When compared with other fields – for example, the development of self-driving cars or human-brain mapping – the technological advancements in the retirement plan field over the last three decades seem remarkably insignificant. Significant advances in the retirement plan industry did occur in the ’70s and ’80s, but since then, there have been only incremental advances by a handful of industry stalwarts. As an industry, the United States’ self-funded retirement system seems firmly entrenched in the Dark Ages of mid-’80s technology.
Appropriate plan design is the starting point for qualified plans regardless of a plan sponsor’s intent, capabilities or intended outcomes. Plan sponsors rely on their plan advisor to provide guidance and assistance. Appropriate services for a retirement plan advisor include designing a prudent investment structure; establishing a solid process for measuring, monitoring and evaluating investment performance; and clearly communicating investment results to plan participants and plan sponsors.
Unfortunately, in many plan sponsor/advisor relationships there can emerge a disconnect between the plan sponsor’s expectations and the contractual obligations that outline and restrict the actions of the advisor. This disconnect can surface around either the plan’s design or service level expectations. Plan sponsors want more from their qualified retirement plan as they simultaneously desire to outsource a greater share of the fiduciary responsibility – all at lower cost.
The conundrum for innovative retirement advisors is they are rarely rewarded for making groundbreaking advances. In many cases advisors have put forth an innovative, forward-thinking strategy that could help companies, plan sponsors or plan participants. However, the all-too-predictable behavior of internal compliance, paired with the erratic views and sanctions of self-regulatory organizations, force innovative solutions to remain on the shelf. This ensures that broad-based acceptance and usage of groundbreaking retirement technology will not be originating from the individual who is closest to the client and so in the best position to implement change: the plan advisor.
If history from the last 30 years repeats itself, technology-based innovation will not emanate from either the legislative or regulatory arm of government in the forseeable future. The question then becomes: Where will tomorrow’s “leap frog” advancements in 401(k) plan technology come from?
Though the next big, disruptive change in the retirement industry is likely to surpass technology alone, many plan sponsors feel that the next big disruptor in the retirement space will be a new entrant with an old name.
Plan sponsors that espouse large financial service companies today seem to be ignoring customers who just want a simple, low-cost alternative. So,the changes are likely to surface through a company like Amazon, Walmart, Apple or eBay. These companies can develop a basic yet solid retirement offering for those plan sponsors seeking simplicity.
Read more commentary from Steff Chalk here.
Such as offering would find favor with today’s increasingly tech-savvy workforce. Everywhere one looks, people are clutching smartphones and staring into tiny illuminated screens… for hours on end… every day. Most of those people are Gen-Xers or Millennials – the Millennials being the first “digital native” generation, having grown up with smartphones. Plan sponsors are fully aware that today, most of their employees have had technology at their fingertips since birth.
The retirement structure of the ’80s remains functional for a large percentage of the approximately 150 million-plus American workers who are saving for a better tomorrow. However, not everyone is ready and willing to trek into the future with the same architecture and piping that touts internet access as its latest major accomplishment.
Steff Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the Fall issue of NAPA Net the Magazine.