DC record keeping assets surpass $4 trillion mark

Defined contribution record-keeping assets reached $4 trillion in 2011, posting a 1.9% gain from the $3.93 trillion recorded during 2010, according to the latest Pensions & Investments survey.

The number of participants rose to 82.65 million from 81.18 million, a gain of 1.8%. The number of sponsors rose to 618,479 from 616,580. Each survey contained results from 54 record keepers.

Last year's results were marked by musical chairs in the asset rankings of some of the largest companies. Aon Hewitt, Lincolnshire, Ill., climbed to third place from fourth, switching places with ING U.S. Retirement Services, Windsor, Conn.

Principal Financial Group Inc., Des Moines, Iowa, rose one notch to 11th place, trading spots with Prudential Financial Inc., Newark, N.J.

Fidelity Investments, Boston, continued to dominate the industry — in terms of assets under record keeping — with $949.1 billion last year, up 1% from its year-earlier figure.

Fidelity also topped the rankings in terms of the number of participants for which it is a record keeper with 15.23 million, a rise of 1.8%.

Stephen Patterson, Fidelity's executive vice president of sales for personal and workplace investing, attributed the firm's asset growth to new customers, increased cash flow from existing participants and market gains.

Mr. Patterson predicted Fidelity's DC record-keeping business should be able to capitalize on “integrating multiple benefits” for sponsors in other areas, including defined benefit plans, non-qualified plans, stock option plans and health plans. “Sponsors are looking at putting those with a fewer number of providers,” he said. “Health administration is taking on a bigger role.”

Mr. Patterson said Fidelity's fee-disclosure practices and its size should help it gain customers thanks to new federal regulations affecting fee disclosure between providers and sponsors that take effect in July.

“There will be significant pressure on record keepers,” Mr. Patterson said. “You need scale to operate in this environment. We expect a shakeout as the industry consolidates.”

Among the other record keepers in the top five, TIAA-CREF, New York, stayed in second place with $320.4 billion vs. $320 billion in 2010. In terms of number of participants, TIAA-CREF remained in fifth place at 3.82 million, vs. 3.75 million in 2010.

Vanguard Group Inc., Malvern, Pa., retained fifth place with $273.5 billion in assets vs. $273.8 billion in 2010. In the ranking of participants, Vanguard remained in seventh place with 3.47 million, off slightly from 3.46 million the previous year.

The big switch among the top five was due to Aon Hewitt's hefty 6.8% gain in assets to $307.9 billion from $288.2 billion.

Alison Borland, vice president for retirement product strategy at Aon Hewitt, attributed her company's gains primarily to nine “big wins” of new clients, many with assets of $1 billion or more. She declined to identify them, except to say that eight were 401(k) plans and one was a 457 plan.

These new clients helped Aon Hewitt add participants — up 11.8% to 5.2 million from 4.65 million, keeping it in third place.

Although Aon Hewitt focuses on the largest DC plans, Ms. Borland said her company is looking to expand its presence in the middle market, which she defines as sponsors with assets starting in the $100 million to $200 million range and going up to $750 million.

Like Mr. Patterson at Fidelity, Ms. Borland said she believed Aon Hewitt could benefit from the federal fee disclosure regulations due to her firm's size and existing disclosure practices.

Maliz Beams, CEO of ING U.S. Retirement, said the fee-disclosure rules will be good for the industry and for her company.

“Disclosure will help us,” said Ms. Beams, referring to ING's existing policies and large client base. She expects to add clients in the small and midsize market where ING already has a strong presence. ING defines this market as plans with fewer than 1,000 participants and less than $150 million in assets.

ING's record-keeping assets dropped 2.1% to $285.7 billion in 2011 from $291.9 billion. Ms. Beams said the decline was primarily due to merger-and-acquisition activity that affected “several large plans.” ING's clients were acquired, and the record-keeping responsibilities of the merged entity were consolidated with the acquirers' record keepers.

ING kept its second-place ranking for participants, although its 5.28 million for 2011 was lower than the 5.42 million in 2010.

Ms. Beams said the lower number represents the impact of the clients lost due to M&A as well as to the final year of digesting of ING's 2008 acquisition of CitiStreet. The CitiStreet deal included adding “a block of very small plans” that ING eventually sold, she said.

“We have had a surge of business in our last two quarters,” said Ms. Beams, who declined to provide details.

ING also held onto second place when ranked by number of sponsors, with 49,492 down from 50,903. Paychex Inc., Rochester, N.Y., remained the leader with 58,000 sponsor-clients, up 11.5% from 52,000 in the previous survey.

Principal Financial climbed the ladder on the P&I survey thanks to a 2.5% gain in assets to $99.2 billion vs. $96.8 billion, passing Prudential, whose assets declined 3.1% to $95.3 billion from $98.3 billion.

Joni Tibbetts, Principal Financial's vice president for retirement and investor services, predicted her firm also would benefit from the federal fee-disclosure regulations. One reason is that Principal Financial started sending disclosure materials to clients months before the Department of Labor issued in February its final regulations governing providers and sponsors.

Ms. Tibbetts suggested that some providers “may exit” the business because of the fee-disclosure rules. “We're always open to looking at opportunities in the marketplace,” she said.

Principal's DC business served 3.18 million participants last year, up from 3.1 million in 2010. It remained in eighth place in this category. Ms. Tibbetts said the gain reflected an increase in the number of larger plans that offset a loss of smaller plans.

Great-West Retirement Services, Greenwood Village, Colo., is another record keeper that sent fee-disclosure materials to clients before the DOL's final provider-sponsor rules were issued. It held onto seventh place in the asset category with $150.7 billion, up 2.8% from $146.6 billion in 2010. And it retained fourth place in the participant category with 4.42 million vs. 4.41 million.

Charles Nelson, president of Great-West, said the biggest asset gains came from sponsors expanding their use of stable value and fixed-income products.

Mr. Nelson doubted new fee-disclosure regulations would have a big impact on the record-keeping industry this year because implementation doesn't start until the summer. “Fees will be more of a cost issue in 2013,” he said.

He added that smaller providers will be challenged by “increasing regulatory burdens,” such as the fee disclosure rules, especially if the stock market cannot sustain its growth from the depths of early 2009.

“If you're a small provider, how many years can you take with the market being down or flat and with higher (regulatory) costs,” Mr. Nelson asked.