On 1 November 2012, about $1.8 billion in IBM Super member and IBM employee funds will transfer from the corporate super fund to AustralianSuper.

The transaction boosts the assets under management (AUM) of AustralianSuper to $50 billion.

It also means there is yet another corporate plan that bites the dust.

The number of corporate super funds has been declining steadily in recent years.

At the end of December 2009, the Australian Prudential Regulation Authority (APRA) reported 71 entities with more than $50 million in AUM.

At the end of 2011 that number had fallen to 55.

It's a pity, because corporate super funds deliver good returns to their members.

The most recent APRA figures on whole of fund performance show that the top 10performers over an eight year period - the longest period available - include six corporate funds.

The top three best performers are all corporate super funds.

Yet, it is likely that these funds will further reduce in number - a process that is sped up by the implementation of the Stronger Super reforms, industry participants say.

"In the new regulatory environment, especially the smaller funds, those under $1 billion, will be thinking hard about whether they keep their existing fund," Chant West director Warren Chant says.

"You have to justify your scale and that is on the mind of a lot of corporate super funds and I think you will see a lot of them disappear over the next couple of years."

"We will be left with just a handful," he says.

BHP Billiton Superannuation Fund is also known to have tendered for an outsourcing contract, after it merged its four legacy funds into one.

A spokesperson for Telstra Super said the fund could not comment at this time.

"At present we are in the strategic planning phase and, therefore, it's not appropriate to make public comment right at this point in time," the spokesperson said.
 
Yet, Chant says the larger corporate super funds are more likely to survive, partly because banks represent a large part of it.

"If you look at the plans that are bigger, they are mostly held by the banks," he says.

"Qantas is a big fund. I'm not aware that they are tendering; Rio Tinto said they wouldn't. I think for the top 10 [corporate plans] it is not such a trend," he says.

AustralianSuper also believes the introduction of new regulations will speed up the trend of diminishing corporate super plans.

"This is consistent with an economy-wide trend, where corporate plans are reviewing their future, because scale is very and increasingly important," AustralianSuper general manager for growth and new opportunities Paul Schroder says.

"IBM was a first mover in the top 10, but it is consistent with an increasing trend where corporate super plans are reviewing the future," he says.

"That broader move is towards scale and consolidation, because we are increasingly required to do more for members and achieve better outcomes for members at lower cost," Schroder says.

Under the Stronger Super reforms, trustees will be required to periodically review whether their existing scale is providing members with enough cost efficiencies.

Schroder says that this will be challenging for many funds.

"We are not pursuing scale just for scale itself; we don't have a scale target."

"Scale... allows you to develop new product, it allows you to reduce costs and... to deliver more, because you are able to spread the fixed cost across a broader base."

"It is a very important driver for us: to achieve scale and then to harness scale to achieve the best outcome for members."

"We certainly think there will be a number of significant corporate funds reviewing their future and likely to go through a similar process," Schroder says.

But Corporate Super Association chief executive Bruce McBain says scale is not always the problem, and neither is complying with the new regulations.

He says it is the sheer effort involved in proofing compliance that will provide the main challenge for funds.

"It is not so much a matter of scale, but a response to the increase of the regulatory burden," he says.

"Corporate super funds have always been transparent and APRA data shows that historically they are among the best performers,"

"But the sheer number of documents involved means you have to hire additional staff or external consultants."

"The compliance cost is a big issue," McBain says.

Although he agrees that the number of corporate super funds is likely to fall further in the coming years, he does not believe they will disappear altogether.

"It is an unfortunate development, but not the death of corporate super," he says.

"There will always be corporate super funds, because some funds offer benefits that are not readily available in the market or they see it as their job to provide a fund."