Can I lower my 401k fees

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
Bluemnatra
Posts: 364
Joined: Fri Jun 11, 2021 3:37 pm

Can I lower my 401k fees

Post by Bluemnatra »

Currently my employer 401k plan through John Hancock has a record keeping service fee of 0.40% on a pro-rata basis and an administrative and management fee of 0.6% on a pro-rata basis. Before fund fees the expense ratio is already 1.0% and the S&P 500 Index fund they have in the plan has an ER of 0.3%.

Our annual summary report for 2020 states the plan expenses were $1,499,132. These expenses included $23,082 in administrative expenses, $1,472,954 in benefits paid to participants and beneficiaries, and $0 in other expenses. There were a total of 57 participants. The value of the plan was $3,766,059 as of 12/31/2020. The plan had a total income of $756,625, including employer contributions of $202,416, employee contributions of $141,764 and earnings from investments of $412,445.

My question is if I would be able to find a cheaper 401k plan to present to my employer consider the above information and the size of the plan?
"The greatest enemy of a good plan is the dream of a perfect plan"
HomeStretch
Posts: 7353
Joined: Thu Dec 27, 2018 3:06 pm

Re: Can I lower my 401k fees

Post by HomeStretch »

John Hancock is not a low-cost 401k provider. But they make it easy for small companies to implement a plan at no cost to the employer. Not so good for the employees who are burdened with (IMO - excessively) high fees and funds with high ERs.

Your company size is small based on # of participants and plan asset $ so you aren’t likely to get a plan directly from big players such as Vanguard or Fidelity. But there are better lower cost options for your company. I think Employee Fiduciary is one that’s often mentioned that uses Vanguard funds.
dbr
Posts: 39000
Joined: Sun Mar 04, 2007 9:50 am

Re: Can I lower my 401k fees

Post by dbr »

Often suggested on this forum is this: https://www.employeefiduciary.com/

Your plan is less than miniscule in size and up against it for getting economy of scale and any bargaining power. My plan at Megacorp is very low cost but has 10,000 times the assets and 2,000 times the number of participants and has been in place for over forty years now. It is a scandal that there is not a better mechanism for small businesses to provide employees with this Federal tax benefit as established in law.
exodusNH
Posts: 1992
Joined: Wed Jan 06, 2021 8:21 pm

Re: Can I lower my 401k fees

Post by exodusNH »

Bluemnatra wrote: Tue Oct 05, 2021 9:43 am Currently my employer 401k plan through John Hancock has a record keeping service fee of 0.40% on a pro-rata basis and an administrative and management fee of 0.6% on a pro-rata basis. Before fund fees the expense ratio is already 1.0% and the S&P 500 Index fund they have in the plan has an ER of 0.3%.

Our annual summary report for 2020 states the plan expenses were $1,499,132. These expenses included $23,082 in administrative expenses, $1,472,954 in benefits paid to participants and beneficiaries, and $0 in other expenses. There were a total of 57 participants. The value of the plan was $3,766,059 as of 12/31/2020. The plan had a total income of $756,625, including employer contributions of $202,416, employee contributions of $141,764 and earnings from investments of $412,445.

My question is if I would be able to find a cheaper 401k plan to present to my employer consider the above information and the size of the plan?
Other options are Employee Fiduciary, Ascensus, Guideline, and 401Go.

Whether your company would be willing to switch is another matter. Fees make a huge difference. A 0.5% fee over a lifetime of investing is literally $1,000,000. (Q.v. Paul Merriman's "We're Talking Millions!") Perhaps start with that document and talk to HR or your manager to gauge how receptive the company is to changing the plan.

If the company has had the plan for a long time, it may simply have been the easiest or only option. The market has changed a lot in 15-20 years. But if 1) no one has asked and 2) no one's job is focused on this, it's very easy for the status quo to continue.

