Voya Financial Inc (VOYA) Q4 2020 Earnings Call Transcript

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Voya Financial Inc (VOYA 0.39%)
Q4 2020 Earnings Call
Feb 10, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Voya Financial's Fourth Quarter 2020 Earnings Conference Call.

[Operator Instructions]

I would now like to turn the conference over to Michael Katz, Senior Vice President of Investor Relations. Mr. Katz, please go ahead.

Mike Katz -- Senior Vice President, Head of Investor Relations and Enterprise FP&A

Thank you, and good morning. Welcome to Voya Financial's Fourth Quarter and Full Year 2020 Earnings Conference Call. We appreciate all of you who have joined us for this call.

As a reminder, materials for today's call are available on our website at investors.voya.com or via the webcast.

Turning to Slide 2. Some of the comments made during this conference call may contain forward-looking statements within the meaning of federal securities law. This includes potential impacts related to COVID-19. I refer you to this slide for more information. We will also be referring today to certain non-GAAP financial measures. GAAP reconciliations are available in our press release and financial supplements found on our website, investors.voya.com.

Joining me on the call are Rod Martin, Voya Financial's Chairman and Chief Executive Officer, as well as Mike Smith, Voya's Chief Financial Officer. After their prepared remarks, we will take your questions. For that Q&A session, we have also invited the heads of our businesses, specifically, Charlie Nelson, Retirement, Christine Hurtsellers, Investment Management, and Rob Grubka, Employee Benefits.

With that, let's turn to Slide 3 as I would like to turn the call over to Rod.

Rodney O. Martin -- Chairman and Chief Executive Officer

Good morning. Let's begin on Slide 4 with some key themes.

Despite the many challenges of 2020, our Q4 and full year results reflect strong financial performance and the power of our unique culture. We leverage the strength of our brand and our long-standing distribution relationships to attract and retain clients. We provided resources, fee credits and the new workplace programs to help our customers address the impacts of COVID-19 on their health and wealth needs and we had candid conversations inside and outside our company about the racial inequity in our country and how Voya can do even better to address these issues. All of this would not have been possible without our people.

Despite every challenge, they focused on the needs of our clients with extraordinary professionalism and care. Voya stands apart in our industry because of our people, our unique portfolio of workplace in institutional businesses and our commitment to our customers. This has enabled us to deliver strong bottom line results, top line growth and capital return that reflect the benefits of our diverse business mix of high free cash flow businesses.

Turning to our earnings performance. Fourth quarter normalized EPS was $1.44, growing 21% year-over-year. Our full year normalized EPS was $4.81, representing a 14% increase compared with 2019. Included in these results was significant organic growth in our businesses. We continued to see robust demand for our products and services. We are attracting new clients and retaining existing clients who value our expertise and capabilities.

For Retirement, full year 2020 full-service recurring deposits grew nearly 7% year-over-year, reaching $11.1 billion. In Investment Management, we generated $8.4 billion of net inflows during 2020, representing 5% organic growth and exceeding our target of 2% to 4%. And in Employee Benefits, in-force premiums grew approximately 7% year-over-year, reflecting growth in our voluntary business. We began 2021 by completing the sale of our Individual Life business on January 4. This transaction provides Voya with $1.4 billion of deployable capital with up to $100 million of additional proceeds by 2025. We expect to eliminate all stranded costs associated with the transaction by year-end 2022.

More recently, as we announced on Monday, we have entered into a definitive agreement with Cetera Financial, in which they acquire the independent financial planning channel of Voya Financial Advisors. Importantly, the transaction preserves our ability to support our workplace clients with their financial wellness needs as 600 field and phone-based advisors will remain part of Voya Financial Advisors. This transaction will provide us with over $300 million of deployable proceeds upon closing, which we expect to occur in the second or third quarter. Each of these transactions mark important milestones in our transformation to focus on serving the workplace and institutional clients. They are also additive to our already strong balance sheet and capital position. Combined with the proceeds, we will receive from the Individual Life transaction, we will have approximately $1.8 billion in excess capital.

Going forward, we'll continue to demonstrate our commitment to being good stewards of shareholder capital. We remain confident in our ability to return capital despite the low interest rate environment. We continue to view share repurchases as our primary usage of excess capital, and we intend to utilize the new $1 billion repurchase authorization that we receive from our Board over the course of 2021. This will enable us to build upon the more than $6.5 billion in excess capital that we have returned to shareholders through share repurchases. Over time, we expect that dividends will continue to be a larger contributor to returns. At the same time, we are open to opportunities to use capital in a way that will further advance our strategy and our plans to expand our services and reach among the workplace and with institutional clients.

Turning to Slide 5. We have maintained a strong focus on our values and culture throughout the year. Most recently, we were honored to earn the following recognition, being named to the Human Rights Campaign 2021 Corporate Equality Index with a perfect score for the 16th consecutive year, becoming a 2020 Best Place to Work by Pensions & Investments for the sixth consecutive year, earning inclusion on the Bloomberg Gender-Equality Index for the fifth consecutive year, and once again being named to Newsweek's list of America's Most Responsible Companies, which was established last year. Additionally, in recognition of our Voya Cares efforts, we earned the 2020 Caregiving Organization of the Year award from Caregiving.com, for our comprehensive set of benefits and policies that support caregivers.

This year, the actions of our people validated that our values are genuine and authentic, and continued to distinguish Voya with all of our stakeholders.

With that, let me ask Mike to provide more details on our performance and results.

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

Thank you, Rod.

Despite a very challenging environment in 2020, we delivered strong top and bottom line growth, return significant cash to shareholders, closed the Life transaction, and we entered this year with robust pipelines, setting ourselves up for a terrific 2021. I'm very proud of all that our team accomplished and look forward to continued success in 2021 and beyond.

