Empower CEO Ed Murphy knows the role early planning and experience plays in strong growth. Whether that be in his career in financial services, a company's success, or a person's retirement savings.
Murphy started his career at Merrill Lynch in the mid-1980s, then spent 17 years at Fidelity Investments. In 2009, he moved to Putnam Investments to run the defined contribution business. In 2014, Putnam's retirement business merged with Great-West Financial's retirement business and the J.P. Morgan Chase retirement business to form Empower.
Empower is now the second-largest retirement plan provider in the United States.
Empower serves 81,000 plan sponsors representing 18.5 million Americans. It has $1.6 trillion in assets under administration and $200 billion in assets under management. The company's personal wealth business, Empower Personal Wealth, has 600,000 investors and $80 billion in assets. The Empower Personal Wealth unit is an investment platform with financial tools and customizable advisory services.
As Empower approaches its 10th anniversary in September, Murphy spoke with IBD about the strategic mergers shaping the company's future, his management philosophy, and the importance of financial wellness for today's workforce. He also shared his perspectives on navigating retirement planning amid evolving economic and regulatory landscapes.
He's looking at the transformational power of artificial intelligence, but also is focused on the stability of Social Security and how to help more Americans invest for a safe and solid retirement.
People and businesses have different needs, he says, but everyone needs advice. "People who have a financial plan in place and people that work with an advisor, whether it's with Empower or one of our advisor partners, are far more confident. They save more and they're in a better position to replace their preretirement income."
This interview has been edited for brevity and clarity.
Empower CEO On Acquisitions For Talent And Scale
IBD: You have overseen a large series of large-scale mergers and acquisitions. What was the thinking behind those?
Ed Murphy: One of the more pivotal acquisitions for us was the J.P. Morgan Retirement Plan Services acquisition back in 2014. That put us in a market that we previously weren't in, which is the large corporate megamarket. We got a tremendous amount of talent from that acquisition, people that had great domain expertise that were committed to the business. Many of them, 10 years forward, are still with us today and have been instrumental in a lot of the success and growth we've experienced.
We saw the J.P. Morgan Retirement Plan Services transaction as an opportunity to give us some additional scale. We acquired the capabilities to serve that large corporate megamarket where their needs are fundamentally different from small-market clients or government clients. And that was largely the client base that Empower was serving at the time.
We then invested about $150 million in the succeeding years to build out capabilities to invest in the platform. And today we're arguably one of the top two players in that large corporate mega space.
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Ed Murphy: 'You Don't Get Much Done On Your Own'
IBD: Tell us about your personal management style and some of the inspirational figures in your life. Was Fidelity's Ned Johnson an inspirational figure? What mistakes along the way have you made and that helped you grow and succeed? And what makes you a successful leader?
Murphy: My leadership style is one where what I want to do is surround myself with a great team. I think it's all about talent, and I've been fortunate to work with great people, to work for great people, but also to have a great team around me. That's really what it takes to be successful. I always say, you really don't get much done on your own. Everything is with and through others.
I place a high bar on talent. I think in terms of people I admire who have helped me along the way. My father was an instrumental figure in my life. I used to consult with him a lot. You referenced Ned Johnson. I did have the opportunity to interact with him quite a bit when I was at Fidelity. And I would say one of the things that I admired most about him was his intellectual curiosity.
What I found over time is he knew so much about so many things, whether it was commercial lighting in a building or certainly the investment world. I learned a lot from him in terms of the power of listening and the power of asking questions. When I was at Fidelity, I had the opportunity to get to know Bob Reynolds. Bob is another mentor and dear friend. He's the one that brought me over to Putnam in 2009. So in many respects, the opportunity to lead Empower really came about as a result of my time at Putnam.
Empower CEO On The Power Of A Financial Plan
IBD: You've been a prominent leader in promoting financial wellness within the defined contribution space. Could you discuss your current role in that space and the impact you aim to achieve?
Murphy: We know from all the survey data that we have and all the information that we have on our nearly 19 million customers that people really need help. Whether you have $10,000 of discretionary investment or $1 million, your needs might be different, but one thing that's constant is the need for advice.
People who have a financial plan in place and people that work with an advisor, whether it's with Empower or one of our advisor partners, are far more confident, they save more and they're in a better position to replace their preretirement income.
IBD: Given the complexity of today's retirement planning landscape, where individuals may have the option to invest in a traditional 401(k), a Roth 401(k), and perhaps even an HSA, the array of choices can be overwhelming and confusing. What advice would you offer to those who are navigating these options while saving, investing and planning for retirement?
Murphy: We've embedded tools into the experience that we provide. Obviously, given the size of our business, it's hard for us to execute one-to-one on that. So a lot of the tools have to be intuitive. They have to be user-friendly and rather simple, if you will, and obvious for individuals so that they can engage on their own and not necessarily rely on us.
Ed Murphy: Biggest Risks To Retirement Security
IBD: The Society of Actuaries has documented at least 15 retirement risks that people will face. What are some of the best ways for individuals to manage and mitigate those risks?
Murphy: That's a challenge. You have to quantify it, but sequence of returns risk is one of the greatest. And increasingly, longevity risk is a concern. People are living longer and having a thoughtful strategy and approach to deal with that is important. Social Security is one leg of the stool, but that in and of itself isn't going to necessarily address the needs that individuals have in retirement.
We know that health care costs can consume up to a third or more of one's discretionary income. It's really working closely with our customers in helping them put together a plan that addresses those issues and challenges and addresses the tail risks that oftentimes people face.
