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Week In Review

Competition Critical for Lifetime Income: SPARK

Maintaining a competitive environment is critical to the continuing development of new lifetime income solutions for employer-sponsored retirement plans, the SPARK Institute said in a joint letter to the Department of Labor and the Department of Treasury.

"We urge the agencies to maintain a competitive environment where a diverse mix of solutions is available, with plan sponsors and participants retaining the discretion to voluntarily adopt the options that best suit their needs," said Larry Goldbrum, SPARK Institute's general counsel."The SPARK Institute is developing standards that can be used by various lifetime income providers in exchanging data with retirement plan recordkeepers," he said. "This will help mitigate the challenges faced by all the product providers in obtaining and exchanging information from unaffiliated customer-facing plan recordkeepers."

One of the biggest barriers to the development of these products, Goldbrum said, is the concern about fiduciary standards and liability. The agencies can mitigate these concerns by providing clear guidance and safe-harbor relief, he said.

"The DOL should specifically state that providing information about lifetime income options, available both inside and outside of the plan, will not cause a plan sponsor or service provider to become an investment fiduciary," the Institute said. "Without clear and permissive guidance, plan sponsors will most likely be unwilling to provide participants any information that could cause [them] to assume additional fiduciary responsibility with respect to participant decisions about retirement income products."

More Employers Let Workers Max Out 401(k)s

A recent survey of 401(k) practices found that 68% of employers allow employees to contribute 25% or more of their earnings into their 401(k) plan, according to marketing research firm Business and Legal Resources. This is up from a similar 2006 survey, which found that 58% of organizations allowed high contribution levels.

The maximum amount that the IRS currently permits people to contribute to their 401(k) each year is $16,500. For those 50 or older, the additional catch-up contribution is another $5,500, for a maximum total of $22,000 a year.

The survey also found that 22% of employers do not match 401(k) contributions, 32% match between 2% and 4% of salaries, and 33% match up to 6%. Among the organizations that match 401(k) contributions, 59% reported they match at least 50 cents on the dollar.

The survey was conducted by BLR's HR Daily Advisor in November 2009 and received more than 1,000 responses. BLR said 75% of the responses came from companies with fewer than 500 employees.

Rebound Predicted for Asset Management M&A

The pace of mergers and acquisitions in the asset management industry is expected to pick up for the rest of this year both nationally and globally after tumbling in the first quarter. Deals involving managers of alternative strategies and independent firms, in particular, are increasing, according to a report by Jefferies. More than half of global asset management deals in the first quarter involved acquisitions of alternative managers, versus one-quarter in the first three months of 2009, the report said.

Deals included Affiliated Managers Group's purchase of Pantheon Ventures, Religare Enterprises' deal for Northgate Capital, Aberdeen Asset Management's deal for RBS Asset Management's investment strategies funds-of-funds division and Shumway Capital Partners' sale of a minority stake to Goldman Sachs' Petershill Fund.

"The slack tide of the first quarter's M&A activity will begin to flow again as improved markets bring both buyers and sellers back to the negotiating table," said Jefferies Managing Director Aaron Dorr.

Twenty-five global asset management M&A deals were announced in the first quarter, up from 38 a year earlier. Divestitures made up 44% of M&A activity, down from 50% in the first quarter of 2009 and 56% for 2009 as a whole.

But PricewaterhouseCoopers, in its recently released 2010 Financial Services M&A Outlook, believes banks and insurance companies will continue to divest asset management units into 2010. The firm also expects an increase in consolidation among independent and small and midsize asset managers in both traditional and alternative asset management sectors of the market as valuations start to improve.

PwC also expects M&A activity in the U.S. financial services industry to increase in 2010, citing improved fundamentals and clarity around regulatory reform. M&A for the remainder of 2010 will get a boost from the assistance of the Federal Deposit Insurance Corp. in making deals in the banking sector, continued consolidation among small and midsize asset management firms.

"We believe the current market presents a significant number of opportunities in the banking, asset management and insurance sectors for investors that have the liquidity and capital strength to be acquisitive and the infrastructure and capabilities to realize potential synergies," said Gary Tillett, leader of PwC's financial services practice. In the U.S. insurance sector, PwC predicts, activity will remain "muted overall, given the unknown impact of proposed regulatory reform, fewer distressed sellers and an industry disposition toward rebuilding balance sheets over M&A."