The retirement plan industry is undergoing a tectonic shift with evolving digital demands of the customers, narrow profit margins for recordkeepers, and a lack of efficient technology for banks. Financial services organizations are struggling to keep up with the high costs of maintaining legacy systems. These comprise layers of incompetent technological systems that add to the recordkeeping complexity.

McKinsey reports that the United States is the largest retirement market, with $37.5 trillion in assets in several retirement-related accounts. The assets are diversified into public and private defined-contribution and defined-benefit plans, individual retirement accounts (IRAs), and annuities.

Retirement recordkeepers, asset managers, wealth managers, annuity writers, and life insurers generate $430 billion in revenue from this asset pool. By 2026, the household financial assets held by individuals aged 55 and above are expected to rise to three-quarters from the current two-thirds.

Industry leaders see a long-term upward trend in these findings. However, it is crucial to address the challenges of the retirement services ecosystem to achieve the desired results.

Hurdles to Overcome

The significant challenges faced by the retirement services ecosystem are:

  • Complexity in recordkeeping: The existing technical infrastructures of most organizations are insufficient for handling the vast amount of retirement data. Most recordkeeping businesses cannot meet the regulatory requirements of Defined Contribution programs. Another issue is that there is no way to keep track of customer data and their investments across 401(K), IRA, and annuities through the multiple retirement accounts they may have had throughout their lives.
  • Lack of technology: In most organizations, legacy systems have been layered with non-aligned recordkeeping features that increase the complexity of the systems. In the absence of custom-built retirement plan administration software, the disparate systems and subsystems make the systems unwieldy and expensive to maintain. They require much manual effort for data entry and even lack reporting mechanisms. These also minimize the scope for workflow automation and integration of advanced retirement payroll solutions.
  • Narrow profit margins: The growing cost of ownership and need for technology investments in recordkeeping are impacting the retirement plan providers. Legacy systems are costly to maintain, upgrade, and integrate. Evolving compliance mandates, such as ERISA, SECURE Act, Section 404(C), and the Department of Labor’s (DOL) fiduciary rules, further squeeze the operating margins. Pricing pressure is resulting in the exit of several marginal firms. The number of retirement plan recordkeepers has reduced from 400 to approximately 150 in the last decade.
  • Demand for customization: The COVID-19 pandemic has increased consumer awareness about financial security and retirement planning. But the next generation of consumers is digital natives who demand more. They cannot truly benefit from employer-driven retirement plans owing to their nonlinear careers and side hustles. This new generation of consumers needs personalized offerings with results they can constantly track. They prefer retirement planning advice on the go and automate their transactions for disciplined investments.

Way Forward

The retirement services ecosystem aims to improve operational efficiency and customer experience. Organizations must identify the right technology to meet their digital transformation goals. They must invest in retirement and pension management software that can be customized to work in the industry’s dynamic landscape.

Congruent Solutions offers retirement plan administration services that help keep pace with the rapid market evolution. Providing accurate and on-time information, our CORE Platform enables the digital transformation of your legacy systems. Using next-generation technologies, we help you automate processes and use advanced analytics for customizing products to meet customer needs. Leverage Congruent’s expertise in technology and decades of experience in meeting the critical needs of the retirement plan industry by partnering with us today.

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