The first initiative requires most service providers of retirement plans (whether or not participant-directed) to disclose their services and fees, including those paid by third-parties, such as other providers or investment houses. The requirement to disclose indirect compensation includes the requirement to reveal who is paying the compensation and why. Some providers must also disclose information relating to some or all of the plan’s investments.

The rules potentially affect record keepers, brokers, advisors, third-party administrators, accountants, consultants, fiduciaries, and other professionals who serve the plans. The first disclosures were due by July 1, 2012, and must now be made before entering into, extending, or renewing an arrangement with the plan.

These disclosures go to the fiduciaries that are running the plan, such as the plan administrator, who have the power to hire, fire, and negotiate compensation with the service provider. The hope is that this transparency will let the fiduciary be a better shopper, and better understand the conflicts of interest inherent in certain service relationships. The fiduciaries can be held accountable for analyzing and understanding this information, and using it to reduce plan expenses and prudently select providers and investments.

The plan administrator has an additional duty to use this information, and this brings us to the second initiative. The administrator of a participant-directed plan is now required to assemble a series of disclosures to participants and beneficiaries. These new disclosures will explain the investment options available to participants, and provide basic information in the form of a comparative chart. The administrator must also explain plan expenses that may be allocated to participant accounts, as well as participant’s duties, opportunities, and options in managing the investments in their account.

The hope is that this level of transparency will make the participants smarter investors, or at least help them understand how their choices can affect their ultimate retirement savings. For most plans, the first participant disclosures were due August 30, 2012, and must be provided at least annually thereafter. Quarterly, the plan must disclose the expenses which were actually allocated to participant accounts.

The new rules have spawned many questions, as those involved try to adjust their workflow and networks to address them. In some cases, the answers have generated more questions. There are proposals to further change the rules, and more proposals are likely in the future. But the Department of Labor is pressing forward with the existing deadlines, convinced that participants are losing money without convenient access to this information.

Will the data flow these initiatives mandate ultimately prove helpful, or simply add to plan costs and paperwork without corresponding benefits? This will depend heavily on how fiduciaries and participants use the resources that will now be available to them.

Gaining efficiency does not begin with automation, nor should automation be the end.  Automation is a piece of a larger puzzle; that puzzle is process optimization.  Too often companies look at automation as a technical project and fail to look at the larger business process and operating environment.  Approaching an automation project as a standalone technology project can mitigate the value and return of that project.  To capitalize on the best use of automation tools, you must understand the desired future state in terms of business processes and business systems.

Process optimization methodologies, such as Lean, TQC, and Six Sigma, seek to review the business process holistically, focusing on organizational structures, work distribution, quality, controls, knowledge and skills, sales and service, and technology investments.  The review typically results in recommendations for improvements, which can include standardizing processes, aligning resources to balance with the demand, improving communication with stakeholders, and improving relevant and actionable key performance indicators (KPIs).

The best time to look at automation with technology is when reviewing the standardization of processes and alignment of resources.  How much could you save by automating a piece of a given process?  Could you improve the efficiency of the organization, improve the quality?  How could you better align your resources to better serve your clients? And, what tools are available?

Technology is always moving, always progressing, so it is important to constantly re-evaluate the tools available and make sure you are using the best tool for the job.  Here are some to consider:

Optical and Intelligent Character Recognition (OCR/ICR) – OCR / ICR engines allow businesses to apply rules or processing logic to data that is captured most typically from forms. This can help organizations perform validations of the data and automate the exception management process for items received “not in good order” (NIGO).  The data can be directly integrated with other systems, stored, used for reporting, etc.

Web / Mobile – As core business applications continue to develop more robust middleware or service layers, organizations are able to leverage the Internet, mobile applications and social networks to help create portals or interfaces for their customers to interact directly.  This helps push lower level work, such as data entry or capture, status updates or general information queries, outside of the organization through client “self-service,” and helps to improve the quality of information before it enters the organization.

Extract, Transform, Load (ETL) Tools – ETL tools are used to extract data from one to many sources; to standardize, aggregate, clean, or apply a set of business rules or logic to that data; and then to load the resulting data into the destination system.  From an efficiency perspective, ETL tools help to minimize the ad-hoc and time consuming manual processes of collecting and re-formatting data to be used by the business and are ideal for high volume, batched data-driven activities.

