Peter Gordon is chief executive officer, John Hancock Retirement Plan Services, part of John Hancock Financial, the U.S. division of Toronto-based Manulife Financial Corporation. Previously he was the president of John Hancock Financial Network, the company’s national network of independent firms, and its broker-dealer, Signator Investors, Inc. John Hancock services over 56,000 plans and nearly 2.7 million participants. EBN recently spoke with Gordon about Hancock’s approach to serving the 401(k) market, as well as broader industry issues.
John Hancock is not currently offering a traditional annuity product for incorporation into defined contribution plans. Why not?
The Department of Labor is certainly being helpful to try to encourage it, but at the end of the day individual participants need to want to do that. The problem with annuities has always been their irrevocable nature. But there will be more of them in the future. Do I think the demand will just take off? No.
So John Hancock offers something else designed to deal with retirees’ need for predictable income. Tell me about that.
We offer a service we call Income for Life Select on our platform that’s designed for a smaller plan. The difference between that and a regular annuity, is that it’s not irrevocable. It effectively works like a floor; you get some guaranteed income as a floor, guaranteed for life, but you still get the upside of the market. It’s also an inflation hedge. In addition, you can end it at any time you want and still have your account balance. But in today’s low interest rate environment, the economics can be a challenge, so we’re not pushing it.
With respect to your standard defined contribution offering, are most of your plan sponsors on board with auto-enrollment and auto-escalation of deferrals?
It varies by plan size. With our larger clients, it’s about 70% that choose auto-enroll, and about 25% do auto-escalation. As you go down into the smaller organizations, it’s less common. When you’re really small, like 15 people, you don’t really need to auto anything; you can communicate the plan really easily directly to employees, without having to force them to do anything. Most small employers seem to prefer doing it that way.
Do you think auto-enrollment and auto-escalation will become even more prevalent among larger plan sponsors?
Yes. We’re a huge proponent of it, because inertia is such a powerful force. We believe it will continue from today’s 70% on up to 80%. With auto escalation, we might get up to 40%.
What’s the typical deferral starting point for auto enrollment?
That’s a big issue because the default was typically three percent, which is too low. We try to encourage sponsors to start at six percent, and do auto escalate. Most who do auto-escalate just go up in one-percent increments.
John Hancock makes a big deal about having a neutral investment platform. Can you explain what that means?
We’ve never been in the business of trying to convince people to or push people into a certain investment. Our philosophy is there are lots of good investment choices, and the best thing for participants to be successful plan is to save early, save more, and invest smart. Invest smart for us means a diversified portfolio.
Is your QDIA target-date offering from an external provider?
It’s both internal and external. We offer all of the above, always for the same price, and most of our internal options are multi-manager. So the underlying managers are a variety of outside sub-advisers. With our proprietary funds, it is effectively a manager-of-managers approach. Our large competitors generally use their proprietary funds within their target-date offerings. Also, we offer a choice of two target-date fund series; one is more conservative based on the “to” glide path, and the other, using the “through” model. We also offer a variety of lifestyle portfolios that let participants select funds based on their risk tolerance.
Are there any differences in adviser compensation based on funds selected?
No, it’s always the same. There is no extra incentive for particular funds.
When plan sponsors come to you looking to an alternative to their current provider, what are their main issues?
I’d say No. 1 is service or communication issues, participation issues, plan design issues. We spend a lot of time making sure your plan is designed properly to your needs, is very flexible, and we put a premium on service. We don’t believe it’s just all about let’s get the lowest price and the lowest level of service that goes with that approach.
How do plan sponsors know how their plans are performing?
From the largest plans to the smallest plans, we provide dashboards, reviews, work with the advisers to do the same, to constantly focus on the performance criteria that sponsors have. It’s more about prioritizing, understanding, analyzing where your gaps are, taking the time to align the plan design with your goals.
What is your “investment policy statement manager” service?
In the small plan market, we try to bubble wrap the plan sponsor from fiduciary issues. And so what the service does is to make it very simple for them to come up with an IPS in conjunction with their adviser, and to an extent automate the pieces to make sure that it stays current. The worst thing you can do is have an investment policy, then not adhere to it. So if they start to deviate from it, they get messages sent to them, and then they get an annual review. We make specific recommendations to get them back on track.
What about the 3(21) co-fiduciary service?
Sponsors go through a process of discussing their needs and investment philosophy, as they do with the investment policy statement, then they get customized fund recommendations and quarterly reporting on an outsourced basis, in this case, from Wilshire. They give up some of the fiduciary responsibility. There’s a fee for the service based on plan assets.
Is your fiduciary standards warranty part of the same concept?
Yes, part of providing that bubble wrap protection for sponsors in the small-plan market. So let’s say you said, ‘Hey, I want to do that ISP manager,’ and we say, ‘Sure, you do that and in addition we will warrant you in case a participant gets upset and wants to sue you for not having an appropriate investment lineup,’ et cetera.
What do you consider the next frontier in improving the operations of 401(k) plans?
I think there will be more focus on how the plan works for participants through retirement. Plan sponsors and vendors will question whether it’s a good thing for participants to roll over their funds when they retire. But if participants are going to keep their funds in the plan when they retire, the plan will need to have a different set of tools to help them from what they need during the accumulation phase. It may be an income product, or something else, but this will be the biggest trend over the next five to 10 years.
Register or login for access to this item and much more
All Employee Benefit Adviser content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access