It's interesting that the employer contributions exceed the employee contributions. That means most participants aren't particularly active. You've probably got the owners and a few highly-paid employees driving the contributions. They're the ones that would benefit most from lower fees.

As an example, my company, which has about 75 employees, employee contributions are almost 2x the employer amount.
SubPar
Posts: 154
Joined: Mon Apr 27, 2020 11:48 am

Re: Can I lower my 401k fees

Post by SubPar »

Another data point, if it's helpful: I organized my company's current 401(k) by way of Northwestern Mutual (existing relationship the owners of the company had...so I was a little hamstrung there). The company/sponsor is young @ ~4.5 years old. Similar number of participants currently, plan assets just a hair over $1MM...so about 1/3 the size of your plan by assets.

Our recordkeeping fee is 1.00% annually. Voya Financial is the recordkeeper, but I got quotes from a handful of others, also -- Empower, American Funds (barf), and one or two that escape me as I write this. Voya was the cheapest by 20-30bps, IIRC. Some recordkeepers structure their fee arrangements differently.

I was able to arrange some good fund options, though -- VTSAX, VTIAX, VFIAX, VIMAX (mid-cap), VSMAX (small-cap), VEMAX (EM), VAIPX (TIPS), VBIAX (balanced), et al. So at least we have good number of Vanguard's low-cost offerings to offset a bit of the recordkeeping fee. I was pretty adamant with NWM about re-pricing the plan as our plan assets & average participant balance grow, so we'll hopefully see our fees come down over the coming years. But, I wasn't about to throw the baby out with the bathwater...at the end of the day, I still want that annual $19.5K over nothing at all.
dbr
Posts: 39000
Joined: Sun Mar 04, 2007 9:50 am

Re: Can I lower my 401k fees

Post by dbr »

An important factor is whether or not the company absorbs the fees as a cost of benefits or passes them on to the participants. The Megacorp 401k runs about 0.15% fees but absorbs the fee. Plan participants pay nothing directly.
Topic Author
Bluemnatra
Posts: 364
Joined: Fri Jun 11, 2021 3:37 pm

Re: Can I lower my 401k fees

Post by Bluemnatra »

I see fees come out of my account on quarterly statements. The plan is a safe harbor plan. I believe everyone gets an employer contributions of 3% of their salary from the previous year and then they also have a profit sharing contribution they make as well. Vesting is 100% after 5 years. The plan was at $4,508,566 however it was reduced by $742,507 which I believe was from one of the Physician's who retired in 2020. They have had the plan a long time just by looking at previous year tax filings.
"The greatest enemy of a good plan is the dream of a perfect plan"
GuineaPig
Posts: 75
Joined: Tue Jun 20, 2017 10:50 am

Re: Can I lower my 401k fees

Post by GuineaPig »

The 401k at my job essentially has 0.7% in annual fees, which from reading the posts here over the years seems to be pretty common for small employers. A few years ago, I got the provider to at least offer us some Vanguard index funds (though they refused to offer an international index), so the investment options are decent.

When I tried to get my employer to switch to another provider, the reason he didn't want to was that setting up the payroll processor with the 401k was important to him, and lower cost providers didn't work with his payroll processor.

In any event, what I've chosen to do is use the 401k's bond index fund for my bond allocation. In other words, I'm taking the portion of my portfolio that I expect to perform the worst and using it for the account that has the highest fees as a percentage of assets. In that way, at least my fees go up a little more slowly.
HomeStretch
Posts: 7353
Joined: Thu Dec 27, 2018 3:06 pm

Re: Can I lower my 401k fees

Post by HomeStretch »

You have to assess whether your company’s 401k decision-makers are open to willingly making a change in 401k provider. Some are hesitant as change may mean more work initially for them/small admin staff or they aren’t knowledgable about fees/don’t participate in the plan or they don’t want to harm their “friendship” with the John Hancock rep.

Employers should care enough about their employees financial well being or the company’s potential liability to shop 401k plans/fees every few years. Some employers have been successfully sued for having high fee plans.

