American Skandia Life Assurance Corp., a leading seller of annuities to banks and brokerages, will soon offer 401(k) retirement plans for small and midsize companies.
Skandia's annuities and proprietary mutual funds will serve as investment options for the plans, which will be sold by brokerage firms beginning this fall.
The plans may be rolled out at banks next year.
"We've had a lot of demand for it from brokers that sell our annuities but wanted to offer them in a 401(k) setting," said Bayard F. Tracy, Skandia's senior vice president in charge of institutional sales.
But some observers say that Skandia, based in Shelton, Conn., may be entering the retirement plan market too late to compete effectively against established mutual fund companies and insurance companies.
"It's very difficult to present a 401(k) plan today that doesn't have reasonably well-known investment options," said Steven Butler, president of Pension Dynamics Corp., a Lafayette, Calif.-based consulting firm. "Employees are more sophisticated nowadays and want funds they can follow in the newspaper."
Skandia's Mr. Tracy said the company plans to drum up new business by plugging the subadvisers of its proprietary mutual funds. The American Skandia Trust Funds are managed by heavy hitters such as T. Rowe Price Associates, Janus Capital Corp., and Berger Associates, among others.
To make the plans more affordable, mutual funds will be offered in 401(k)s only for companies with 200 or more employees participating in the plans. Smaller companies can choose a plan that offers Skandia's variable annuities, Mr. Tracy said.
Diane Smola, an associate director at the investment consulting firm RogersCasey in Darien, Conn., said the retirement plan market "is very competitive now, but not closed to an attractive product."
However, Ms. Smola added that Skandia will need "significant investments in technology and communications" to compete for business from large companies that demand a higher level of service.
To skip such investment, Skandia has hired Federated Investors to provide record keeping and administrative services for its 401(k) products, Mr. Tracy said.
He said he expects to set up at least 115 401(k) plans at large companies by yearend. Those plans are expected to attract $260 million of fresh assets into Skandia's proprietary funds and $2 billion of assets during the next four years. The small company plans are expected to bring in $1.5 billion during the same period.
Skandia is also developing a retirement plan product for the public sector market. The 403(b) product is similar to 401(k)s but are set up only at schools, universities, and not-for-profit organizations. Skandia's 403(b) will offer the company's proprietary annuities as investment options.
