Products April 3, 2014

Great-West Acquires J.P. Morgan Retirement Plan Services

April 3, 2014 (PLANSPONSOR.com) - Great-West has reached an agreement to acquire the J.P. Morgan Retirement Plan Services large-market recordkeeping business, which has $167 billion in plan assets across 200 plan sponsor clients serving 1.9 million participants.
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The acquisition was of interest to Great-West because over the years, J.P. Morgan has built a great business in the large-plan market, Robert L. Reynolds, president and chief executive officer of Great-West Lifeco U.S., tells PLANSPONSOR. “This jump starts the whole business, bringing us scale and a client base to truly build a world-class retirement plan service.”

Reynolds also notes the transaction is part of Great-West’s commitment to expand its “expertise, talent and business scale” in the retirement plan market. Upon the close of the deal, Great-West Financial’s retirement services recordkeeping assets will increase to $387 billion and its participant base to 6.8 million, making it second only to Fidelity Investments in both categories in the DC recordkeeping business, according to the most recent PLANSPONSOR Recordkeeping Survey.

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J.P. Morgan will continue to serve small retirement plans through its Retirement Link unit, which uses Great-West’s FASCore as its recordkeeping platform (see “J.P. Morgan Announces Recordkeeping Solution“).

“We are very excited about the transaction,” Michael Falcon, head of retirement at J.P. Morgan Asset Management, tells PLANSPONSOR. He calls the deal “very complementary,” as Great-West has “an existing expertise in serving large plans” along with extensive technological capabilities. It will also enable J.P. Morgan to continue to concentrate “on our priority and focus: investments,” he says.

As JP Morgan was a client of the FASCore platform, and will remain a client, the company had a lot of familiarity and first-hand knowledge of the platform, Reynolds notes.

Client Service  

Based in Overland Park, Kansas, J.P. Morgan Retirement Plan Services has more than 1,000 personnel including sales staff, consultant relations, relationship managers and client service specialists. The employees of J.P. Morgan Retirement Plan Services will become employees of Great-West, with service to existing customers continuing seamlessly, Reynolds and Falcon note. David Musto, CEO of J.P. Morgan Retirement Plan Services, will report directly to Reynolds, the executives say.

Musto will work alongside Charles P. Nelson, president, Retirement Services at Great-West Financial and Edmund F. Murphy III, head of defined contribution at Putnam Investments, according to Reynolds. The first job of these “three very talented people” is to continue to serve the books of business they have, and over time the three executives will work to create a plan to provide best in class service to all plans and participants, he adds.

Although FASCore is the platform for the small recordkeeping clients of JP Morgan, it is not the platform for the large-market clients, so there will need to be conversions to Great-West’s FASCore recordkeeping platform, Reynolds says, though no timeline was given.

“We selected Great-West for continuity and the commitment [the firm] has made to bring the business on wholesale, with a seamless continuation of the back office to minimize disruption” for clients; Falcon says.

The deal is expected to close in the third quarter, pending regulatory approval. Neither firm disclosed terms of the transaction.

It comes on the heels of Great-West’s announcement last month that it will combine the retirement business of Putnam Investments with Great-West Financial and that Robert L. Reynolds, was named President and Chief Executive Officer of Great-West Lifeco U.S., the holding company that owns Great-West Financial and Putnam Investments (see “Great-West, Putnam to Combine Retirement Businesses”). The addition of the JP Morgan book of business to those of Great-West and Putnam will allow participants to get the best from all three platforms, Reynolds says.

Administration April 3, 2014

Funding Decreased for S&P 1500 DB Plans

April 3, 2014 (PLANSPONSOR.com) – The estimated funding levels of defined benefit (DB) pension plans sponsored by S&P 1500 companies decreased 2% in March to 85%, according to Mercer.
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While flat equity markets and interest rates did not affect funded ratios during the month, Mercer made adjustments based upon actual funded status released in filings for the 2013 year end. The collective deficit of $332 billion as of March 31, 2014, is up $56 billion from the estimated deficit of $276 billion as of February 28, 2014, according to Mercer’s analysis.

Global equity markets were mostly flat during March with losses outside the U.S. offsetting modest domestic gains of 0.7%, based on the S&P 500 Index. The Mercer Yield Curve discount rate for mature pension plans was up only 2 basis points to 4.28% during the month, leaving liabilities mostly unchanged.

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Mercer estimates these factors would have left funded status level during March. However, information released in year-end financial statements showed a slightly lower actual funded status than previously estimated. The new data that was released by most of the S&P 1500 plan sponsors with December 31 fiscal year-end measurement dates decreased the aggregate funded ratio by approximately 2%.

The newly reported numbers indicate asset values were slightly lower than previous estimates, confirming the move towards higher fixed income allocations during 2013 as many plan sponsors made asset allocation changes to lock in gains from their equity returns, a trend that Mercer expects to continue in 2014. In addition, liabilities were somewhat higher than estimated, as some plan sponsors have already adopted more conservative assumptions regarding the longevity of participants, resulting in increased plan liabilities.

“This month is a reminder of the various factors that can affect the funded status of pension plans,” says Jim Ritchie, a principal in Mercer’s retirement business, based in New York. “We are starting to see the potential impact of new mortality standards on plan sponsor’s balance sheets. This is creating an increased interest from plan sponsors in risk transfer strategies, such as annuity purchases or lump sum cashouts in 2014. The first quarter of 2014 has reminded us how quickly the funded status of a pension plan can change, creating the need for a well-developed dynamic investment policy and overall risk strategy to take advantages of opportune market conditions.”

Mercer estimates the aggregate funded status position of plans operated by S&P 1500 companies on a monthly basis. The estimates are based on each company’s year-end statement and by projections to March 31, 2014, in line with financial indices. This includes U.S. domestic qualified and nonqualified plans and all nondomestic plans. The estimated aggregate value of pension plan assets of the S&P 1500 companies as of December 31, 2013, was $1.85 trillion, compared with estimated aggregate liabilities of $1.96 trillion.

Allowing for changes in financial markets through March 31, 2014, changes to the S&P 1500 constituents and newly released financial disclosures, at the end of February the estimated aggregate assets were $1.83 trillion, compared with the estimated aggregate liabilities of $2.16 trillion.

Information about the Mercer Yield Curve can be found here.

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