The US retirement market is the largest in the world, with over $26 trillion in assets, generating over $430 billion in revenue for recordkeepers, asset managers, wealth managers, annuity writers, and life insurers, according to McKinsey Performance Lens data. With such a wide-ranging impact comes responsibilities of compliance, efficiency, and customer service, which the industry has been primed for.

As an unprecedented disruption came the COVID-19 pandemic, shaking up corporate finances, participant behavior, and legal requirements. The already shrinking margins are now under greater pressure, pushing plan sponsors, recordkeepers, and administrators to look for innovative avenues for growth.

To achieve that growth, retirement plan stakeholders must shed beliefs and myths from the past to move forward. Let’s look at a few commonly believed myths and how they are changing today.

#1 IT is a support function

Across the financial services ecosystem, especially in the retirement plan industry, technology is seen as a support function. Many organizations still use legacy mainframe systems to run retirement operations. On the other hand, nearly half of Americans aged 18-35 “don’t see a point in saving for retirement until things return to normal,” finds a study.

With a large part of the market uninterested in retirement planning, growth can only come from education and continued engagement with the populace. To do this, the retirement plan industry must meet the participants where they are: Online, mobile and social media.

Technology is already the backbone of end-consumer interaction, and the industry must proactively embrace software that enables this.

#2 Customer experience is secondary to cost savings

There is immense fee pressure on all stakeholders in the retirement plan industry. 401(k) expense ratios have fallen by over 30% in the last ten years. Recordkeeping fees have also declined by 8% between 2015 and 2019. As a result, plan sponsors and recordkeepers are focused on maximizing efficiencies and market consolidation to reduce costs. This, however, is a race to the bottom.

Instead of pinching pennies, the retirement industry would do well to deliver higher value to its users. By offering a stellar customer experience, retirement players can expand the pie, create more value, and increase revenue. For instance, a subscription-based gamified app for participants or a self-service platform for plan sponsors can create newer lines of revenue hitherto unexplored.

The retirement plan industry must explore newer tech-enabled avenues of revenue alongside efforts to save costs.

#3 The market isn’t mature for self-service

A vast part of plan administration is performed manually today. As the most basic example, let’s consider monthly payroll processes. Plan sponsors send spreadsheets of information about their employees, pay, retirement contributions, etc. This is manually processed and executed, often causing delays, errors and inefficiencies. This is no longer sustainable.

A robust, AI-powered self-service platform can automate a lot of these processes, delivering not just efficiency but also speed, autonomy of execution, and seamless customer experience.

#4 Regulatory changes are slow and have a low impact on service delivery

Until recently, this was true. However, over the last decade, especially since digitization and the pandemic, the compliance requirements around retirement plans have tightened significantly. This is not just retirement-related compliance but also around privacy, data security, risk management, and more.

To adapt to evolving regulatory requirements and apply them at scale, the retirement plan industry needs flexible technology that separates code and business logic.

#5 Competition will remain traditional

With industry-wide consolidation and shrinking margins, retirement plan players believe that competition is only likely to come from traditional organizations such as other recordkeepers, for instance. They see no need to do this differently or even innovate radically to gain a competitive advantage.

However, the market is evolving dramatically. For instance, McKinsey notes that “digital attackers” are disrupting the under-$5 million market and human resources products like Workday and Peoplesoft are “upgrading their offerings and disintermediate record keepers.” Competition in the future will come from startups, and tech companies will disrupt the way the retirement plan industry functions.

Leveraging modern technologies like the cloud, microservices, mobility, etc., will empower incumbents in to compete in the long run.

If there is one thing that the retirement plan industry needs to remember, it is that the times are evolving rapidly. The beliefs that worked and the solutions used in the past no longer serve us in the new world. To stay competitive, we need to question our basic assumptions, innovate rapidly and embrace technology more wholeheartedly.

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