By Tony Herron, Partner, CHRO Services
On July 1, 2008 ING acquired CitiStreet, one of the market leaders in the 401(k) administration business. CitiStreet also had a small group of health and welfare (H&W) and pension administration clients ranging in size from as few as 3,500 participants to more than 300,000 participants.
On April 1, 2009 Empyrean Benefit Solutions, Inc. (Empyrean) announced that it was purchasing ING’s H&W unit. Empyrean planned to keep virtually all of ING’s H&W employees located in Jacksonville, FL, as well as the office space where they were located so they would have a second service center for disaster recovery and the resources they would need to staff their rapidly growing H&W administration business.
It was announced the week of June 1st that the sale of ING’s book of H&W clients to Empyrean had fallen apart as a result of the instability of the ING H&W client base. With only approximately 11 total H&W clients, it was important that the majority of the clients agreed to come over to Empyrean as part of the sale. However, at least five of ING’s clients have already secured a new provider, are now in the market for a new provider with an RFP, or are planning to release an RFP.
Given the fact that ING doesn’t have a viable H&W administration platform to offer as part of the deal and their client base is very unstable, their H&W business does not appear to be marketable. Rather than pay a fee to acquire what remains of the business, we believe the leading H&W service providers will wait for ING’s clients to come to market and try to win them one-by-one.
These facts and circumstances will likely lead to a race to the exits. The best ING H&W staff will be on the market soon because their future at ING is very limited. In addition, the clients who are forward-looking will not wait for the end of their contract to secure a new service provider, especially if the termination for convenience language is not very punitive and/or ING allows them to leave early to relieve themselves of the management challenge they will face as staff defects.
It is my opinion that ING’s book of H&W business is now in a death spiral. The Empyrean deal would have allowed them to gracefully exit the H&W business, but they are now faced with what will likely be a very unpleasant experience for everyone – clients, ING’s employees who are based in the H&W business and even ING’s senior management team.
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