Automation as the Next Big Disruptor?

The Continuing Consolidation of the Defined-Contribution Market

Mercer, a global consulting firm in talent, health, retirement and investments, just announced the sale of its US defined-contribution (DC) record-keeping business to Aegon, the parent company of Transamerica Retirement Solutions. This is the latest in a series of industry deals that is leading to a massive consolidation in the DC market.

In the past two years, we have seen the consolidation of JPMorgan and Putnam with Great West to form Empower, TIAA/CREF with Nuveen, and John Hancock with New York Life. Of course, this continued consolidation activity has created an increase in market activity, as clients reconsider their options with each new merger.

As part of the latest announcement, a Mercer spokesperson said, “after an extensive evaluation of the retirement market and our existing DC administration services, we recognized that the marketplace has evolved to favor firms that offer full-service DC asset management and plan administration solutions.”

Although many employers appreciate the one-stop shopping these full-service firms offer, some large companies still prefer to separate asset management from administration so they can make decisions pertaining to each independently of the other.

Among other things, the sale will reduce the options available to plan sponsors that are looking for integrated Total Benefits Outsourcing (TBO) providers that deliver all of their services. After the sale, only three providers offering TBO solutions will remain in the market: Aon Hewitt, Fidelity and Xerox. Mercer has indicated Transamerica will be its preferred provider for DC administration in support of clients looking for TBO delivery and that this alliance will provide a stronger offering than it has been able to provide in the past.

Not surprisingly, this latest consolidation has the potential to create a bit of activity in the market as many of Mercer’s current DC clients are likely to perform some due diligence of Transamerica and its ability to meet their needs.

Mercer indicates that, to minimize disruption, its DC clients will continue to be serviced by the same teams in the same facility for the foreseeable future. However, Transamerica has indicated it will migrate Mercer clients to its platform, which may cause some of them to look even more closely at their options.

After the sale, Mercer will continue to be a strong player in the defined-benefit (DB) pension and health and welfare (HW) administration space. By focusing investment in the burgeoning private health exchange market, Mercer has also gained momentum with both large and small employers that are moving to this new strategy for delivering affordable HW plans to their employees.

Want to learn more about the benefits administration market and your options for DC and private health exchanges? Contact us to discuss further.