DC record keepers' assets jump 9.9% to new high point at $5.56 trillion

Assets of defined contribution record keepers surpassed $5.5 trillion for the year ended Sept. 30, a record high, according to the latest Pensions & Investments survey of the largest record keepers.

Record-keeping assets for firms responding to the P&I survey jumped 9.9% to $5.56 trillion, up from $5.06 trillion for the year ended Sept. 30, 2013. The number of participants among survey respondents rose to 90.56 million, up 5.8% from 85.57 million.

Fifty companies participated in the latest survey vs. 52 for the previous survey and 56 in the survey ended Sept. 30, 2012, when total assets were $4.45 trillion.

The record-keeping industry reached the new asset high point with fewer major players thanks to a series of consolidations in recent years. The biggest deal involved the establishment of Empower Retirement, Greenwood Village, Colo., created by the combination of Great-West Retirement Services, the retirement business of Putnam Investments and J.P. Morgan Retirement Plan Services.

Empower placed third in assets with $407.5 billion for the 12 months ended Sept. 30. In the previous P&I survey, Great-West was sixth in assets, while J.P. Morgan was eighth in assets. Putnam Investments declined to participate.

Some transactions didn't close before the Sept. 30 deadline or were announced after the deadline. One of those was the December 2014 announcement that John Hancock Retirement Plan Services, Boston, would acquire New York Life Retirement Plan Services, Westwood, Mass. The transaction — which excludes New York Life's stable value business — is expected to close during the first half of 2015. In the current survey, John Hancock ranked 18th with $84 billion in assets and New York Life placed 24th with $43.5 billion in assets.

Consolidation will continue among record keepers, especially those catering to DC plans with assets from $100 million to $500 million, said Robyn Credico, Arlington, Va.-based defined contribution practice leader for Towers Watson & Co. “There's not much more room for consolidation for large plan-sponsor record keepers,” she said.

For DC plan executives, the consolidation trend can offer good news or bad news, she said. Reduced competition among record keepers could make it tougher for plans to negotiate better prices and services, she said. Other drawbacks could be reduced flexibility for investment options and services as record keepers standardize their offerings, or concerns by participants that a change in record keepers represents a takeaway of services and options.

On the positive side for sponsors, she said consolidation could lead to improvements such as enhanced web-based displays for participants to monitor their savings performance and goals and better service from a larger record keeper making a commitment to staying in the business.

Empower Retirement is still integrating elements of the three record-keeping units now under one roof and brand name, said Edmund Murphy III, Empower president of retirement services.

The former Great-West and Putnam record-keeping units used the same platform, but J.P. Morgan's was different. Integrating the J.P. Morgan system into the fold starts in April and will continue through 2016. The integration is being done this way due to different sponsor asset sizes, different sponsor plan complexities and other sponsor-related issues that make difficult an all-at-once integration, he said.

Empower Retirement also will integrate the respective record-keeping units' interfaces — what web-based services participants see and use on their computers and mobile devices — by the first quarter of 2016.

Mr. Murphy predicted growth in 2015 thanks to some new contracts that have been announced or are pending. One new contract is the Washington State Department of Retirement Systems, Olympia, for its deferred compensation program and for three other defined contribution plans whose investments are overseen by the $103.6 billion Washington State Investment Board, Olympia.

The Washington hire was announced in January and contracts take effect in October. Empower Retirement has been the record keeper for the $3.5 billion deferred compensation plan; it will replace ICMA-RC as record keeper for the other DC plans with aggregate assets of $10.7 billion.

In November, Intuit Inc., Mountain View, Calif., announced that Empower Retirement would become record keeper for its $1.2 billion, replacing Fidelity Investments.

Despite Empower's stronger presence, Fidelity Investments, Boston, remained the asset leader by a wide margin. Fidelity's $1.41 trillion in record-keeping assets represented an 11% gain from the previous survey period.

Fidelity's performance was aided by growth in the largest-sponsor markets as well as among startups, said Steve Patterson, executive vice president for sales, workplace investing. Mr. Patterson said Fidelity added $42 billion in new record-keeping business during 2014, while retaining more than 99% of existing record-keeping assets.

Although Mr. Patterson didn't provide a forecast for 2015, his company picked up a major client in American Airlines Inc., Fort Worth, Texas. The five-year agreement, to take effect in mid-2015, was announced in October.

Fidelity was the record keeper for US Airways Inc., which merged with American. J.P. Morgan Retirement Plan Services (now Empower Retirement) has been American's record keeper. When Fidelity assumes responsibility for the combined plans, it will administer aggregate assets of about $14 billion and serve approximately 120,000 participants.

Fidelity didn't acquire any record keepers. Neither did TIAA-CREF, New York, which again placed second in assets with $422.4 billion, up 8.9% from $388 billion.

TIAA-CREF benefitted from the continuing consolidation of record keepers for 403(b) plans among colleges and universities, said Edward Moslander, senior managing director and head of TIAA-CREF's institutional client service organization.

Prompted by changes in Internal Revenue Service requiring more fiduciary responsibility for 403(b) plans, a university that once might have had five record keepers now has one or two, he said.

The pace of consolidations “ebbs and flows,” Mr. Moslander said. “There's a medium pace right now. Next year, it's my gut feeling there will be more consolidations.”

Other growth sources for TIAA-CREF include 457(b) deferred compensation plans and the defined contribution components of hybrid plans in the public sector, he said.

Among the other largest record keepers ranked by assets:

nAon Hewitt, Lincolnshire, Ill., placed fourth vs. third in the previous survey, as assets rose 9.1% to $393.9 billion. Unlike other companies in the survey, Aon Hewitt's data is based on the calendar year rather than the 12 months ended Sept. 30;

• Vanguard Group, Malvern, Pa., placed fifth vs. fourth in the year-ago survey as assets rose 11.7% to $378.9 billion;


• Voya Financial Inc., New York, slipped to sixth from fifth on assets of $346.3 billion, up 6.4%. Voya was formerly known as ING U.S. Retirement;


• Wells Fargo Institutional Retirement and Trust, Charlotte, N.C., held onto seventh place with $214 billion, a gain of 11.1%;


• Bank of America Merrill Lynch, Boston, moved to eighth place from ninth on the strength of a 12% increase to $165.7 billion from $147.9 million;


• T. Rowe Price Inc., Baltimore, rose to ninth from 11th with a 2.4% gain to $147.8 million from $144.3 million;


• Principal Financial Group Inc., Des Moines, Iowa, advanced to 10th from 12th, with assets of $147.6 billion, a gain of 10.4%;


• Xerox HR Solutions, Secaucus, N.J., dropped to 11th from 10th place, as its assets slipped 1.5% to $143 billion from $145.1 million. In the previous survey, however, Xerox's asset total climbed by 51.1%. Xerox was the only record keeper among the top 25 firms that posted an asset decline during the latest survey.

Among record keepers with the largest number of clients, Paychex Inc., Rochester, N.Y., remained the leader with 67,000 for the latest survey vs. 63,000 in the previous survey. ADP Retirement Services, Roseland, N,J., climbed to second place from sixth, reporting 46,773 clients vs. 39,414 in the previous survey.