The speed and scope with which the 401(k) industry is innovating in order to make it ‘easy’ for participants to act is something to behold, but taken in total, it’s overwhelming. Here’s what 401(k) advisors need to know to get the most from what’s available
(From 401(k) Specialist, Issue 3, 2016)
Are 401(k) participant websites obsolete?
As preposterous as it sounds, there’s precedent for asking. Moore’s Law marches on, and the advent of mobile technology has thrown 401(k) tech innovation into hyper-drive, causing equal parts excitement and angst for 401(k) advisors in the quest for better retirement outcomes for their clients.
Prognosticators from the National Academy of Sciences predict anywhere from a four-fold to seven-fold increase in technology overall in the next 20 years, something they say could rip society apart if users are unwilling or unable to properly integrate it into their daily lives. Aside from the depressing dystopian possibilities, 401(k) advisors, sponsors and—most importantly—participants can’t help but be pulled along, and the latest offerings in innovation fall, at least for now, decidedly in the excitement camp.
“For the longest time 401(k) providers have told participants, ‘Come to my 401(k) site and do all this cool stuff,” Michael Kiley, founder of De Pere, Wisconsin-based 401(k) administrator PAI, explains. “After decades of these really cool tools, there’s only about a 6 percent utilization rate. In fact, I’ll challenge you; how often do you go to you plan provider website?”
His point is well-taken. As the disparities in the level of success between opt-in and opt-out mechanisms for influencing financial behavior suggest, building a website and developing tools based on what the plan sponsor thinks are important to participants clearly isn’t working.
“The technology fueling employee self-service websites isn’t that controversial,” Kiley adds. “Payroll occurs every other Friday and the contribution is deducted.”
What is controversial, he notes, is employee behavior.
“We have to identify what’s important to participants, which is what we’re doing, and then push out suggestions based on what they value. So they won’t necessarily go to a website, but it will rather be some form of electronic notification with a ‘click here’ option for them if they wish to move forward.”
For example, a certain calculation could illustrate that an extra $65 dollars saved from each paycheck might result in a windfall at retirement. The information is conveyed to the participant via their mobile device with a button that, once clicked, will automatically pass that amount onto payroll each period without ever having the need for the participant to visit a website.
It’s something on which MassMutual has recently embarked with two new offerings, MapMyBenefits and RetireSmart.
“Technology is clearly a big topic for our industry,” Tina Wilson, senior vice-president of Investment Solutions Innovation for retirement plans and workplace insurance, deliberately begins. “What we feel is critical is to number one, provide prescriptive guidance to participants, and number two, to have them be able to implement that prescription with ease. We think of participants as holistic employees, not just participants, who have to make many important decisions.”
Meaning they look to assist participants with their overall individual or family economic situation, and how the 401(k) fits in.
“When we think of technology, it’s not just the desktop,” Wilson continues. “The technology must back recommendations that are relevant and timely, and any messages that are sent must be actionable. We can’t just spam them, but rather provide analytical prescriptive guidance and make it easy for them.”
The holistic theme to which MassMutual’s Wilson referred has long been acknowledged in the RIA space (quarterbacking a team of professionals, the 30 thousand foot view of a client’s financial situation, etc.), but the concept is relatively new to 401(k) advisors, for the simple fact that they’ve immersed themselves only in—what else?— the 401(k). No longer, and the importance of 401(k) coordination with Social Security, IRAs and other qualified and non-qualified accounts is widely acknowledged.
However, in an illustration of the aforementioned speed of innovation, Envisage Information Systems is taking this holistic concept to the next level with its unified financial life network. The network includes, among other things, banking choices, insurance, healthcare and personal budget planning. It examines how each is interrelated with each other, as well as the 401(k) and other retirement savings accounts.
“We’re active in a number of industry conversations, as well as industry initiatives, surrounding two major topics,” says Christen Marsenison, chief strategy and development officer with the Ithaca, New York-based company. “No. 1 is looking at data standardization across the industry. Company A might see data as first name, last name, the date of birth and the social security number, while Company B might see it as first name, last name, the date of birth and the participant’s address.”
The second topic, she notes, is the process for ensuring the security and protection of that data. She claims three-factor authentication, let alone traditional two-factor, is almost obsolete, making security and protection top-of-mind for 401(k) technology providers, plans sponsors, plans advisors and (of course) participants.
“The main thing is how we go about ensuring that the cloud is just as secure as traditional infrastructure-based data transfer system. You can google security measures and it will tell you exactly how to hack into certain programs and at the bottom of the page it will tell you how to protect against a hack.”
As a result, Marsenison and her team are looking at other ways to house data, since data houses “are a hacker’s dream. Outside of data warehouse we’re looking at new encryption methods. For instance, how can we map and aggregate data so we can simply transpose a Social Security number to use as an employee ID.”
The “making it easy” mantra underpinning most of the new 401(k) technology is meant not only to engage new participants, but reengage those that might have drifted away. This simplicity benefits plan sponsors and advisors as well, particularly through the use of automated participant education platforms, something that can free the sponsors time and lower expenses, all while documenting any interactions they might with employees regarding retirement saving.
It’s something Auburn, California-based Riskalyze is offering with its newly released “Autopilot for Retirement Plans.” The company allows financial advisors to deliver “advice at scale to the desktops and mobile devices of hundreds of plan participants with a few clicks.”
More specifically, according to Riskalyze CIO Mike McDaniel, the service allows advisors to add all participants to a single online dashboard, create model portfolios from the fund menu or 338 fiduciary, and invite participants using a special link to get matched with the fund elections that best align with their Risk Number and retirement goals.
When an advisor creates a new plan in the product, they can define the plan’s model portfolios, either building them from the fund menu or copying them from the plan’s 338 fiduciary. Each plan then has a landing page for participants to launch the “best interest” exercise and determine their Risk Number, or the advisor can send invites out via email.
Ultimately, says PAI’s Kiley, recent technological innovation in the 401(k) space is all about improving efficiency, behavior and— most importantly—expected outcomes.
“The 401(k) market is moving from how much a participant has at any given time to what they can expect to have at retirement,” he concludes, before warning, “As advisors, they should always keep an eye on the latter, and push out ideas to ensure it’s reached. The first word in ERISA is singular, not plural. Any one employee underserved and who feels their retirement savings needs have not been met becomes a six-figure claim.”