According to a 2018 Gallup poll, nearly half of Americans say they will not have enough money for retirement. The future of Social Security is looking murky at best. It is more important now than ever that Americans take their financial future into their own hands and begin saving for retirement.
One of the easiest and most common ways to save for retirement is by participating in an employer-sponsored retirement plan. This is typically done through a 401k.
In this article, we’ll be reviewing John Hancock Retirement Plan Services. This is just one of many options available for establishing your company’s 401k plan.
- What is a 401k?
- Benefits of a 401k
- What is John Hancock?
- The Good
- The Bad
- What’s the Verdict?
- What Are Your Options?
What is a 401k?
A 401k is an employer-sponsored retirement savings plan.
According to the Wall Street Journal, 401k plans emerged in the 1980s. They were initially meant to supplement the pensions offered by employers. Eventually, they went on to take their place when the majority of companies stopped offering a pension or retirement plan.
The money in a 401k is meant to be left for retirement. There are typically financial penalties for withdrawing your money earlier or taking out a loan against your 401k.
401k plans will differ from one employer to the next. Some employers will offer a generous employer match, while some will offer none at all. Some employers will also require you to stay with the company for a certain amount of time before you can become vested and begin receiving your employer contribution.
401k plans, named for the section of the tax code that governs them, arose during the 1980s as a supplement to pensions. – Wall Street Journal
Benefits of a 401k
The most significant benefit of an employer-sponsored 401k over other retirement savings options is that most employers offer to match some portion of your contribution. A 2015 National Compensation Survey from the Bureau of Labor Statistics found that 56% of employers offer a 401k plan, and just over half of those employers offer to match some portion of the employees’ contribution (the average amount is 3.5%).
If you’re one of the lucky individuals with an employer match for your 401k, you’re literally talking about free money!
When you contribute to a 401k, the money is taken out of your paycheck before the IRS has a chance to take its cut. This means that you aren’t paying taxes on your 401k contribution; it’s going straight to your retirement plan.
Sure, you’ll pay taxes on the money later when you start withdrawing from your plan. But look at it this way. If you’re contributing the maximum amount into your 401k (the current cap is $18,500), you’re significantly lowering your taxable income, potentially saving yourself thousands of dollars in taxes this year. That’s just additional money you can then invest for retirement.
High Contribution Limit
As previously mentioned, the maximum annual contribution for a 401k is $18,500. This is significantly higher than the $5,500 maximum contribution (going up to $6,000 in 2019) for a traditional or Roth IRA.
While $18,500 is significantly more than many can afford to put away annually for retirement, those who can afford to save more aggressively will benefit from the higher maximum contribution.
What is John Hancock?
John Hancock was originally founded in 1862 as a life insurance company. They have since grown to become a large financial services firm that consists of financial services such as life insurance, long-term care insurance, college savings, groups annuities, investments, and retirement savings.
John Hancock Retirement Plan Services currently services more than 58,000 plans and more than 2.8 million participants.
The company partners with employers to offer retirement plans to their employees, so if your current or prospective employer offers a 401k through John Hancock, then this John Hancock 401k review is for you!
John Hancock Retirement Plan Services currently services more than 58,000 plans and more than 2.8 million participants.
One of the administrative services offered by John Hancock according to their website is JH StartSmart, which is their set-up and conversion plan to help new clients onboard.
They help participants to transition their existing retirement accounts into the John Hancock 401k through their current employer.
Finally, John Hancock provides EZAdmin, which is their automated recordkeeping service.
It’s important to note that John Hancock, along with other 401k providers, do charge additional fees for these administrative and recordkeeping services.
Enrollment and Education
John Hancock offers a variety of tools to help with the enrollment of new clients, as well as a participant education program to help educate participants on saving for retirement.
Surveys continue to show that Americans simply aren’t as educated about saving for retirement as they should be. The education services offered by John Hancock give participants an opportunity to become more knowledgeable about their own financial situation and future retirement.
Investment Selection and Monitoring
John Hancock touts a number of services to help participants invest wisely, monitor their investments, and protect your assets from unpredictable market events.
