Deals & People July 17, 2012

Lincoln Trust Acquires Benefit Solutions

Lincoln Trust Co. has acquired Benefit Solutions Corp., a 401(k) recordkeeper and third-party administrator (TPA).
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Benefit Solutions, headquartered in Wisconsin, provides retirement plan services including recordkeeping, third-party administration, compliance testing and plan design. With the acquisition, Lincoln Trust now services more than 2,700 qualified plans and more than $3.7 billion in assets under management.

Deyan Stojanovich, founder of Benefit Solutions, will lead institutional sales at Lincoln Trust. “By combining independent money management with distributions through the broker/dealer market, we bring a substantial new opportunity for Lincoln Trust,” he said.

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This is Lincoln Trust’s third acquisition in nine months. Lincoln purchased Fringe Benefit Administrators LTD in late 2011 (see “Lincoln Trust Acquires TPA”) and added Independent Pension Consultants Ltd. in May 2012 (see “Lincoln Trust Acquires Pension Consulting Firm”). Earlier this year, the firm sold its self-directed individual retirement account (IRA) division to PENSCO Trust Co. to prepare for future expansion in the defined contribution (DC) marketplace (see “Firms Combine Alternative Assets Capabilities”).

“We’ll continue to try to grow, primarily organically, but also through select acquisitions,” Tom Gonnella, executive vice president, corporate development at Lincoln Trust, told PLANSPONSOR.

Gonnella anticipates Lincoln Trust will complete at least one more acquisition in the next year, focusing on companies that share a similar culture.

Data & Research July 17, 2012

Loan Defaults Sap $37B From 401(k)s Each Year

Nearly two in 10 individuals, or 18.5%, have taken a loan from their 401(k) plan, Navigant Economics said in a policy brief.
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Roughly 10% of these loans default each year, draining $37 billion from 401(k) balances, Navigant said, citing 2005-08 data from the Financial Literacy Center. Many of these defaults, also known as 401(k) leakage, are due to a job loss, since upon leaving a company, a participant’s loan is due in full within 60 days, Navigant noted.

Given the fact that the unemployment rate averaged 4% during the 2005-08 time frame, and that it has since risen to 8%, 401(k) leakage has undoubtedly also gone up, said the authors of Navigant report, Dr. Hal Singer, managing director with Navigant Economics, and Dr. Robert Litan, a senior fellow in the economic studies program at the Brookings Institution.

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“Of course, participants are not deliberately defaulting,” Litan said. “They only do so when they have no other option.”

Industry experts have suggested that the Department of Labor change 401(k) regulations to permit plan participants to port a loan to another retirement plan, or limit the number of size of 401(k) loans in the first place. Singer and Litan said another solution is automatically enroll 401(k) borrowers into loan protection insurance.

“There is growing literature on the ‘nudge’ value of default rates,” Singer said. “It has been shown, for instance, that individuals are more likely to contribute to their own 401(k) in the first instance if the default rule is automatic contribution with an opt-out rather than the previous opt-in system. The same logic implies that 401(k) borrowers would be more inclined to protect their loans against involuntary default.”

 

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