Turning to Slide 7. We delivered normalized after-tax adjusted operating earnings of $1.44 per share in the fourth quarter of 2020. This excludes three items. First, $0.49 of prepayment and alternative income above our long-term expectations. Third quarter equity market supported alternative results and helped drive full year performance back above our 9% long-term expectation. Second, $0.18 of favorable DAC/VOBA and other intangibles unlocking. And third, $0.21 of stranded costs associated with Individual Life and other closed blocks. With the closing of the Life transaction, stranded costs net of ASA/TSA revenues will be included in normalized adjusted operating earnings going forward.

On a full year basis, normalized after-tax adjusted operating earnings grew 14% to $4.81 in 2020, largely reflecting growth in Investment Management and employee benefit earnings and lower average share count. On a reported basis, adjusted operating earnings were $1.90 per share for the quarter and $3.22 for the full year. GAAP net income was $341 million for the fourth quarter of 2020. This includes results from our Individual Life business for a final quarter. In fourth quarter, Individual Life COVID-related losses were in line with our expectations, which drove unfavorable mortality.

Moving to Slide 8. Retirement delivered $228 million of adjusted operating earnings, excluding unlocking in the fourth quarter, contributing to full year earnings of $592 million. Return on capital was 13% in 2020 in line with 2019. Fourth quarter adjusted operating earnings included alternative income that was $64 million above our long-term expectations.

Full year results reflect higher fee income and investment spread than 2019, but was more than offset by higher administrative expenses. 2020 full-service fee-based revenue was higher year-over-year, driven by strong net inflows and favorable equity markets. Full year record-keeping and other fee-based revenues were in line with prior year. Increased fees from significantly higher record-keeping assets and record stable value inflows were mostly offset by a decline in sweep fee revenues within our retail wealth management business due to very low short-end rates. We also waived certain fees to help participants navigate COVID-19 during the year.

Full year investment spread increased year-over-year as higher transfers into fixed account options with lower crediting rates helped to alleviate some of the spread compression associated with lower rates. Our full year administrative expenses were higher year-over-year. Expenses in the year were generated by strong business growth and included investments in our business to better capitalize on workplace opportunities. We also incurred expenses onboarding a large number of participants throughout the year, and there were some notable items, including a legal accrual and an expense accrual true-up.

Turning to deposits and flows. 2020 full-service recurring deposits grew to over $11 billion, almost 7% higher year-over-year. For the year, Retirement generated full-service net inflows of $1.6 billion, largely reflecting strength in corporate markets. As anticipated, we experienced fourth quarter outflows of $2.3 billion, largely due to the departure of a large case tax-exempt client. We had a record year in stable value flows. Net flow momentum continued into the fourth quarter, adding $761 million in net inflows to drive the full year total to $4.3 billion. Record-keeping flows exceeded $24 billion in the year, including $1.9 billion of outflows in the fourth quarter, driven by known departures from clients that had given notification earlier in the year. This increased record-keeping participants 15% to 3.3 million. In 2020, we added 30 new government plans and nearly 350,000 participants. With those wins, Voya is now the number one retirement plan provider in the government space.

We are excited by our commercial momentum going into 2021. 2020 was a year which illuminated new ways to efficiently win business across all the markets we operate in. We have a robust pipeline and continue to make the right investments to accelerate our workplace strategy to drive long-term success.

On Slide 9. Investment Management delivered a record fourth quarter with $90 million of adjusted operating earnings. This contributed to full year earnings of $197 million, exceeding our 2019 results, primarily reflecting strong fee growth from higher institutional AUM year-over-year. We realized exceptionally strong performance fees in the fourth quarter related to our mortgage investment fund. This was driven by strong full year 2020 investment performance. Our full year 2020 adjusted operating margin, including investment capital was 28%, an increase from 26.6% in 2019.

Turning to flows. In the fourth quarter, we experienced $2.4 billion in net outflows, primarily driven by known redemptions, including a large client withdrawal in the affiliated channel and year-end profit taking in funds with strong fixed income performance. We saw strength in our insurance channel. We issued two CLOs, including a euro-denominated CLO, and we closed on several private mandates. Despite the fourth quarter outflows, we still delivered full year 2020 net flows of $8.4 billion, representing organic growth of 5%, exceeding the high-end of our 2% to 4% target range. Our fixed income performance remains strong. 90% of our fixed income funds outperformed the benchmark on a three-year basis and more than 96% did so on a five and 10-year basis.

Looking ahead, while we see a few redemptions in the first quarter, we are starting '21 with the strongest pipeline of unfunded wins ever and see opportunities across multiple strategies. With a track record of five consecutive years of positive flows, we are confident we can achieve our 2% to 4% organic growth target in 2021.

Turning to Slide 10. Employee Benefits delivered $50 million of adjusted operating earnings in the fourth quarter. Full year adjusted operating earnings were $204 million, slightly higher than the 2019 result of $199 million despite approximately $30 million in COVID-related headwinds. The trailing 12-month return on capital remained over 30%. Full year annualized in-force premiums grew nearly 7% year-over-year. Total aggregate loss ratio for the year was 70% at the low end of our targeted range. Group Life loss ratios were elevated as they include COVID-related claims. These claims were approximately $10 million in the fourth quarter, which is consistent with our expectation of $1 million to $2 million per 10,000 incremental deaths. We expect first quarter 2021 Group Life claims to be elevated relative to fourth quarter due to typical seasonality and continued COVID claims. We are encouraged by the outcomes seen so far in our year-end renewal season. Looking further ahead, we remain confident in our ability to continue to drive strong top line growth while maintaining pricing discipline, leveraging long-standing distribution partnerships and differentiated service capabilities to accelerate our workplace strategy.

Turning to Slide 11. Our deferred tax asset remains a key source of value. The net present value of the deferred tax asset is $1.05 billion as of December 31, or over $8 per share. The change in NPV reflects our utilization over the year. If enacted by the new administration, a higher corporate tax rate would help increase the value of our DTA. Under current tax rates, we now expect to utilize approximately 40% to 50% of our DTA within the next five years. And we continue to expect to pay essentially no net cash taxes for the next five to eight years. And the DTA contributes to our 90% plus free cash flow generation.