That's where annuities can come into play, where you have an annuity that would kick in much later in life to address that tail risk and reduce the risk of outliving your income in retirement. So again, it all starts with the plan.
There are product solutions, but I think it's really important that people consult with an advisor and work with them to build that plan.
Empower CEO On Target-Date Funds, 401(k)s, Annuities
IBD: Many plan participants are using target-date funds to accomplish their accumulation goals. We're eager to hear your thoughts about target-date funds and the use of annuities in target-date funds.
Murphy: I still think there's a role for target dates. They'll continue to evolve as they have over the years. Alternative investments are starting to get some traction, and it'll take some time. But eventually I think you'll see those investments more prevalent inside target dates and inside defined contribution plans. I think it's a good diversification strategy and one that we're embracing. I think there is a role for annuities as well, whether they're on a stand-alone basis or whether they're embedded in a target-date structure.
IBD: There's been a great deal of debate about whether the 401(k) is working for Americans or not. Does something need to change?
Murphy: It's fair to raise questions about whether the system could do more or should do more, and the answer to that is absolutely yes. But we shouldn't deny the fact that we've made progress. We have 115 million Americans in the system. There's $10 trillion of savings, and increasingly, people are on a path to replace a meaningful percentage of their preretirement income. In some cases it's as high as 70%. And I think what we forget is that a lot of the low-wage workers will have 75% to 100% income replacement through Social Security.
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Ed Murphy: Are 401(k)s Working For Americans?
We do have millions of Americans that work for small businesses today that are not covered, but the auto-IRA legislation has really gotten traction now. (It's) in more than 15 states and growing. We are supportive of that approach. We don't administer those plans, but we think it's the right thing to do to drive adoption.
The other thing we've been clear on is the requirement for small business to offer a plan. We think that's important. Congress has done a lot in the way of offering tax credits and reducing some of the fiduciary burden and concerns. And companies like Empower and others have done a lot to reduce the complexity. In fact, we just launched a micro-plan solution that is pretty much a straight-through processing approach, a simplified onboarding process. We expect that to get a lot of traction in the market. It's going to be sold primarily through advisors.
Empower CEO On Plan Requirements, Micro-Plans
We can move the needle on new plan formation. And then there's just a lot that we're doing to try to encourage people to save more, to pay themselves first and to take advantage of the corporate match or the government match that they're getting.
It's not a perfect system, but there's certainly a lot we can do to further strengthen it, enhance the system. Also, I think we need the partnership with regulators and legislators, particularly as it relates to driving micro-plan adoption.
I support the idea of a plan mandate or a plan requirement. Certainly, I wouldn't ask plans to be required to match contributions. That has to be made at the discretion of the company based on their own performance. But there's no reason why small businesses shouldn't set up a plan with the tax credits that are being offered and with all the progress that's been made to simplify and streamline the process. The coverage gap can be addressed pretty simply. What we need to focus on is Social Security.
Ed Murphy: The Future Of Social Security
IBD: Talk more about that. The Trustees report just came out. The Old-Age and Survivors Insurance Trust Fund will be able to pay 100% of total scheduled benefits until 2033, unchanged from last year's report. At that time, the fund's reserves will become depleted and continuing program income will be sufficient to pay 79% of scheduled benefits.
Murphy: Simply put, it's a math problem. There are lots of different things you can do from raising the cap (Social Security wage base limit), to raising the tax rate. Also, means testing, and taking a hard look at benefits, to adjusting COLAs for those with larger balances.
Obviously, the retirement age should be raised and that can be done in a way that isn't hurtful to people nearing retirement. And that's really where the proposals have been focused. It is not one thing that's going to solve it. Just raising the retirement age in and of itself doesn't solve the problem.
You still have a significant deficit. It has to be multipronged. It will include some tax increases. I suspect it will include some benefit reduction for certain subsegments of the population. There are, I think, thoughtful proposals on both sides of the aisle. We have the right people around the table. We just need courage and leadership to get it done.
Empower CEO On Artificial Intelligence
IBD: Talk about artificial intelligence. What does it mean for investors, for plan sponsors, for plan advisors, for you?
Murphy: It's transformational. It's transformational for the world. It's transformational for the country. Despite all the challenges that we have, there's probably no better time in human history to be alive, in terms of what's going to transpire over the next 15 to 20 years.
When I think about AI, I think about it from the standpoint of our business. I think about it as a way to remove some of the friction that exists from time to time, to make it easier for customers to do business with us, to be more intuitive.
And a byproduct of that will come in the way of higher productivity and lower cost. (This) allows us to reinvest back in the business. We look at it within Empower as kind of an unlimited set of use cases. In fact, out of the gate, we've been most focused on (using AI with) software development and writing new code and rewriting old code. We're seeing roughly a 30% lift in productivity.
We also see it playing an important role as it relates to cybersecurity and fraud prevention, where we can deploy AI capabilities in that regard to safeguard our customer's assets and protect us from the bad actors. We're excited about it. And from a client servicing standpoint, from a customer acquisition standpoint, it has lots of application.
Ed Murphy: Consolidation In Financial Services
IBD: We've covered a lot of ground. Anything we've missed or anything that bears reemphasizing before we wrap up?
Murphy: I think in our space — the defined-contribution space, the institutional space — as well as in the wealth markets, you're going to continue to see massive consolidation. That's because both businesses are really predicated on scale and reach. And so that trend will accelerate in the two markets that we're competing in.
