(updated with correction)
Assets of defined contribution record keepers reached $5.42 trillion for the year ended Sept. 30, according to the latest Pensions & Investments survey of the largest record keepers.
Record-keeping assets for firms responding to the P&I survey dipped 2.5% from its record high of $5.56 trillion for the year ended Sept. 30, 2014. The number of participants among survey respondents, however, increased to 91.84 million, up 1.4% from 90.56 million.
Although assets were down from the assets reported last year, the assets of the 45 record keepers surveyed this year, actually rose 1.3%.
Boston-based Fidelity Investments once again topped the list of DC record keepers ranked by assets, with $1.397 trillion as of Sept. 30, down 0.7% from the year prior.
TIAA-CREF, New York, was second on the list, with $424.98 billion in assets, up 0.6% from the previous year.
Forty-five companies participated in the latest survey vs. 50 for the previous survey. This was due in no small part to continued consolidation within the industry.
“We are seeing continued consolidation among record keepers in the marketplace,” said Edmund Murphy III, president of Empower Retirement, Greenwood Village, Colo. “We think that trend will accelerate over time. Scale and volume is critically important to being successful in the long run on this business.” Empower is the result of the combination of Great-West Retirement Services, the retirement business of Putnam Investments and J.P. Morgan Retirement Plan Services.
Empower, the third-largest DC record keeper in terms of assets, had $392.85 billion as of Sept. 30, down 3.6% from the year before.
Some examples of consolidation that took place during the year included:
• New York Life Investment Management sold its New York Life Retirement Plan Services business (excluding the stable value business) to John Hancock Financial, during the first half of 2015;
• OneAmerica Financial Partners Inc. acquired BMO Financial Group's $26 billion U.S. DC record-keeping business in the third quarter of 2015;
• Transamerica Retirement Solutions agreed to acquire Mercer's $71 billion DC record-keeping business in September; and
• Genstar Capital and Aquiline Capital Partners agreed in September to purchase Ascensus, a DC record keeper and administrator of 529 college savings plans.
Peter Gordon, CEO of John Hancock Retirement Plan Services, said the firm's assets went up 47.5%, to $123.97 billion as of Sept. 30, in large part because of the acquisition of NYLIM's retirement business. “It was a perfect fit for a lot of reasons. We are a specialist in the under $10 million market and New York Life's (retirement) business was focused in the mid- to large market,” Mr. Gordon said. “So by combining them, we're able to cover (plans from) startups to billion dollar plans.”
Although DC record-keeping assets declined primarily due to market depreciation, sources that P&I spoke with said the number of participants reported in DC plans grew year over year due to the closing of defined benefit plans and the rising of auto enrollment and auto escalation.
Robyn Credico, senior consultant and defined contribution consulting leader, North America, for Willis Towers Watson PLC, Arlington, Va., said that, notwithstanding market volatility, asset accumulation in DC plans over the year came about as employers focused on a few things.
For starters, with DB plans getting closed or frozen, employers are replacing DB plans with DC plans to provide a DC plan to their employees that makes up for that. Employers are “increasing the match giving non-discretionary contributions,” Ms. Credico said. “Auto enrollment has also been an increasing trend … which has resulted in more money going into DC plans.”
Alison Borland, senior vice president and head of defined contribution at Aon Hewitt, Lincolnshire, Ill., agreed that the “impact of auto enrollment continues to grow.” Added Ms. Borland: “The growth of auto enrollment from a plan sponsor perspective has seen a bit of a plateau. What's different now is that auto enrollment (is in place) not just for new hires but also job changers. Even though auto enrollment has plateaued, its impact is growing over time.”
Aon Hewitt dropped to fifth place among record keepers this year from fourth last year, with $377.15 billion in assets, down 4.2%. Ms. Borland attributed the decline in assets to market volatility.
Matt Brancato, head of defined contribution advisory services at Vanguard Group Inc., Malvern. Pa., said: “Plan sponsors are putting more participants into plans, (which)means more money is going towards the retirement space. “Forty-one percent of plans engage in auto enrollment, up from 36% last year and 29% from five years ago,” Mr. Brancato added. “And ultimately we think that's a great trend.”
Vanguard moved up from fifth to fourth on the list, with $380.13 billion in assets as of Sept. 30, flat from Sept. 30, 2014.
Rounding out the rest of the 10 largest record keepers ranked by assets:
• Voya Financial Inc., New York, remained at sixth place with assets of $285.4 billion, down 17.6%;
• Wells Fargo Institutional Retirement and Trust, Charlotte, N.C., held onto seventh place with $217 billion, a gain of 1.6%;
• Bank of America Merrill Lynch, Boston, stayed at eighth place as its assets rose up 12% to $185.6 billion;
• Xerox HR Solutions, Secaucus, N.J., rose to 9th place from 11th while assets rose 29.4% to $185.1 billion from $143 billion the year that Boeing Co., Chicago, hired Xerox HR as record keeper for its $42.2 billion 401(k) plan; and
• Principal Financial Group Inc., Des Moines, Iowa, remained at 10th place, with assets of $148.8 billion, a gain of 0.8%.
Among record keepers with the largest number of clients, Paychex Inc., Rochester, N.Y., remained at the top of the heap, with 71,000 for the latest survey vs. 67,000 in the previous survey. ADP Retirement Services, Roseland, N.J., stayed at second place, reporting 53,655 clients vs. 46,773 in the previous survey.
More participants also are joining plans thanks to employers educating employees more on how to invest, with Ms. Credico noting that employers guiding and advising participants on using their DC plans has started to pay off.
Looking forward, David Ray, TIAA's managing director of institutional retirement plan sales, New York, told P&I that one of the biggest challenges he sees for plan sponsors is the need to stay current on technology and regulation as different models continue to evolve.
Changing demographics is another challenge.
“Every couple of years there's some kind of challenging (regulation), and we deal with them as they come,” he added.
Ultimately, Mr. Ray pointed out: “There's no shortage of challenges. But those things breed opportunity, so I think the future's still very bright.”