illumination wrote: ↑Tue May 23, 2023 2:49 pm
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.
My understanding is that 401k is a portion of the tax code that applies to corporate tax arrangements involving profit sharing and deferred compensation plans. It is not for individuals by definition of its relationship to employers having employees. Solo 401k, etc. fill the gap for the case of "employees" without an employing corporation etc.
shockwavesfan wrote: ↑Tue May 23, 2023 2:24 pm
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
Oh, I think there are plans out there that are significantly less costly.
Here are a couple examples: https://www.employeefiduciary.com/
Retirement Plans for Dentists & Physicians | Litovsky Asset Management (litovskymanagement.com)
I just took a look at the pricing on this thing: https://www.employeefiduciary.com/401k-plan-pricing
For a 401(k) plan of 30 employees or less the conversion of an existing 401(k) plan is $1,000.
Annual base fee is $1,500.
Custody fee is 0.08% of plan assets.
Then, I'm sure they put you in funds with extremely low fees.
illumination wrote: ↑Tue May 23, 2023 2:49 pm
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.
My understanding is that 401k is a portion of the tax code that applies to corporate tax arrangements involving profit sharing and deferred compensation plans. It is not for individuals by definition of its relationship to employers having employees. Solo 401k, etc. fill the gap for the case of "employees" without an employing corporation etc.
I was more opining for a change to make them more like an IRA so consumers could bypass so much of this craziness. A combination of high fees, bad fund choices, and many smaller employers not even having 401k plans just leaves many consumers out in the cold.
illumination wrote: ↑Tue May 23, 2023 2:49 pm
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.
My understanding is that 401k is a portion of the tax code that applies to corporate tax arrangements involving profit sharing and deferred compensation plans. It is not for individuals by definition of its relationship to employers having employees. Solo 401k, etc. fill the gap for the case of "employees" without an employing corporation etc.
I was more opining for a change to make them more like an IRA so consumers could bypass so much of this craziness. A combination of high fees, bad fund choices, and many smaller employers not even having 401k plans just leaves many consumers out in the cold.
I agree. I guess the issue is how you get Congress to set up the necessary tax code. That is a subset of how anyone gets Congress to set up anything one might regard as a good idea.
SteffanW wrote: ↑Tue May 23, 2023 3:41 pm
I just took a look at the pricing on this thing: https://www.employeefiduciary.com/401k-plan-pricing
For a 401(k) plan of 30 employees or less the conversion of an existing 401(k) plan is $1,000.
Annual base fee is $1,500.
Custody fee is 0.08% of plan assets.
Then, I'm sure they put you in funds with extremely low fees.
The difference is unreal!
In such a small company, does your wife have any sway with leadership? Have her email the proposal.
Late 30's | 55% US Stock | 37% Int'l Stock | 8% Cash
lakpr wrote: ↑Mon May 22, 2023 9:01 pm
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.
BogleheadWiki wrote: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).
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.
Please confirm or correct me if I'm wrong, but according to #1, I think it may make sense to invest in the plan for us. We are married filing jointly. Our combined marginal state and federal tax rate (24% fed + 9.3% state) comes to 33.3%. The total cost, inclusive of ERs actually comes to 1.69%. Assuming a plan could cost 0.2%, the EXTRA costs would be 1.69% - 0.2% = 1.49%. Assuming she has the plan for 10 years, the product of the extra costs and years worked would be 10 x 1.49% = 14.9%. Since 33.3% is > 14.9% we should still invest in the plan. Right?
lakpr wrote: ↑Mon May 22, 2023 9:01 pm
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.
BogleheadWiki wrote: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).
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.
Please confirm or correct me if I'm wrong, but according to #1, I think it may make sense to invest in the plan for us. We are married filing jointly. Our combined marginal state and federal tax rate (24% fed + 9.3% state) comes to 33.3%. The total cost, inclusive of ERs actually comes to 1.69%. Assuming a plan could cost 0.2%, the EXTRA costs would be 1.69% - 0.2% = 1.49%. Assuming she has the plan for 10 years, the product of the extra costs and years worked would be 10 x 1.49% = 14.9%. Since 33.3% is > 14.9% we should still invest in the plan. Right?
Per that quoted portion of the wiki, you compare with the combined fed and state tax rate on qualified dividends (because presumably if you're not investing in the 401k, the money would go in taxable).