On Slide 12, we provide items to consider for the first quarter of 2021. The first quarter 2021 will benefit from lower incentive compensation expense in corporate. Fourth quarter incentive compensation was primarily related to strong fourth quarter alternatives and performance fees. The latter of which is not expected to recur in first quarter. Offsetting first quarter items include Investment Management performance fees, net of variable compensation, are not expected to recur in the first quarter. Corporate segment results will include net realized stranded costs now that the Life transaction has closed, higher seasonal Group Life loss ratios and Employee Benefits combined with elevated claims driven by COVID. We continue to expect our sensitivity range of $1 million to $2 million for 10,000 US COVID-related deaths to hold. And other seasonal items, such has higher preferred stock dividends and administrative expenses related primarily to payroll taxes. While we have provided some items to consider, there will, of course, be other factors that affect first quarter results, including changes in our average share count, market impacts, business growth, and the potential for additional COVID-19 impacts.

On Slide 13, we are reintroducing guidance items for 2021, now that we have better line of sight on longer-term results. The results include impacts from both the Life transaction and the recently announced financial planning channel transaction. We expect 2021 earnings per share to grow 8% to 12%, supported by growth across all businesses. We expect Retirement to grow earnings at a commensurate 8% to 12%. Within Investment Management, we will overcome the impact from the Life transaction to have consistent earnings in 2021. That said, adjusting for the exceptional performance fees in fourth quarter, we expect growth of 8% to 12%.

In Employee Benefits, earnings are projected to increase modestly, in part due to the continuing impact of COVID claims, but also due to an expectation that the favorable loss ratios in 2020 will moderate from a low end to the middle of our 70% to 73% range. Also included on the slide are the assumptions underlying these growth expectations and earning sensitivities to macroeconomic factors and the pandemic. We believe the earnings growth expectations shown here present a compelling investment opportunity and demonstrate continued strong performance.

Turning to Slide 14. Our diversified investment portfolio continues to perform well in the current environment. Our estimated impact to excess capital in each stress case are unchanged. We have incurred a cumulative impact of approximately $100 million from a combination of net negative ratings migration and credit impairments. We expect the prospective impact through year-end 2021 to be roughly $200 million and $350 million in cases one and two, respectively, and this is before any active management. Importantly, we view these potential impacts as manageable, given our excess capital and continued free cash flow generation. We continued to spotlight certain investments in our portfolio, including our commercial mortgage loans in the appendix. As of December 31, there are no outstanding loans in forbearance. Overall, we remain comfortable with the quality of our commercial mortgage portfolio, which is more than 87% CM1 rated and has a weighted average loan-to-value ratio of 46%.

Slide 15. Giving pro forma effect to the Life transaction, our estimated RBC ratio is 498%, above our target of 400% and excess capital is $1.8 billion. As Rod mentioned, we expect the sale of the independent financial planning channel to provide over $300 million of deployable proceeds when it closes later this year. This amount is not included in the pro forma amount I just mentioned.

We resumed share repurchases in the fourth quarter via an accelerated share repurchase agreement for $150 million, of which, $120 million was executed in the quarter. The remaining $30 million of repurchases was completed last month. We deployed over $500 million on share buybacks in 2020, despite uncertainty around COVID-19 and its impacts. Going forward, we expect to deploy our $1 billion authorization ratably over the course of 2021, while balancing investments we are making in the business to accelerate long-term growth. Our financial leverage is roughly 30%, in line with our target. This is pro forma for the estimated gain on sale realized on the reinsurance portion of the Life transaction.

This quarter, we are also introducing a new financial leverage ratio that more closely aligns with the assessments of the rating agencies. The new leverage ratio eliminates equity credit for hybrids and preferreds, and now includes AOCI and noncontrolling interest. Going forward, our target will be to manage this new financial leverage ratio to be below 30%. We continue to expect $600 million to $800 million of debt extinguishment this year, which we anticipate will occur in the second half of the year. Finally, we increased our quarterly common stock dividend by 10% and to $0.165 per share. This affirms our confidence in the stability of our cash flows at over 90% free cash flow conversion. The higher dividend keeps our yield at over 1%, even if our share price were to increase meaningfully from current levels.

In summary, we are pleased to have closed the Life transaction, leaving behind significant interest rate and tail liabilities with it. We believe our strong workplace and institutional franchises have proved resilient in challenging times and are poised for strong growth in 2021 and for long-term success. We generate high free cash flow and have a significant excess capital position. We will continue to act as good stewards of capital as we look to deploy proceeds in the best interest of shareholders.

With that, I will turn the call back to the operator so that we can take your questions.

Questions and Answers:

Operator

[Operator Instructions]

Our first question today is coming from Ryan Krueger from KBW. Your line is now live.

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Hi, good morning. I had a question on M&A. I know this is -- the potential to do bolt-on M&A is not exactly a new topic, but it did seem a little bit more prominent in your language on at this quarter. So I wanted to understand if it's more of a priority now, or if it's just something that you would consider doing if there were opportunistic properties that emerged?

Rodney O. Martin -- Chairman and Chief Executive Officer

Ryan, it's Rod. Mike and I and the team will toggle as usual. Ryan, our philosophy on capital management remains the same. We're going to be disciplined on shareholder value, that very much includes M&A. We're excited about what Mike and I just talked about in terms of deploying $1 billion of share buyback this year. As Mike just shared, we will have $1.8 billion in excess capital, and we are looking to both invest in our business and looking at inorganic opportunities to focus on the growth in our business, and this is really to improve outcomes and the experience for our customers. So we will consider this. We are looking at ways that we can enhance the experience for our customers. And we aren't prepared to speculate on size or preference other than to say it's highly reinforcing of our workplace and institutional focus.

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Understood. Thanks. And then just could you is -- probably for Christine, could you provide a little bit more color on the strong pipeline in Investment Management and the expectations there as we go through the year?

Rodney O. Martin -- Chairman and Chief Executive Officer

Christine?

