John Hancock Changes 401(k) Plan Pricing

Redesigned platform eliminates cross-subsidization from revenue sharing

John Hancock is changing the pricing on its 401(k) plans to help sponsors address issues of fairness in allocating plan expenses across all participants, the company announced Wednesday.

The changes follow a model set forth in 2013 with the JH Enterprise platform, which features technology that allows revenue sharing between all participants in a mutual-fund-based retirement plan. The Enterprise platform serves plans with between $10 million and $100 million.

“One of the features of that new platform is that we ensure that no matter which fund you chose, whatever revenue sharing there was, that revenue sharing was accounted, accrued and credited back to that individual participant,” Peter Gordon, president of retirement plan services for John Hancock, told ThinkAdvisor on Thursday. “That’s pretty contrary to the industry, which by and large uses an ERISA account, where all those credits would normally flow back to the plan level and then be distributed on some sort of allocation basis, so effectively there’s a fair amount of cross-subsidization going on.”

Advisors and plan sponsors have been “extremely excited” about that feature, Gordon said. Following that response, John Hancock is applying that concept to its core platform, which is being relaunched as Signature 2.0, he said. “We took that exact same concept, did it in a slightly different way, but it has the same result so there is zero cross-subsidization between funds with different types of revenue sharing.”

The changes will take effect in May and will introduce John Hancock’s “required revenue” pricing for recordkeeping services.

“Required revenue means no matter where the funds are invested — a proprietary fund, a non-proprietary fund, a target-date fund — the required revenue is always the same for that particular plan,” Gordon said. The price remains the same despite changes to the investment lineup or inflows to a particular fund, too. “That gets back to the whole revenue sharing because all revenue sharing is credited back at the fund level, so everything’s even going in. There’s never a reason or an incentive to buy one fund over another.”

Another result of the new pricing is simplified disclosure, Gordon said. “One of the things that we learned from that large market is it was very easy to explain what we were doing. You’d say, ‘Here’s a fund that has a 100 basis point expense ratio and it has 25 basis point revenue sharing, so your net is 75 basis points,” he said. “We’ve taken that same concept and applied it to Signature 2.0, which makes it slightly different, but at the end of the day it’s very simple for the average person to follow what we’re doing, how those credits are being credited. We think it’s a much more intuitive way to do that.”

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