Buying The 401(k) Co. will allow Schwab to pursue pension administration contracts with more than $500 million in assets from large employers, a market segment now dominated by Fidelity Investments and Vanguard.
"Many Americans are depending on their 401(k) accounts to help them achieve a comfortable retirement--it's one of the pillars of our retirement security system," said chairman and CEO Charles R. Schwab in a statement issued on Friday.
"The 401(k) Company has dedicated itself to providing retirement plan sponsors and employees with absolute quality and low-cost products and services, driven by a strong sense of entrepreneurial spirit and integrity," said Schwab. "Like Schwab, it has recognized the importance of open investment architecture, fee transparency and client focus. I feel certain that the combination of our two companies will allow us to have an even greater impact on the 401(k) industry and the savings habits of retirement plan participants."
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The 401(k) Co. offers defined contribution pension plan administration to more than 100 companies with about 400,000 participants. The Austin, Texas-based company has $21.7 billion under assets, and will be folded into Schwab's Corporate & Retirement Services division.
The transaction comes on the heels of the sale of U.S. Trust, which Schwab itself bought six years ago, to Bank of America for $3.3 billion in cash. Schwab expects a pre-tax gain of $1.9 billion and to collect $2.5 billion after taxes from the transaction, which should close by the end of the 1st quarter.
Schwab stock in the last year has risen 30%, giving the 31-year-old company its most profitable year ever. During an analysts' briefing earlier this month, Schwab CFO Chris Dodds said the San Francisco-based company's earnings could hit $1 billion this year, or almost $100 million more than the firm's plan.
Other 401(k) acquisitions remain a possibility, said James McCool, EVP of Schwab's corporate and retirement services division, in interviews with reporters late last week.