For you I think that would be 15% fed (tax rate on qualified dividends, but may be 20%) + 9.3% state = 24.3% x 1.5 = 36.45%. You've stated fees in this 401k are 1.49% more than you would get in a cheaper plan. 36.45/1.49 = 24.46. So if she won't be at this employer for more than 24ish years (or the plan becomes cheaper before then), then it makes sense to max the 401k instead of putting the money in taxable.
lakpr wrote: ↑Mon May 22, 2023 9:01 pm
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.
BogleheadWiki wrote: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).
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.
Please confirm or correct me if I'm wrong, but according to #1, I think it may make sense to invest in the plan for us. We are married filing jointly. Our combined marginal state and federal tax rate (24% fed + 9.3% state) comes to 33.3%. The total cost, inclusive of ERs actually comes to 1.69%. Assuming a plan could cost 0.2%, the EXTRA costs would be 1.69% - 0.2% = 1.49%. Assuming she has the plan for 10 years, the product of the extra costs and years worked would be 10 x 1.49% = 14.9%. Since 33.3% is > 14.9% we should still invest in the plan. Right?
Per that quoted portion of the wiki, you compare with the combined fed and state tax rate on qualified dividends (because presumably if you're not investing in the 401k, the money would go in taxable).
For you I think that would be 15% fed (tax rate on qualified dividends, but may be 20%) + 9.3% state = 24.3% x 1.5 = 36.45%. You've stated fees in this 401k are 1.49% more than you would get in a cheaper plan. 36.45/1.49 = 24.46. So if she won't be at this employer for more than 24ish years (or the plan becomes cheaper before then), then it makes sense to max the 401k instead of putting the money in taxable.
Several of the most recent responses make no provision for the income taxes that must be paid on the 401(k) when RMDs begin. It would be pure conjecture now as to what tax rates will be when OP’s wife retires, but it’s a reasonable assumption that they will be the same or higher than today.
Also, note that someone will pay taxes on all of the money in the 401(k), whether OP’s wife withdraws it or it passes to a beneficiary after her death. Meanwhile, OP’s wife will avoid capital gains taxes on any unrealized gains when she dies if the money in excess of the employer match goes into a taxable account, and will pay taxes at qualified dividend rates rather than ordinary income on dividends.
I just hate fees as high as these. No one knows whether the percentage of fees will be as high as it currently is for the whole time the money is in the 401(k), but I hate to see fees pile up on potentially decades of contributions and earnings. With new contributions and growth, it won’t be long until the balance in the 401k is $300k, $400k, or more, and fees really start to matter.
Retired life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
arcticpineapplecorp. wrote: ↑Mon May 22, 2023 8:24 pm
What do you expect from an insurance company? Every 401k plan i've seen affiliated with an insurance company has had exhorbitant fees.
Maybe forward this link to her employer about the number of lawsuits that have been won as employers are found at fault for violating their fiduciary responsibility by having 401K’s with excessive fees.
If you want me / us to forward the link and a short message to the employer post their email or PM me, it may not be prudent for an employee to do it.
I was in the military and made it my life goal to try to correct injustices -lol.
Or ask a bold, large employee group to bring the issue up to HR.
I also have John Hancock as my 401k employer retirement account. They do offer a SP500 fund with an er of just .02 but the odd thing is there’s no ticker symbol to track the performance and there’s no dividends, at least not for me, I’m guessing that’s how they offset the .02 er. Seems totally legitimate
Mr. Potter wrote: ↑Thu May 25, 2023 9:49 am
I also have John Hancock as my 401k employer retirement account. They do offer a SP500 fund with an er of just .02 but the odd thing is there’s no ticker symbol to track the performance and there’s no dividends, at least not for me, I’m guessing that’s how they offset the .02 er. Seems totally legitimate
It is a collective investment trust that will not have a ticker symbol and reinvests the dividends back in the NAV of the fund. The ER is low due to economy of scale for funds used only in large plans like 401k. A 401k should not be using retail expense plans such as a regular fund from Vanguard. Blackrock, SSgA, and other corporate level vendors will be a better deal.
What exactly are the administrators charging to do? If we are to assume they are not simply unscrupulous actors, they are charging to do something and it has to be beyond simply operating a brokerage platform with a limited number of funds.
Why can an IRA be free and offer access to every fund on earth and a 401k offer ten bad funds and charge a huge admin fee? What are the administrators actually doing?
gtrplayer wrote: ↑Thu May 25, 2023 10:50 am
What exactly are the administrators charging to do? If we are to assume they are not simply unscrupulous actors, they are charging to do something and it has to be beyond simply operating a brokerage platform with a limited number of funds.
