February 24, 2021 - 668 views|
COVID has highlighted the need for a more streamlined retirement services experience, using modern technologies to boost efficiency while reducing costs.
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:
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.
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.
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.
To get started on changing the retirement services experience, businesses should consider the following:
Based on our experience serving leading retirement service providers, this approach typically yields benefits such as:
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.