MassMutual is reportedly weighing the sale of its $175 billion retirement plan business, and one large insurer – Prudential Financial – would make a good fit for such a deal, according to a source familiar with the companies.
On Friday, Reuters reported that MassMutual is exploring the sale, with a potential price tag of $2 billion, citing unnamed sources. The retirement plan segment would represent the company's second recent divestiture of a major business line. In 2018, the company agreed to sell the majority of its OppenheimerFunds business to Invesco for $5.7 billion.
One candidate to acquire the retirement business is another insurer, Prudential. There's considerable overlap in the types of defined-contribution plans the two companies serve, particularly in the Taft-Hartley, government and nonprofit areas, according to the source with knowledge of the potential sale.
The business lines are also complementary, as Prudential has more business with large plans, and MassMutual has more of its clients concentrated in the sub-$20 million category, according to the source.
“Prudential Financial regularly evaluates strategic opportunities for its businesses and operations. As a company policy, we do not comment on potential business transactions,” a Prudential spokesperson said in a statement.
Another potential acquirer is Empower Retirement, according to the source. Empower bills itself as the second-largest DC plan provider in the U.S. by number of participants. That company did not immediately respond to a request for comment.
Last year, MassMutual had $21.7 billion in sales in its workplace and institutional businesses, which includes defined-contribution and defined-benefit plans, workplace disability and life insurance, pension-risk transfer and other lines. Such sales were up from $18.3 billion in 2018, according to the mutual-owned company’s annual report.
The company as a whole saw revenue hit a record $32.6 billion in 2019, up slightly from $32.5 billion in 2018, according to the report. However, net income was considerably higher in 2019, at $524 million, than the negative $716 million in 2018, the company noted.
In a release last year, Prudential described itself as the largest provider of Taft-Hartley plans, which are collectively bargained multiemployer plans. The company oversaw about $36.3 billion in such plans, representing 516,000 union member accounts, according to the release.
MassMutual administered $21.9 billion in Taft-Hartley assets in more than 180 such plans as of the end of 2019, according to a marketing sheet from the company.
A sale would mark the latest transaction in a long-running trend of consolidation among retirement plan record keepers.
“As record-keeping costs have come down considerably, record keepers have had to evaluate whether it makes sense to continue in the capital-intensive record-keeping business,” said Ross Bremen, a partner in NEPC’s defined-contribution practice. “We’ve seen lots of record keepers looking for ways to earn additional fees. Record keeping is like a balloon — if you squeeze one side, then you potentially need to increase fees in other areas.”
That has led plan providers to explore additional fee revenue from managed accounts services or proprietary investments, Bremen said.
“First and foremost, [MassMutual] is a life insurance company,” said Dick Darian, partner at Wise Rhino Group.
“They already have a history of doing this,” Darian added, citing the sale of OppenheimerFunds.
Staying afloat in the retirement plan record-keeping business is a matter of scale, which will continue to drive industry consolidation, he said.
Considering a sale soon makes sense, because “the value they can get today is going to be a lot higher than it will be a year from now,” Darian said. “There’s not enough room for 50 national record keepers.”
Another insurance company would make an ideal acquirer, given the overlap in businesses, he said.
One factor that could be making business difficult for public-sector DC plan providers is guarantees on stable value investments, with the floors on such investments commonly set at 3% or 4%, the source with knowledge of a potential sale said. In the current environment, those rates could be difficult to maintain, the source said.
Stable value investments without such floors are a different story, Bremen said.
“Stable value investments in general are pretty healthy right now … unlike 2008 and the credit crisis, when we saw market-to-book values fall pretty considerably,” he said.
Plus, a $400 million Commonwealth team departs to launch an independent family-run RIA in the East Bay area.
The collaboration will focus initially on strategies within collective investment trusts in DC plans, with plans to expand to other retirement-focused private investment solutions.
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