PITTSBURGH - Mellon Bank Corp. finally announced its plans for tackling the defined contribution plan market, an area where the bank has found it hard to create a strong presence.
But consultants say the move may be too late, and that the bank may do little more than retain existing clients.
Mellon's new service integrates the administrative and investment management capabilities of all of its subsidiaries into one package.
Forty-one institutional mutual funds have been created, some by converting existing bank commingled funds. The mutual funds will be managed by money management arms of Mellon, Dreyfus Corp. and The Boston Co., Boston. Mellon acquired Dreyfus earlier this year and The Boston Co. in 1993.
Dreyfus, with a brand-name presence in retail mutual funds, will be at the forefront.
The bundled program has been named Dreyfus ACCESS.
An alliance was formed with Certus Financial Corp., San Francisco, this year to provide stable value products.
"We've created the dream team," said Barbara E. Casey, president of Dreyfus Retirement Services, the division responsible for 401(k) plan services.
"We went through the companies and packaged up the best investment styles we have into institutional mutual funds. The best investment styles Dreyfus, Boston Co. and Mellon have to offer are now finally available in a bundled 401(k) plan program. In the past, we recognized that none of the individual companies that are now a part of Mellon Bank had a broad enough array of funds or services."
In addition, Mellon Bank is negotiating preferential alliances with five unnamed mutual fund companies so plan sponsors can include externally managed mutual funds within the bundled package.
Funds from other outside management companies may be added later.
Mellon Bank already has a state-of-the-art participant record-keeping system. Trust services will be provided by Mellon Bank and Boston Co.
Extensive participant education and communications programs will mirror Dreyfus' previous programs and will include print, video and interactive software materials. Voice response systems will be available 24 hours a day, as will Dreyfus trainers, who will conduct on-site employee enrollment and education meetings.
Three lifestyle funds will be added by Jan. 1, said Diane Coffey, a Dreyfus spokeswoman. Their structure will parallel that of Dreyfus' retail Asset Allocation Portfolio funds.
Mellon Bank hopes to convince many of its more than 1,800 defined contribution plan clients - especially small and midsized plans - to expand into full-blown, bundled service arrangements.
Mellon Bank has had the capability to offer the bundled service since Aug. 24, the day its acquisition of Dreyfus became final, although marketing efforts are only beginning in earnest now.
Ms. Casey said about 25 clients are in the process of expanding services, adding new mutual funds, switching to daily valuation or moving into a bundled approach.
The new services - especially the use of outside mutual funds -will make Mellon Bank more competitive, said Glen Casey, a consultant at Cerulli Associates Inc., Boston. But that but won't be enough to catapult the company to the top ranks of 401(k) service providers.
"Mellon Bank can leverage off its extensive trust services capability and work with a select group of outside managers and make the system really seamless and clean, something many of the mutual fund alliances have not been able to do well. This will be very appealing to the midsized plan market where demand is pushing inclusion of outside managers in a bundled service," Mr. Casey said.
"But in the very large plan market, the market leaders, Fidelity (Institutional Retirement Services) and (the) Vanguard (Group of Investment Cos.) offer so many leading edge products and have made so many client-driven enhancements that those big clients are firmly entrenched. They have no reason to move. Those providers below the top five are unlikely to make any real headway in the large plan market," said Mr. Casey.
Said Bob Weatherford, a consulting actuary in the Portland, Ore., office of employee benefit consultants Milliman & Roberts Inc.: "Every other vendor has a similar product out there now and this is Mellon's defense. This new program will merely enable Mellon to perhaps retain market share, but I don't see it increasing their market share in new areas with this move."
