Kathleen Murphy joined ING U.S. Financial Services after a particularly challenging time: a three-way merger. Ms. Murphy joined Aetna Financial Services in 1985 and worked in a variety of positions before ING bought Aetna and ReliaStar Financial Group in 2000. Ms. Murphy said the silver lining of all that stress was that the merger forced cooperation among the ranks and the integration happened faster than first expected. "For companies integrating, it sharpens the focus, and ING planted a big flag in the retirement services space." The merger brought about a shift in focus for Ms. Murphy as well. She moved over to the business side from legal at ING, holding several positions before becoming group president of ING Worksite and Institutional Financial Services in 2004. Ms. Murphy now serves as chief executive officer of ING's U.S. wealth management business, which includes the defined contribution, rollover/payout, retail annuity and broker/dealer businesses.
Tell me about your background. Before the acquisition, I worked as general counsel and chief compliance officer at Aetna Financial Services. In that role, I was responsible for the legal, compliance, human resource, government affairs, internal and external communications and community relations for U.S. Financial Services.
Which trends are you following in the DC industry? Annuities are becoming more significant. (ING) offers annuities on the distribution side for rollovers, but we haven't offered equity-based modal products. (An annuity within a 401(k) plan; guaranteed income that is portable.)
Would ING consider offering an annuity option within a 401(k) plan? We are looking closely at this. The challenge for the DC business, concerning annuities, is to do it on a modal basis. It's really about portability. Are these things going to be portable? How will it work? We didn't want to be the first one out there. We wanted to take a more wait-and-see approach. But it is something we are looking at.
Why do annuities make sense in the DC market? It's about guaranteed income. And as 401(k) plans become the dominant retirement savings vehicle, annuities are a great way to incorporate guaranteed income into participant savings plans.
What is ING's target DC market? We may be more broad-based than some. We focus on the small to medium end of the 401(k) business, and we also serve the 403(b) and public plan markets. It's actually an advantage as they look more and more alike.
How so? More 457 plans are going for the bundled approach. We have won a number of exclusive provider contracts with public plans. We became the exclusive provider to Connecticut's three plans in '06. (ING was hired by the Connecticut Retirement Plans and Trust Funds, Hartford, as bundled provider of its $1 billion 403(b) plan, $1.5 billion 457 plan and $300 million 401(a) plans.)
Would you consider moving up market? At the very large end of the (defined contribution) market, you have mutual fund companies and pure record keepers. We don't fit in there. It depends on the type of customer, where they are located, what their specific needs are. We do have (defined contribution) clients with more than $50 million (in assets).
Talk about the Pension Protection Act of 2006. The PPA was a step, but not the step. It emphasized the importance of savings through auto enroll and auto default features. Those are important, but education about retirement savings is also important. Auto services are not only the answer. It has to be about education and communication as well.
Is there anything you would have liked to seen clarified in the PPA that wasn't? I wonder if the savings limits are high enough. That's something I thought of.
Would ING consider offering investment advice? We are looking at the various options. We're looking at whether we would partner with someone or do it ourselves. If it's a Financial Engines or Morningstar partnership … we're open to that. Employers need to have clear rules on education and advice. These things are happening over time.
Doesn't ING currently work with Financial Engines? I believe they provide us with managed accounts. Advice may be a small component of that.
What is the most appropriate default option for 401(k) plans? Out of the group (managed accounts, balanced funds and target-date funds), I would say target-date funds are the best options. Managed accounts are best for sophisticated participants, but target-date covers everyone best. Managed accounts have a place in the industry, but it isn't the right default option. That said, lifestyle funds aren't right either.
Why aren't lifestyle funds the best default option? Participants still need to take action with a lifestyle fund. It's more complicated than providing your date of birth (as is the case for target-date funds). Individuals need to figure out their risk tolerance. It's the more sophisticated asset allocation fund.
Have you seen the trend move from risk-based to age-based funds? Absolutely. Lifestyle funds were the first asset allocation funds available, I believe. I think plan sponsors and participants follow lifecycle funds easier. (Basing the allocation on age) makes the process easier for participants to understand.
Do you think consolidation in the DC business will continue? I think four years ago, people thought it would happen faster. Scale matters and size matters. ING has invested to be a winner in this marketplace.
Would ING consider an acquisition? The parent company drives acquisitions, so I can't really speak to that.
Which firms do you consider competitors? We see a lot of the same guys in the finals: Prudential, MassMutual and Fidelity. There are no surprises there.
What makes ING stand out? I think through our strong customer service; we have a great retention rate. Local support and service has been our calling card. And our education and communication services are strong.
What kind of education services stand out? One thing we are really proud of is we help teachers (in 403(b) plans) do a gap analysis. We sit down with them and see what kind of pension they get, how much in savings they have, and figure out how much money they will need to save for a comfortable retirement.
It's quite personalized. Again, that's our calling card.
What will be the next big thing? I think the rollover market is one. More will focus on it as more money rolls out of 401(k)s. You want to retain those millions of dollars rolling out. I think we will see new products and services that focus on retaining those assets.
Where do you see ING in five years? DB plans are going to be less prevalent. In the small end of the 401(k) market, your 401(k) plan is going to be your retirement savings. It's important to offer the right solutions to help participants save as much as possible. I see guaranteed income products being a major focus.
What keeps you up at night? Other than my 4-year-old son? The needs of baby boomers and the looming retirement crisis. And over time, what impact does health care, Medicare and unfunded liabilities have on a generation of Americans. Are we offering the best solutions out there, as an industry? That keeps me up at night.