As a suggestion:
1. Gather the information from a few alternate providers. Ask which payroll systems they integrate with.
2. Do a simple summary that compares JH to the low-cost alternatives. You can show total admin fees/savings based on plan assets and the average fees/savings per participant. You can show a second summary comparing the fund lineups / ERs / savings (just choose 4 or 5 funds - US equity fund, international equity fund, bond fund, stable value or MM fund, and a target date fund).
Put the combined savings (ER/admin fees) in total and avg per participant on the summary as well.
3. Outline some simple bullet points (< 10) on the major steps and timeframe to effect a change in providers.
4. Discuss with your 401k decision maker to get buy in on supporting/championing the change. Do not give any plan information not publicly available on Form 5500 to any potential provider without upfront company permission.

Good luck! Please post back on your progress.
wolf359
Posts: 2585
Joined: Sun Mar 15, 2015 8:47 am

Re: Can I lower my 401k fees

Post by wolf359 »

Bluemnatra wrote: Tue Oct 05, 2021 9:43 am Currently my employer 401k plan through John Hancock has a record keeping service fee of 0.40% on a pro-rata basis and an administrative and management fee of 0.6% on a pro-rata basis. Before fund fees the expense ratio is already 1.0% and the S&P 500 Index fund they have in the plan has an ER of 0.3%.

Our annual summary report for 2020 states the plan expenses were $1,499,132. These expenses included $23,082 in administrative expenses, $1,472,954 in benefits paid to participants and beneficiaries, and $0 in other expenses. There were a total of 57 participants. The value of the plan was $3,766,059 as of 12/31/2020. The plan had a total income of $756,625, including employer contributions of $202,416, employee contributions of $141,764 and earnings from investments of $412,445.

My question is if I would be able to find a cheaper 401k plan to present to my employer consider the above information and the size of the plan?
It is possible to get companies to change 401-k providers. I've been able to do this successfully in the past. You have to get friendly with the HR department. Getting the company president / owner in your corner can help as well. The owner probably has the largest amount of assets in the plan, so it directly affects him/her.

In my experience, a decent small company 401-k charges around 0.7-0.8% in annual fees. A good large company is around 0.3% in annual fees.

I got my last small company to go from 2% to 0.8%. They couldn't find someone willing to handle their level of assets for less. It will probably get worse when I roll my account out of there (About 40% of the assets in the plan are mine - it's a really small company).
Juice3
Posts: 352
Joined: Sun Nov 05, 2017 7:40 am

Re: Can I lower my 401k fees

Post by Juice3 »

My employer's plan, by Fidelity has this quarter added a new administrative fee of 0.145% per year (0.03625% deducted quarterly).

They have also instituted a Participant Revenue Credit based on the investments you hold during the prior quarter. For high ER funds this is .2 or .35% generally rebating half the fund ERs.

As technology progresses, this all just become more and more murky.

Many Bogleheads would consider the plan my employer has to be bad, okay investment options, nothing exotic like MBRs. Mid sized company.
Juice3
Posts: 352
Joined: Sun Nov 05, 2017 7:40 am

Re: Can I lower my 401k fees

Post by Juice3 »

Juice3 wrote: Tue Oct 05, 2021 11:47 am My employer's plan, by Fidelity has this quarter added a new administrative fee of 0.145% per year (0.03625% deducted quarterly).

They have also instituted a Participant Revenue Credit based on the investments you hold during the prior quarter. For high ER funds this is .2 or .35% generally rebating half the fund ERs.

As technology progresses, this all just become more and more murky.

Many Bogleheads would consider the plan my employer has to be bad, okay investment options, nothing exotic like MBRs. Mid sized company.
IMO, political reform is needed in this area.
Topic Author
Bluemnatra
Posts: 364
Joined: Fri Jun 11, 2021 3:37 pm

Re: Can I lower my 401k fees

Post by Bluemnatra »

One of my bosses at work called me the other night asking about investment advice and what books to read and if I just put all my money in the John Hancock 401k at work and I recommended the common sense on investing by Bogle and told him the negatives about our workplace 401k plan and the high fees.