Business Process Management (BPM) – BPM platforms connect disparate systems, groups, and people, and combine them into a single, cohesive process, ideally covering the end-to-end lifecycle of any given activity.  Efficiencies are gained by automating the movement of work throughout the organization, directly engaging systems into a business process, improving communication across the organization, providing exception management and resolution paths, and tracking a robust set of operational data.  The audit data captured can then be used to identify “bottlenecks,” as well as work volume, backlogs, efficiency and quality.

With any of these tools, there is an upfront investment of time and resources.  When evaluating the success of an automation project, think of a quadrant diagram with “frequency” on the X-axis and “complexity” on the Y-axis, with the ideal scenario  being low complexity and high frequency.

Automation projects can result in the resource availability to grow your business and expand service by helping your subject matter experts (SME) focus on tasks which add value to your business.  The goals of process optimization and automation technologies are to facilitate business efficiency, drive quality, and “do more with less.”

Finding ways to process payrolls more efficiently is a personal passion of mine. I am constantly looking for ways to improve the data collection process.  I also look to find ways to empower the person submitting the data with the information they need to adjust their payroll data in response to validation results.  With something as large as an employer’s monthly 401k contribution remittance at stake, finding every opportunity to efficiently collect and validate payroll data is more important than ever.

The days of manually keying from a paper listing are largely behind us, but there is still much room for improved efficiency and transparency in collecting payroll data. Many recordkeepers are playing the middle man, getting on the phone with plan sponsors to work through recurring payroll issues, or relying on corrections after the fact, instead of encouraging a sponsor self-service environment.

Successful recordkeepers have learned to do it right, or they will have to do it again at ten times the cost. They use recordkeeping validations to protect themselves from doing things wrong the first time. By providing tools to help plan sponsors and payroll vendors to efficiently fix problems up front, recordkeepers can create transparency with online systems that allow those submitting the data to identify and correct their errors before they become costly recordkeeping adjustments. Empowering those individuals with the proper tools to self-service creates efficiency by easily resolving data onboarding issues.

Of equal importance is the analysis of trends. By measuring and automating the most commonly occurring problems, recordkeepers can identify new patterns of recurring issues.  By finding these patterns, they identify new training and automation initiatives to continually help increase the efficiency of the payroll process.

With the addition of Web services and business process management, it is easier than ever before to connect disparate systems, giving the ability to network directly with the correct audience: the individual or organization who needs the information or who can best help address the problem. By networking with the correct systems and audiences, recordkeepers can bring new levels of efficiency to the payroll process.

Recordkeeping technology has come a long way from my initial experiences as a payroll technician. And, with products like SunGard’s Omni Data Validation Web, recordkeepers can accomplish the following:

• Network the problems to those individuals who and organizations that are empowered to fix them.
• Create system transparency to help expose back-office data directly to plan sponsors and payroll vendors.
• Provide efficiency to help enable plan sponsors and payroll vendors to easily self-service their payroll submissions.

SunGard is continually looking for new process improvement opportunities, including expanding these solutions from payroll operations to other business processes in recordkeeping operations.

What business processes are the most challenging for your operation? What processes do you use to ensure your data is valid?

Click here to learn more about SunGard’s Data Validation Web

In order to help firms be successful with their mobile strategy, there are seven best practices from an application design perspective that can help make mobile initiatives a success.

First, know your users. Observe how they obtain and process information. What types of activities cause them to initiate phone calls or online activities with your firm today?

Second, be sure to provide information and an interaction pattern that is appropriate for the channel. Mobility is not a “port your application” exercise. It is not wise to simply move your current solution to a new device. Consider the “who, why and what.” Think about who is the user, why they are coming to you, and then you will know what to make available and in what format. And, always design your solutions so that actions take less than three clicks to get to and less than five minutes to complete.

Third, it is important to prototype. By doing so, you can fail early, often and cheaply. Rapid iteration is key. Having an iterative development and design process will likely improve the final solution you bring to market.

Fourth, plan ahead as the mobile devices of today may not be the ones of tomorrow. Consider a cross platform approach versus development for specific devices. Doing so can better position you for adapting to new technology innovations in the future.

Fifth, don’t forget the feedback mechanism. Every mobile application should enable users to voice their opinion about your solution. Some of your best ideas or enhancements can come from your user community.

Sixth, become an advocate for the technology. It is important that you personally become an avid user of both tablets and smartphone solutions so that you have a solid foundation for providing direction and input on your mobile designs.

Lastly, be creative. Think beyond the obvious. How can you create a user experience that does not exist today? What information or function can you provide that is not currently available through traditional online means today? Remember, mobility is a unique opportunity to help improve the interactions your clients have with your firm.

