Kodak was the Google of its day! In 1976 it had a monopoly in the film-based camera business, accounting for 90% of film and 85% of camera sales in America. However, times were changing and digital camera technology was around the corner. Unfortunately for Kodak, the company did not appreciate this threat to its film-based business and it failed to adapt accordingly. In spite of having a 10-year window of opportunity, Kodak lost its chance to secure a leading position in digital imaging, giving way to new players like Olympus, Canon and Fujitsu. This failure ultimately led to the downfall of Kodak’s 130 year old business
Change or Become Irrelevant
In the Kodak’s case, customers’ expectations and behaviors changed over time but Kodak did not embrace that change with innovation and investment; so others entered to deliver for their customers. As a result, Kodak’s film business became largely irrelevant.
Today, we are seeing a similar phenomenon occurring in the retirement market. All constituents’ (plan administrators, plan sponsors and participants) expectations are evolving. The technologies required to service them must evolve as well or else face becoming irrelevant.
The objective of this article is to outline current challenges facing plan administrators and review emerging technologies that are meeting those challenges. The net, as we have found through conversations with industry leaders, is easier operations and a better customer experience.
Over the past year, Congruent surveyed multiple top-level IT executives and business managers in plan provider and recordkeeping organizations of various types and sizes. This included in-depth interviews and discussions to understand their IT challenges and strategies for adopting new technologies; in what areas they are focusing, and how their strategies translate into a better customer experience. Most of the participating companies were SPARK member organizations.
Understanding the Current State
Most retirement recordkeeping platforms in place today were built in the 1970s and 1980s. These legacy platforms include software systems purchased from vendors and systems that were built by in-house IT departments. Recordkeeping was a lot simpler decades ago. Originally, the business was all about core recordkeeping. As demands changed, many organizations modified their core system with User Defined Fields (UDFs) and custom scripts. While this was quick and inexpensive in the short term, a significant downside was that upgrading those systems became more complex. This resulted in longer upgrade timeframes and proportionally higher labor costs.
Historically, vendors that provided legacy platforms were not adept at providing user friendly User Interfaces with a modern look and feel. As a result, participant and plan sponsor web sites have not kept up with other industries and the customer experience has declined. In almost all the cases, the web layer has been a wrapper on top of legacy applications which doesn’t leverage the web experience that today’s users have come to expect.
Defining a Future State
The majority of organizations interviewed indicated that they recognize that technology modernization is required for their organizations to be competitive. While some are contemplating a full platform conversion away from their legacy systems, most are planning an iterative approach to upgrading their systems. This latter strategy involves a decoupling of surround applications from the core recordkeeping system to achieve platform independence. Recordkeepers no longer want to be tied to a single vendor who provides all of their critical applications. These organizations expressed a desire to have core recordkeeping be handled by the recordkeeping system. They also want to introduce surround applications that are built with modern technologies, have better integration capabilities and are easier to upgrade.
Introducing applications with modern User Interfaces gives the plan administrator an opportunity to improve their customers’ experience and engagement model. This applies to the plan sponsors and participants, especially where Web and Mobile are concerned.
Some new surround applications also automate commoditized back-office functions. Payroll processing is one such example. Some new payroll solutions provide self-service models for plan sponsors, which reduces the labor requirement in the recordkeeper’s back-office. This allows recordkeeping organizations to shift their workforce away from low value, repetitive tasks and into higher value, customer facing functions. The result is that the recordkeeper can better apply its resources to differentiate itself in the marketplace.
Mapping a Future
As mentioned earlier, most organizations are adopting an incremental approach to upgrading their recordkeeping technology stack. This allows for an unwinding of their 20+ year old environment without the risk of a big bang conversion. The incremental approach involves replacing discrete legacy functions with new point solutions. Deciding which point solution to bring into the organization first depends on which application can drive the biggest bang for the buck in terms of return on investment (ROI), strategically shifting resources to higher value differentiating functions, and positive impact to plan sponsor and participant engagement models.
Some Focus Areas
Recordkeepers articulated the benefits of a full recordkeeping platform change in terms of lowering upgrade costs. New recordkeeping systems with external rules engines allow recordkeepers to make regulatory changes and introduce new product designs without programming code in the system. For plan sponsors, the major opportunities identified were solutions for Payroll & Census and Big Data. For participant impact, the opportunities identified were Web and Mobile. Descriptions of these focus areas are below.
- Payroll & Census
New payroll and census solutions introduce automation efficiencies into processing. For example, rather than having payroll files sent into the plan administrator’s back-office where they are manually processed, an online application with modern User Interface is provided to the plan sponsor to upload their payroll files. The solution is able to run edits and validations in real time and inform plan sponsors where there are errors. Plan sponsors are able to correct errors and resubmit their information. By moving error correction upstream in the payroll process, the back-and-forth issue resolution that historically happens between the plan sponsor and the plan administrator is eliminated. This reduces the resource requirements in the back-office and allows the plan provider to allocate its resources into higher value functions.
- Big Data
Plan sponsors are now expecting more than annual plan reviews from plan administrators. Understanding plan health and retirement readiness for participants is becoming more important. Technology solutions are available to take plan and participant information and generate new, meaningful and actionable information. Participant data can be segmented by age, type of employee and income levels. As a result, communications to these segments can be customized to drive behaviors to improve participant outcomes. Challenges in this area include dealing with partial data and proprietary data sources, but this is an area that is advancing.
Websites are the ‘store fronts’ of plan administrators. To be competitive, these sites need a modern look and feel. This is required to win and keep clients. Technologies that allow for new designs and easier use, such as minimizing the number of clicks required, are available. Web solutions must be easy to integrate with other data sources. These may include other recordkeeping systems, other plan providers, and outside account balances.
Mobile solutions seem to be slightly lower in priority (behind Web) for plan administrators, however participant behavior is certainly driving more functions to mobile devices and away from PCs and laptops. There is a sense among retirement executives that the push to mobile will influence plan sponsors more and more. Even today, having a mobile solution is important in finals presentations to plan sponsors since plan sponsors are interested in providing a better customer experience to their participants. They also want to reach segments of their population that may not have a computer at home or may already be conducting all of their transactions from mobile devices. Mobile apps are becoming more prevalent versus simply having mobile enabled solutions.
When launching new point solutions, many plan administrators are segmenting their business into two or more groups. For example, this segmentation may be small vs. large plans. Some plan administrators are implementing solutions with small plans first; where automation and a self-service model is needed most. In addition, many are starting with new small plans for their initial roll out; then they are coming back to their large legacy plans with education programs for the new User Interface experience.
One Small Step for Plan Administrators
During our interviews it became clear that most plan providers are either developing strategies for change or are actively implementing new technologies to bring change to their organizations. In terms of advice for others, the collective message was (1) assess the readiness of your organization, (2) understand what needs to be done to take your organization to the next level, (3) prioritize where to begin, and (4) take that first step. Prioritization may be based on a number of factors such as where the largest ROI can be achieved, where can commoditized functions be automated, and how you can impact and improve the customer experience. Lastly, start small. This may be with a specific business process or a particular book of business.
By embracing new generation technologies, even for a specific point solution, organizations have the opportunity to make their lives easier and enhance the engagement with their customers. In the end, this works to keep the organization relevant in an increasingly competitive marketplace.