Industry Consolidation Continues with Schwab/401(k) Company Deal

December 22, 2006 ( - Consolidation in the retirement services industry continued Friday with the announcement that the Charles Schwab Corporation will buy The 401(k) Company from Nationwide Financial Services.

According to announcements from Schwab and Nationwide, the $115 million deal is expected to close by the end of the first quarter in 2007 with The 401(k) Company set to join the Schwab Investor Services Enterprise, which includes Schwab’s Corporate & Retirement Services division.

Schwab said The 401(k) Company complements its retirement business strategy, noting it had seen “strong growth” in the small, mid and large retirement plan segments, but that The 401(k) Company had been particularly successful in winning mega-plan segment business. During the past two years, The 401(k) Company’s newly acquired plans have averaged more than $500 million in assets and more than 8,000 participants, according to Schwab.

Some 70% of  The 401(k) Company clients participating in the PLANSPONSOR Magazine 2006 DC survey were from plans with assets of $10 million to $200 million, while another 7.8% were in the $500 million to $1 billion asset category, and 5.2% had more than $1 billion.

“Joining forces with The 401(k) Company expands our ability to serve the marketplace,” said James McCool, executive vice president of Schwab’s Corporate & Retirement Services division, in the Schwab press release . “We have been consistently investing in and growing our retirement plan business at Schwab, primarily serving clients in the small, mid and large segments. In addition to this ongoing investment, we are now, for the first time, making a significant investment in serving employers and their employees in the mega plan segment.”

Nationwide said it would be better able to concentrate on its strengths. “This transaction will enable our private-sector business to focus on our core markets, which are small and micro 401(k) plans,” said Mark Thresher, president and chief operating officer of Nationwide Financial, in his firm’s statement . “By sharpening our focus, not only will we better serve this market, but we also will be able to more effectively deploy capital through reinvestment in core businesses.”

When the transaction is complete, Nationwide Financial will administer approximately $26 billion in private-sector retirement plans.

The Merging Companies

Based in Austin, Texas and founded in 1983, The 401(k) Company offers defined contribution plan administration to more than 100 companies, serving 400,000 retirement plan participants. The company’s client assets total $21.7 billion.

According to the PLANSPONSOR DC survey, the top industries represented by the responding 401(k) Company clients included (in order):

  • Financial Services
  • Law Firms
  • Manufacturing – Consumer
  • Manufacturing – Industrial
  • Retail.

Meanwhile, Schwab currently serves 541,000 corporate retirement plan participants, according to the company. More information about Schwab’s retirement plan clients from the PLANSPONSOR survey is here .

Friday’s announcement follows word in November that U.S. Bank Institutional Trust & Custody had agreed to sell its bundled 401(k) plan business to Great-West Retirement Services (See Great-West Sweeps Up More 401(k) Business ).

Great-West snagged the 401(k) and defined benefit business of Metropolitan Life Insurance Company in June, an agreement that includes nearly 2,600 plans and $7.5 billion in assets (See Great-West to Acquire MetLife 401(k) and DB Business ). The purchase of MetLife’s business nearly doubled the number of participants in Great-West’s full-service 401(k) business.