| MALVERN, Pennsylvania
MALVERN, Pennsylvania May 8 Vanguard, the
biggest U.S. mutual fund company, is going after small fish it
once passed up.
Since 2012, the Malvern, Pennsylvania-based fund firm has
quadrupled to roughly $4 billion the assets it administers in
retirement plans holding less than $20 million in employee
savings -- a market it once dismissed as a backwater.
Vanguard joins rivals like T. Rowe Price Group Inc
in putting a new emphasis on the micro-plans. Both trail
Fidelity Investments, the sector's bigfoot with $94 billion in
assets from smaller companies.
The newfound interest reflects how the largest corporate
retirement plans are either locked up or bargaining hard on
fees, while many smaller companies have room to cut their costs
and are under pressure to do so.
Among 20,000 plans with less than $20 million in assets
tracked by BrightScope Inc, total costs averaged 1.18 percent in
2012 -- more than three times the total average costs of 0.33
percent for top corporate plans with more than $1 billion in
Small companies are "where the worst plans are today," said
Mike Alfred, BrightScope's chief executive. Since 2012, 401(k)
plans have been required by the U.S. Department of Labor to
clearly disclose fees to employees.
Company 401(k) plans, combined, held $3.7 trillion at the
end of 2013, according to research firm Spectrem Group, up from
$1.9 trillion in 2008. Of that, about $700 billion was in plans
with fewer than 100 participants.
The money is widely scattered and just finding it takes
work. In Lewisburg, Pennsylvania, Annette Camuso-Sarsfield,
human resources director for Playworld Systems Inc, a
recreational equipment maker, said she gets a call a month from
financial representatives looking to run her $18 million plan,
twice the rate of a few years ago. She hasn't changed plan
administrators in recent years, but does review plan mutual
funds and fees in order to remain competitive.
Vanguard began its small-business outreach in 2011, aiming
to run the 401(k)s with the help of closely held Ascensus Inc,
which runs websites and administrative services for the
Vanguard Managing Director Chris McIsaac said the effort
reflects how low-fee Vanguard can underprice competitors -- and
how it is harder to win new business from the largest
"It's a mature marketplace," he said. Signing up a big
client "basically means you have to pry that relationship away
from an incumbent manager," McIsaac said in a recent interview.
"You better believe the incumbent manager is going to pull out
all the stops."
T. Rowe Price Group has a similar partnership
arrangement with DST Systems and now counts around $7
billion in assets from 401(k) and similar plans with under $20
million, up from $5.3 billion at the end of 2012.
The increase reflects both market gains and new outreach.
Kevin Collins, T. Rowe Price's head of sales for the area, said
it has shifted resources to pitch more financial advisers who
create the small-business plans. Many are surprised to even hear
from his company, Collins said, but like McIsaac he said the
smaller plans are an easier pitch.
"The providers are looking to go where the growth
opportunity is," Collins said.
SIGNING UP FOR GROWTH
To be sure, the small-businesses plans represent paltry sums
for many asset managers. Vanguard in total managed $2.55
trillion in U.S. mutual fund assets as of March 31.
A factor helping Fidelity gather small-businesses assets is
that about seven year ago it allowed retirement-plan administers
to offer non-Fidelity funds. Vanguard made a similar change only
Signing up small companies can pay off for the fund
administrator when a company grows. One Fidelity client has been
Facebook Inc's 401(k) plan, which held $24 million in
2010 and $72 million in 2012, the year of its latest filings.
One new client of the Vanguard-Ascensus partnership is
Lintons Managed Services, a Pennsylvania food services provider,
with a $1.7 million 401(k) offered by with about 75
Linton's plan administrator, Maureen Modestine, said fees
are about 20 percent lower than before, when the plan was run by
a payroll-processing company. She credits an adviser who found
the new plan, Scott Race of Simon Financial Group in Bala
Cynwyd, Pennsylvania. He said many small companies pay too much.
"I go to business X, and I walk out the door scratching my
head, I can't believe they have taken on having a 401(k) plan,"
(Reporting by Ross Kerber; Editing by Linda Stern and Leslie