As part of a weekly blog about the 401k and 403b industry, 401k record keeper consolidation is discussed along with why it’s happening, what’s likely to happen and what plan sponsors and advisors should be doing to prepare or anticipate who’s next. (401kTV makes available a list of National DC Record Keepers as well as industry transactions in a Consolidation Report)
No one likes to be caught in the middle of a defined contribution (DC) record keeper sale or exit from the market. Not only is there a forced change to a new system which may or may not be suitable for the plan sponsor and their employees, other advisors are constantly badgering these companies to win their business with blood in the water. With declining fees and increased expenses, like the airline industry, DC record keepers will continue to buy up competitors to leverage fixed expenses and lower distribution costs.
And like the airline industry, only a few will survive with only an expected nine record keepers in the “smid” or $3-$250 million not including the two national banks, large payroll companies and micro market outsourcers. Defining those nine with be assets and participants under management as well as corporate commitment – winners will be able to service smaller and larger plans which require different products and sales forces. They will be able to work with all types of retirement plans.
For plan sponsors, the key is finding an experienced and knowledgeable plan advisor who studies the DC market making regular site visits talking to senior management at the record keepers. In turn, advisors will watch the wholesalers to see where the good one are migrating to and away from.
Notable DC record keeper transactions over the past decade (60 since 2008 with two-thirds among record keepers):
- Recent – AonHewitt sold to private equity and Xerox spun off DC division
- NYLife sells to John Hancock
- Mercer sell to Transamerica which had subsumed an Aegon subsidiary, Diversified, years back
- Great West, Putnam and JP Morgan morph into Empower-Retirement
- MassMutual buys The Hartford
- Voya (ING) buys Citi Street
Regional record keeping TPAs which include over 500 entities will survive but the really small ones will just exit the market while larger ones, attractive to national record keepers looking for scale, will be targeted. Private equity firms continue to find this market interesting evidenced by deals to buy AonHewitt, Ascensus and Newport Group as do community banks like Alerus and BPAS’ parent.
So make sure that your record keeper is committed to the DC market and, if not, make the change on your schedule, not theirs.
