MassMutual Points to Scale as Reason for Empower Deal

The recordkeeper also notes that fee compression is largely driving the ongoing industry consolidation.

Empower Retirement and Massachusetts Mutual Life Insurance Co. (MassMutual) announced earlier this week that the companies have entered into a definitive agreement for Empower to acquire the MassMutual retirement plan business.

As to why Empower decided on the acquisition, Stephen Gawlik, vice president, corporate affairs at Empower, tells PLANSPONSOR, “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 between both firms.

“This acquisition is directly aligned with our long-term plans for growth and scale,” he continues. “Together, Empower and MassMutual bring a broad spectrum of strength and stability to this transaction with a shared focus on providing value. The expanding U.S. retirement services market serves an important role in helping to determine the current and future quality of life of working Americans. Through this acquisition, Empower is making a commitment to ongoing investment necessary to grow its retirement services footprint and ultimately drive improved retirement preparedness for millions of Americans.”

The MassMutual retirement plan business comprises 26,000 workplace savings plans through which approximately 2.5 million participants have saved $167 billion in assets. It also includes approximately 2,000 employees affiliated with MassMutual’s retirement plan business who provide a full range of support services for financial professionals, plan sponsors and participants.

The transaction, which is expected to close in the fourth quarter of this year, pending customary regulatory approvals, will increase Empower’s participant base to more than 12.2 million people and its retirement services recordkeeping assets to approximately $834 billion administered in approximately 67,000 workplace savings plans.

From MassMutual’s standpoint, Laura Crisco, head of media relations, strategic communications, at the firm, tells PLANSPONSOR that the company agreed to the deal “after considering a number of trends and factors.”

“We determined it made strategic sense to find a company that would be a better long-term home for MassMutual’s retirement plan business,” she says. “Now, more than ever, retirement services providers must have greater scale and make significant and sustained investments to meet future competitive and evolving customer needs.” Crisco adds that increasing fee compression is causing the ongoing industry consolidation.

Based on the terms of the agreement and subject to regulatory approvals, Empower will acquire the retirement plan business of MassMutual in a reinsurance transaction for a ceding commission of $2.35 billion.

Gawlik says MassMutual customers will be moved from MassMutual’s recordkeeping system to Empower’s. “We expect to move MassMutual plans to the Empower recordkeeping system over the next 18 months,” following the close of the deal, he says. “Upon close of the transaction, the entire enterprise will be branded Empower Retirement.”

MassMutual customers will benefit from Empower’s “state-of-the-art technology platform” and its “high-touch, segmentation-based, customer-focused service model,” Gawlik says. He also says MassMutual participants will be able to “retain their existing investments,” adding that Personal Capital, which Empower acquired earlier this year, has a “best-of-breed financial wellness offering that gives clients a full suite of tools, and the best digital and human advice, to plan for the future.”

Gawlik says “a vast majority of the MassMutual employees who are dedicated to the retirement plan business will be offered positions with Empower and transition at the time of close.”

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