Christine Hurtsellers -- Chief Executive Officer, Investment Management

Sure, Ryan. So Ryan, as you think about it, I know when you look at our guidance, we're forecasting flattish flows in the first quarter. There are a few known redemptions but also uncertain timing in terms of unfunded wins. So how do we see the pipeline? Well, number one, we're starting the year with the largest a level of unfunded one but unfunded wins that we've had at $4.7 billion and that doesn't include the pipeline, what we call when we're either in the finals or semifinals. And the exciting thing about the unfunded wins, Ryan, is that we have over 10 strategies represented in nearly 40 different clients. So think of it as being diverse and robust. So when you look at our guidance, we're guiding to 2% to 4% organic growth. We're going to continue to leverage our exceptionally strong investment performance, the products that we have, both in public and private asset classes as well as we've got a great distribution team.

So overall, very confident that we're going to hit that range. And so again, recognizing we've had -- just think about negative outflows as far as life happens episodic because when you look at our history, we've delivered five years of positive cash flows, five straight years. And so I'm confident we're going to be delivering six.

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Thank you.

Rodney O. Martin -- Chairman and Chief Executive Officer

Thank you, Ryan.

Operator

Thank you. Our next question today is coming from Suneet Kamath from Citi. Your line is now live.

Suneet Kamath -- Citi -- Analyst

Thanks. Good morning. I wanted to start with Retirement, if I could. Maybe a similar question to Ryan's on Investment Management. Charlie, can you give us a sense of maybe what the pipeline looks like there in terms of transfer deposits and maybe how today it compares to prior years?

Rodney O. Martin -- Chairman and Chief Executive Officer

Charlie?

Charles P. Nelson -- Chief Executive Officer, Retirement & Employee Benefits

Sure. Thank you. Yeah, transfer deposits and the activities on our total deposits are looking very, very strong. We saw an improvement in increase, I should say, in RFPs in the quarter, and even in January, we saw an increase in RFPs year-over-year, and that's leading to higher notifications. We continue to see improved notification, similar to what Christine was just referring to. These are notifications where we are awarded the plan it just waits to be funded. So from a transfer deposit, and it's not just in our corporate markets where we've had 29 quarters of full-service net -- positive net flows, but it's also coming in our tax-exempt business in the first quarter and in early part of 2021. So that's kind of underpinning a fair bit of the confidence in our net flows and outlook for '21.

Suneet Kamath -- Citi -- Analyst

Got it. And then I guess, if I could shift over to capital. I guess, Rod, if we sit here and think about the $1.8 billion going to $2.1 billion, once you close the independent financial planner sale, yes, that's a pretty sizable amount of excess capital. And I know if I think back to the years around the time of the IPO, you guys used to commit to deploying 100% of the excess capital sort of over the subsequent 12 months. And I know the world is different today with COVID. But if we assume that there's no major negative shocks or new surprises, is that still a reasonable expectation for investors that you would deploy kind of the full $2.1 billion over the next 12 months?

Rodney O. Martin -- Chairman and Chief Executive Officer

Suneet, what we've just communicated was for 2021, we are committing $1 billion of the excess capital in the form of share buyback, principally ratably. You have seen us generally lean in and out depending on market conditions, but we're highly confident in communicating that, which I do realize leaves a balance, and that balance will be used in the same judgment and experience that we've used in creating the $6.7 billion of capital that we've returned to date. And what do I mean by that? We're going to continue to look for ways to invest in our business organically. We will look for opportunities inorganically that makes sense in furthering and strengthening the solutions around workplace and on health and wealth. And of course, we're going to continue to have an eye toward returning capital in a very constructive way to shareholders. So we tried to frame it around that. We -- it gives us an enormous amount of flexibility. We're in an enviable position, in my view, to play offense as we move into 2021.

You've heard from Charlie and Christine this morning, the momentum that we have as we finished 2020 and go into 2021, we're highly encouraged about and we're going to let the year play out. I will remind, Suneet, all of us that we still are facing COVID. And we're encouraged about the vaccines we're encouraged there's a light at the end of this period of time. But this will be with us, certainly for the first half of this year, which is why we're going to be prudent as we approach them.

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

Suneet, this is Mike. Maybe if I could just add, and I think I fully agree with everything Rob just said. Just to add a little color around the financial planning channel proceeds. I -- look, we disclosed the transaction -- or just signed the transaction, excuse me, a couple of days ago. And so I think in terms of the use of those proceeds, the same philosophy will apply. There's nothing different there. But I'd probably stop short of saying we would put those necessarily to work by the end of the year. We may not close it until sometime in the third quarter. So just a little caution on that. But the discipline and the focus and the commitment to delivering shareholder value remains. The commitment to focusing on growth creation through investments in our business is just as strong as it's been.

Suneet Kamath -- Citi -- Analyst

Okay. Thanks.

Operator

Thank you. Our next question today is coming from Jimmy Bhullar from JP Morgan. Your line is now live.

Jimmy Bhullar -- JP Morgan Securities -- Analyst

Hi, good morning. So maybe first, just following up on the discussion so far. If you could, maybe Rod and/or Mike, talk about where do you feel that you would like to add through organic and/or inorganic investments in your business? And what sort of the market environment is and the competition is for deals in those areas?

Rodney O. Martin -- Chairman and Chief Executive Officer

Jimmy, good morning. I'll start. And obviously, we'll toggle back and forth. We've talked about looking for opportunities to improve the outcome and experience for our participants and our companies built again around health and wealth. So think about that as an example in terms of our participant engagement, and the data and the technology that will support those other growth initiatives. So improving that experience and outcome would be an example. We've talked about historically, Jimmy, the consideration of adding a block of business to our Retirement, if it met our financial targets. We've talked about expanding our distribution reach with our existing strategies within our asset management business internationally that has been growing. We've got great momentum in the insurance channel with Christine's team, over the last five years, that would be an area of -- that we continue to want to make sure we're making the proper investments in.

And certainly, the -- we've had terrific momentum with particularly against the COVID backdrop with our employee benefit -- group benefit business. And that would be another area that would make sense to add capabilities as we perceive them as we move forward. Mike?

