Deals & People April 3, 2014

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

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 PLANADVISER. “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 that 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 PLANADVISER. 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, according to the executives.    

Musto will work alongside Charlie Nelson, president, retirement services, Great-West Financial, and Edmund F. Murphy III, head of defined contribution at Putnam Investments, Reynolds says. 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, Reynolds says.

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. 

Data & Research April 3, 2014

Roth 401(k) Is an Option to Consider

Plan sponsors might consider offering Roth accounts to participants, since some may want to contribute after-tax dollars to retirement savings.
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Citing the unknowns of retirement planning, Adam Levy, a registered representative at JHS Capital Advisors, collars taxes as a specific area of unconcern to some plan participants. “When helping my clients formulate a plan for distributing income in their retirement, as often as possible, I try to create as much flexibility and options when it comes to withdrawing from income,” Levy tells PLANADVISER.

Levy points out that retirement planning is full of unknowns, and people do not know where tax rates will be at retirement, or five, 10 or even 20 years into retirement. Along with health care costs and inflation, he says, many people find taxes to be their greatest threats.

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Unlike a traditional 401(k) plan, contributions to a Roth 401(k) are taxed upfront, and the withdrawals are not. The money stays in the account and grows tax-free. Levy recommends plan sponsors consider adding the Roth component to their company’s 401(k) plan because of this. “Some employees may opt to make both traditional 401(k) and Roth 401(k) contributions, balancing tax-deferral with tax-free accounts as a strategy for helping to lower their current tax burden, while still having a source of tax-free income,” he says.

Younger employees have expressed interested in the Roth 401(k), Levy says. “Generally, the highest income earning years for employees are in the later stages of their career,” he points out. “When younger employees contribute after-tax money into their retirement account, they may really see a benefit, especially when compound earnings are taken into account.”

“Younger employees sometimes balk at taxes,” Levy says. “The majority of younger employees increasingly want to just be done with taxes. They would rather get the money in to the account and not have to think about paying taxes years down the road.” Younger employees may also not find the tax deduction advantageous, or they can get by with fewer deductions, he says, two cases that would make the Roth 401(k) a good choice.

The addition of a Roth 401(k) to a company plan can be used as a recruiting or a retention tool. “Companies are looking to attract quality employees, which can be a competitive task,” Levy says. Prospective employees could well view better benefits favorably and choose the company with a more extensive benefits package. More choices and flexibility make a plan more attractive, he says.

“What it boils down to, especially with my clients saving or planning for retirement, is to have the choice allowing for the flexibility to choose when to pay taxes,” Levy says. “No one knows where tax rates will be in the future, but in retirement, having the ability to decide which type of account to withdraw income from may help lessen the overall threat of taxes in retirement.” Adding the Roth 401(k) to a plan, with its options and flexibility for employees, is more a question of why not, than why.

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