Tuesday, February 27

Secure Act 2.0 will require investments in modernizing technology

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Nearly half of employees are concerned with their household’s financial wellbeing, citing saving for retirement and having savings in case of an emergency as top sources of financial stress. What’s more, three in four workers say they trust their employer – and believe it is their responsibility – to help them improve their overall financial well-being through benefits and offerings. That’s a tall order for employers to fill. Even taller when you consider the recent passing of Secure Act 2.0 in the House. 

Secure Act 2.0 – or the more formal title of Securing a Strong Retirement Act 2.0 – generally intends to enable workers to save more, enhance and simplify employer-sponsored retirement plans for plan participants and plan sponsors, and lower the costs to employers of administering the plans. It will enact changes that would require most plans to automatically enroll workers, make saving easier for student-loan borrowers, lower plan administration costs for small businesses, and more. While the intentions of this law are good, putting it into action will create several challenges for plan providers who may be relying on antiquated, legacy technology platforms. It will also leave employees with even more questions about their finances, and they will look to their employers for support on how to manage their contributions. 

If Secure Act 2.0 passes the Senate, those who oversee their company’s employer-sponsored retirement plans will be tasked with double duty. Not only will they need to ensure their company plan is ready for these changes, but they’ll need to provide updated guidance to their employees on how to maximize their retirement benefits and plan for a more secure financial future. The good news is that more than ever before, technology can be an enabler of success in both endeavors. Employers and plan sponsors should be working with their recordkeeping partners to understand how technology will enable preparedness for Secure Act 2.0 and ensure that plan participants feel informed and empowered in their pursuit of a financially secure retirement.  

In preparation for those conversations, here are some of the technology advancements that leading financial services firms are investing in to make changes – such as those proposed in Secure Act 2.0 –  much easier for their clients to implement. 

Cloud is a game-changer

Recordkeepers do a lot of work behind the scenes to keep company-sponsored 401(k)s running smoothly. One of the recordkeeper’s key responsibilities is to track who’s in the plan, what investments they own, and what money is going in or out. Though we’ve come a long way from the days of recordkeeping with pen and paper, many firms are still working on decades-old platforms built on outdated physical mainframe architecture, making it difficult to make changes and modifications quickly. 

Today, a flexible, efficient, cloud-based solution can allow retirement plan providers to stay updated, keep pace with evolving customer and regulatory needs, and enable personalized services. For recordkeepers, modernizing platforms for the cloud will create nimbleness, reduce operating costs, and allow for additional fintech applications or tools for easier plug-and-play solutions for platform users. For plan sponsors and participants, this modernization will improve the overall user experience by allowing greater visibility into their assets and the ability to make necessary adjustments faster. 

Personalization supported by AI

AI and machine learning are other critical technologies that will push the retirement industry forward. They can help internal and external systems become smarter and more efficient and add new levels of personalization to the user experience. They can deliver each participant a personalized, curated experience tailored to their specific needs and goals, nudging each individual in a customized direction based on their own unique needs and behaviors.

Participants might get a customized nudge from their plan to make sure they are maxing out their full benefit. Plan sponsors can be alerted about plan data or trends in participant behavior so they can react quickly to ensure plan participants remain on track toward their goals. This technology can also adapt quickly to events that require the attention of plan sponsors and participants, where education will be required to help users understand the impacts and adjust their strategies accordingly. AI technology will enable so many new opportunities for a personalized, real-time experience for all. 

Educating participants

Secure Act 2.0 magnifies the opportunity and the need for recordkeepers and employers to become more thoughtful about education than ever before. Previously, when enrolled in a plan, participants might receive a pocket folder describing the funds available on the plan or the match calculation. Now that experience is happening online and in real-time for most employees. Even so, the need for guidance has never been greater. 

Many employees who participate in 401(k) plans do not have a financial advisor that they can talk to when they have questions about how to best prepare for a sound financial future. In particular, as participants get closer to the retirement stage in their life, they often have questions about how to prepare to draw down their assets while making them last for decades in retirement. As everyone’s financial situation is different, there will never be a perfect solution that applies to every participant in a plan. However, today’s technology should enable participants to receive more of this type of personalized guidance that takes into account their whole financial picture in a way and at the time that’s right for them. An advice solution can play a critical role in the education of employees and provide support to already overstretched HR departments. 

Employers and their retirement plan partners have a tremendous opportunity to work together to build these highly intuitive and user-friendly experiences – on systems that can react and respond in real-time to changes in the regulatory landscape – to make it easier for plan participants to secure a financial future. 

Three in four employees trust their employers the most, making the relationship between employer and employee more important than ever. In addition, the ubiquitous impact of technology and the increased expectations of its users means that the relationships between plan providers and recordkeepers must become seamless and responsive to retirement savers’ needs. These trends are overlapping at a time when employees are demanding support from their employers where they need it most, and financial well-being is a key area of importance for them. Core technology modernization is a primary focus across industries, but the unique overlap between enterprise and their retirement plan providers means these relationships feel it especially acutely. If employers and plan sponsors collaborate with retirement plan partners who are making meaningful technology investments now, they will be more successful in implementing the changes proposed in Secure Act 2.0, more capable of providing support for employees, and more prepared for continued success in the future.  

Martha King is Chief Client Officer and Head of Retirement Services Center of Excellence at Infosys.

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