NU Online News Service, Sept. 10, 5:35 p.m. – Life insurers that want to increase 401(k) plan services profits will have to try to attract and keep more contributions from current participants, according to a new report from Lehman Brothers, New York.
“There appears to be no relationship between the number of 401(k) plans operated by a provider and that provider’s profitability,” Lehman analysts Eric Berg and E. Stewart Johnson write in the report. “Rather, the key driver of profitability in 401(k) appears to be assets under management. The larger the pool of total assets under management, the more likely is a higher profit margin.”
Many life insurers and other financial services companies rapidly increased 401(k) plan assets and profits in the 1990s, as soaring stock prices attracted employers and helped pump up plan asset values.
Plan providers fought to appeal to smaller employers and often participated in the market-generated growth by shifting to fee systems based on the amount of assets under management.