He said he had no idea and that he wants my help to find a better 401k plan and wants me to talk to John Hancock to see if they'll lower our fees.

So what questions would you recommend I ask of our current plan administrator and any advice on how to proceed with switching. I've reached out to employee fiduciary for a proposal as well as Fidelity small business 401k for a proposal. Any other suggestions?

My boss is one of three partners at the practice and majority shareholder and said he wants my help.
"The greatest enemy of a good plan is the dream of a perfect plan"
exodusNH
Posts: 1992
Joined: Wed Jan 06, 2021 8:21 pm

Re: Can I lower my 401k fees

Post by exodusNH »

Bluemnatra wrote: Fri Jan 14, 2022 12:13 pm One of my bosses at work called me the other night asking about investment advice and what books to read and if I just put all my money in the John Hancock 401k at work and I recommended the common sense on investing by Bogle and told him the negatives about our workplace 401k plan and the high fees.

He said he had no idea and that he wants my help to find a better 401k plan and wants me to talk to John Hancock to see if they'll lower our fees.

So what questions would you recommend I ask of our current plan administrator and any advice on how to proceed with switching. I've reached out to employee fiduciary for a proposal as well as Fidelity small business 401k for a proposal. Any other suggestions?

My boss is one of three partners at the practice and majority shareholder and said he wants my help.
These are the ones that have gotten either recommendations OR have been mentioned as worth investigating.

Employee Fiduciary
Ascensus
Guideline
401Go
Topic Author
Bluemnatra
Posts: 364
Joined: Fri Jun 11, 2021 3:37 pm

Re: Can I lower my 401k fees

Post by Bluemnatra »

exodusNH wrote: Fri Jan 14, 2022 12:17 pm
Bluemnatra wrote: Fri Jan 14, 2022 12:13 pm One of my bosses at work called me the other night asking about investment advice and what books to read and if I just put all my money in the John Hancock 401k at work and I recommended the common sense on investing by Bogle and told him the negatives about our workplace 401k plan and the high fees.

He said he had no idea and that he wants my help to find a better 401k plan and wants me to talk to John Hancock to see if they'll lower our fees.

So what questions would you recommend I ask of our current plan administrator and any advice on how to proceed with switching. I've reached out to employee fiduciary for a proposal as well as Fidelity small business 401k for a proposal. Any other suggestions?

My boss is one of three partners at the practice and majority shareholder and said he wants my help.
These are the ones that have gotten either recommendations OR have been mentioned as worth investigating.

Employee Fiduciary
Ascensus
Guideline
401Go
Thank you
"The greatest enemy of a good plan is the dream of a perfect plan"
sailaway
Posts: 4232
Joined: Fri May 12, 2017 1:11 pm

Re: Can I lower my 401k fees

Post by sailaway »

You mention that employer contributions were greater than employee contributions. This suggests a generous match/profit sharing that might make up for the fees compared to other plans for many employees. Just make sure you aren't robbing Peter to pay Paul.
Topic Author
Bluemnatra
Posts: 364
Joined: Fri Jun 11, 2021 3:37 pm

Re: Can I lower my 401k fees

Post by Bluemnatra »

sailaway wrote: Fri Jan 14, 2022 12:27 pm You mention that employer contributions were greater than employee contributions. This suggests a generous match/profit sharing that might make up for the fees compared to other plans for many employees. Just make sure you aren't robbing Peter to pay Paul.
They provide a 3% contribution of salary and then they have a profit sharing model. I wouldn't expect that to change especially if they'd be saving money. Nonetheless, we're still in the information gathering phase. From the sounds of it he is not in a rush to make a change, but wants to know more about the John Hancock plan.
"The greatest enemy of a good plan is the dream of a perfect plan"
Post Reply