Two former CitiStreet executives plan to build a national benefits distribution platform providing tax-advantaged savings plans for teachers.
The firm they founded, U.S. Retirement Partners, focuses on 403(b) plan-eligible educators from kindergarten through 12th grade, said Mark Skinner, the Iselin, N.J., firm's president and chief executive. That segment of the 403(b) market had $228 billion of assets in 2007, up from $166 million five years earlier, according to Spectrem Group.
The population of K-12 employees is growing fast as schools hire more teachers to serve a growing student population and to reduce class sizes, Mr. Skinner said in an interview last week. Over the next five years U.S. Retirement Partners plans to buy 40 to 50 of the hundreds of regional firms that dominate its market niche, he said. At the same time, he said, it will invest in technology and marketing with an eye toward making itself a national player.
U.S. Retirement Partners, which opened June 9, has bought three firms, using an initial investment of $10 million from Centre Partners, a New York and Los Angeles private-equity firm, Mr. Skinner said. It is in talks with a dozen more acquisition targets, he said.
The company is seizing what it sees as an opportunity opened by a market with changing dynamics. The 403(b) market has long been dominated by insurance-related investment options — annuities and life policies. Cerulli & Associates reported last year that insurance companies managed 87% of 403(b) assets.
Over the past five years the market has increasingly opened up to mutual funds, Mr. Skinner said. U.S. Retirement Partners plans to partner with a number of investment providers. "This market has been dominated by the captive sales agents of the insurance industry," Mr. Skinner said. "We'll offer a wide range of mutual fund and insurance company products."
Cerulli's report predicts captive insurance agents' influence in the 403(b) market will gradually diminish because of growing competition from third-party distributors.
U.S. Retirement Partners also sees opportunity in helping educators nearing retirement make sure they do not outlive their savings. It plans to offer a service that would allow clients to consolidate assets from different retirement accounts, with the consolidated account organized to provide a stream of income in retirement.
The regional outfits that U.S. Retirement Partners buys would own shares in the firm and would help lead it, while continuing to run their businesses under their original names. U.S. Retirement Partners will provide everything from administrative and record-keeping services to regulatory compliance to cross-selling reports.
The number of K-12 teachers should grow 17% between 2004 and 2014, according to Cerulli. Employers are narrowing their lineup of 403(b) providers because "too much choice breeds inertia," its report said
Cerulli predicted a "new breed" of 403(b) providers will emerge to provide centralized record keeping, among other services, and a variety of outside managers.
Mr. Dughi and Mr. Skinner are both veterans of the 403(b) and benefits industry. They led Copeland Cos., which specialized in the K-12, hospital, government, and midsize 401(k) benefit markets, and stayed aboard after Citigroup Inc.'s 2000 acquisition of the firm, which became part of CitiStreet.
Mr. Dughi retired from CitiStreet in 2005 and Mr. Skinner followed in 2006. Last month, Citi and State Street announced an agreement to sell CitiStreet to ING Group NV of the Netherlands for $900 million.
The pair's one-time boss, Michael Carpenter, is one of U.S. Retirement Partners' financial backers. Mr. Carpenter retired two years ago as chairman and CEO of Citigroup Alternative Investments and is now a principal in the New York private-equity firm Southgate Capital Partners.
