Retirement Systems of CA (third party administrator), Wilshire and Assoc.3(21) advisor and Ameriprise Financial services which includes my services as financial advisor. All wrapped up it is approximately .57, of which I share only .25 with Ameriprise. Which by the way is about the lowest in our industry. The average advisor fee is higher, and the lowest is .10 (10 basis points). The point is, I don’t do this aspect of the business for a profit, it is more of a value added service – I only do plans that the sponsors are my existing clients.

The fiduciary on the account is the Plan Sponsor – Gillette and Assoc. However, the reason there are layers of other services is to PROTECT the company and the leadership. So that is why the added cost of a third party administrator. The 3(21) advisor is optional, but we felt that for less than 10 basis points, it was worth having more protection of liability for all.

CORRECTION: After reading through our initial contract with John Hancock, the EXPENSE RATIO is INCLUDED in the Record Keeping 1.07 which is why there is an ASTERIC next to it. This is what can fluctuate (go down) based on specific selection of funds. This is what will go down 25 basis points when a specific threshold of assets is reached.

So it is currently 1.07 plus .57, or 1.64 total. Expected to drop to 1.39 after threshold reached. Thank you. Gary

[goingup]

It's not optimal, but you're probably putting too much emphasis on the fees in relation to the overall benefits and purpose. Bogleheads tend to do that. Keep contributing as much as possible, get your tax benefits, and live your life. Somewhere down the road, the employer may change the plan, or she leaves the job, or maybe in-service rollovers are permitted. You're unlikely to be in that plan forever. Reality is, again while not optimal, that plan fee will not affect your retirement in any meaningful way.

I agree.
Big picture. You wife is saving in her individual workplace plan for her retirement. Think hard about derailing what has been a successful strategy so far.

John Hancock's fees are onerous and it is galling to pay more than you should have to. But the benefits of automatic payroll contributions and tax deferment are big. Where else can you contribute $22,500 plus employer match and have that grow tax-deferred.

I'd suggest using the low-cost index or target fund options offered.

When your wife leaves this employer or retires she can roll out of this crummy plan.

[SteffanW]

It's not optimal, but you're probably putting too much emphasis on the fees in relation to the overall benefits and purpose. Bogleheads tend to do that. Keep contributing as much as possible, get your tax benefits, and live your life. Somewhere down the road, the employer may change the plan, or she leaves the job, or maybe in-service rollovers are permitted. You're unlikely to be in that plan forever. Reality is, again while not optimal, that plan fee will not affect your retirement in any meaningful way.

I agree.
Big picture. You wife is saving in her individual workplace plan for her retirement. Think hard about derailing what has been a successful strategy so far.

John Hancock's fees are onerous and it is galling to pay more than you should have to. But the benefits of automatic payroll contributions and tax deferment are big. Where else can you contribute $22,500 plus employer match and have that grow tax-deferred.

I'd suggest using the low-cost index or target fund options offered.

When your wife leaves this employer or retires she can roll out of this crummy plan.

It's true there has been some growth and my wife has successfully saved so far. However, since the fees in an AUM model increase exponentially over time, what has worked in the past will not work at some point. There is a point in which it is clearly no longer beneficial to have money in the plan and we'd be much better off saving the money in taxable. Perhaps we aren't quite at that breaking point yet, but we are certainly close.

[shockwavesfan]

Thanks for answering the questions and passing this info along. At less than $1 million in assets, and quite frankly not even that close, the fees unfortunately aren’t super unreasonable. That is a tiny plan, and unfortunately there are quite a few costs and work involved in even tiny plans.

If the employer wants all of the services they are currently getting, I do think they should shop around and could probably get the fees down to closer to 1.25%.

Good luck

[pizzy]

It's not optimal, but you're probably putting too much emphasis on the fees in relation to the overall benefits and purpose. Bogleheads tend to do that. Keep contributing as much as possible, get your tax benefits, and live your life. Somewhere down the road, the employer may change the plan, or she leaves the job, or maybe in-service rollovers are permitted. You're unlikely to be in that plan forever. Reality is, again while not optimal, that plan fee will not affect your retirement in any meaningful way.

I agree.
Big picture. You wife is saving in her individual workplace plan for her retirement. Think hard about derailing what has been a successful strategy so far.

John Hancock's fees are onerous and it is galling to pay more than you should have to. But the benefits of automatic payroll contributions and tax deferment are big. Where else can you contribute $22,500 plus employer match and have that grow tax-deferred.

I'd suggest using the low-cost index or target fund options offered.

When your wife leaves this employer or retires she can roll out of this crummy plan.

It's true there has been some growth and my wife has successfully saved so far. However, since the fees in an AUM model increase exponentially over time, what has worked in the past will not work at some point. There is a point in which it is clearly no longer beneficial to have money in the plan and we'd be much better off saving the money in taxable. Perhaps we aren't quite at that breaking point yet, but we are certainly close.

At the least, I’d move everything to the .09% target date fund.

[illumination]

I never have really understood why we can't all have like a Solo 401k (not just the self-employed) like we have IRA's that could just be portable.
I guess it's companies like John Hancock that don't want consumers to have that option?

How is it that I can have a Solo 401k at Schwab and pay zero fees? Just seems like an easy solution that everyone would benefit (except plan providers)

Those fees are insane.