Comparison of 401k management companies
Hello. Thank you for your inquiry about 401(k) management companies. We reviewed John Hancock, TIAA-CREF, Paychex and Vanguard, which are the leading 401(k) management companies. All of the reviewed companies offer integrated payroll services, either in-house or via a third-party provider, customized management packages and scaled management services that cater to small businesses and larger corporations. TIAA-CREF, Paychex and Vanguard also offer some form of tax management. A cost analysis reveals Paychex and Vanguard to be the most cost effective for 401(k) management, with Paychex coming in at 0.17% of plan assets and Vanguard at $20 per fund service fee. Customers most often complained of high fees across the 401(k) management companies. Below, you’ll find all relevant information that was curated from corporate websites, industry reports and reliable media websites during the research process.
We sought information that compared 401(k) management costs and services from John Hancock, TIAA-CREF, Paychex and Vanguard. To get the most up-to-date information, we heavily relied on the companies' own websites and Bloomberg News reports. Additional information was obtained by reliable customer review sites, including financial blogs and Yelp.
According to the John Hancock Investments website, 401(k) management offers an integrated payroll service called Payroll Path. This integrated service is compatible with numerous third-party payroll vendors, including ADP, Paychex and Paycor, among numerous others.
A June 29, 2016, entry on the Employee Fiduciary Blog cites the annual fee for John Hancock 401(k) management as "1.69 percent of plan assets plus $24/participant." This annual fee includes costs associated with third-party administration, selection of investments and recordkeeping. Initially, this cost is comparable to fees charged by other companies. However, a modest amount of investment growth will result in an exponential increase in annual fees.
John Hancock offers flexibility in designing 401(k) plans that come with a full range of optional features. According to the company website, the plan design can be customized to meet the particular needs of the company’s owner(s) and employees.
Regarding tax management, it does not appear that John Hancock directly handles federal and state taxes. Instead, the company's third-party payroll vendors handle all federal and state tax management. John Hancock states on its website the standard tax deferral that encompasses all 401(k) plans, in that participants' wages allocated for 401(k) are not federally taxed, and no taxes are paid on earnings while held in the plan.
The primary customer complaint for John Hancock Investments is excessively high annual fees. A reviewer from an April 7, 2015, post on the Mr. Money Moustache site commented that the John Hancock fees are too high starting at 1 percent and cited a Vanguard Growth Index Fund from the John Hancock website that has "an expense ratio of 1.06 and underlying fund expense ratios of 0.09 percent gross and 0.09 percent net." As stated earlier, John Hancock's initial annual fee does not factor in even modest investment growth, and annual fees can skyrocket.
John Hancock offers scaled services to fit small businesses and large corporations. According to its website, it offers owner-only plans, as well as plans for companies with just a few employees. A tax law change in 2002 allows for this flexibility. As a company grows, John Hancock can offer a larger plan.
APS is the integrated payroll service that TIAA-CREF uses. According to the APS website, the company has more than 70 integrations that are scaled to different sizes of businesses.
According to a TIAA-CREF customer on the Bogleheads website, TIAA-CREF's annual fee is "0.17 percent, or $1.70 for each $1,000 invested."
On the company website, TIAA-CREF offers an online "Retirement Advisor," which is a tool that allows companies to customize a retirement plan with recommendations for investments and savings.
Regarding tax management, TIAA-CREF utilizes fixed income exposures that are fulfilled using bonds exempt from federal income taxes. In addition, tax-managed equity portfolios are employed where a competitive offering exists. For payroll taxes, TIAA-CREF utilizes the services of its APS integrated payroll.
A review in the Huffington Post states that customers of TIAA-CREF receive no better investment gains than customers of similar retirement fund management companies. So it stands to reason that TIAA-CREF customers fare worse than people who invest in "traditional defined benefit pension plans."
