Proliferation of technological applications and the need to increase retirement plan participation and savings. Seems like a match made in heaven. A panel of experts recently discussed how that pairing is faring and how it can function better.
In Better Technology, Better Retirement Savings: Why Operations and Administrative Technology Matters for Saver Outcomes, a webinar that is part of the Aspen Institute Financial Security Program and the Future of Work Initiative, panelists discussed how operations and administrative technology can be used to update the retirement system. They included Michael Davis, Head of Defined Contribution Plan Specialists at T. Rowe Price; Meera Krishnamurthy, Global Head of Insurance Business Unit at Cognizant; and Tim Rouse, Executive Director of the SPARK Institute. The moderator was Anne Lester, who founded the Aspen Leadership Forum on Retirement Savings in partnership with AARP.
Grading the System
What grade would the panelists give the retirement system in leveraging technology and incorporating technology that has been tested and used? The results were mixed.
Rouse captured that mixture of praise and intimation that the application of technology can be improved. “I think the industry has invested a tremendous amount in driving down costs for administration of plans, which has opened up plan for a huge number of American workers,” he said, continuing, “We have created a good and safe” vehicle for bringing people to retirement. Rouse added, however, “Are there things that could be improved? Absolutely.” Krishnamurthy agreed, and asked, “Have we, as an industry, put all the technologies available to us to our advantage? To give the saver a way to gauge outcomes using the power of data? I think we have a ways to go there.”
Davis added that leakage is a problem as well. He said that it “is such a source of pain for so many people.”
Connectivity
Lester remarked that she is struck by “how hard it is to shift a retirement plan from one recordkeeping system to another, and the amount of time and energy and errors that are made,” due to systems that don’t talk well to one another, as well as manual typing and correction. “So it’s a very difficult process to get right, and one that absorbs a huge amount of energy,” she said. Davis agreed, remarking that for a lot of people, going from one system to another “is way too mechanical, way too difficult and has caused a lot of problems.”
Krishnamurthy identified risks posed by poor information sharing, which she said included:
- employees losing track of their benefits and costs;
- not being able to make sure services are unbiased early on rather than with hindsight; and
- difficulty in converting benefits into reliable retirement income.
“I think one of the biggest problems we have with data is that all the players want data, but no one wants to share it,” Rouse weighed in, adding that one impediment is that “we all know that data has value. But there is no easy mechanism for recognizing that value as it goes through the chain. Until you do, you’re going to have people who hoard data.”
Rouse, however, warned that information sharing itself also poses risks. “Whenever you bring an industry together, and you bring competitors together, you always have to be concerned about anti-trust and whether or not you’re acting in a way that’s anti-competitive and that’s pro-competition. That’s always a delicate issue that needs addressing,” he remarked.
Wish List
Panelists made suggestions regarding specific improvements to the application and use of technology by the retirement industry that they thought would benefit the system and participants.
“I wish I had a single screen,” said Krishnamurthy, on which she could see all the information available to her about her 401(k)s. “It’s so much technology. I still have to do a spreadsheet to see what my income is going to be.”
Krishnamurthy also called for technology that delivers transparency, which she argues increases awareness, encourages saving and helps dispel the notion that retirement is not something one needs to think about now. “As a saver, when I log in, I should know what’s in there,” she said. Similarly, Davis said that he would like to see a technology platform that provides good advice “in a way that’s easily consumable.”
Davis also identified portability and the ability to aggregate assets in one place as things he would like technology to address.
Addressing the “constant complexity” for small employers is something Lester said she would like to see, asking, “How can we use technology to both simplify the experience for the small employer and drive the price down?”
The Big Picture
“Bringing financial wellness to the masses really is an issue,” said Rouse. He said that he speaks to employers who recognize the need to address financial stress in the workplace and its effects on absenteeism and health costs, and that employers hire firms to come in and talk about financial wellness, but that is only of limited effectiveness. He reports that those firms that make presentations about financial wellness “immediately come in and want to talk to the high net wealth individuals,” even though the employers told them that the target is younger and lower-income workers. “That’s a problem that I think can be fixed with technology,” he said.
Rouse expressed concern about younger, lower-paid employees. “If we can’t address the pressing financial concerns of this group of participants, we’re less likely to get this group of people into the retirement system,” he said. “It’s critically important that we not create a bifurcated system,” said Rouse.
But until there are factors beyond cost and recordkeeping that can be effectively used, Rouse warned, “plan sponsors are going to naturally go to the lowest-cost provider,” which he said is “always going to be a disincentive for investments in innovation.”
Another complication, Rouse said, is respecting and maintaining privacy while increasing connectivity and innovating to better meet needs. “What we have to navigate is a demand and a need for wholistic financial wellness. And that’s going to come into collision with privacy.” He noted that financial services firms “need to know an awful lot about you” in order to offer the proper amount of advice and guidance. Davis added that it’s “not entirely clear” how data and privacy are governed.
“The responsibility lies with all the parties—the employers, the sponsors and the providers,” said Krishnamurthy. She expressed the view that if all parties can come together to influence policymakers, there can be more progress. And Davis, whose experience includes work in government regulation, struck a similar note. “I think we have a lot to do with the regulatory environment about how we use data,” he said, adding, “Government has to be a good partner in their effort with the industry to move us to a place where data can be more readily shared.”
Lester struck a hopeful note—courtesy of the pandemic, of all things. She cited the radical shift that workplaces had to make a year ago due to COVID-19 as an example showing that it is possible to accomplish radical change.
