Plan Design, Meet Big Data

A new tool from J.P. Morgan Retirement Plan Services gives sponsors and advisers a data-driven view of participant behavior that can help improve plan design and communications.

J.P. Morgan says the “Plan Diagnostics Tool” leverages data visualization technology to give sponsors and advisers an intuitive, visual-based understanding of participant behavior patterns across 401(k) plans. Such insights, the firm says, can be used to enact meaningful plan design changes and develop targeted communication campaigns to help motivate specific groups of employees to adopt stronger investing and saving habits.

Users can employ the Plan Diagnostics Tool to pick out and analyze both positive and negative patterns in retirement plan usage among large subsets of participants, such as inappropriate equity allocations per a participant’s specified risk tolerance or investing time horizon. Sponsors and advisers can also diagnose participants’ investing behaviors across metrics such as age, salary, geography, years of service, business line and employee role, among others.

Bruce Focht, a research manager and vice president of business intelligence at J.P. Morgan, tells PLANADVISER that new data visualization technologies are causing significant change within the retirement planning industry—especially when it comes to the way sponsors and advisers design and target communications materials.

“The new technologies have really given plan sponsors a chance to generate more insights into what’s happening in a plan than ever before,” Focht says. “Based on what a participant’s behavior is, we can automatically group him into a category and see how the different categories stack up in terms of the retirement outcomes.”

All of that information is automatically collected, analyzed and displayed graphically through the new tool from J.P. Morgan, Focht says, making it easy for sponsors and advisers to both generate and share data with participants. The graphic format, Focht says, makes it easier for sponsors and advisers to notice trends that are more obscure when presented only for individual participants or in other formats.

While J.P. Morgan says the Plan Diagnostics Tool is the first of its kind in the financial planning industry, it’s clear that other forms of data capture and management technologies have already started penetrating the retirement planning space.  

Carol Waddell, managing director and head of product and marketing at J.P. Morgan Asset Management, tells PLANADVISER that her firm uses data capture technology within certain service arrangements to develop a full investor profile for each plan participant. The participant profile factors in current investing behavior, asset levels and a participants’ understanding of the investment process.

In the past, the development of accurate investor profiles for all participants in a large, employer-sponsored retirement plan would have been a monumental task, Waddell says. However, new technologies have largely automated the process, making it possible for progressive sponsors and advisers to start tracking investing and saving decisions on a participant-by-participant basis, even in very large plans.

By Waddell’s account, plan sponsors that have taken advantage of J.P. Morgan’s Audience of One engagement program—designed to help sponsors and advisers leverage big data to better understand and communicate with their participants—have seen their plan participants’ income replacement ratios grow by 35% between 2005 and this year.

“Those are the kind of figures that retirement committees get really excited about—when you can see that you’re implementing a campaign that’s actually driving the changes you want,” Waddell says.

Ben Acquario, director of communications, education and advice for Newkirk, a DST company, specializing in retirement plan communications, tells PLANADVISER that companies with large DC plans are also exploring automated reporting technologies that can compile external data from recordkeepers and custodian systems. Such data can be used by a sponsor or adviser to benchmark a plan’s performance against a peer group or national averages in real time, he says.

“The new technology gives sponsors a chance to see the macro-level data,” Acquario says. “They get to see how many of their employees are falling behind the wider averages. We have the ability now to break out each participant for a sponsor and tell them exactly what each participant has to do to close the gap.”

According to Waddell, big data innovations also underlie another important point for sponsors and advisers to consider. The most effective participant behavior improvement campaigns are also the most specific, she says.

Take, for example, a plan sponsor that wants to encourage participants to contribute to their 401(k) accounts at the maximum company match level. First, he sends out a piece of messaging that highlights the benefits such behavior can have on improving retirement readiness. In the past, that was likely the end of the story. But today’s technologies allow sponsors to determine, with very little effort, whether a participant’s investing behavior has actually changed following the message. The sponsor or adviser can then develop follow-up communications on an individual-participant basis.

“We can now see their data instantly, and if they haven’t made a change, we can follow up with another tailored message that builds on the original,” Waddell says.