401k Plan Technology Tips Towards Data Integrity
401k Plan Technology is foundational to decision-making for ERISA fiduciaries. Financial advisors can provide value to retirement plans in many ways, not the least of which is offering financial education, wellness programs, and 1-to-1 advice to help set participants on solid footing for the future. Another way financial advisors can add value for retirement plan sponsors and participants? By implementing 401k plan technology in various capacities within the plan to make their lives easier.
Specifically, according to a recent article in InvestmentNews penned by Vestwell founder and CEO Aaron Schumm, “Advisors can leverage technology to analyze workforce demographics and create a plan design that best fits their client’s needs. The key is to create flexible standardization. So just as one recognizes patterns in wealth management client needs, one should apply that logic to offer unique plans to each client without constantly having to reinvent the wheel or overcomplicate plan maintenance.”
However, advisor-driven 401k plan technology solutions aren’t without their complications and challenges. For instance, top of mind for every plan sponsor is cybersecurity and data privacy concerns and the fiduciary duties that accompany them. As such, it’s important for retirement plan sponsors and advisors to do proper due diligence, in particular by making sure they understand what cybersecurity measures plan service providers have in place, for example.
That means asking questions, and lots of them, about how providers encrypt, handle and protect sensitive plan data. Mr. Schumm noted, “Access to data should be on the principle of least privilege — all users should have their data access restricted to the minimum data they need to do their job… Encryption keys for encrypted data and access credentials should be spread across virtual servers or purpose-built data vaults. Modern computing infrastructure no longer has physical “backup tapes” and disaster recovery sites, but instead, uses encrypted cloud-based disaster recovery processes. Check the status of the provider’s security audit and review their annual penetration test report results.”
Moreover, he observed, it is important for plan advisors to be unconflicted, as mandated under ERISA, the law that governs retirement plans and which is meant to protect employees. As such, investment and product offerings to participants should be made in their best interests, and in the most cost-efficient way possible. Technology can help facilitate this, according to Mr. Schumm, because it can be used to provide participants with transparent disclosures about the fees they’re paying and how plan providers are being compensated, for example.
401k plan technology should make things easier for plan sponsors and participants. As Mr. Schumm opined, “The plan design, onboarding, payroll processing, plan eligibility, and ongoing administration of a 401(k) plan should be 100% digital and streamlined.” Moreover, he wrote, “Alerts, chatbots, and nudging can all be used to help service [participants] without becoming overly burdensome.”
It’s important for employers and employees to be able to make informed decisions about their retirement plans and how to maximize savings opportunities without having to become experts. The right 401k plan technology can help accomplish this goal, and financial advisors can add value by facilitating the use of technology for this purpose in retirement plans.