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Consolidate or Replace: IT Application labyrinths in the Retirement Plan Administration Organizations

Plan provider organizations which complain about the cost of IT maintenance often fail to realize that the root cause for the humongous IT expenditures are the labyrinths of IT applications, they have coddled over years. Plan providers have built those software applications and even bought a few software packages from different suppliers one at a time, to support their ongoing business demands. To name a few applications related to plan participant, plan sponsor and advisor interfaces, call center interfaces, reporting and data warehousing etc., were built or bought over time to maintain the competitive edge. What the plan provider organizations failed to realize that their ‘Build-or-Buy’ spree has led to cluttered IT application landscapes, which eventually turned into labyrinths over time. I agree that these applications supported the key plan administration processes and operations and drove the business growth at that point of time, but the fact is that most of them no longer deliver full value to the business and have become obsolete.

Application landscapes supporting plan administration activities are poorly structured. It includes dozens of outdated legacy applications which are no longer considered business critical, yet maintained for reasons related to governance, compliance and data retention etc. For instance a plan provider organization who manages 6000 DC plans with 3 million participants approximately uses more than 40 applications for just the data processing automation of census, payroll, and remittance activities. Among those 40 applications, a few are duplicate applications and a few other are running on legacy technologies. Of course, though some of these applications are legacy systems, but since they are supporting the key business processes like payroll and remittance and hence cannot be easily retired or replaced. It is a wise move for plan provider organizations to retool their mission-critical applications implemented using outdated legacy technology with modern technology to increase scalability, flexibility, agility and efficiency. It’s not just about the expenses related to support and maintenance of legacy applications, plan provider organizations should realize that these legacy applications though can handle huge volumes, but cannot have the agility and flexibility required by current generation plan administration business.

There are several reasons why IT application landscapes in the retirement industry have grown so complex with a tangled landscape of redundant and outdated systems. Some of the plan providers state reasons like corporate mergers, and other state increasing customer and compliance demands. I do agree that in general not only in retirement industry, but across the other verticals too mergers and acquisitions result in many redundant systems with duplicate functionality. But one should appreciate the need to simplify the functionality of existing applications and sunset the duplicate systems and also those applications that are fueled by legacy and proprietary technologies. Old systems should give way to the more effective applications into the business. CXOs should overcome the fear of violating industry and fiduciary requirements and give a serious thought about either consolidating or replacing the applications that no longer deliver full business value and do not support current business processes. This will definitely give them a competitive edge!

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