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

I'd just add, again, the focus, Jimmy, will be on shareholder value and delivering that. And that can come in many forms. But accretion dilution remains an important consideration, growth remains an important consideration, shifting our business mix to be more fee-oriented and less risk-oriented with the rerating potential that that creates, all of those are important factors as we think about the opportunities that could be ahead for us.

Jimmy Bhullar -- JP Morgan Securities -- Analyst

Okay. And then just on the outflows in the Retirement business in the fourth quarter. Was it just a matter of timing of case wins and losses? Because for the year, you had a pretty strong year overall, but what drove the outflows in 4Q, and especially in the recordkeeping business? And any comments that on trends that you're seeing in terms of employee deferrals and employer matching contributions with the sort of at least stability or a little bit of recovery that we've seen in the economy?

Rodney O. Martin -- Chairman and Chief Executive Officer

Sure, Jimmy. Charlie?

Charles P. Nelson -- Chief Executive Officer, Retirement & Employee Benefits

Okay. Jimmy, you had a couple of things in there. So I'm going to get them -- try to tick away at them, and if I miss one, circle back on me. Specific to your question around some outflows. In the fourth quarter, we did have a small number of plans of larger plans that did not renew, in particular, in 2020, I should say, in our tax-exempt business. And I'm very proud of our team. I think we've been maintaining good pricing discipline and not renewing plans generally with higher guaranteed rates. I think it's the right thing to do, but they've also been able to have some very strong growth in our tax-exempt business. I don't think you see some of the things that we see on the net flows in our tax-exempt business because it's actually better than what you might see there because our rollovers out of our tax-exempt business actually show up in our retail assets. So there's -- we've been able to retain a fair number of assets there. So we've got some good growth there.

And over the last five years, our CAGR in growth of assets and tax exempt's been 20% a year for the last five years. And as Mike said, we moved to that number one position in the government market. And so that's kind of a commentary both on record-keeping as well as our full-service business as I look at both of those. And adding 0.5 million participants, it was really a significant net-net 0.5 million participants. Significant achievement with the total net flows, between recordkeeping and full service, I think we're about $26 billion for full year 2020. And so that creates some tremendous momentum. And in particular, I think when you look at where we gained that share, we gained that share the largest portion of it from top five DC competitors. So we're winning not just from kind of the mid and smaller, but we took a meaningful share from some top five DC providers. So that kind of gives us some confidence there.

In terms of your question on recurring deposits, employer contributions. As I think I had mentioned, in the fourth quarter, we actually saw an improvement in employer contributions year-over-year in recurring deposits. And that was pretty measurable. And that kind of gives us some confidence going into 2021, I should say, 2021. Actually, we're going to hope that, that continues, that employer contributions continue. As Rod says, there's still some uncertainty around COVID. But we're starting to see a bit of a rebound there that employer contributions went pretty significantly positive in a higher growth rate than what we saw in the second and third quarters.

I think that was all of your questions around record-keeping, full-service and deposits. Did I miss any?

Jimmy Bhullar -- JP Morgan Securities -- Analyst

No, you did well. Thank you.

Charles P. Nelson -- Chief Executive Officer, Retirement & Employee Benefits

Okay. Thank you.

Operator

Thank you. Your next question today is coming from Erik Bass from Autonomous Research. Your line is now live.

Erik Bass -- Autonomous Research -- Analyst

Hi. Thank you. Can you provide some more detail on the drivers of the 8% to 12% expected normalized growth for Retirement earnings in 2021? And also help us think about the revenue and expense implications from the sale of the IFP business?

Rodney O. Martin -- Chairman and Chief Executive Officer

Mike, Charlie, do you want to start? Mike and then Charlie.

Charles P. Nelson -- Chief Executive Officer, Retirement & Employee Benefits

Okay. Do you want to start, Mike, and then I'll go.

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

Charlie, why don't you go ahead?

Charles P. Nelson -- Chief Executive Officer, Retirement & Employee Benefits

Okay. Sure. The drivers for us, obviously, it's been largely driven by our growth. I think -- you've seen the growth that we've talked about in our recordkeeping business. There is -- and I think as I mentioned, we have some spread revenue pressure that that's a challenge. When we -- when I look at on the expense side of things, where we did come in a bit above range last year, and we think we'll have a bit of a modest increase next year, the driver, I would say, is really just some investments we're doing in our IT infrastructure, data, digital, automation, which we believe are really going to give us some longer-term benefits. But we've also just kind of the growth and what we're expecting and continue to expect an onboarding plans both last year and this year.

But even with that growth and some of the higher expenses, I would note that we drove our unit cost down kind of a measure of some leverage in our business by 6% in 2020. And we expect to have continued improvement in our unit cost and Retirement in 2021 as a driver of kind of our focus and our earnings as we go forward. So hoping for -- and continued growth on the recurring deposits, strong flows, net flows, recurring -- or excuse me, in tax-exempt, our corporate as well as record-keeping are going to be the main drivers with a little bit of headwind coming on the spread revenue.

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

And Erik, the only thing I'd add is in addition to the just really good underlying momentum in the growth of the business, there were a couple of one-timers in last year that were adverse that we wouldn't expect to recur. So that's as a little bit of the growth as well. So they're not part of the normalization inflation.

Erik Bass -- Autonomous Research -- Analyst

Got it. And on the IFP sale, because I think that's reported within Retirement. I mean was that business generating anything material from earnings at this point? And I assume that that's where some of the spread compression was coming from since kind of the sale reduce that going forward? And I guess the last one on that is, I think you're retaining $20 million or $20 billion of assets, can you just talk about what those are?

Rodney O. Martin -- Chairman and Chief Executive Officer

Mike?