As radical as it sounds, it was not that long ago when participant investment direction was rare. Technology has been the single biggest factor in enabling plans to permit participant directed investments. Throw in a threat of fiduciary liability, some marketing, and we have a train that cannot be stopped. I am not suggesting that this train needs to be stopped. I do, however, think it is time to step back and take a look at where this train is headed.

Over the years I have asked attendees at retirement industry conferences whether they think participant directed investments are beneficial for participants. In most cases, the answer is NO. There are a small number of individuals who have independent investment advisors who need the ability to direct their investments and manage their entire portfolio. But, for the vast majority of participants and plan sponsors, it is difficult to determine the benefit/cost analysis.

The most touted benefit of participant investment direction is control: each participant is able to make an investment decision that is best for his or her individual circumstances. I think there is also a social benefit that cannot be overstated. Financial literacy is a national concern, and the retirement plan industry has not only highlighted the problems we face, but also made progress in solving the problems.

We know that the retirement plan is the single biggest savings for many participants. Retirement plan providers are able to give participants access to extensive educational materials and tools, including more cost effective access to investment advisors. This is a benefit that extends beyond just retirement plans. Some providers also believe that participants will not make deferrals to their plan if they are not able to control the investment of these deferrals. This is debatable, as some providers believe participants are paralyzed when confronted with investment decisions, and this may inhibit, not enhance, participation. Lastly, from a plan sponsor perspective, there is concern about fiduciary liability. The Employee Retirement Income Security Act (ERISA) provides protection to fiduciaries where investment losses are due to a participant’s own investment decisions. Thus, some believe that allowing participants to direct their investments helps minimize fiduciary liability.

The costs of participant investment direction are equally as difficult to quantify. Providers spend countless dollars to create all of the tools and materials that are needed to educate and enable participants to direct their investments. This may be wasted money if it is true that the majority of participants just do not care. Hence, default investment options are needed when no investment decisions are made, leading to the proliferation of target date funds. Rather than educate participants on portfolio management, providers create the “easy button.”

Another cost is the risk of participants making poor investment choices. Unfortunately, the cost of poor investment decisions can be devastating if it results in individuals not having sufficient assets for retirement. While ERISA may protect the plan fiduciaries from liability for these poor investment decisions, permitting participant investment direction might also increase liability. There are more investment transactions that can go wrong (e.g., I instructed the plan to invest in Fund A, and due to a processing error, the trade did not take place, and I missed a market uptick). In that case the loss was caused by the plan, not by a poor investment decision.

One final cost that is particularly acute this year is the implementation of new Department of Labor fee and investment disclosure requirements. All of the new disclosure requirements for participants (as distinguished from disclosure to plan sponsors) apply only to plans that permit participant investment direction. This will increase costs in the short-term, but the hope is it will increase financial literacy and enable participants to make more informed investment decisions.

I recently came across a 401(k) plan using a plan design that I have been thinking about for quite some time. Participant investment direction is not permitted until an individual nears retirement (e.g., is age 55 or older). This is similar to Employee Stock Ownership Plans where certain older participants have the right to diversify their investment out of company stock. The theory is that as one nears retirement, he or she may want to invest in less risky investments, and he or she may actually be willing to take on investment decisions because money management will be critical in post-retirement years.

There is no right or wrong answer when it comes to participant investment direction. I welcome your thoughts.

Just as many people would seek a doctor for treatment to help with a problem with their body, many retirement plan participants have decided to seek professional help with planning their wealth at retirement.  According to a recent survey by Sun Life Financial, 53% of Canadians are concerned about running out of money during retirement, and 37% are concerned they will need to lower their standard of living.  Only 34% believe they will be able to afford healthcare in retirement.  These statistics for Canadian concerns are not unique to Canada.  A survey by Merrill Lynch of affluent Americans found similar concerns.  These and other surveys show that confidence increases when a professional advisor is working with participants.  Access to advisors can also help plan sponsors meet their fiduciary responsibilities to the plan.

So what’s the big deal?
Over the past 30 years, the sources of wealth for retirement have shifted dramatically.  From an era dominated by Social Security and defined benefit plans to an era of participant control and choice among various wealth building instruments, the need for a doctor (advisor) has never been greater.  The challenge for advisors is access to information.  As employees have moved between jobs, they have often left retirement accounts with their former employers.  Add the explosion in retail investments directly owned, and a typical investor may have a relationship with five or more financial firms.  What are advisors to do?  How can they properly help their clients plan for the future in such a realm?