For small business owners, TIAA-CREF offers SEP IRAs and SIMPLE IRAs, both of which can serve as a way to save for retirement. SEP IRAs cater to owners, with no employees. This is a great way for a sole proprietor to invest for retirement. TIAA-CREF also offers plans for medium to large businesses, and these can be customized.
Paychex uses its own in-house payroll system, which offers a complete streamlined service that does not rely on or use third-party vendors. The all-in-one system allows for accurate data collection, timely investments and fiduciary compliance.
According to the Dental Sleep Practice website, the annual fee for a Paychex 401(k) plan is .17 percent. It should be noted that Paychex partners with Transamerica for investing, and Paychex receives shared revenue from Transamerica. This likely is the reason for the relatively low annual fee that Paychex charges.
The company website states that customers can customize retirement plans to fit the changing needs of growing companies. However, companies needs to know that Paychex does not manage investments and thus holds no proprietary requirements. Because Paychex relies on Transamerica for investing, businesses are able to choose from a variety of options that can be customized to their needs.
Paychex provides participation information, notifications of eligibility, information about pre-tax employee contributions, contributions made by employers and compounded earning that are tax deferred. Because Paychex uses an all-in-one system, the company handles all payroll federal and state taxes through its own payroll system.
According to Yelp, Paychex customers reported that the company had made tax miscalculations, payroll mistakes and general operational problems, such as not paying out payroll taxes. Most of the complaints involved regular payroll issues as opposed to investments in 401(k) retirement plans.
Paychex offers services and plans for small- and medium-sized companies. According to Paychex, benefits include streamlined payroll integration for retirement plans, smooth administration of 401(k) plans and support to company managers to handle fiduciary regulations. Since plans can be customized, Paychex can tailor plans to grow with companies.
According to the Plan Sponsor website, Vanguard uses Payroll 360 as its integrated payroll provider. Payroll 360 handles all recordkeeping and administration tasks associated with 401(k) plans. The bulk of Vanguard accounts include plans ranging from 10 to 1,000 participants.
The Vanguard website states that the annual service fee is $20 for each fund held in a Vanguard Individual 401(k) account. However, the fee is waived if at least one contributor qualifies for special Vanguard plans, such as "Flagship Select™" plan. The plan administrator cannot be the sole special plan contributor for the fees to be waived.
The White Coat Investor website details the customizable 401(k) plans. For example, Vanguard participants can choose to supplement a standalone 401(k) with Roth IRA conversions. Or administrators can add EFTs. Such tailored plans are implemented using a custom plan document, which is an official document drafted by a third-party administrator.
Regarding tax management, Vanguard offers tax-managed funds. On the company website, Vanguard details tax-saving tips when it comes to retirement investing. For example, "tax-managed funds and tax-exempt bonds were created specifically for investors concerned about lowering their taxes." Vanguard can assist participants in navigating these tax-lowering index funds.
In a Jan. 3, 2017, review of Vanguard on the NerdWallet website, the most negative points made included high required account minimums and participants possibly racking up transaction fees.
Vanguard may be a great option for small business because of its low fees. The Vanguard Retirement Plan Access was created 2011 with small businesses in mind. According to a May 11, 2015, Bloomberg News article, a Vanguard representative said that, although costs vary with plans, a small business plan may only cost "0.5 percent a year in administrative fees." Vanguard offers numerous plans for any size of business, ranging from a sole proprietor to a large corporation.
Each of the four companies we researched had its own pros and cons. However, Vanguard provides the most bang for the buck. With Vanguard, companies get low-cost annual fees, integrated payroll, tax management and small-business capability with options for growth. John Hancock and TIAA-CREF offer name recognition and varied portfolios, but the annual costs seem excessively high. Although Paychex offers a one-stop shop with its partnership with Transamerica, the reviews are disconcerting, ranging from wage miscalculations to mistakes in paying out payroll taxes.
Thank you for using Wonder. Please let us know if there is anything else with which we can assist you.