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

Well, let me start on the impacts from the financial planning transaction. So the earnings are a bit volatile, but you should think of it in terms of $20 million to $25 million is the earnings impact there. So and you're right, the -- pre-tax, excuse me, yeah, $20 million to $25 million pre-tax. The impact of the sweep account was particularly pronounced in 2020. And I think that will -- certainly, that amount of volatility will abate. It didn't come through in spread revenue, though, it came through in fee. So it came in, in a different line item. And then in terms of the $20 billion, I'm not sure what you're referring to. Maybe I just maybe step back, right, on the impact of [Speech Overlap].

Charles P. Nelson -- Chief Executive Officer, Retirement & Employee Benefits

The $20 billion is the leftover in our field advisors and our investor channel.

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

Okay. So just to be clear, there's no impact to assets under administration or under management. There's no impact to assets under management here. We're already on the Cetera platform. As the financial planners move over to Cetera, we'll continue to have those relationships with them. And in fact, we wind up in a stronger position going forward with Cetera. So the economics of that as it relates to the management, by the advisors go to Cetera, but the rest of it is unaffected.

Erik Bass -- Autonomous Research -- Analyst

Got it. Thank you. That's helpful.

Operator

Thank you. Your next question is coming from Humphrey Lee from Dowling & Partners. Your line is now live.

Humphrey Lee -- Dowling & Partners Securities -- Analyst

Good morning, and thank you for taking my questions. Regarding to the IM flow, especially for the unfunded mandate, any color that you can share in terms of the strategies and also -- the type of strategies and also kind of how should we think about the fees for those inflows?

Rodney O. Martin -- Chairman and Chief Executive Officer

Christine?

Christine Hurtsellers -- Chief Executive Officer, Investment Management

Sure, Humphrey. A couple of things. So let's just start with a little more detail on the pipeline. And then I can address how to think about fees as the year evolves. So again, when you think about the pipeline, it is 10 different strategies, so quite a bit of diversity. So we continue to see strong client interest in private credit, private asset classes generally as well as commercial real estate. So those are attractive just really, when you think about the spread and the returns in the low return world, those are very attractive to long run investors. And then pivoting to the public side, we've seen quite a bit of interest in what our global fixed income mandates, if you will, and global unconstrained.

So across the board, we're seeing quite a bit of diversity in flows. We also have a very strong securitized group. So that is getting interest as well. And certainly, overall, our mortgage investment fund we'll be closing. It was closed, and we reopened it. So expect maybe some modest inflows in that. So overall, lots of diversity to think about it. We see continued strength across those product types. But now pivoting to your flow -- or excuse me, your revenue and how to think about the evolution of what sort of fees that we're earning on the business. 2021 will be a little bit confusing at the beginning of the year, simply because when you think about resolution Life and the close of the Life sale, those assets are currently the basis that we earn on those assets when we manage them for Voya Capital are not included in that external client AUM basis points. So what you're going to see is a natural headwind or drag down at the basis points under management. But when you look forward at the rest of the year, when you think about some of the private asset classes and things, you should see -- we're expecting to see pretty much a steady basis point year in terms of what we're earning on assets under management.

And again, as you know, just given the organic growth, we're expecting to grow our earnings in the range excluding the performance fees that were very strong in the range of 8% to 12%. We're going to achieve that through the strong performance, leveraging that. Also think on the fixed income side, we have investment-grade credit, as an example, top decile performing strategy that's getting a lot of interest. Those tend to have lower fees, but again, they're highly scalable. So we think about growing the revenue overall, both through certainly, the fees are important, but also when you think about the scalability and what can drop to the bottom line, those are going to be key again to hitting that earnings target that we've put forward in our guidance.

Humphrey Lee -- Dowling & Partners Securities -- Analyst

That's helpful. Shifting gears, I still want to touch back on Retirement and earnings a little bit. So you talked about the 8% to 12% growth for 2021. But if we take that kind of earnings kind of based on the normalized earnings in 2020 and then comparing to the Q4 '20 normalized number, it seems like the quarterly run rate for 2021 would be 5% lower than the Q4 '20 normalized number. And I believe Charlie and Mike talked about some of the headwinds that is running in the numbers. But at the same time, 2020 is supposed to have some negative impact from the one-offs, where does the COVID-related withdrawal waivers and legal accrual. I guess just in terms of -- how to think about some of the headwinds going into 2021?

Rodney O. Martin -- Chairman and Chief Executive Officer

Mike or Charlie, do you want to take that?

Charles P. Nelson -- Chief Executive Officer, Retirement & Employee Benefits

Maybe I'll start, and Mike, if you want to chime in as well. In terms of headwinds going into 2021, certainly, the spread-based revenues are going to be pressured and continue to pressure -- be pressured. I think that that is something that we're dealing with. Offsetting that, is some of our -- obviously, is our strong growth that we had last year and the growth that we see coming in into '21 both in record-keeping and both in our full-service, corporate and tax-exempt markets. So I think those are some things that are helping us tremendously as well.

And then on the expense side of the equation, yeah, I think I'd mentioned just a little earlier that we do expect to be modestly above and expenses in '21, but we're also expecting to see continued improvement in our unit cost. And we're seeing some benefits and expecting benefits from some of the investments we've been making around data, digital, automation and automating. And I'll give you an example that we have going live in the first quarter of this year is just as we continue to automate various dimensions and processes of our onboarding and our full-service plans. So our full-service corporate plans, we've got some tools that we will be deploying internally to help automate that -- part of that implementation process.

And those things kind of all start coming together to help us drive that unit cost down over time, but as we look at it, it's really, I think the drivers are going to be kind of where rates are. Certainly, our growth and our continued growth, which we feel good about and the line of sight that we have as well as just our continued strong retention. I don't anticipate as high of COVID hardships and loans is what we had 2020, which really kind of were strong -- were pretty high in the second, third and a little bit in the fourth quarter, but they seem to be moderating a bit, but they'll still probably be higher than maybe our average run rate. So all in all, I think it does give us the confidence all these things that gets back to our guide of 8% to 12%.

Humphrey Lee -- Dowling & Partners Securities -- Analyst

Got it. Thank you.

Operator

Thank you. Your next question today is coming from Andrew Kligerman from Credit Suisse. Your line is now live.

