Deals & People June 26, 2015

OneAmerica to Acquire BMO's U.S. Retirement Business

The acquisition will increase OneAmerica’s assets under administration by approximately $26 billion.
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OneAmerica and BMO Financial Group have reached an agreement for OneAmerica to acquire BMO’s Milwaukee-based, U.S. retirement services business, BMO Retirement Services, a division of BMO Global Asset Management.

BMO’s U.S.retirement services business has more than 200 professionals with approximately 830 plans. The retirement services businesses of OneAmerica serve more than 11,000 plans and have more than $30 billion in retirement assets under administration.

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“The addition of this business expands our award-winning service platform, enriches our professional services individually directed account capability and gives us additional sales expertise and geographic reach,” says Bill Yoerger, president of the retirement services division for OneAmerica. “We’re committed to growing our retirement business, and this acquisition helps us meet that goal.”

The acquisition raises OneAmerica’s assets under administration by approximately $26 billion, bringing the total to more than $70 billion, according to Scott Davison, president and CEO of OneAmerica, who took the helm as CEO last year. 

OneAmerica, based in Indianapolis, will have about $56 billion in defined contribution (DC) assets, making 401(k) plans the firm’s largest market. “We continue to invest and grow 403(b) plans,” Yoerger tells PLANSPONSOR, “with about 40% of sales in nonprofits.”

Future growth can be organic or external: “Where we see opportunities with a great market fit, we’re certainly interested and have excess capital for other deals,” Yoerger says. “But we’re realistic enough to know that bigger isn’t always better.”  

Plan sponsors have landed in a great place with the OneAmerica acquisition, Yoerger tells PLANSPONSOR, because the firm competes on the basis of the service relationship. “We’re very committed to the retirement services arena,” Yoerger says, “and we plan to keep the service level high so the combined organization can continue to win plan sponsor cups for service.”

NEXT: OneAmerica’s plans for participant engagement and future acquisitions. 

OneAmerica is keenly focused on participant engagement, which they aim to boost through financial wellness. “A lot of people are working on getting folks into the plan to accumulate a balance for retirement, but very few are taking the initiative to say, ‘What do they do when they get there?’”

Yoerger notes that OneAmerica has engaged Peter Dunn, a/k/a Pete the Planner, who brings a mock retirement plan to current plan participants so they can take a 30-day trial run to experience the difference between budgeting a retirement income and living with their current salary.

While OneAmerica can offer annuities outside the plan, Yoerger says the firm is continuing to look at ways to provide income in retirement. “We’re still hung up on in-plan guarantees,” he notes. “The issue is portability and very low take-up rates. We haven’t seen a robust solution.”

Barry McInerney, co-CEO at BMO Global Asset Management, says BMO’s decision to sell its U.S. retirement services business is consistent with BMO Global Asset Management’s strategy to focus on its asset management business. “The transaction will not change BMO’s role in managing a portion of the investments in the plans moving over to OneAmerica as well as acting as the directed trustee and custodian for those plans,” McInerney said in a statement.

A year ago, OneAmerica announced an agreement to acquire City National Bank’s San Diego-based retirement services business, with 240 plans and $6.5 billion in assets under administration.

The transaction is expected to close during the third quarter of calendar year 2015. At that time, the business will adopt the name OneAmerica Retirement Services LLC. OneAmerica will continue business operations from BMO Retirement Services’ current locations, and most clients will continue to work with their current service teams. BMO Retirement Services employees covered by the agreement will become OneAmerica employees.

Client Service June 26, 2015

Finding the Starting Point

Deciding where to start is a critical and challenging part of serving retirement plans. 

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Holly Verdeyen, director of defined contribution investments at Russell Investments, says where plan advisers can help the client most “depends on the plan sponsor’s starting point.”

One lesson retirement plan service providers learn quickly is that each plan is different—with different demographics, levels of employer commitment and amount of groundwork done. But as Verdeyen observes, keeping fees down is pivotal for all plans.

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“Plan governance and plan menu design are also big areas to focus on because good governance is key for proper plan oversight,” she adds, “and plan design drives participant behavior.”  

She says advisers should also generally encourage plan sponsor clients to revisit how their participants’ portfolios break down, based on their age, and do a full plan re-enrollment, moving non-responding participants into the plan’s qualified default investment alternative (QDIA), if necessary, she says.  

For plan sponsors still unsure about the value of “institutionalizing” their plans, Michael Swann, director of DC strategy for SEI Investments Co., recommends leveraging industry thought leadership to demonstrate how participants’ behavioral tendencies can sabotage their saving habits and how institutionalization could counteract that, increasing the whole retirement program’s effectiveness.

For example, he says, “there have been several studies done that have shown the fewer choices that you offer participants—and just choices in general if you look at behavioral economics—the better decisions people tend to make, from enrolling in the plan to deferring in the plan to how they allocate their money.”

NEXT: Fighting the ‘maintenance mentality’

Swann continues: “With a broader approach and a simplified menu, you might have only two options that are active in U.S. equity—a large cap and maybe a small cap. If you have these two options and they contain both growth and value managers, there’s a lot less temptation to chase performance when you’re only making a strategic decision between two different market caps.”

This simplification—a best practice of institutional plans—encourages participants to think more strategically and longer-term about their allocations, Swann says.

Advisers could also begin with a custom analysis of both replacement income targets and the projected effect on the company’s bottom line if participants need to work past retirement age.

“It really comes down to defining success,” Verdeyen says. Noting that advisers often help their sponsor client define and measure what success means to a plan, she urges them to frame institutionalization as something that can have a measurable improvement on their employees’ ability to successfully retire. 

To this end, they can provide data on how institutionalizing the plan can lead to better participant outcomes, in terms of lower fees, improved participant decisionmaking, a more equitable distribution of administrative fees and greater transparency.   

Some plan sponsors may just be satisfied with the status quo and resist making this change—either in total or just in part. “Some DC plan sponsors may believe their DC plans are basically good enough,” she says, “and they are content to operate in maintenance mode as opposed to improvement mode. Again, it’s a mindset,” she says.

For the rest, Verdeyen warns against “the maintenance mentality,” wherein plan sponsors will focus on just maintaining changes made so far. “Advisers should encourage their clients to not lose sight of the more strategic decisions, like plan menu design, qualified default investment alternative [QDIA] selection and plan mapping decisions, which can really move the dial when it comes to participant retirement readiness,” she says.

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