5 Investing Opportunities in the Johnson & Johnson Savings Plan | Cerity Partners (2024)

Here at Cerity Partners, we work with individuals all across the country at various stages of their career and across a multitude of different employers. And one thing we have learned over the past decade of working with Johnson & Johnson employees and retirees is that J&J offers a tremendous overall benefits package.

However, with strong employee benefits often come complexities that aren’t always widely understood. I hope to educate you on a few of those complexities, specifically as it relates to the Savings Plan (aka your 401k), and uncover opportunities that may be worth your consideration:

1

After-Tax Contributions

Where most 401(k) plans stop you from contributing once you reach the IRS limits for pre-tax or Roth contributions, the J&J Savings Plan is unique where you can contribute above and beyond those limits as what are known as after-tax contributions. After-tax contributions allow you to accelerate your retirement savings if you are looking to contribute additional funds towards retirement. The funds go in “after tax” meaning there is no upfront tax break and growth on these funds are eventually taxable to you.

A lot of times, we will see employees have an after-tax balance without even knowing, since the plan does not cut off your contributions once you hit your annual limits. There is a huge, often times missed opportunity here to roll over those funds to a Roth IRA to take advantage of tax-free growth moving forward. It is important to have a strategy in place to take advantage of this unique feature.

2

Catch-Up Contributions

If you are age 50 or older, the IRS allows you to add an additional amount each year to your 401(k) as what is known as a catch-up contribution (getting older isn’t all bad!). However, in the J&J Savings Plan, many believe they are taking advantage of the catch-up contribution but are not. That is because you have to specifically elect to allocate funds towards that contribution type, rather than just simply increasing your pre-tax or Roth contribution percentage. Missing this small detail can often result in more taxes being paid over your lifetime.

3

Investing Too Conservatively

It is not surprising that participants in the J&J Savings Plan look at their account as separate from the rest of their wealth. It is a stand-alone plan, with its own rules and investment options. But failing to consider it in the context of one’s entire portfolio can set you up to invest too conservatively.

We often see J&J employees retiring with rather significant monthly pension amounts. A lot of this is dependent on years of services and lifetime earnings at the company, but once you factor in monthly Social Security benefits in addition to the J&J pension, many retirees find themselves in relatively good shape in terms of fixed monthly income.

Conservative investors with a decades-long investment horizon may wish to split their investment portfolios roughly 50% stock and 50% fixed income.

Your pension benefit could be considered a kind of fixed income – its value won’t fluctuate based on stock market volatility. How does this all relate to your J&J Savings Plan balance? If a significant portion is invested in the US Government Securities Fund, Fixed Interest Fund or Intermediate Bond Fund, you could be more exposed to fixed income than you want.

My point here is not to encourage you to invest aggressively, but rather, to take stock of how you’re invested in total. You may be happy with your overall allocation. But do so knowingly, rather than by default.

4

Over-Concentration

J&J is a great company and J&J employees are very loyal to their company. But it’s important to evaluate how financially dependent you are on J&J as a company as there are many ways you can be exposed to their overall company performance. There is indirect exposure such as your paycheck, bonuses, pension and retiree medical. And there are direct exposures such as LTI (stock options & RSUs), shares you hold at Fidelity or Computershare, and finally shares you may hold in the J&J Savings Plan.

Many times we see employees get overexposed to J&J stock as a result of a combination of the above referenced items. Being over concentrated in any one stock is a risk, and it’s important to manage that risk appropriately and tax efficiently. Having a disciplined diversification strategy can help you manage that risk.

But be careful selling J&J stock too quickly in your Savings Plan, specifically as it pertains to your J&J Stock Contribution Fund. There may be a future tax savings opportunity called Net Unrealized Appreciation (NUA) that you’ll want to learn more about.

5

In-Service Rollover

It’s common that 401(k) plans provide a “menu” of investment options to choose from to allocate your retirement savings. Some menus are extensive while other are fairly limited. The J&J Savings Plan allows you to go two different routes: you can either choose a target date fund that lines up with your estimated retirement year, or you can choose a blend of 9 individual stock/bond funds they offer.

As of the beginning of 2022, the J&J Savings Plan now offers an “in-service rollover” option for active employees who are age 59.5 or above (another benefit of getting older!). This was a much needed addition to the plan, as many employees we talk to, especially those close to retirement, are looking for more investment options and flexibility for their retirement funds.

Now there are advantages and disadvantages of 401(k) rollovers, so we encourage you to educate yourself more or partner with a knowledgeable financial advisor to review your situation.

It’s tempting to put your J&J Savings Plan on auto-pilot. But educating yourself on the details of the plan can help give you a leg up on reaching your retirement goals. I encourage you to make the time to assess your current investment allocation and contribution strategy, and think through how your 401(k) account fits into your overall retirement plans. And if you don’t want to go at it alone, the experts at Cerity Partners are here to help.

Cerity Partners is not contracted with, endorsed by or affiliated with Johnson and Johnson.

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