The Shrinking DC Recordkeeper Universe

In early 2014, Great-West Lifeco announced its purchase of the Retirement Plan Services

The shrinking universe poses potential challenges for all DC plan sponsors, including:

division of JP Morgan Chase, creating the second-largest recordkeeper by participants. This is

Fewer alternatives for plan sponsors interested in switching recordkeepers

just one in a series of recent mergers and acquisitions that have dramatically consolidated the

Potential for price increases resulting from a less competitive marketplace

defined contribution (DC) recordkeeping industry in recent years. This consolidation is apparent in our depiction of the major DC recordkeeper universe below.

Potential reversal of a recent improvement in recordkeeper flexibility and breadth of

services as the supply/demand dynamic shifts

Since 2007, the universe of major DC recordkeepers has shrunk by nearly one-quarter.
For sponsors of large and mega DC plans, this is an important development. While a

All plan sponsors should ask their recordkeepers key questions specific to their DC record-

number of smaller, regional recordkeepers exist outside of the universe depicted below,

keeping business:

the size and complexity of large and mega DC plans tend to eliminate such recordkeepers

How healthy is it? Is it growing, profitable, and viable as a standalone entity?

as a practical choice.

What is its role in your company? How much does it contribute to revenue and earnings,
support other business lines, or benefit from them?
What is your future commitment to DC recordkeeping? How do you plan to grow it?
How do recent industry changes affect your business? Do you see increased

Dec. 2007 Prudential

acquired a portion of the
Union Bank of California,
N.A.s retirement business
April 2007 Charles Schwab
acquired the 401(k) Company
from Nationwide Retirement
Services

Number of Recordkeepers

38

36

opportunities?

Feb. 2010 Xerox

acquired Affiliated
Computer Services

Oct. 2010 Aon completed

its acquisition of Hewitt
Associates

July 2008 ING Group

completed its acquisition of
CitiStreet

35

34

33

Jan. 2009 Wells Fargo

completed its merger with
Wachovia

Major DC
Recordkeeper

2008

Jan. 2009 Bank of America

completed its purchase of Merrill
Lynch

2009

Knowledge. Experience. Integrity.

2010

33

33

July 2011 Bank of Montreal

acquired Marshall & Ilsley
Corporation (M&I). M&I Bank
combined with Harris Bank to form
BMO Harris Bank N.A., part of BMO
Financial Group

Universe
2007

Jan. 2013 Massachusetts

Mutual Life Insurance
Company completed its
acquisition of The
Hartfords Retirement Plans
business

2011

2012

Jan. 2014 AEGON, the

parent company of
Transamerica Retirement
Services and Diversified,
rebranded both firms to
serve under the name
Transamerica Retirement
Solutions

32

April 2014
Great-West Lifeco
announced the
purchase of the
Retirement Plan
Services division
of JP Morgan
Chase

29

March 2014 Great-West Lifeco,

which owns investment services firms
Great-West Financial and Putnam
Investments, announced it will
combine the retirement businesses of
both subsidiary companies

2013

2014

Mid-2014

Implications for Plan Sponsors

When a recordkeeper is involved in a merger or acquisition, its clients will most certainly be

Next Steps

affected. The impact can vary widely, from simply receiving a flurry of communication and

Depending on the answers to these and other questions, plan sponsors have a number of

new contacts to truly upsetting the business arrangement in place. We list key questions for

options available, including:

affected plan sponsors to consider as they determine the best approach to take in light of a

Take a wait-and-see approach. Callans experience is that these situations tend to

merger or acquisition.

evolve as the merging recordkeepers sort through systems, capabilities, strengths,

and weaknesses. It is important to keep lines of communication open about potential

Key Considerations
Is there a well-thought-out plan and open communication? The recordkeeper should
clearly convey the reasons for the merger/acquisition and a time frame.
Does the consolidation change the focus of the recordkeeping business? The
recordkeepers target market might change, impacting the services the plan sponsor
receives.

changes well after the transaction closes.

Explore the market with a request for information (RFI). This information can be used to
help the plan sponsor negotiate pricing and servicing with its incumbent recordkeeper,
which may be eager to retain the business. It may also better equip the plan sponsor to
decide if a full recordkeeper search is necessary.
Begin a full recordkeeper search process to potentially change recordkeepers. This is

Will the client team or the client service philosophy change? The recordkeepers

labor intensive, but it may be necessary to determine whether it is prudent to stay with

servicing team is the plan sponsors key access point and is accountable for the overall

the incumbent, particularly if a conversion to a new recordkeeping platform is required.

success of the relationship.

How will participant-facing servicing change? Changes to the website, call center, and
other participant interfaces, including plan communications, may occur.
Will there be a conversion to a new platform? Conversions can consume recordkeepers

Plan sponsors do not always get to decide how to handle a merger or acquisition. Recordkeepers have been known to de-select certain business segments, forcing the plan sponsor to seek a new recordkeeper. In any case, a careful review of the changes from a recordkeeper consolidation should be undertaken as part of the fiduciary due diligence process.

time and resources, potentially creating capacity constraints and the potential for errors.
Are significant plan changes on the horizon? Plan sponsors should carefully coordinate
any changes that might be impacted by a platform conversion or a new recordkeeper.
Will the fund lineup be impacted? Proprietary fund requirements, potentially around

Major Recordkeeper Statistics Reveal

Asset Concentration
Total participants: 62 million*

For more information please

contact your Callan consultant.

stable value funds or target date funds, could be put in place. Revenue sharing

Total assets recordkept: $3.7 trillion*

agreements might also change.

Average number of participants: 800,000*

San Francisco | 800.227.3288

Average recordkept assets: $50 billion*

Atlanta | 800.522.9782

% of 401(k) participants across top six: 67%

Chicago | 800.999.3536

Will pricing be impacted? Bundled or unbundled pricing models, fee payment methods,
and rebating of revenue sharing may not be supported by the new recordkeeper.
Can the plan continue to use its current third parties (e.g., providers of advice/managed
accounts, lifetime income products, fund fact sheets, self-directed windows, custodians,
etc.)? Some recordkeepers do not work with all third parties.

% of 401(k) assets across top six: 75%

Denver | 855.864.3377
New Jersey | 800.274.5878

*401(k), 403(b), 457, 401a

Source: Callans 2014 DC Recordkeeper Database

www.callan.com

June 2014 | 2014 Callan Associates Inc.