It’s time for a new retirement services experience

The timing could have been better. In the midst of the worst global crisis in modern memory, the retirement services industry has reached an inflection point that requires a revamp of its decades-old legacy platforms and processes. While the forces driving the need for change were percolating long before the pandemic, the crisis has only increased the industry’s need to rethink the retirement services experience.

Because this is occurring at the same time that capital constraints make it more difficult to fund these critical investments, retirement services providers face a conundrum: how to grow their assets without increasing costs.

Three factors are driving the need for workplace retirement providers to transform their operations:

• Prohibitive pricing pressures. All the parties in the retirement space – plan sponsors, participants, consultants and advisors – are demanding more value and increased service for their money.

• A growing focus on customer experience. Both sponsors and consumers are increasingly choosing their 401k providers based on the quality of their experience. Plan participants prize efficiency and relevance above all. They want to find what they’re looking for, make a change or launch a process as quickly and seamlessly as possible. This began in the investment management space, with new entrants fielding roboadvisors that appealed to digital natives. Those expectations have quickly made their way into the retirement services space.

• Greater emphasis on hyper-personalized offerings. The Amazon effect is in full sway. Customers have gotten used to having a choice of offerings tailored to their specific needs and desires. Offerings personalized to individual plan participants drive better results in retirement preparation, which will be increasingly important as millennials enter their peak earning (and therefore saving) years.

Until very recently, it would have been difficult for retirement plan providers to respond to these market forces efficiently. But the emergence of new technologies, including chatbots, artificial intelligence (AI), machine learning (ML), automation and smart digital forms, hold the promise of helping retirement providers meet changing market demands without breaking the bank.

A more welcoming welcome

Because onboarding is a particular pain point for most retirement providers, it’s a natural area of focus for improvements and enhancements. We see retirement providers starting with sponsor/plan onboarding and then expanding into producer and participant onboarding.

In our experience, onboarding a new sponsor or plan takes an average of 90 days. Obviously, that leaves a lot to be desired in terms of efficiency and experience. While there are several key steps in this process (including sponsor and plan setup), for most providers, the most painful part by far is payroll file processing.

Retirement providers receive payroll files from plan sponsors, third-party administrators and payroll providers in multiple formats (for example, CSV, XML, plain text), which then must be manually converted to a consistent internal format for processing. The submission and conversion process has traditionally required a significant manual effort (an understatement!), which has also led to a high number of user errors and data quality issues downstream. Considering that large retirement providers complete anywhere from 250 to 500 onboardings per year on average, that is a whole lot of pain.  

Opportunities beyond onboarding

The issues with payroll file processing extend beyond onboarding. It takes a major and ongoing effort to keep on top of changes and reconciliations. For an average record-keeper, these changes account for 30% to 50% of the overall effort related to plan operations. This area is ripe for improvement.

There are countless other areas for improvement as well, such as payroll data transfers, systematic integration with data providers and automation of reconciliation processes. By deploying digital technologies, the industry’s heavily manual and paper-based processes can finally give way to more streamlined and exception-based processes. With digitization, processes such as billing, withdrawals and disbursements can be easily modified as requirements change due to regulatory actions such as the SECURE Act or other reasons.

A new retirement services experience

To get started on changing the retirement services experience, businesses should consider the following:

1. Create a future-state vision that orchestrates experiences across clients (sponsors, participants, advisors), channels (chiefly web and mobile) and the partner ecosystem (including payroll providers). Design this future operating model around “moments that matter” (such as setup, hardship withdrawals and loans), with all the other aspects of the operating model built around these critical touchpoints.

2. Define your outcomes. When building your business case, focus on growth and other benefits that leverage the future-state digital platform ecosystem (such as reduced onboarding time, expansion into small- and medium-sized businesses), sponsor retention (through improved experience and participant insights) and operational savings through automation (for example, call elimination through intelligent automation and exception management).

3. Choose technology enablers. Create the foundation for the future via cloud, low-code/no-code platforms and AI/ML. The key is to rapidly apply technology advancements made by major technology providers, coupled with continuous innovations enabled by fintechs and insurtechs.

4. Use Agile practices. Speed is crucial. Start small and execute projects in small cross-functional pods (one team across business, tech and ops) to get a minimum viable product to market quickly — in two to three months at most -- and continuously refine it. Maintain momentum by harnessing reusable assets that can be monetized across other lines of business. For example, an intelligent enrollment platform built for retirement service providers an be used by the group benefits organization, as well.

5. Enable continuous improvements. Create a culture of innovation that cuts across siloes, spanning sales/marketing, products, distribution, technology and operations. Cloud technology platforms continuously deploy new capabilities (compared with the quarterly or annual releases of the past) that business and operations should introduce to their clients and end users as new features and functions. This means moving to an agile operating model for contact centers and the back office and continuous engagements for client relationship managers, driven by data and insights.

Based on our experience serving leading retirement service providers, this approach typically yields benefits such as:

• 24% to 26% reduced overall cost per participant (CPP).
• 50% improvements in straight-through processing.
• 25% reduction in maintenance costs for a typical mid-sized record keeper.
• 30% reduction in onboarding time.

The pandemic has accelerated the need for digital change and enterprise system modernization – in the retirement services industry and elsewhere. New technologies present significant opportunities to drive efficiencies and growth by renovating business processes while also providing better experiences and customer retention. If you’ve been on the sidelines, it’s past time to get started.