The number of full-service vendors willing to serve the micro plan market continues to dwindle. The latest to pull the plug on its efforts is John Hancock. The insurer today informed its 1,300 clients that it is looking for a buyer for its full-service 401(k) business.

"Strategically, we are strongly committed to the investment management business. Today's decision reflects management's view that our 401(k) recordkeeping and other administrative processes business is not central to that effort," said David F. D'Alessandro, president and chief executive officer of John Hancock.

The bulk of Hancock's plans have fewer than $1 million in assets, said a spokesperson for the firm. Perhaps one-third of the plans have more than $1 million in assets and only a few dozen have more than $10 million.

The insurer made the decision after it decided that it was unable to build the scale necessary to succeed in the full-service business. It currently has 160,000 participants on its systems in a market in which many argue at least 1 million are needed to run a healthy business.

Hancock will focus on its core investment management to serve the retirement market going forward.

Talks with possible buyers for the block of business are already underway, although no deals have been finalized. In a statement the firm characterized the discussions as being "with a select group of well-recognized 401(k) service providers."

The most likely buyer for the business would seem to be a recordkeeping firm, not a full-service firm, as that would allow Hancock to keep control of the plan assets.

The plans have roughly $1.7 billion in assets.

"Ideally we would like to keep the assets of the plans, but it depends on the buyer," said the spokesperson.

Roughly 220 employees work in the insurers recordkeeping business. Thirty-one of these employees are immediately being offer outplacement support and a severance package. Firm officials said that the fate of the remaining employees would not be known until a buyer for the business is found.

Hancock will offer the remaining staff positions in the retail sales and marketing area, or other positions within the firm.

Hancock executives expect to take a non-operating charge of between $8 million and $13 million after tax in the first quarter of 2001 in conjunction with this exit transaction.

 

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