Much of the discussion in the U.S. nowadays revolves around how difficult it is to build a nest egg. Due to inflation, economic uncertainty, and other factors, many soon-to-be-retirees worry about not having enough for a comfortable retirement. So, to prepare, most working Americans put their faith in the 401(k) plan.
It's no surprise then, that the 401(k) plan enjoys immense popularity, and there are many 401(k) providers in the market today. One 401(k) plan stands out, and that is the 401(k) plan from Empower Retirement or simply known today as Empower.
At present, Empower Retirement is the second largest 401(k) provider with 17 million individual plan holders and 69,000 companies that use the Empower 401(k). With these impressive statistics, does it follow that Empower 401(k) is the right plan for financial advisers to recommend to their clients?
In this article, InvestmentNews evaluates the 401(k) Empower plan. We’ll delve into important questions, including:
We’ll talk about these features of 401(k) with Empower and more.
Based in Greenwood Village, Colorado, Empower Annuity Insurance Corporation of America is a retirement plan recordkeeping and financial holding company. As of now, Empower is the second largest 401(k) plan provider in the US.
Great-West Lifeco, an insurance provider established in 1891 in Canada, would eventually establish Empower Retirement in 2014. Empower came about after merging the record-keeping services of:
Empower Retirement remains as an indirect, wholly owned subsidiary of Great-West Lifeco, with Edmund F. Murphy III as its President and CEO.
Here are some of Empower’s notable milestones and facts in its nearly 135 years of existence:
June 2020 – Empower acquires wealth management and investment firm Personal Capital to the tune of $825 million. This acquisition made Empower’s AUM go over the $1 trillion mark and expanded its client base by 12 million individual plan holders and over 67,000 organizational plan participants.
September 2020 – Empower acquires MassMutual’s retirement plan business for $4.4 billion.
January 6, 2021 – Empower Retirement and Truist Bank announces Empower’s acquisition of Truist’s SunTrust 401(k). This brings in 300 retirement plans with 73,000 plan holders and $5 billion in AUM.
February 1, 2022 – The word "Empower" is deemed the official replacement to "Empower Retirement" as the company's public-facing brand.
April 4, 2022 – Empower acquires Prudential’s full-service retirement plan business.
Empower certainly has a long history of achievements and sizable acquisitions that fueled its massive growth. But does Empower have the 401(k) plan you’re looking for? Let’s look at their 401(k).
If you have individual clients who are close to retirement or have institutional clients looking for a 401(k) plan provider for their organization, the 401(k) by Empower is worth looking at. Empower holds the distinction of being the second-largest 401(k) plan provider in the US today.
Empower touts itself as a retirement account provider for small and large companies and in different government agencies and organizations. They service all types of federal offices, running the gamut of small towns to first-class cities.
Empower retirement allows policyholders to set up individual IRA accounts and 401(k) plans both within and separate from their individual company plans.
Here are five key considerations for employers when evaluating retirement income options: https://t.co/tcnXeQC34H. pic.twitter.com/0u9yrkRUSX
— Empower (@EmpowerToday) July 3, 2024
As you know, a 401(k) works like a depository of different investments. The 401(k) does not earn interest or grow on its own, but it has the advantage of tax-deferred growth.
Features like these make the 401(k) the most popular choice among workers for their retirement savings. The 401(k) ensures that they have some cash flow or retirement income.
As with many other 401(k) plans, Empower offers a range of investments for their 401(k). These can include:
This is perhaps the most common and popular investment for 401(k)s; Empower offers it as well. Most employers will provide your client with a short menu of mutual funds to choose investments from. Each fund is professionally managed, but individual plan participants get to decide on the asset allocation – how much to invest in each fund based on their knowledge and preferences.
With a target risk fund, investors choose a single fund that has a mix of underlying investments that do not change. This type of fund adheres to a strategy matching the plan holder’s risk appetite. As your client nears retirement, this can be the investment of choice for their 401(k) account, as it is more conservative and invested mostly in bonds.
This is also typically a single fund that aligns with your client’s expected retirement date. If their retirement is further down the road, TDFs will often be heavily invested in stocks to leverage their long-term growth potential. Over time, a TDF can gradually add more bonds to protect against losses as your client’s retirement date nears.
This type of investment option for the 401(k) with Empower is generally reserved for high-net-worth individuals. In an advisor managed account, the investor grants authority to a professional wealth or money manager to choose investments that align with their financial goals. The wealth manager is bound by a fiduciary duty to find the best investments and work in the interests of their client.
