Ameritas Life Insurance Corp. has signed a definitive agreement to buy the 401(k) plan business of
Guardian Life Insurance Co. of America, in a transaction that will boost the life insurer's defined-contribution assets under administration to more than $10 billion.
Terms of the deal were not disclosed. Guardian spokeswoman Jeanette Volpi declined to provide specifics on the exact size of the business being sold.
Ameritas, which currently provides record-keeping services to approximately 3,000 corporate, non-profit and public defined-contribution plans, operates predominantly in the small-plan market, with an average plan size of less than $10 million.
The acquisition is a way for the Lincoln, Neb.-based life insurer to grow scale on its platform and enter into a long-term distribution deal with Guardian, under which Ameritas will provide 401(k) products and services through Guardian's agency system, according to a June 30 announcement of the deal.
Brent Korte, Ameritas' chief marketing officer, did not return a request for comment by press time.
There's been a flurry of
consolidation activity among prominent DC record-keeping firms over the last few years as they try to build scale in a business offering traditionally low margins.
Last year saw Aegon, the parent company of
Transamerica Retirement Solutions,
buy Mercer's U.S. DC record-keeping business, and OneAmerica Financial Partners Inc.
acquire BMO Financial Group's.
In 2014, Manulife Financial Corp., John Hancock's parent company,
entered into a deal with New York Life to acquire its retirement plan business, and Great-West Financial
purchased J.P. Morgan Retirement Plan Services.
“If you're going to be a record keeper, and you want to succeed, you have to bring down your costs,” said Brooks Herman, head of data and research at BrightScope Inc., a provider of 401(k) data and ratings. “In this market environment, when fees are becoming more transparent to plan sponsors and participants, you have to compete on costs, and one way is through scale.”
Aside from record keeping being "completely a scale game," the stakes are rising given the investment required to deliver a "far superior participant experience," according to Neil Bathon, managing partner at FUSE Research Network. The largest firms, such as
Fidelity Investments, Vanguard Group, TIAA, Aon Hewitt,
Voya Financial, John Hancock and Empower Retirement, are the likely winners, he said.
Ameritas' $10 billion platform post-acquisition still puts the firm in the "danger zone," and to remain "viable" it would likely have to keep acquiring or be acquired, Mr. Bathon said.
Further, the process of rolling in an acquisition to an existing business can be "extremely disruptive, sometime to the point that it meaningfully undercuts the value of doing the deal in the first place," Mr. Bathon said. "Those that have had experience and success on this front probably have a competitive edge going forward."
New entrants among small retirement plans have created an interesting dynamic in the record-keeper market as well, Mr. Herman said. Aside from scale, new technology offers a way to compete with established record keepers, who sometimes struggle with legacy platforms, and companies such as Captain401,
Betterment, ForUsAll and Dream Forward Financial are attempting to
break into the market through tech innovation, Mr. Herman said.