Though the investment options will look slightly different depending on the plan your employer has chosen for you, a 401k allows plan participants to take a hands-on approach in choosing among the investment options offered.
Fees and Fiduciary Tools
John Hancock’s Retirement Plan Services includes a warranty that will make participants whole in the event of a violation by John Hancock that results in a loss.
They claim to regularly review client’s fees and services and provide statistics comparing your company’s plan to the industry average.
Good for Small Business
A 2017 survey by PlanSponsor rated John Hancock third in its list of Top 10 Small Business 401k providers. Small business, by their definition, meant any plans with under $10 million in assets.
For smaller companies, providing benefits such as a 401k to employees can be costly, and it can certainly be difficult to find providers to administer those 401ks for prices these small businesses can afford.
Luckily for small business owners, providers such as John Hancock make it easier on these small businesses by providing plans that don’t put all administrative costs on the employer.
John Hancock seems to excel the most specifically with small businesses, as they did not make the Top 10 list for mid-sized businesses.
Higher Fees for Employees
The reason John Hancock is good for small business is the same reason the company isn’t as good for employees. A quick search of participant reviews of John Hancock will show you that the fees they charge are often more costly for employees.
HBO show host John Oliver did a segment in 2016 examining the fees behind John Hancock. They found that in addition to the fund fees, and annual fees for participants, John Hancock charged an additional 1.69% in administrative fees.
ForUsAll, a 401k advisor for small and mid-sized businesses, companies using John Hancock see administrative fees, or recordkeeping fees, ranging from .97%-2.5%. However, they claim that most companies should be able to use the platform for less than 1.25% in fees.
Larger plan sponsors (i.e., larger companies) are more likely to take on the burden of these administrative fees themselves. However, since small businesses often can’t afford (or don’t want to pay for) the administrative costs associated with a 401k plan, John Hancock allows them to shift that financial burden to employees.
So what is a reasonable fee to expect to pay for your 401k? According to MarketWatch, fees can range from less than 1% (for large plans) to 1.5-2% (for small plans).
These numbers will differ depending on whether you’re looking at actively managed mutual funds or automated index funds, as the fees for actively managed mutual funds will be higher.
However, according to Yale law professor Ian Ayres, who studied excessive fees in 401k plans, any fee over 1% is unreasonable and should be avoided.
While some of these numbers seem small, they can really add up in the long run. Consider this scenario laid out by the United States Department of Labor.
Assume that you are an employee with 35 years until retirement and a current 401k account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent. – US Department of Labor
What’s the Verdict?
The short answer is, it depends.
While it’s possible to find general information about John Hancock 401k plans, as well as other 401k providers, plans will undoubtedly differ from one employer to another.
If you work for a small business, John Hancock is likely comparable to any other plan you might find. According to NerdWallet, these small business plans, also known as micro plans, tend to cost substantially more in 401k fees.
If you’re a small business owner and want to provide a 401k option to your employees but can’t necessarily afford the potential costs associated, John Hancock might be a good choice for you, given their rating with small businesses and the ability to shift administrative costs to plan participants.
Notes for Employees
As an employee or a plan participant, you might find John Hancock to be less desirable than other companies. That being said, you as an employee likely have very little control over the company chosen to administer your 401k.
If you own or work for a business that has fewer than 50 participants or less than $2.5 million in plan assets, odds are you’re paying a substantial amount more in 401k fees. – NerdWallet
As an employee, here are a few things to consider when determining if your company’s John Hancock 401k plan works for you:
- Employer Match: Find out if your employer matches a percentage of your 401k contribution
- Administrative Costs: Look into the administrative costs you’re being charged for your 401k plan, and whether those costs are being absorbed by your employer or passed onto you.
- Fund Options: Not every John Hancock 401k plan will have the same fund options available. One of the benefits of a 401k is that you have control over how your money is being invested. Your employer should provide you with a list of fund options.
What Are Your Options?