Why can an IRA be free and offer access to every fund on earth and a 401k offer ten bad funds and charge a huge admin fee? What are the administrators actually doing?
A 401k has record keeping and tax reporting that has to be done. Also there has to be an interface to payroll to manage deposit of employee contributions, employer contributions, profit sharing, etc. 401k's may be administering loans to participants and so on.
All that said in a large company this may come to a cost of about 0.1% of assets under management. Very often even that is absorbed by the employer. For a small company the costs may be more as there is less economy of scale and less clout to get a good contract with a vendor.
My 401k charges me zero costs, but as I recall from the From 5500 they are paying about 0.15% AUM for administration. My employer is a megacorp with perhaps $20B-$30B in the plan.
gtrplayer wrote: ↑Thu May 25, 2023 10:50 am
What exactly are the administrators charging to do? If we are to assume they are not simply unscrupulous actors, they are charging to do something and it has to be beyond simply operating a brokerage platform with a limited number of funds.
Why can an IRA be free and offer access to every fund on earth and a 401k offer ten bad funds and charge a huge admin fee? What are the administrators actually doing?
A 401k has record keeping and tax reporting that has to be done. Also there has to be an interface to payroll to manage deposit of employee contributions, employer contributions, profit sharing, etc. 401k's may be administering loans to participants and so on.
All that said in a large company this may come to a cost of about 0.1% of assets under management. Very often even that is absorbed by the employer. For a small company the costs may be more as there is less economy of scale and less clout to get a good contract with a vendor.
My 401k charges me zero costs, but as I recall from the From 5500 they are paying about 0.15% AUM for administration. My employer is a megacorp with perhaps $20B-$30B in the plan.
I have the same 401k situation and company pays the admin fees. I take for granted how much that saves me. It still feels like most of those tasks could be automated and run very cheaply but I guess I don’t really know what’s involved. It certainly feels like it’s defeating the purpose of the retirement plan when you pay back the company match to fees to operate the 401k.
That's terrible... but it's not John Hancock's fault. I have a 401k with them where I don't pay admin fees - and there are plenty of low cost index fund options from various fund families, along with higher cost active funds as well.
It's the employer that chose not to cover administrative fees and selected those fund options for the plan. It's also completely bizarre that the Total Stock Market Index fund available has a higher ER than the Small Cap Index Fund. Whoever set the plan up probably just didn't know what they were doing. Is this a small company with only a few people participating in the 401k plan?
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
See if the plan allows for rollovers to an IRA while still employed with the employer offering the plan. It is a less common situation, but some plans allow it.
Beensabu wrote: ↑Thu May 25, 2023 3:38 pm
Is this a small company with only a few people participating in the 401k plan?
Per OP, 13 participants as of 2021
Yikes. That's not a lot of ways to split the fee pie - and since this pie is allocated pro rata, those with the largest balances get stuck with most of the bill. If someone with a large balance leaves the company and rolls out of the plan, the people left behind have to pay even more than they were before, and especially those with bigger balances.
It's like they're incentivizing their participating employees to quit (and all around the same time) .
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
OP, My DH has a John Hancock 401K with outrageous fees as well. I process in-service distribution from 401K to Roll over IRA twice a year as he is over 59 1/2.
Northern Flicker wrote: ↑Thu May 25, 2023 3:57 pm
See if the plan allows for rollovers to an IRA while still employed with the employer offering the plan. It is a less common situation, but some plans allow it.
Good thought but roll overs aren’t allowed. Even if it were I wouldn’t want an IRA rollover and I do back door Roths. We’d have to open an easy business for her and she could roll into a solo 401k.
If they don't allow it, it is moot, but maxxing the 401K and rolling to a low cost IRA would be worth giving up the back door Roths.
The other question concerns how long she plans to stay at the employer. It nonetheless may be worth making larger contributions to get the tax deductions if she will be moving to a new job in the next few years and can move assets out of the plan.
Another point is whether an HSA insurance plan is possible, as an HSA account is another opportunity for tax-qualified contributions.
Lobbying the employer for a better plan is a strategy some have tried, but it may not be appropriate in the current situation.
illumination wrote: ↑Tue May 23, 2023 2:49 pm
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.
My understanding is that 401k is a portion of the tax code that applies to corporate tax arrangements involving profit sharing and deferred compensation plans. It is not for individuals by definition of its relationship to employers having employees. Solo 401k, etc. fill the gap for the case of "employees" without an employing corporation etc.
There also is no record-keeping cost with a solo401k, so they are cheaper for the provider. That should not be construed as justifying the hideous level of fees in the plan in question.
.