The Changing Landscape for Retirement Services Outsourcing

The US is the world’s largest retirement market and as a large population continues to age, the demand for retirement services is expected to grow exponentially. The total value of assets in retirement accounts has reached US$ 33.7 trillion as of June 30, 2022.

As the Baby Boomer generation approaches retirement, there is an increasing demand for services that can help them plan for and manage their finances in retirement. At the same time, research shows millennials are surpassing Baby Boomers in population estimates. Many employers are looking for ways to reduce the costs associated with providing retirement benefits to their employees. Besides, there is a demographic shift owing to the COVID-19 pandemic, wherein the majority of millennials have non-linear careers. It has led to an increase in the corresponding participant data as well.

There has also been a rise in fiduciary regulations to ensure the delivery of maximum benefits to plan participants. The new guidelines mandate the maintenance and reporting of participant data at regular intervals. These are just a few spots where outsourcing retirement services can be beneficial for businesses. From reducing costs to improving efficiency, retirement services outsourcing allows businesses to focus on their core competencies.

The retirement industry evolution

Plan sponsors and advisors have much work at hand as they strive to fill the retirement savings gap in the US. It is evident that Americans are not saving enough for their retirement as there is a shortage of an estimated US$ 7.1 Trillion across generations and demographics. This number is likely to grow as life expectancy rates increase and the workforce continues to receive inadequate financial education. The industry is, therefore, under pressure to provide innovative solutions that can encourage employees to save more for their retirement.

On the other hand, recordkeeping service providers are struggling with pressing fees and increased fiduciary focus. According to an annual NEPC survey, the median recordkeeping fees per participant dropped from US$ 118 in 2006 to US$ 59 in 2018. Amidst the increasing costs of recordkeeping, service providers are trying hard to survive against demanding regulatory requirements with the inept legacy systems. As plan sponsors are switching to per-participant pricing, recordkeepers are rapidly exiting the industry or consolidating with larger players to counter their revenue loss due to the constant squeeze on margins over the years.

Plan sponsors are trying to achieve their retirement plan goals by working with third-party administrators and retirement plan administration service providers. They are taking advantage of the provider’s expertise in 401(k) plan administration and also the economies of scale as the number of participants is rising. This allows businesses to focus on their core competencies while leaving the management of retirement plans to the experts.

The retirement plan industry is highly regulated and competitive market. To combat this uncertainty, service providers, including recordkeepers, plan administrators, and TPAs, are focusing on improving their service quality. They have turned towards integrating world-class technologies as well as data-driven innovations which drive transformative business value through easily scalable solutions.

Retirement plan administration software is helping recordkeepers and plan administrators streamline back-office operations. They are automating manual processes and minimizing manual errors through futuristic platforms like CORE 2.0 by Congruent Solutions. Retirement software service providers are also using algorithm-based technologies like AI and ML to obtain behavioral insights. They are focusing on self-service solutions and providing hyper-personalized customer experiences to clients. It helps keep expenses under control while improving the service quality.

Growing need for outsourcing in the retirement industry

The industry is seeing a shift with more employers offering the 401(k) plan to attract and retain employees. Most organizations have in-house teams for retirement administration, but it is no longer feasible with high cost of recruiting & retaining resources, ever changing policies, rules & regulations and seasonal workloads. To manage the operations, they are opting for services of agile plan administration software providers, recordkeeping companies, and plan administrators.

New service models in the retirement plan industry to help plan sponsors, recordkeepers, and plan administrators are

  • Digital interfaces that can handle the growing number of products and plan participants.
  • Increased reliance on specialized service providers who can help with contribution processing, loans management, and routine paperwork alongside compliance tasks.
  • Holistic services from financial planning and investment advice to health care and long-term care planning.
  • Shared service concept where companies are outsourcing all or part of their retirement functions to a single provider. It allows them to reduce costs due to economies of scale but with limited flexibility.
  • The strong demand for personalization and customer-centricity has led to the popularity of the self-service model through AI and ML-driven platforms.
  • Service providers are focusing on providing cradle-to-grave solutions to help plan sponsors and administrators in handling the customer’s lifecycle from the most initial investments to the retirement corpus.

Better outcomes with outsourcing

Outsourcing retirement plan administration helps scale to demand. Seasonal workloads can be managed better without the hassle of hiring additional resources. The end-to-end management of retirement plan administration by an outsourcing partner allows you to focus on customers.

When you partner with a reliable and experienced retirement services provider, you get access to best-in-class technology, knowledgeable resources, and up-to-date processes.

Retirement service providers also ensure compliance with the latest ERISA and DOL regulations. They help in mitigating risks while you get more time to serve your customers better.

There are several different ways in which retirement services can be outsourced.

  • One option is to outsource the administration of retirement plans. This can include tasks such as plan design, recordkeeping, investment management, and customer service.
  • You can also choose to outsource the entire process of running a retirement plan, from start to finish. This can be particularly beneficial for small businesses that do not have the resources or expertise to manage a retirement plan effectively themselves.
  • You can also opt for support in terms of compliance with government regulations. These include tasks such as 401k compliance testing, Form 5500 filing, and other annual reporting requirements of IRS and DOL.

The range of services included would depend upon your budget and plan components, such as size and complexity.

The good part of outsourcing your retirement plan administration

In contrast to hiring an expensive in-house team for each phase and function of the retirement plan administration process, outsourcing brings in digital and industry expertise across operations.

Addressing the challenges of poor data, a proficient partner will also help modernize legacy systems and integrate them with existing systems for ensuring complete automation. Taking the data storage and processing infrastructure to the Cloud enables easy collaboration among stakeholders.

Here are the key transition points facilitated by outsourcing:

  • Greater visibility to all stakeholders
  • Access to Cloud-native and microservice-based architecture
  • Proper data management for 401(k) with a precise data onboarding and validation process
  • Eliminates manual intervention to improve quality and consistency
  • Assistance with mitigating compliance risks through Compliance Testing and Form 5500 filing

Outsourcing to the specialist

The retirement landscape is ever changing and highly competitive. Adopting an agile platform in place of traditional methods makes recordkeeping and plan administration more manageable and accurate. Retirement plan providers are rethinking traditional business models and striving to deliver client value. A specialist technology solutions and plan administration service provider like Congruent can help.

We offer the following:

  • A cloud-based intelligent platform CORE Suite of Solutions built for end-to-end management and administration of retirement plans in the US.
  • Operations Outsourcing for plan administration and recordkeeping services for retirement plan providers and TPAs.

Congruent Solutions helps recordkeepers, plan administrators, and TPAs with their operations with a unified platform and industry expertise for end-to-end administration of plans. You can outsource your administration and transaction processing to our trained teams. We help manage the entire transaction processing, be it Distributions, Contributions, Rollovers, Loans, or Rebalances and Transfers. Our trained resources also manage Plan Restatement, Census Data Management, Compliance Testing, Form 5500 preparation, and Trust Accounting & Reconciliation.

We partner with plan providers, recordkeepers, and TPAs to help them be prepared for tomorrow as they help every American be ready for their secure retirement life.


Date Published: December 14, 2022


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