According to a 2011 survey by AARP, 70% of 401k plan participants don’t believe they pay any fees associated with their plan. However, as we’ve discussed in this article, that is almost certainly not the case. Just by educating yourself about your 401k fees, you’ll be one step ahead of most plan participants.
The first step to being able to make an educated decision about your 401k plan is to educate yourself as much as you can. If you don’t have that information already, ask your employer for information about your fees and investment options.
Talk to Your Employer
If you’ve looked over your company’s 401k plan and have serious concerns about the administrative fees or investment options, consider scheduling a time to sit down with your employer and share your concerns.
A 401k is a benefit provided by your employer, just like any other benefit. If the administrative fees, employer match, or investment options aren’t truly benefiting you, talk to your employer to find out if those are negotiable.
FitSmallBusiness, a digital resource for small businesses, shared their review of what they claim the best 401k companies in 2018. This could potentially be a resource if your company is unhappy with your currently 401k provider.
70% of 401k plan participants don’t believe they pay any fees associated with their plan.
Remember, whoever in your company is responsible for choosing the 401k provider is probably not a financial expert. This is especially true if you are working for a small business. In fact, they may appreciate the information. And it may inspire them to do a little more research of their own.
Your input may fall on deaf ears. But you’ll be no better or worse off than you are now if that’s the case.
Contribute Your Employer Match
Whether your company’s 401k plan is provided by John Hancock or another company, the contribution match provided by your employer is literally free money. Even if you’re unhappy with your current 401k provider and your company will not consider changing, invest at least as much as your employer will match.
Look at it this way. The median wage in 2018 is $887 per week, or $46,124 annually (according to the Bureau of Labor Statistics) Let’s say your employer matches your 401k contribution up to 3%. That means your employer is contributing nearly $1,400 annually into your 401k. And if your annual salary or employer match is higher, then you’re talking about even more money.
Bottom line: don’t turn down free money. Plus, don’t forget the money you invest is lowering your tax liability for this year.
Supplement Your Retirement Savings
Your employer-sponsored 401k is certainly not the only option available for padding your retirement plan. In a perfect world, it would not be the only option you take advantage of.
If your employer offers a contribution match, your best bet is to contribute at least enough to collect the full match.
Once you’ve maxed out your employer match, if you feel like the fees or investment options for your 401k aren’t reasonable, you can switch your investment focus to an IRA. The maximum you can contribute to an IRA annually is $5,500 (increasing to $6,000 in 2019).
If you’ve maxed out your IRA contribution and have additional funds you’d like to invest for retirement, you can switch your focus back to your 401k. Even if the fees seem a little high, the investment is taken out pre-tax and will lower your tax liability for the year.
For more information, check out our advice on the best self-directed IRA companies.
When it comes to financially preparing for retirement, there’s a lot to learn. Information can be confusing. And as we discussed earlier, most of us aren’t exactly educated when it comes to our 401k.
John Hancock is just one of the companies that offer these employer-sponsored 401k plans. As we’ve established, there are both pros and cons to a 401k through John Hancock. Ultimately every employer’s plan will be a little different. It comes down to what your specific employer is offering you.
But just remember, no matter what type of 401k options you’re offered, there are still ways to save money and make sure you’re financially prepared for retirement.
How has learning about investment options like mutual funds and 401ks helped you plan for your retirement? Share your thoughts in the comments.
You have a very nice site, but your following statement should have a caveat: “John Hancock’s Retirement Plan Services includes a warranty that will make participants whole in the event of a violation by John Hancock that results in a loss” In the fine print of a separate document is a caveat stating something along the lines of: the warranty does not cover any claim or loss resulting from, or in any manner related to, the fees and expenses, direct or indirect, of the investments or of the Program. This includes, for example (but is not limited to), any expenses charged to or by any mutual funds, or plan providers or advisers. Since excessive fees are a major causes of participant losses, but obviously not the only cause, I’d suggest the warranty is worthless. More if you Google ‘Caveat Emptor for 401k Plan Sponsors’ or ‘The Wizard of Oz, Retirement… Read more »