Is the answer merely a technology solution, creating a central platform that allows access across multiple banking, mutual fund, insurance, and other financial institutions’ detailed record systems to present a consolidated view of investors’ wealth?

Does a solution require a fundamental shift in the way the financial services industry does business today, becoming more collaborative and working together to meet the needs of its constituents?

Has your organization found a way to address the issue of advisor access to data across multiple providers?

Credits: 1.  www.sunlife.ca/unretirementindex, 2.  www.ml.com/affluentinsights

A defined contribution plan is a useful tool that can be utilized to help people save for their own retirement. Yet, participation rates are decreasing. Thus, I think we should get back to the basics and try to simplify what appears to be an overcomplicated process in order to encourage more participation.

For many, contributing to a retirement plan is their first experience with investing. The basic benefits are explained to them: tax savings, compounded annual growth, dollar cost averaging, and free money from the company via profit sharing or match contributions, quite possibly, even better living in retirement than during working years. One of the hardest obstacles to overcome when educating employees on the benefits of investing in a retirement plan is the employee’s perception toward the affordability of participation. Not enough time is being spent to illustrate to participants why they can afford it, especially when considering that low participation rates ultimately can have adverse effects on the overall plan.

Once a participant is enrolled, he or she is shown how to invest his or her contributions. But, this is where it gets difficult. Could it be that so many owners, in an effort to have every investment option available to them, have muddied the waters and made it too complicated for most plan participants to make comfortable investment decisions? Instead, potential participants throw their hands up in the air. They give up and fail to participate, and as a result, participation rates fall. Remember, Generation X and Y workers are tech savvy and have access to mounds of information. They want everything now, but may not read anything longer than a text message.

Many decision makers have tried to chase performance by adding different investment vehicles to plans: including, exchange traded funds, target date funds and insurance products, etc.  With each presents its own unique challenges. Are all of these in the best interests of the average plan participant (who may not read anything longer than a text message)? Would our time be better spent addressing the investment needs of plan participants, or revisiting the basics and focusing on teaching plan participants about the value of a retirement plan?

Mobile access to enterprise resources, such as CRM and client information or more sophisticated tools, can help significantly improve user productivity and client satisfaction.  But getting these capabilities into the hands of users requires much more than just investment in hardware and software.  A successful mobile strategy starts with careful planning and consideration of your business objectives.  Then, to successfully build, deploy, and manage mobile solutions, the significant technology, process, cost, and commercial risks involved must be properly addressed.

Comprehensive mobile policies share five key elements:  security, infrastructure and technology, user mobility and use policy, support, and future-proofing.

Securing mobile devices and the corporate assets on them is a challenge for any enterprise, but especially so in financial services.  The first step is deciding what information and services can be accessed on a mobile device, and how securely that information must be protected. Cybercriminals are increasingly turning their attention to the mobile channel, hoping to exploit security gaps that have already been closed on the web.  Many people are less aware of what constitutes risky behavior on their mobile device as compared to their desktop PC, and locking down employee-owned devices is impractical.  User profiling is not foolproof, and device hardware ‘sectioning’ tools are still nascent.  Ensuring your mobile infrastructure uses secure transport and data encryption is important, but the most effective approach to mobile security includes a combination of security at the infrastructure, communication, application and device levels, coupled with a robust policy that specifies what users can do with mobile applications and data.

Leveraging your firm’s existing infrastructure can help significantly reduce the costs and risks associated with deploying mobile solutions.  Making sure new technology and processes are compatible and easily integrated with existing systems is critical.  Firms should assess their hardware platforms, operating system and database software, software development tools and environments, communications, technical standards, internal and external data and business logic interfaces (and the physical location of data), as well as configuration management, support infrastructure, and release control procedures.

When creating a mobile policy, device management and inventory, user management and recognition, data access and authentication, analytics, performance monitoring, and mobility profiling as they relate to security must be considered.  These capabilities play a big role in developing a comprehensive information and device security policy, and are further complicated in the 70% of companies that already support devices owned by employees.  It is important to address the reality of lost and stolen devices, as well; regardless of whether it is an employee’s personal device or one provided by the firm, protecting corporate data requires a policy that covers both the reporting of lost devices and how and when lost devices are wiped.

An organization’s approach to supporting mobile devices and applications should address what apps and devices are covered, acceptable use of the information, loss prevention and recourse, and device repair and replacement.  If employees are allowed to access corporate assets on personal mobile devices, then the firm must decide on the amount and type of support that is offered to users and the additional security or policy measures required to mitigate risk. A training policy is also essential to cover mobile-specific risks, regulatory and compliance issues, and best practices.

