Buying Access to the Big Plans

Transparency, a commitment toward service, and a range of low-fee investment options offered on an open architecture platform.

This is the cornerstone of the Schwab model for affordable and realistic retirement finance, says Jim McCool, executive VP of Schwab’s corporate and retirement services division. It is also the philosophy behind the success of Austin, Texas-based The 401(k) Company, McCool says, and the main reason why Schwab acquired the firm from Nationwide Financial at the tail-end of 2006.

Founded in 1983, The 401(k) Company offers defined contribution plan administration to more than 100 companies, serving 400,000 retirement plan participants around the country. The acquisition gives Schwab access to the mega-retirement plan market: Corporate plans of $250 million at a minimum, which represent a whopping $1.3 trillion in total assets in the U.S.

While this equates to only a handful of companies (1,300 to be exact, McCool says), it is nonetheless an area that Schwab has not entered as yet, he says. Yet it is an extremely important segment of the market, one that is projected to grow to $1.9 trillion by 2012.

Because of its high-end character, the sector has mainly been serviced by consulting firms and a select few mutual fund companies, which have catered to the plans in an almost exclusive manner. However, says Jerry Bramlett, president and CEO of The 401(k) Company, things are changing rapidly and many corporates in the mega space have been asking for lower-cost alternatives and greater investment choices for their retirement plans than what they have had access to until now. The 401(k) Company has been very successful in winning against traditional providers in the mega plan segment, Bramlett says, and the Schwab buyout was the right fit for the firm because “we wanted to be part of a financial institution that not only offered low-cost investment choices on a truly open architecture platform, but is also built around service and transparency.”