JPMorgan Sells 401(k) Recordkeeping to Great-West Lifeco

JPMorgan Chase & Co. (JPM), the largest U.S. lender, agreed to sell its large-market 401(k) recordkeeping business to a division of Canadian life insurer Great-West Lifeco (GWO) Inc. Terms of the transaction weren’t disclosed.

The deal will make Great-West the second-largest recordkeeper of 401(k)-type retirement plans by participants, serving 6.8 million workers with a combined $387 billion in assets, the company said today in a statement from Winnipeg, Canada. The largest provider of retirement recordkeeping services, which include sending out account statements and other communications to participants, is Boston-based Fidelity Investments.

JPMorgan, whose recordkeeping business lags behind those of firms such as Fidelity, Vanguard Group Inc. and Prudential Financial Inc., is selling its unit as recordkeeping for workers’ retirement accounts has become less lucrative for firms that don’t have scale. The deal will catapult Great-West from the seventh-largest recordkeeper of 401(k)-type plans by assets in 2012, according to research firm Cerulli Associates, allowing it to compete with the biggest firms.

“Bringing together these platforms allows us to be a market leader,” said Robert Reynolds, who was named last month as president and chief executive officer of Great-West Lifeco U.S., which owns Great-West Financial and Putnam Investments. “You can make money in this business.”

‘Top Priorities’

The sale is a shift for New York-based JPMorgan, whose head of retirement, Michael Falcon, said in March 2011 that getting a bigger share of retirement assets was “one of the top priorities” at the bank. JPMorgan at the time had roughly doubled its sales force dedicated to retirement plans including pitches for its recordkeeping services.

“It’s not easy to see anything like this,” Falcon, head of retirement at JPMorgan’s asset-management unit, said in an interview today.

JPMorgan will continue to sell investments to retirement plans, Falcon said.

“It’s a large and growing business on the investment side,” he said.

Americans held $23 trillion in retirement assets as of Dec. 31, of which $4.2 trillion was in 401(k) plans. Administrators of 401(k)s are paid for their recordkeeping service also may make money from investments in the plan if they are managed by their own firm or through arrangements with other money managers known as revenue-sharing.

Cross-Selling

Many recordkeepers also see the administration of 401(k) accounts as an avenue for cross-selling other products to workers such as individual retirement accounts when they retire or change jobs. Those accounts usually have higher fees, according to a 2011 report by the Government Accountability Office.

The proliferation of lower-fee products and more cost-conscious employers have contributed to declining expenses for 401(k) investments over the past 15 years, data compiled by the Washington-based Investment Company Institute show.

The transaction is expected to close during the third quarter of this year pending regulatory approval. More than 1,000 employees of JPMorgan’s retirement-services unit will move to Great-West.

The deal won’t “have a material impact on JPMorgan Chase’s earnings, according to the bank’s statement. The two companies said workers with accounts administered by JPMorgan should expect no disruption.

To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net Josh Friedman

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