SPRINGFIELD -- MassMutual’s decision to sell its retirement plan business will impact 2,000 employees, most of them working at MassMutual’s offices in Enfield, Connecticut, the company said.
The Springfield-based insurance giant and Colorado-based Empower Retirement announced Tuesday that Empower has agreed to buy MassMutual’s retirement business for $3.35 billion.
The move reflects industry trends of shrinking profit margins and efforts to consolidate and cut costs.
Empower will acquire the MassMutual retirement business in a reinsurance transaction for a ceding commission of $2.35 billion. In addition, the balance sheet of the transferred business would be supported by $1 billion of required capital when combined with Empower’s existing U.S. business.
“In Empower, we are pleased to have found a strong, long-term home for MassMutual’s retirement plan business, and believe this transaction will greatly benefit our policyowners and customers as we invest in our future growth and accelerate progress on our strategy,” Roger Crandall, MassMutual’s chairman, president and CEO, said in a statement.
“This includes strengthening our leading position in the U.S. protection and accumulation industry by expanding our wealth management and distribution capabilities; investing in our global asset management, insurance and institutional businesses; and delivering a seamless digital experience -- all to help millions more secure their future and protect the ones they love,” Crandall said.
Empower CEO Edmund F. Murphy III said the deal is 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.”
Massachusetts Mutual Life Insurance Co. administers retirement plans such as 401(k)s for companies, including 26,000 workplace savings plans through which approximately 2.5 million participants have saved $167 billion in assets, according to the company.
The deal was first reported in June by Reuters. At the time retirement division was expected to bring in about $2 billion. The deal is expected to close by the end of 2020 pending regulatory approvals.
Not all of the 2,000 workers affected by the deal are in Enfield. The 430,000-square-foot complex on Bright Meadow Boulevard, just south of the state line, has about 1,500 employees total.
Spokeswoman Laura Crisco said overall job numbers will change and the company will assess how that impacts plans to bring jobs to Massachusetts while discussing it with the “appropriate parties.”
She referred questions about employment impacts to Empower, whose spokesman didn’t return calls and emails Tuesday.
MassMutual has already brought 750 jobs to Massachusetts over the last two years as it expanded operations in Springfield and in Boston.
The company continues to market the Enfield complex for sale, Crisco said. The asking price has not been disclosed.
As for the reasons MassMutal is selling the retirement business, Crisco said low interest rates mean that retirement plans must now compete for business based on fees. This leads to what she said was a drive for efficiency, which is leading to ongoing industry consolidation, where a smaller number of larger players have emerged as market leaders.
As a mutual company, MassMutal is owned by holders of participating life insurance polices. The move puts MassMutal in a better financial position and lets it invest in other businesses, Crisco said.
An expert on Great-West Lifeco, Empower’s Canadian parent company, said the deal is driven by a desire to cut costs, and that means cutting people.
“They are positioned as the consolidator,” said Gabriel Dechaine of National Bank Financial. “This is the strategy a few years ago when (Great-West Lifeco) created (Empower). They are going to find smaller players who are willing to sell and buy them.”
Then Empower can make better use of its information technology system and support structure for retirement plans, and shut down the smaller IT systems its former competitors were running.
“Reduce IT cost and reduce people who support the unit and whatever else is involved,” Dechaine said in a phone interview.
Empower and Winnipeg-based Great-West Lifeco told investors they expect to realize $190 million -- in U.S. currency -- from the deal.
Only $30 million of that amount is expected to come in the form of increased revenues. The rest is expected to come in cost savings as Empower integrates the MassMutual retirement business with its own.
In November, MassMutual announced a $1.7 billion estimated dividend payout for 2020 to eligible participating policy owners and members. The payout reflects a dividend interest rate of 6.20%.
The 2019 dividend was $1.72 billion, or an interest rate of 6.40%. Founded in Springfield in 1859, MassMutual has paid a dividend every year since 1869.
In 2018, MassMutual announced plans for a major expansion in Massachusetts, including a $300 million investment and addition of 2,000 jobs, to be completed by 2022.
Those 2,000 jobs include 1,500 at corporate headquarters in Springfield and 500 at a new Boston campus, which will be the final commercial tower at Fan Pier and is expected to be completed in late 2021.
Empower Retirement is the United States' second-largest retirement record keeper by total participants. It administered $667 billion in assets for more than 9.7 million retirement plan participants as of June 30.
August, Empower announced it had completed the acquisition of Personal Capital, a registered investment adviser and wealth manager, for $1 billion.
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