The regular way
Connectivity in the retirement ecosystem has historically comprised of a series of one-to-one connections. Plan sponsors connect to recordkeepers. Recordkeepers then connect to custodians, managed account providers, calculation engines, and other third-party service providers. This has been referred to as connecting “the regular way.”
However, setting up technology to support in-plan guaranteed lifetime income products, such as annuities, has presented a more nuanced challenge. The defined contribution space was designed for retirement savings. This is reflected in how many recordkeeping systems are currently set up. Adding new capabilities to support decummulation is likely to require significant rework of legacy technology to accommodate new data flows, calculations, updated user interfaces, portability features, and more.
Offering more than one retirement income solution amplifies the challenge, as the recordkeeper would need to develop separate accounting and calculation systems for each provider. Layer in unique operational and technical requirements for each solution, and complexity can quickly intensify.
The way forward
As an industry, we’re thinking differently about retirement solutions. We also need to think differently about how these products are delivered and serviced. Those who continue the course with one-off connections could get stuck in a continuous game of catch-up with cutting-edge products sitting on their roadmap rather than their shelf.
In contrast, those who invest in the right technology at the onset have an opportunity to build a foundation to speed up the implementation of new products. As a result, these technologies, known as middleware, help seamlessly deliver solutions like guaranteed lifetime income to plan participants faster.
Middleware technology acts as a data clearing house that translates necessary participant information from solution providers into a format that can be easily integrated with the recordkeeper’s existing systems. It delivers connectivity among plan administrators, product providers, and recordkeepers, regardless of servicing platforms used.
Unlike the one-to-one connections, middleware employs a one-to-many approach where one connection point unlocks many connections to service providers and other recordkeepers already connected to the middleware provider – powering product choice, portability, and ease of connectivity.
Powering product choice for today and tomorrow
Middleware providers are agnostic and able to service multiple retirement income products. This helps the recordkeeper avoid messy one-off connections and gives them a single entry point to deliver optionality to their plan sponsor clients.
This open architecture approach is not only a clear-cut way to connect with a variety products from the start, but it also enables the addition of new products that come to market in the future.
Portability made simple
If a plan moves between recordkeepers, or if a participant moves his or her retirement assets out of plan, they need to be confident that the guaranteed lifetime income benefit will move with them.
However, many recordkeepers are unable to support comprehensive product portability due to limited servicing capabilities, difficulties with data connectivity, and other gaps in the technical infrastructure. The centralized middleware model supports frictionless portability at the plan and participant level.
At the plan level, middleware streamlines portability through established connectivity with other recordkeepers and tools in place to translate and transfer all necessary participant and benefit information when switching systems. In short, more efficient plan-level portability is possible due to the “one-to-many” approach of middleware.
Middleware also supports a simple and secure income product transition for the plan participant if they choose to leave the plan, or if the plan sponsor removes the product from their plan.
Spend more time on what matters with improved connectivity
Middleware technology provides a simplified way of managing multiple data flows. Through a single connection to the middleware provider, recordkeepers can easily share demographic and transactional data with insurers, asset managers, and other service providers.
The middleware provider uses data mapping techniques to build a centralized system for information sharing. This simplifies the connectivity question by enabling recordkeepers to connect to any lifetime income solution on the same middleware platform.
This ease of connectivity means insurers and recordkeepers can focus conversations less on administrative tasks and more on the value that retirement income products can deliver to plan sponsors and participants.
Middleware and Managed Accounts
Advancements in technology have also helped drive momentum for managed accounts – a customized, professionally managed investment service for retirement plan participants. Improvements in the availability of data and leaps in automation are helping bring this personalized approach to scale.
Similarly to in-plan retirement income solutions, recordkeepers can connect with an in-plan advice engine through a middleware provider, but there’s also another path.
The managed account provider can act as the link to in-plan retirement income solutions through a connection with a middleware provider. The recordkeeper can then maintain their connectivity with the managed account provider in “the regular way.” This approach enables the recordkeeper to benefit from the efficiencies and product optionality that the middleware connection helps facilitate without needing to connect directly to it.
With this approach the recordkeeper can offer any in-plan lifetime income solution available on the managed account platform. The product is delivered to the plan participants as part of their personalized strategy, which can help participants and plan sponsors feel more confident that the lifetime income products are being used efficiently to help people reach their retirement goals.
The combination of features and flexibility makes middleware a force-multiplier. Through a single connection to a middleware provider, the recordkeeper can potentially:
- improve the accuracy and efficiency of data,
- reduce costs and resources needed to develop and implement guaranteed lifetime income solutions, and
- increase speed-to-market to bring value to plan sponsors and participants faster.
The retirement industry is at an inflection point. Changes in the retirement landscape and the evolution of products available require technology that can keep pace. Middleware can make it easier to offer in-plan income products available today, and provides a flexible foundation for future innovation.