Industry Insight from Fred Barstein
January 401kExchange Opportunity Index Starts Slow

IF THE 401kEXCHANGE OPPORTUNITY INDEX¹ follows the stock market, which generally does poorly when the year starts out slowly, record keepers could face another challenging year in 2009.  After the worst year of the decade in 2008, there were historical lows in all market segments to begin 2009 with only 2.74% of all plans under $100 million thinking of changing or actively searching for a new record keeper.  On the other hand, 10.06% of plans with an advisor indicated a willingness to change and 6.46% of all plans stated that they were considering adding and/or revising investment options based on 3,771 surveys.

Now more than ever, the 401(k) market has become an advisor of record and investment only game with changes in record keeping becoming less likely.  In September 2003, following a few years of minimal activity, plan sponsors dramatically increased searches and movement after a sustained market rally, pent up demand and provider consolidation.  The instigator, however, was the mutual fund scandals.  It is unlikely that sponsors will be interested in changing record keepers until the stock market at least stabilizes but there also needs to be an out of sequence or unpredictable event like the mutual fund scandals to wake sponsors up.  Until then, record keepers are caught in a vicious cycle of declining profits causing layoffs which will lead to degradation of service, resulting in lost plans.  But sponsors, distracted by layoffs, declining profits, limited access to credit and the weakening economy, are unlikely to come out of hiding so record keepers with diminishing service should be safe at least for now.

¹ Percentage of plans that indicate they are currently searching or thinking of changing providers

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