What Advisors Should Know About The Aegon/Mercer Deal

The recent defined contribution (DC) acquisition deal between Aegon and Mercer is of more than passing interest to retirement plan professionals. That’s for several reasons.

According to the companies, an affiliate of Aegon’s Transamerica unit — Transamerica Retirement Solutions — will acquire Mercer’s DC administration book of business from Mercer HR Services. Transamerica also will become Mercer’s preferred DC recordkeeping provider. The transaction is expected to closer by year-end.

Established players

Right off the bat, the first thing to note is that the acquisition involves established players in the DC recordkeeping marketplace, especially in the large case market. That alone will draw some looks, since the outcome of the deal will change the usual order of things.

For instance, after the transaction closes, Transamerica Retirement Solutions will become a top 10 DC record keeper, Aegon said in its announcement. That ranking is based on plan participants and assets.

Recordkeeping and plan administration are not necessarily thought of as hot topics in retirement plan circles. However, a company moving into the top 10 is a significant development, especially in view of the continual growth in DC plans, and particularly in 401(k) plans.

Transamerica currently provides retirement plan administrative services to more than 4 million participants. The acquisition will bump up that number by roughly 917,000 to approximately 5 billion, Aegon said.

This represents an increase in plan participants in the neighborhood of 22 percent.

The participants will hail from 148 clients, according to a statement from Mercer, which is a New York subsidiary of Marsh & McLennan.

Whether and to what extent this shift will increase competitiveness among administrative/recordkeeping firms remains to be seen. However, the business is already competitive, so the big gulp that Transamerica is taking will have impact somewhere.

The matter of assets

Second point: The assets being acquired in this deal are not exactly small. Aegon Transamerica said its assets under administration (AUA) will increase by $71 billion to approximately $216 billion (in U.S. dollars), based on end-of-August numbers.

So, if anyone in the DC business still holds the notion that the admin/recordkeeping part of the DC plan world is small potatoes, those numbers may help open some eyes to today’s realities.

According to the Investment Company Institute, 28 percent of U.S. retirement assets were DC plan assets in 2014. By comparison, they represented roughly 25 percent of all retirement assets in 2008 when DC assets were much smaller.

With this growth have come increasingly sophisticated recordkeeping services. The business no longer simply sends out account statements to plan participants, if it ever was that simple.

Depending on plan design and client preferences, it may involve various services and technologies and along with increased compliance responsibilities stemming from regulatory, security and privacy matters. The services can range from enrollment and participant account changes to coordination with advice services. Now that qualifying longevity annuity contracts (QLACs) are allowed for use in DC plans, recordkeeping services will be expanding again to incorporate those new plan options.

The message is that business has become increasingly complex, as well as competitive. To survive and grow, the bigger players are, and will be, looking to bolt on other books of business.

Mark Mullin touched on this when he described the Transamerica-Mercer deal as a “strategic development.” He is a member of Aegon's Management Board and president and CEO of Transamerica. This “supports our aim to further grow and diversify our customer base, while continuing to expand our offering of fee-based retirement solutions," Mullin said.

Plan to be there

Third: Both firms, in their separate announcements, made clear that they plan to “be there” going forward. That will be an important message for brokers and other intermediaries to convey to affected clients (as well as prospective new clients).

In Transamerica’s case, the company said it “will become the preferred defined contribution record-keeping provider for Mercer's total benefit outsourcing and total retirement outsourcing clients going forward.”

In addition, it said the transaction provides opportunity for Transamerica to “further serve” the growing market for seamless individual retirement account rollover products and retirement counseling services.

In Mercer’s case, the company’s chief operating officer, Ken Haderer, pointed out that, once the transaction is complete, “we will partner with Transamerica for our defined contribution recordkeeping administration business. We also want to clearly state that we are committed to continuing to provide best of class service to our defined benefit and health clients through our own solutions.”

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.