Empower Retirement’s deal to buy MassMutual’s defined-contribution business represents the latest iteration of the company's growth-by-acquisition strategy. But it also hints at a larger goal of winning over the workers who could be tomorrow’s wealth management clients.
The agreement also gains Empower a valuable potential relationship with Edward Jones.
On Tuesday, Greenwood Village, Colo.-based Empower ended months of speculation about who would buy MassMutual’s DC record-keeping business with an announcement that it would do so via a reinsurance transaction with a ceding commission of $2.35 billion. Empower also said that it would inject $1 billion in capital in the transferred business.
MassMutual’s 26,000 employer-sponsored retirement plans represent 2.5 million participants and $167 billion in assets, the companies said. That infusion will pump up Empower’s business to about 67,000 plans and 12.2 million participants, representing $834 billion in assets.
The sale is expected to close during the fourth quarter, pending regulatory approval.
Empower has been a giant in the DC record-keeping business since it formed in 2014, when Great-West renamed its retirement unit following its fusion with Putnam’s plan business and the acquisition of J.P. Morgan’s large-plan business.
The company has made no secret of its plans to keep getting bigger -- its news releases have long pointed to its position as the second-largest plan provider by participant head count. Its Canadian parent, Power Corp.’s Great-West Lifeco, has given Empower leeway to pursue acquisitions.
Last month, for example, Empower snapped up hybrid adviser and wealth manager Personal Capital. That development was seen as part of a strategy to boost its rollover business.
“With today’s announcement, Empower is taking the next step toward addressing the complex and evolving needs of millions of workers and retirees through the combination of expertise, talent and business scale being created,” Empower CEO Edmund Murphy said in Tuesday’s announcement. “Together, Empower and MassMutual connect a broad spectrum of strength and experience with a shared focus on the customer.”
The deal is also the latest evidence of a consolidating retirement plan provider market that favors big players. Surviving in the thin-margin business has been a challenge for many, particularly if they don't have scale or an affiliated asset management business with strong distribution in their own plans.
One strategy at Empower has been to charge mutual fund providers for access to certain retirement plans.
“Empower is really quite active in aggregating the market,” said Alois Pirker, research director at Aite Group. “You’re probably going to hear more from them going forward.”
Even some large plan providers have sold their DC businesses in recent years, including Wells Fargo’s sale last year of its business to Principal.
Some broker-dealers limit the DC-plan record keepers in their systems, including Edward Jones, said George Revoir, former long-time leader of John Hancock Retirement Plan Services distribution, who retired from the company in 2018. He noted MassMutual's existing relationship with Edward Jones.
“In a way, this gives Empower a way into Edward Jones,” Revoir said. “They’ve just gotten in there with a big block of business, in theory.”
The combination of participants in MassMutual’s book of business and clients at the recently acquired Personal Capital adds a lot of people Empower can now market to, he noted.
The decision to sell a record-keeping business includes considerations about focusing on what a business does best, Pirker said.
“MassMutual is a classic insurance broker-dealer, so this is clearly betting on the distribution side of things,” he said. “It’s a very good example of what is going on. Scale is just about everything in the DC world -- and focus.”
Instead of owning a record keeper, for example, some insurers are better off having strategic relationships with one, Pirker said.
For Empower, having a focus on financial wellness now can pay off later, through expanded relationships with plan participants, he noted. “That wellness workplace combo is quite attractive to broaden your client base.”
There are also opportunities for more product sales, Revoir said. Empower, for example, has a focus on health savings accounts.
“You have to believe that somewhere in here, it’s [about] selling other products other than rollovers,” he said.
The SECURE Act’s provisions for lifetime income products will also give insurers an opportunity to sell annuities through retirement plans, Revoir said.
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