As device and operating system fragmentation continue to increase, no comprehensive plan is complete without protecting the firm’s mobile investment against the next technology innovation.  The most effective mobile apps tend to be targeted at specific tasks most important to a mobile user.  These types of solutions often need access to a smaller, more manageable set of data interfaces than larger, more comprehensive enterprise applications.  If a firm’s core infrastructure is secure, scalable and designed to support modern Web services, development teams find it easier and more cost-effective to build new solutions on top of existing enterprise assets, and keep them current.

Mobile technology can help greatly improve the experience and productivity of the people that interact with firms utilizing it.  But it is vital to approach mobility with a comprehensive strategy, paired with effective policies and controls to manage costs, reduce exposure to data loss, prevent security breaches and compliance issues, and extend the useful life of technology investments.

As we seem to be closing in on the final requirements and dates for participant level fee disclosures, I question how the disclosure of fees could actually mean huge savings for millions of Americans.

The topic of fee disclosure has captured our attention for some time now. For years, providers have been focused on these mandates and on how to implement them from an operational stand-point. Operationally, the mechanisms needed to properly address fee disclosure reporting can be and, to some degree, have been implemented. However, will the millions of participants who receive these statements understand the costs associated with administering their retirement plans relative to the value they are receiving for their participation in that plan?

It is unrealistic to expect participants to truly understand all of the details and tasks that go into administering a plan, including front- and back-office activities. And as a result, when participants receive their statements containing the fee disclosures, employers and providers will experience an influx of misinformed concern. What parts of plan administration are necessities? What parts commodities?

What will be pertinent is providing education on the value of the administered costs associated with a plan’s fees. I spend a great deal of time talking to retirement plan providers regarding fees, and they are always quick to let me know that they are the best deal around. For some, that means low cost. For others, that means premium services. But for all, it means the value they provide to their participants.  And, the value needs to be communicated and reported to participants, along with the disclosure of fees.

I think articles such as this one published in the Wall Street Journal are misleading. The act of fee disclosure does not necessarily mean that participants’ nest eggs will automatically grow in size just because they have been informed of the costs associated with administering a plan. While a decrease in asset-based fees do have a dramatic impact to a participants’ long-term investment performance (assuming all other variables remain the same), there are other benefits that can come from better participant education. My hope is that the fee disclosure requirements result in better participant education on the overall value associated with retirement plans, which then leads to an increased interest in saving, peer-to-peer communication, and a greater overall retirement preparedness and participation.

How do you think participants will respond to receiving their statements disclosing fees? Will fee disclosure lead to participants more ready for retirement…sponsors with participants who understand the value their sponsor provides? Will assets and participants increase for the providers as a result?

(Wall Street Journal: “401k Plans Step into the Sunshine: New Labor Department Rules Will Require Fee Disclosures; 1-31-2012, Greene and Tergesen: http://online.wsj.com/article/SB10001424052970203920204577193444258923460.html)

Adding ETFs requires retirement plan recordkeeping and trading systems to manage trading and settlement differences between mutual funds and ETF securities.   Collective investment trusts (CITs) operate somewhat similarly to mutual funds, but are under a different set of rules and requirements. Separate accounts using third-party money managers open up the potential for thousands of investment model options for investors. Retirement income is garnering a lot of attention as investing continues a shift from accumulation to de-cumulation, and a number of options are being offered into DC plans incorporating annuities, guaranteed minimum withdrawal or income benefits (GMWB/GMIB), investment guarantees and other non-insurance solutions with investment based downside protection.

Offering any of these non-mutual fund options can create system challenges for recordkeepers and third-party plan providers, particularly when considering ever-changing due diligence, fee transparency and fiduciary requirements needed across all investments.

As DC providers expand their offerings, it is critical the underlying systems accommodate the new solutions effectively.  Platform questions for their Information Technology (IT) groups and partners include:

• Is there adherence and commitment to data communication standards and protocols like NSCC, SWIFT, FIX and SPARK (retirement income) to speed implementations and grow into new markets quickly?
• Do you have a broad and expanding partner network linking to new products and data sources required for analysis, due diligence and compliance needs?
• Can your ancillary services support the new options to help ensure efficient and compliant end-to-end processes for trading, reconciliation, revenue management, payments, fee transparency reporting and custody?

Is your platform ready for (wide) open investment architecture?