Though auto features have made dramatic improvements to DC plans, they can be blunt instruments, essentially assuming that one size fits all. Now Buck Consultants has applied for a patent on a process and technology that adjusts a participant’s deferral rate automatically depending on changes such as the employee’s salary and age. The initial deferral rate is based on target dates for retirement and income replacement rates set by the plan sponsor taking into account typical savings from outside sources.
In 2013 Russell Investments announced Adaptive Investing, which can customize an asset allocation product for each participant in a DC plan based on readily available data from record keepers and HR systems. But everyone is starting to realize that deferral rates have a much bigger impact on outcomes than asset allocation does.
So if Buck’s new tool can actually take into account readily available participant data like account balances as well as outside assets and access to other retirement sources like DB plans and Social Security, it has the potential to make a real impact on outcomes by adjusting deferral rates as needed. Buck also expects to launch a robo-advisor that will adjust investments as needed.
Stay tuned — the DC world may actually start using the readily available technology and data that are driving the rest of the world.