Andrew Kligerman -- Credit Suisse -- Analyst

Hey, good morning. I think I want to take one more crack at the M&A question. Rod, you kind of -- you mentioned earlier investments in data and technology, blocks of business for Retirement, expanding strategies for distribution and investment management. All of that sounds similar to when another one of our covered companies calls like a buy-to-build strategy, where there -- I would call it writing checks of $50 million to $200 million to kind of help build their business, but not do anything outsized. Does that -- am I reading that properly? Does that sort of seem more like the Voya bias?

Rodney O. Martin -- Chairman and Chief Executive Officer

Andrew, good question. I'd overlay that again with the discipline that we've demonstrated over the entire period, we've been a public company on driving shareholder value. So we've -- Mike and I have been very clear on the threshold for that. I think we've worked really hard and the team has executed, in my view, beautifully to put the company in the position we're in to have the privilege of the excess capital, reinvesting $1 billion in share buyback this year. And we're going to use that same discipline. So I'm going to fall short, Andrew, of saying, this is size by which we wouldn't do something other than we're going to be disciplined about that. We are focused on growth. And we've done a number of rather small using your word bolt-on pieces to date. But we will continue to look at those opportunities that ultimately will drive shareholder value. And Mike, feel free to add.

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

I think you covered it really well, Rod. I don't have anything to add to that.

Andrew Kligerman -- Credit Suisse -- Analyst

Okay. Thanks for that one. And then just shifting over to Employee Benefits. You've got a pretty nice annualized in-force premium growth projection of 7% to 10%. And I think Charlie was talking about some competitive signs in the employer workspace kind of trending in Retirement. So we're still in kind of a very -- we're still in a tough economy. So how in Employee Benefits are you able to project out 7% to 10% in-force premium growth, maybe a little color around that would be helpful?

Rodney O. Martin -- Chairman and Chief Executive Officer

Absolutely. Rob, do you want to lead on this?

Rob Grubka -- President of Employee Benefits

Yeah. Sure. Thank you, Rod. And Andrew, thanks for the question. Yeah, look, we've I think, demonstrated over the last several years, our market focus, middle and larger employers, certainly through the latest environment has helped us. Our product mix is tighter in a number of ways relative to the competition. So we're focusing stop-loss, the voluntary benefit business and the Life business with voluntary had exceptional growth. Our book of business this year grew 20-plus percent even in that COVID environment. Sort of the sequence of sales. I think you've got a pretty good handle on that. You and others of one, obviously, is important to us, and we've got a pretty good view into that.

We feel good about where we are in that process of those cases coming on board. Both from the volume of what we're seeing, but also the price at which we're seeing it. And so we'll continue to be disciplined on it. 7% to 10%, certainly in the marketplace is good. But I think that focus, from a market perspective, the products that we play in, the COVID environment certainly is impacting things. So we may see some different mix of business from a product perspective or the case sizes could be a bit different. But the long-term trend for the business and the focus on workplace benefits, as Rod has said, across health and wealth both. There's a lot going from just a pure momentum perspective. I think the solution set, the distribution depth and breadth that we have across the workplace and institutions is really firing well. We'll continue to fight hard and just get a tighter grip on maintaining that. But I think those are sort of the high level currents of why we've got confidence in what we're seeing as we look ahead.

Having said that, there's always surprises, as we experienced last year. And we'll just adapt and innovate and the foundational investments that are going on across Voya, I think just have kept us nimble and agile and capturing the growth that we've seen of late.

Andrew Kligerman -- Credit Suisse -- Analyst

Thank you much.

Rob Grubka -- President of Employee Benefits

Thank you.

Operator

Thank you. Our next question is coming from John Barnidge from Piper Sandler. Your line is now live.

John Barnidge -- Piper Sandler -- Analyst

Yeah. You've done a number of divestitures over the last number of years. And then you did the financial planning channel sale this week. Can you talk about any similar smaller businesses that maybe we on the outside might not be thinking that could potentially be divested?

Rodney O. Martin -- Chairman and Chief Executive Officer

The -- what we have done, as you just outlined. We're really executing to enable the company to be the capital light, high return, high free cash flow businesses. We've largely exited as -- you commented and we've discussed with the broader audience. Our retail businesses and capital-intensive businesses and the businesses with tail liabilities, particularly that could be impacted in the lower for longer interest rate environment. So I feel very good about where we are. And the execution, not just the ideation of it, the execution of actually implementing those. And what's that -- the outcome of which is enabling us to be on the high end of our 85% to 95% free cash flow conversion range and absolutely capital light. In terms of, are there others? I think that pretty well covers the waterfront for now, but Mike, feel free to add if I missed something.

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

No, you haven't missed anything. I think the focus is pretty clear now for us on workplace and institutional. I think all the significant pieces we have aligned with that. So it really is more of a focus on growth from here. Could there be on the margins, little things to do? Maybe. But broadly speaking, I think we're comfortable with what we have.

John Barnidge -- Piper Sandler -- Analyst

That's very helpful. And maybe my follow-up. There have been a number of asset managers out there creating product designed to give the investment community, broad-based or targeted exposure to Bitcoin and other cryptocurrencies. Are you working on any similar product for the Investment Management segment that you can speak to?

Rodney O. Martin -- Chairman and Chief Executive Officer

Christine, do you want to speak to that?

Christine Hurtsellers -- Chief Executive Officer, Investment Management

Certainly, Rod. A quick answer, no. We're focused -- yeah. No. But no, we're not. And we're -- certainly, we watch cryptocurrencies. What is the role in the general economy, etc., they still tend to be somewhat opaque at times what's driving some of the valuations. Our focus is on specialty products, expanding our credit franchise, continuing to evolve our active equity strategies with our acquisition of our machine learning team to incorporate to do more concentrated strategies as well as really corporate ESG into what we do. And then to strategically add to our distribution teams, we've gone into Europe. I think there's -- we have Asian clients. We think there are some good opportunities to step into Asia a bit at end of the year. So again, when you think about our product development, our focus on behalf of our clients, we're going to stick true to our brand proposition, really, which is exceptional client service specialty products and continuing to expand our distribution range.

