The 401(k) retirement plan industry is heading toward significant transformation in 2024 and beyond. It is influenced by the shifting demographics of the American workforce and the evolving demands of plan participants. Other key factors are the increasing complexity of 401(k) plans, which makes compliance difficult, and the rising numbers of participants, as more businesses offer 401(k) plans.

The US Bureau of Labor Statistics projects that by 2030, Generation Z will comprise a substantial 30% of the workforce, signaling a pivotal shift in the retirement planning landscape. According to Business Insider, the new generation of plan participants, armed with an estimated purchasing power of $143 billion, is set to redefine the criteria for financial planning and retirement savings.

The evolving demographic profile underscores the urgent need for innovation in 401(k) record keeping. During a recent webinar on The Future of Participant Experience Innovation in the US Retirement Industry, hosted by Congruent Solutions, Ronak Doshi from Everest Group highlighted the increasing demand for personalization within retirement planning services. “We looked at the top 25 providers in the US region and found that personalization was the number one agenda. Services need to be aligned to different personas. And the number of personas is increasing. The products are stable but still evolving and driving personalization in the product,” Doshi mentioned.

Therefore, recordkeepers must adopt automation to cater to plan participants’ changing needs and preferences. Automation can help record keepers streamline processes, reduce errors, and improve efficiency. With the increasing complexities of 401(k) plans, automation can also ensure compliance with regulations and reduce the risk of penalties for non-compliance.

Evolution of 401(k) recordkeeping

The industry has already transitioned from manual record management to digital recordkeeping, driven by the need for scalability and accuracy. Recordkeepers who adopt automation are well-positioned to deliver an intuitive user experience and enhance the participant journey.

In addition to providing a personalized experience, automated recordkeeping can also facilitate better data management. With advanced technology, recordkeepers can easily collect, store, and analyze participant data to gain insights into their behavior and preferences. This valuable data can then be used to tailor communication and services to cater to individual needs, increasing participant satisfaction and engagement.

Benefits of automated recordkeeping

The leap to automation offers several advantages to recordkeepers:

Improved accuracy and efficiency

Automated systems can process vast amounts of participant data with precision and speed, ensuring that participant records are up-to-date and accurate. Real-time data entry reduces the chances of error. It enables recordkeepers to complete tasks more quickly and accurately.

Enhanced security and compliance

Today’s automated platforms are reinforced with top-tier security features, safeguarding participant data. AI-driven compliance checks can identify and address potential issues before they escalate. These systems can be easily updated to sync with regulatory changes while maintaining integrity.

Cost savings for recordkeepers

Recordkeepers have been facing fee pressures and competition since 2017. Automation slashes the operating costs associated with manual processes, offering a cost-effective solution. The reduced manual intervention provides long-term financial benefits.

Trends in automated recordkeeping

The key trends that will shape automated recordkeeping in the 401(k) industry are:

Cloud-based solutions for remote access and scalability

Cloud-based recordkeeping systems streamline data management through remote access. They provide unparalleled scalability to accommodate the growing number of plan participants. The shift to the cloud enables seamless collaboration among plan sponsors, administrators, recordkeepers, participants, and regulatory authorities.

Generative AI for accurate and tailored offerings

The rise of Gen Z in the workforce highlights the need to accelerate the focus on user experience in retirement planning. Generative AI-powered systems are well-equipped with features such as conversational chatbots and virtual assistants that provide personalized investment advice and engage participants effectively. They analyze historical data to cater to individual participant needs. Recordkeepers can use it to identify patterns in the data that can be used to improve plan designs and communication strategies.

ML in record analysis and prediction

Machine learning (ML) algorithms integrated into recordkeeping platforms help analyze and predict participant behaviors. This proactive approach anticipates trends and adjusts recordkeeping practices in real time. It helps ensure that 401(k) plans remain relevant and effective for each participant.

LLMs to understand participant problems and evolve robo-advisors

The emergence of large language models (LLMs) gives automated systems an unprecedented ability to understand and respond to participant queries. These models allow recordkeepers to deliver an enhanced customer experience at scale. The rise of LLMs is also helping robo-advisors evolve and offer more sophisticated investment advice to participants.

Overcoming challenges and best practices to automate recordkeeping

The path to successfully implementing automated 401(k) recordkeeping is not without obstacles. Here are key strategies for overcoming challenges:

  • Streamlining plan management: Automation can help streamline 401(k) plan management by leveraging technology to automate tasks such as account enrollments, contribution details, and fund changes, ensuring a smooth and real-time process.
  • Ensuring data privacy and security: Prioritize robust encryption and secure access protocols to ensure compliance with data security standards like GDPR. It is also critical to continuously monitor and audit the data to maintain the highest data accuracy and security standards.
  • Improving operational efficiency: Automation minimizes manual handling of repetitive tasks, enhances accuracy, and efficiently manages complex tasks. From updating records to handling participant queries and compliance checks, automated recordkeeping ensures improved operational efficiency.
  • Enhancing compliance management: Automating compliance checks ensures consistent adherence to ERISA, IRS, and DoL guidelines. The system flags anomalies or non-compliance issues to reduce the risk of non-compliance. It prevents regulatory penalties, legal liabilities, and reputation damage.

The future of 401(k) recordkeeping

According to experts, the industry is expected to see a continued proliferation of automation, focusing on further enhancing accuracy, expanding functionality, and delivering even more personalized services.

Beyond the seamless integration of technology and human expertise, refining existing automated processes will reinvent the 401(k) recordkeeping experience. Some trends predicted are:

  • Blockchain technology: Blockchain technology can help create secure, immutable records that are easily accessible to all involved parties.
  • Gamification: Gamifying the retirement planning process will engage participants better, making it more intuitive and interactive.
  • Augmented Reality (AR): AR technology can help recordkeepers visually represent participant accounts, making it easier for them to understand their retirement savings.
  • Virtual Assistants (VA): VA in recordkeeping can provide real-time support to participants, improving their overall experience.

Sagar Shankaranarayanan from Congruent Solutions highlights the importance of automation to cater to Gen Z customers. He says, “In just a couple of years, we’ll have the Gen Z coming in, and we’ll have to nail that CX, make it transparent, and be customer-centric, or we’re going to lose much of that business from the entire group.”

He also reflects on the impact of technology on consumer expectations, stating, “New age fintech apps gave us a customer-centric and transparent experience, and they set the bar high. A study by Bain said that people trust tech companies much more than their banks. I think we’re all playing catch up.” These insights affirm the necessity of adopting innovative and transparent approaches to service delivery, ensuring that upcoming generations of participants find value and trust in 401(k) recordkeeping services.

Prepare for the future of recordkeeping with Congruent Solutions

Automating 401(k) recordkeeping allows recordkeepers to redefine efficiency and customer service. Congruent Solutions offers CORE, a future-proof modular recordkeeping platform designed for the retirement plan industry. Our cutting-edge, cloud-based recordkeeping solution helps you stay ahead of the competition and deliver an enhanced experience for plan sponsors, administrators, and participants alike.

With our expertise in developing retirement plan administration and recordkeeping software, we can help you transform your recordkeeping with future-proof systems. We also help you navigate changing regulations and industry trends. Our solution simplifies the complexities of plan administration, ensuring accuracy, compliance with regulatory guidelines, and improved operational efficiency. We help keep your recordkeeping operations cost-effective and empower you to outperform competitors.

Partner with Congruent Solutions today to revolutionize your 401(k) recordkeeping.