The Elephant in the Room: Preparing for Secure Act 2.0
Retirement readiness is a big problem for American workers. EBRI estimates the US retirement savings gap to be $3.68 trillion dollars. And, the longer the problem persists, the wider the gap will grow, and the heaver the societal burden will become on this generation of workers, and the next, and the next.
But that’s not the elephant in the room.
According to research from Vanguard, while American workers have shown resilience in their efforts to save for retirement, they need help. EBRI reports that two-thirds of employees feel that their employer has a responsibility to ensure employees are financially secure. Yet, only 36% rate efforts to improve their financial well-being favorably.
That’s also not the elephant in the room.
While the Secure 2.0 Act of 2022 should improve the retirement savings systems for all U.S. workers, the complex web of changes drastically impacts how businesses administer retirement benefits for employees, and how employees participate in them. Unfortunately, most retirement service providers – the engines needed to power healthy retirement plans for US employers and employees – simply aren’t prepared. This is the elephant in the room.
An Uphill Battle for Retirement Service Providers
The retirement industry has been facing unprecedented challenges, leaving service providers in a bad spot. Margins are being squeezed, the regulatory landscape is shifting, and consumer expectations are leaping ahead of the typical retirement plan experience. These problems share a common obstacle: underinvestment in modernizing outdated and legacy technology that is choking off the innovation needed even to keep up with current requirements of today, let alone unlock the potential of the industry for tomorrow.
Now, they have to reposition their systems and processes for Secure 2.0. But how? Firms relying on outdated technology are the least prepared to react to the changes required. Data from Infosys suggests that 80% of record-keepers use custom-built systems and 77% still use mainframes, leaving their services weighed down by technological limitations that make it hard to adapt to market trends, build positive customer experiences, and run the business efficiently. 70% of respondents from retirement service providers surveyed said the complexity of their IT infrastructure is a significant challenge.
Addressing the Elephant
A thoughtful technology agenda can help make it easier for retirement service providers to deliver the requirements of Secure Act 2.0 today, while also helping their clients work ahead to ensure plan participants feel informed and empowered in their pursuit of a financially secure retirement well into the future. More than ever, technology can be an enabler of success in both endeavors. Here are some of the technology advancements that leading financial services firms are investing in today to make changes – such as required by Secure Act 2.0 – much easier for their clients to implement:
- Cloud: 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 offer enhancements for recordkeepers, plan providers, and participants.
- AI and Machine Learning: These are quickly becoming the primary enabling technologies for personalized experiences, efficient operations, and real-time insights for participants, plan sponsors, and recordkeepers alike.
- Tech-Enabled Personalized Education: Previously, when enrolled in a plan, participants might receive a pocket folder describing the funds available in 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. Today’s technology should enable participants to receive more personalized guidance that takes into account their whole financial picture in a way and at the time that’s right for them.
The good news is that the industry is eager to act – nearly 90% of retirement services providers surveyed said they are positive about the industry’s ability to transform. However, transformation can be complex, and there’s no one-size-fits-all solution. These providers have a daunting task ahead of them. The right technology partner can make all the difference.
Secure Act today, Secure Future Tomorrow
Technology is here that can enable more American workers to achieve better financial outcomes, and position employers to help them do so. Retirement service providers and their technology partners should work together to build user-focused and user-friendly experiences, on systems that can react and respond in real-time to changes in the regulatory landscape, to meet the requirements of today and build toward the possibilities of tomorrow. Without an elephant in the room.