John Barnidge -- Piper Sandler -- Analyst

Thank you very much for the answer.

Rodney O. Martin -- Chairman and Chief Executive Officer

Thank you.

Operator

[Operator Instructions]

Our next question is coming from Jeremy Campbell from Barclays. Your line is now live.

Jeremy Campbell -- Barclays Capital -- Analyst

Hey. Thanks. And Christine, maybe just one more for you, and thanks for all the great color today. As you kind of unpack some of the strengths in certain areas that are kind of underlying the strong pipeline. Just maybe want to kind of flip that one a little bit. Are there any of the equity or other strategies that are showing improving flow momentum either from fewer outflows or a pivot from outflows to inflows that will either yield less of a headwind or maybe a positive tailwind to the organization?

Christine Hurtsellers -- Chief Executive Officer, Investment Management

Yeah, certainly. In terms of the active equity performance itself and flows, we had some challenges in performance in 2020, namely in some of our smaller growth strategies, I think small cap, as an example. We have very strong performance in mid-cap and value, handily outperforming our benchmarks and competitive to peers. And so overall, with active equity, we've seen into the more traditional asset classes, some inflows into large cap growth. And so think of that as a marquee franchise, and we do expect the outflow headwinds to abate as we look into 2021. And so as we think about equity, we've been spending a lot of time really working on ESG as well as analytics and acquiring our -- what we now call it was G-squared, we call it our EMI team, our machine learning team, very strong performance in those strategies, concentrated, quantitative. And so we're starting to see pipeline of interest there.

So overall, I think we're going to have a better year in terms of overall flows and active equity as well as, again, we have such strong performance in fixed income as well. And I just want to know very quickly, and I realize we're up against time. But when you see our performance versus benchmarks in those supplements, those are publicly traded asset classes. We're not including Pomona. We're not including the mortgage investment hedge fund. You saw the strong performance fees we delivered in the fourth quarter. So overall, the strength of what we do and our value proposition expands beyond the traditional 90% outperforming for three years fixed income as an example that you see on the slide.

Operator

Thank you. In the interest of time, our final question today is coming from Tom Gallagher from Evercore. Your line is now live.

Thomas Gallagher -- Evercore ISI -- Analyst

Good morning. Just a few quick ones from me. Rod, do you plan on exercising the option to extend your employment contract into 2022?

Rodney O. Martin -- Chairman and Chief Executive Officer

Tom, thanks for the question. We are intending to communicate, as we've, again, discussed from time to time, not just with you, but more broadly, our plans by the end of the first quarter. I am very excited and encouraged about the growth and development of the team. And we will -- as we've communicated previously, our Board is looking at this in in a very comprehensive way. I couldn't be more pleased with the thoroughness of which we and they are approaching it. And by the end of the first quarter, we will be communicating the plans in a manner that I think will be thoughtful and very orderly. So stay tuned, but we will be communicating that shortly.

Thomas Gallagher -- Evercore ISI -- Analyst

Okay. Thanks, Rod. And just, Mike, a question on the excess capital and the leverage. So that you had mentioned you're planning on using $600 million to $800 million to pay down debt. I think previously, you had said it's probably going to be close to the low end of the range. Is that still the expectation? And just to confirm, we should be taking $600 million to $800 million out of the $1.8 billion of excess capital because you've not yet earmarked that. Is that -- I just want to confirm that.

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

So on the second part, yes, that is a use of excess capital. So just to be clear. Now as to the range, the $600 million to $800 million was a pro forma target, right? So it was to get us back to the leverage levels that we were at the time of the announcement. We will -- ultimately, how much we buy will depend on how the year unfolds. But we'll be managing the leverage ratio, the new leverage ratio to likely something a little bit under 30 to give us a little room, but that will be how it ultimately plays out. It will be -- we think it will be in the range of $600 million to $800 million. If things go well, it will be closer to the lower end of that. If we have -- if the world throws us a curveball, on asset impairments or something like that, then it may not be. But broadly speaking, that's my expectation, we'll be toward the lower end.

Operator

Thank you. We've reached end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Rodney O. Martin -- Chairman and Chief Executive Officer

Thank you. Our success throughout 2020 reflects the resilience and agility of our people. And our commitment to helping our clients navigate difficult times. As we look ahead, we recognize the challenges related to COVID-19 will continue to impact both the US and the broader economy. That said, we remain optimistic about our ability to build on our track record and to continue to welcome new clients to Voya as we make further investments in our workplace capabilities and expertise. We see, as we've discussed, continued client interest in supporting their employees' needs as they navigate the many health and wealth challenges they're facing. We believe that Voya will continue to stand apart for our solutions and expertise in solving those needs.

We look forward to updating you on our progress as we pursue our vision to be America's retirement company. Thank you, and good day.

Operator

[Operator Closing Remarks]

Duration: 68 minutes

Call participants:

Mike Katz -- Senior Vice President, Head of Investor Relations and Enterprise FP&A

Rodney O. Martin -- Chairman and Chief Executive Officer

Michael Smith -- Chief Financial Officer & Interim Chief Risk Officer

Christine Hurtsellers -- Chief Executive Officer, Investment Management

Charles P. Nelson -- Chief Executive Officer, Retirement & Employee Benefits

Rob Grubka -- President of Employee Benefits

Ryan Krueger -- Keefe, Bruyette & Woods -- Analyst

Suneet Kamath -- Citi -- Analyst

Jimmy Bhullar -- JP Morgan Securities -- Analyst

Erik Bass -- Autonomous Research -- Analyst

Humphrey Lee -- Dowling & Partners Securities -- Analyst

Andrew Kligerman -- Credit Suisse -- Analyst

John Barnidge -- Piper Sandler -- Analyst

Jeremy Campbell -- Barclays Capital -- Analyst

Thomas Gallagher -- Evercore ISI -- Analyst

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