Empower’s Ed Murphy sees $8 trillion DC business as growth market

Transcript:
Emile Halez [0:00:03]
Hi, everybody, welcome to another edition of Three Questions, I’m a Emile Halez reporter with Investment News. Today’s guest is Ed Murphy, CEO of Empower Retirement.

Ed Murphy [00:00:12]
Thank you, Emile good to be here.

Emile Halez [00:00:14]
Empower recently surpassed a trillion dollars in assets, and part of the recent growth has been through acquisitions, including the deal with MassMutual. Can you walk us through how acquisitions are shaping the overall direction of the business and how that might be different from other trends in M&A throughout the industry?

Ed Murphy [00:00:36]
So Emile, we really have a two pronged strategy. One is to grow the business organically, which we’ve been growing pretty effectively over the last five years at a rate that’s two to three times the rate of the market as measured by net participant growth. And then the second is to is to obviously be opportunistic and evaluate acquisition opportunities as they arise. And clearly the market continues to to consolidate. We’ve seen that play out over the last 10 years where typically you’re seeing anywhere between two to three, sometimes four transactions in a particular year. And it’s my sense that that will continue. And what’s happening increasingly is that the top three to five players are garnering a disproportionate amount of the share, and that’s due to due to higher organic growth rates than than some of the subscale players and then also through M&A.

Emile Halez [00:01:34]
And can you talk a little bit about which part or parts of the US retirement savings system represents the biggest opportunity for growth in the near future?

Ed Murphy [00:01:44]
Well, I look at the defined contribution business, which today is give or take a little over a trillion dollars in the D.C. system. I do see that as a growth market, despite some of the demographic challenges with with people retiring and leaving the system and rolling over to individual IRAs. But, you know, we look at the market as a consolidating market. We also see savings rates and deferral rates continuing to increase. So participants are trying to save more. Americans are trying to save more. And so those are two growth elements. Plus, you have the underlying growth of the US equity markets, which are typically averaging anywhere between seven to nine percent a year. The other area, I would say, that’s growing is the one I just touched on is the individual retirement market, primarily driven by rollover work where where individuals are having a life event. They’re changing jobs, they’re retiring. And oftentimes, instead of leaving the money in the plan, many choose to roll to an individual retirement account. So I think those are the two segments within the retirement market that we see as attractive and continuing to grow.

Emile Halez [00:02:54]
What role do you think that the state initiatives, the auto IRAs and other programs could have not just for empowers business, but for funneling assets into the wider D.C. market?

Ed Murphy [00:03:06]
Look, I think it’s constructive in the sense that it should drive more coverage and with more small employers adopting workplace savings plans. One of the things that we know is that if people don’t have access to work, safe savings plans, they generally don’t say it’s the power of payroll deduction. And so from that standpoint, we’re certainly supportive of it. I would prefer to see a universal solution, a US wide solution, as opposed to a state by state, because that makes it challenging for for record keepers and providers like us. So I’d like to see us move more towards that approach. But but I think the net effect should be positive if we can get more small businesses to offer plans and provide the appropriate incentives to to encourage them to set these plans up.

Emile Halez [00:04:00]
Retirement income is obviously a really hot topic right now and empower our early in taking a novel approach to addressing that in the D.C. market with Dynamic Retirement Manager. Can you tell me a little bit about what uptake has been like with that so far? And are there other ways that the company is interested in looking at retirement income?

Ed Murphy [00:04:23]
This is the area that a lot of providers like Empower, as well as investment managers and insurance companies are looking at the whole retirement income space to come up with solutions to address the draw down phase and the distribution phase. And I think we’re just really in the early stages. The marketplace is evolving and I think sponsors increasingly are becoming more comfortable in using insurance products like annuities and making those available. And we obviously we we had some guidance from the DOL and from Treasury on the use of. Annuities as vehicles to provide income and offering those in plan, so we’re working with lots of third parties to come up with ways to address this issue and opportunity. And I think you’re going to see a lot of new product and new innovation come to market in this space over the next several years.

Emile Halez [00:05:25]
Ed, thanks so much for joining us.

Ed Murphy [00:05:27]
My pleasure. Thank you.