The firm will continue to provide DB plan sponsors with its low-cost investments, trustee and payment services, and investment advisory services. The change will enable the firm to further expand its services for 401(k), 403(b), and other defined contribution (DC) retirement plans.
“A key part of Vanguard’s mission is to help plan participants achieve the best possible retirement outcomes. We believe we can maximize our impact on the retirement security of U.S. investors if we focus on recordkeeping, investments and associated services for DC plans—the dominant type of workplace retirement program in this country today—as well as investments and other services for DB plans,” says Chris McIsaac, managing director of Vanguard’s Institutional Investor Group, based in Valley Forge, Pennsylvania.
Vanguard currently provides administration services for the DB plans of a small group of its DC clients. The company will work with these plan sponsors to help them transition to a new DB administration provider. According to McIsaac, the decision to discontinue offering DB administration occurs in the context of a challenging economic, market and demographic environment that has led to a significant contraction in the DB marketplace and limited the company’s ability to reach the economies of scale necessary for continued investment in such a capital-intensive offering.
According to an announcement by Vanguard, the firm is also investing considerable resources in technology to serve DC plan sponsors, including a major investment in its plan sponsor workstation that delivers enhanced web-based management, analytics and reporting tools. It is also building integration technology to enable participants to easily access their DC and DB retirement information, in cases where some of their plans are administered by another provider.
Vanguard is also enhancing its education and communication capabilities to help improve the retirement outcomes of participants. It has introduced new functionality for mobile devices and personalized interactive tools that incorporate behavioral finance concepts. Some of these tools include: a recently announced partnership with HelloWallet, an online service that helps participants make holistic financial decisions; an online Savings Dial, which recommends a savings increase and enables participants to set a new savings rate with one click; and online Retirement Alerts, which encourage participants to use certain investment advice services if offered within their DC plans.
In addition, Vanguard is expanding into the small business market. In 2012, the company launched its 401(k) service for small businesses, Vanguard Retirement Plan Access, for sponsors of 401(k) and profit-sharing plans with assets of up to $20 million, as well as to advisers who sell fee-based 401(k) plans and to third-party administrators.