Products & Services November 13, 2023

Empower’s TDF-to-Managed-Account Offering Clocks $21B in Assets

Recordkeeper's CEO notes potential for managed accounts and other participant offerings to grow on Prudential retirement migration.

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Empower, a division of Great-West Lifeco Inc., reported that its qualified default investment alternative offering that starts participants in a target-date fund and moves them into a personalized managed account has grown, less than seven years after its launch, to $21 billion in assets.

Empower Dynamic Retirement Manager, released in 2017, is now being used by 97,000 participants in 1,700 qualified retirement plans through September 30, the firm reported amid third-quarter earnings. The retirement manager is designed to increase personalization for participants “as they are accumulating assets early in their career and later rotates them to a managed account as their financial goals and asset picture emerge,” according to Empower.

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On an earnings call Thursday, Empower President and CEO Ed Murphy noted that the firm will have more opportunity to grow its managed account and other participant offerings as retirement savers are transferred from its 2021 acquisition of Prudential Financial’s retirement business. In October, Empower migrated its largest wave of participants with 1.4 million, Murphy said, and another 2.2 million are slated to migrate over in the first quarter of 2024.

“One of the opportunities for us is to deepen relationships with those existing participants,” Murphy said on the call. “That comes in the form of other products and services that we offer within Empower that weren’t necessarily offered in the legacy Prudential business. … There are certainly revenue opportunities within the workplace services area—things like managed accounts and other services that participants will adopt over time.”

Small Plan Growth

On Monday, Empower also released data showing that its adviser-sold retirement plan business targeting plan sponsors with assets of up to $50 million has secured or booked sales of $10 billion through the year’s third quarter.

According to the recordkeeper, its smaller-plan program has onboarded 3,300 new plans with more than 250,000 participants. Of those plans, about 800 were startups.  

About 75% of those total sales have come from the firm’s Empower Select, a “packaged, off-the-shelf” offering advisers can offer clients. The recordkeeper works with more than 62,000 advisers on their retirement services offerings, according to the firm.

“We believe in the power of building alliances with advisers and third-party administrators who deliver such important value to the retirement ecosystem,” Rich Linton, president of workplace solutions for Empower, said in a statement. “We are thankful that so many partners recognize the value we bring and know that our highly skilled team shows up every day to offer a differentiated service experience and deep industry expertise.”

Focus on Adviser Services

Empower noted in the announcement Monday that it has made changes in its service model with retirement plan advisers and third-party administrators to enhance partnerships beyond product and administration.

“The new model makes dedicated support teams available to advisors and TPAs and opens lines of communication to allow for information to flow freely between new plan prospects, clients, their advisor, TPAs and Empower,” according to the statement.

The company also noted the launch of its Empower Proposal System, which offers advisers a way to request and manage retirement plan proposals through a dashboard. The recordkeeper specified it has been seeing more requests-for-proposal activity from plan sponsors in the last year than in “any previous year.”

More generally, Empower reported a 14% year-over-year increase in total assets under administration to $1.4 trillion, accounting for more than 18.3 million participants. Its consumer wealth and asset management division, built up in recent years, reported a 30% year-over-year AUA as driven by net inflows and higher markets. Asset capture from the defined contribution business was up 50% year-over-year, which Empower attributed to improved “sales effectiveness” and an enhanced dashboard for investor engagement.

Great-West President and CEO Paul Mahon also noted on the call that the sale of Putnam Investments to Franklin Templeton was on track to close at the end of this year. He noted that, as of now, Putnam is “classified as discontinued operations” for Great-West.

Compliance November 13, 2023

United Airlines Sues Advisers for ‘Scheme’ to Defraud 401(k) Pilot Participants

A lawsuit filed in Minnesota federal court claims an independent advisory deceived participants by taking loans from their accounts for ‘personal gain.’

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United Airlines Inc. and its retirement plan committee have filed a complaint against an independent advisory for an alleged scheme to defraud retirement plan participants through a personalized retirement account, according to court filings.

United alleges that Keep Safe Investments LLC, J&K Connect LLC and adviser Krisi Berge had, “unbeknownst to plaintiffs, and contrary to the terms of the plan,” taken loans from the retirement accounts of participants in the United Airlines Pilot Retirement Account Plan for “personal gain.”

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The advisers allegedly obtained more than $1.5 million, charged as “investment management fees,” before United was alerted to the scheme and shut it down, according to United Airlines Inc. et al. v. Keep Safe Investments LLC et al., filed in the U.S. District Court for the District of Minnesota on November 7.

“Through this arrangement, and by falsely representing the amounts to the Plan as fees, Berge, KSI, and J&K obtained control over Plan assets to which they were not entitled, with the intent to use those assets for their own gain,” the complaint states.

The advisers were working with participants who had each opened a self-directed brokerage account called the Personal Choice Retirement Account, provided to the plan via Charles Schwab, according to the court filing. Any deductions for advisory fees from the accounts were earmarked only for advisory services related to participant assets, the plaintiffs wrote.

But the advisers, according to the filing, had participants agree to a “management fee” which they then used to “fund a loan from the participant to J&K” for a term of up to five years, unless rolled to a longer term. J&K would then pay the participant 10% annual interest on the principal for the duration of the loan, at which point the principal and interest would be returned to the participant as a “management fee reimbursement.”

On December 6, 2022, Schwab notified KSI, along with participants who had hired them, that the firm was being dropped as an approved provider, according to the complaint.

On December 12, United and the retirement plan committee informed Berge, KSI and J&K that it had “become aware that amounts charged to the plan as management fees appeared excessive for those services, and that they had further been made aware that some or all of the ‘management fees’ charged to the Plan had actually been used to fund loans to J&K in violation of the Plan’s terms.”

The plaintiffs are seeking to “restore all plan assets to the plan” along with legal fees, damages and “all profits earned by defendants” through use of the plan assets. They are also seeking a trial by jury.

Schwab was not named in the suit as a defendant.

KSI did not respond to request for comment.

The United Airlines Pilot Retirement Account Plan had $11.8 billion in assets under management and 15,404 participants as of 2022, according to Form 5500 filings.

The airline and committee are being represented by attorneys from Nilan Johnson Lewis PA and Seyfarth Shaw LLP.

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