As with any investment, 401(k) Empower accounts have their share of benefits and drawbacks. And when deciding on a retirement plan that can spell a real difference for your client’s financial future, it pays to weigh the pros and cons.
One major advantage of the Empower 401(k) is that it allows plan holders to manage their investments better. With dollar-cost averaging, plan participants can implement a conservative strategy, investing a fixed dollar amount regularly regardless of share prices. This is a good way for plan participants to invest more efficiently while potentially lowering their costs – and their stress levels.
The automatic rebalancing feature, on the other hand, frees plan holders from constantly managing the weights of the asset classes in their portfolios. This automated buying or selling assets to conform to a set risk profile and investment strategy make for a less volatile portfolio.
The net result is that the 401(k) with Empower may be better cushioned against the market’s ups and downs.
Thanks to its well-designed, straightforward, and easy-to-navigate website, plan participants can create their own accounts quickly and easily. Logging into the site lets plan holders perform a lot of functions, including view and even change their investments whenever they want to. With their logins, clients can:
Here’s a video that shows plan holders the Empower website’s ease of use:
To compare the 401(k)with another retirement savings tool, read our guide on the 401(k) vs. pension plan.
The Empower 401(k) gives its plan holders access to an extensive customer service and support network. This network is comprised of financial professionals who can assist in the planning and execution of retirement assets.
They also get access to retirement planning tools on their website, allowing clients to do their own projections and see the possible returns from each of their investments. And thanks to the internet, all these tools and customer service support facilities are available virtually, at any time.
While it’s true that your employer has a fiduciary duty to plan holders, some may find that Empower 401(k) leans slightly more to a certain fund provider. Perhaps due to its ties to the firm, you may notice that many of the investments offered are from JPMorgan & Chase.
But knowing that JPMorgan is a household name and a very successful financial firm, this may be forgivable. Still, there is the caveat that a 401(k) that leans towards a particular fund may mean a limited selection of plan investments.
Favouring investments from one specific wirehouse can increase risk and volatility. Current and would-be Empower 401(k) plan holders should educate themselves of the risks.
While the tool and Empower app are a breeze to use, it lacks one crucial feature: a budgeting facility.
This review contends that the Empower online app, despite its other bells and whistles, is rather basic compared to other tools. Perhaps investors shouldn’t expect too much from it, since it’s free to use.
Some plan holders, particularly those who take a more active approach in their investment strategy, may point to a lack of information on their investments.
In this instance, advisors can suggest that plan holders consult with their employer’s plan administrator and see if they can get more information. After all, it’s the employer’s and plan administrator’s duty to ensure that the investments align with plan participants’ interests.
Empower 401(k), as with other plan providers, can let plan holders take out a loan. However, the availability of this plan feature depends on whether an employer allows it. Should your client be able to take out a loan from the plan, there are some rules:
In general, Empower 401(k) loans should be repaid within five years at most. This is standard unless the employer’s plan offers primary residence loans, which will take longer to pay off.
If the plan holder follows the rules and sticks to the repayment schedule, the money loaned out is not taxed.
To make an Empower 401(k) distribution or withdrawal, certain rules must also be followed to avoid depleting the plan or incurring penalties. In general, plan holders can make early withdrawals, or withdraw funds from their 401(k) with Empower, in these circumstances:
If your client needs to take money out of their 401(k), there are withdrawal strategies to avoid paying penalties and ordinary income tax.
Despite Empower’s impressive stats, the company is relatively new in the business of managing 401(k)s. In fact, Empower got into 401(k)s by purchasing Prudential, an established provider. Also, some of the recent Empower 401(k) reviews were far from glowing in terms of their customer service.
At the same time, however, Empower has shown it can grow and thrive in its category. Its President and CEO even revealed Empower’s plans to offer 401(k)s for smaller businesses and startups. Such a move can potentially secure a new and more sustainable income stream for Empower.
As a 401(k) provider, Empower has an impressive track record. It has over 18 million plan holders, $1.6 trillion in AUM, and its business is still growing. On the other hand, they’re in the number 2 spot and it will take a herculean effort to dislodge Fidelity’s 401(k) plan from the number 1 spot.
Bottom line, Empower 401(k) has its merits, and there is little motivation for current plan holders to switch. Staying with or getting an Empower 401(k) is not a bad decision, but investors and advisors should decide only after comparing it with the alternatives. Due diligence, after all, is a vital part of financial planning.
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