Empower Completes Convergence with Milliman Division Additions
It’s always interesting to watch Empower’s acquisitions and strategies that do not follow the norm. Contrary to CEO Ed Murphy’s pronouncement last year that they were on the hunt for a national RIA firm, their latest move to acquire Milliman’s defined contribution, defined benefit, and health and welfare administration signals an interest in benefits, which, along with wealth and retirement, completes the convergence triangle.
After acquiring Personal Capital in 2020, providing wealth technology, resources and staff, Empower acquired the retirement divisions of MassMutual in 2021 and Prudential in 2022, adding much-needed scale to their platform, which will include 20 million participants after the Milliman deal closes. The recent acquisition signals an interest in closing the loop of convergence.
The press release highlights “integrated workplace benefits solution” providing “holistic financial wellness programs” helping participants with “wealth, healthcare and retirement income.” While the 750,000 DC and 780,000 DB participants and 1,100 and 400 plans respectively with $50 million DC assets will provide additional scale, Empower likely sees the opportunity to cross-sell wealth services to about an additional 1 million individuals, assuming some overlap. The reported $340 million price for Milliman is above what Voya paid for OneAmerica and below what Empower paid for MassMutual and Prudential, but given the DB and healthcare assets, it seems reasonable.
Along with their DC, DB and healthcare administration, Empower and Milliman will partner on DB administration and actuarial services, with Milliman retaining its consulting practice.
Milliman, founded in 1947, is primarily a risk management firm organized like a law firm, with each office running its own practices and only a handful offering DC recordkeeping. Mark Trieb, who led the Dallas DC division, tried to create proprietary record-keeping software, which ended up in the graveyard along with all other similar initiatives. Milliman is a well-respected mid-market provider offering custom solutions, open architecture and the ability to solve difficult issues, especially for plans with both DC and DB components, favored by some aggregators and consultants like Captrust. But with plan fees declining, limited ability to offer wealth services or proprietary products and a relatively small distribution network, it makes perfect sense for Milliman to sell, as the weight of provider consolidation is heavy, constant and inevitable like gravity.
Empower will retain 800 Milliman employees—in past acquisitions, most salespeople have been let go.
Voya is the other provider focused on benefits, which culminated in their purchase of health care and benefits cloud-based software provider Benefitsfocus in 2023 for $540 million. Though a bit different, payroll providers have had a major impact on DC plans, led by Paychex and ADP, with Gusto acquiring Guideline last year and others partnering with fintechs like Vestwell, Human Interest and 401Go. Principal is big in the benefits business, serving 5 million participants in 90,000 companies, while Great West, a sister company of Empower, offers similar services.
New laws like the Consolidated Appropriations Act, DOL regulations covering pharmaceuticals and 22% of ERISA lawsuits targeting healthcare and benefits in 2025, will result in greater fee disclosure and heightened fiduciary oversight. This industry is likely to experience the same growing pains that DC plans went through decades ago. At risk are the non-fiduciary brokers who, in concert with providers, are charging varying and at times egregious fees, especially for voluntary benefits and prescription drugs. The providers should see a fee decline, as plan sponsors are very concerned about costs, with out-of-pocket healthcare expenses averaging $26,000 per employee and rising exponentially.
There’s a new breed of fiduciary consultants, like Jamie Greenleaf, cropping up alongside DC record keepers like Empower and Voya that see opportunities to integrate DC, DB and benefits administration. Payroll integration is powerful and required for seamless DC administration— the combination of benefits along with retirement and wealth is a force multiplier providing a competitive advantage for those that can do it effectively.
