Look to Small Firms for Growth in Retirement Plan Market

By Cerulli, Kurt; Casey, Glen | American Banker, November 24, 1993 | Go to article overview

Look to Small Firms for Growth in Retirement Plan Market


Cerulli, Kurt, Casey, Glen, American Banker


There has been substantial attention given to the opportunities in management and distribution of defined-contribution retirement vehicles, particularly 401(k) plans.

The movement from defined-benefit to defined-contribution programs is well established. So is the related shifting of costs and asset allocation responsibility from the employer/ plan sponsor to the employee/ participant.

Based on company-level data from firms such as Access Research, it is also becoming well recognized that much of the growth of 401(k) assets over the next decade will be from newly established plans of smaller companies with under 500 participants, rather than from larger companies.

Foothold in the Sector

In one sense. banks are strongly positioned in the small-plan segment. The clearest example is where a relationship already exists with the employer company through other commercial bank product lines. The loan officer filing a growth company's financing needs has an enviable inside track for steering that company's retirement assets toward the bank's 401(k) offering.

As a result, certain banks are emerging as formidable 401(k) providers in their local markets. This general premise of cross-selling retirement products through existing regional relationships has also helped certain banks fuel their growth of 401(k) assets from middle-market companies with as many as 5,000 participants. NationsBank and Comerica Bank are two such examples.

Much of the middle-market activity takes place outside the retail registered representative's domain, however. Banks seeking 401(k) assets from large or middle-market employers/sponsors are almost virtually using institutional field sales personnel to identify, prospect, and close deals with these firms.

In the small-plan market, where registered reps are most likely to have a role, there are several issues being faced by banks to providers or distributors of 401(k) products.

The first is product structure. There are two basic forms of small plan 401(k) product: a group variable annuity, or a mutual-fund-based offering.

The annuity is by definition a packaged retirement product, and contains most of the necessary internal record keeping. The addition of plan-level information to an annuity record-keeping system creates a viable 401(k) product.

Several insurance companies, such as Nationwide, Manulif, and Principal, provide an attractive range of separate account investment options in their 401(k) annuities.

The largest drawback to annuity-based 401(k) products is often their cost. Expenses for death benefits and annuitization risk are borne by all participants, regardless of their desire for such features. Total annual expenses can run nearly 3% of assets and are often difficult to explain to the individual or the sponsoring company.

Insurance Channel

Variable-annuity-based 401(k)s are being sold most successfully to the smallest of 401(k) plans, usually under 100 participants, particularly through reps of insurance companies.

Outside the insurance channel, mutual funds are the small-plan investment options of choice. It is significant to note that Principal, which has the largest number of small-plan variable-annuity clients, recently announced that it will be providing a mutual-fund-based product in early 1994.

Mutual fund companies that have broker-dealer distribution are more visible in the small-plan market than those that distribute directly. Initially, these load mutual fund families appeared most often in small 401(k) plans through collaboration between brokers and outside administrators.

Fund families commonly involved in these collaborative efforts included American Funds, Colonial, Fidelity's Advisor series of funds, Kemper, Massachusetts Financial Services, and Putnam. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Look to Small Firms for Growth in Retirement Plan Market
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.