Data & Research September 11, 2024

How Recordkeepers Can Stay Competitive

Accenture, fresh off its partnership with TIAA, says scale or specialize.

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Defined contribution recordkeepers face a challenging future: shrinking margins, declining fees and lagging technology. To survive and thrive, recordkeepers must choose between two strategic paths: scaling up to boost operational efficiency or specializing in niche market segments, according to a new industry report from Accenture plc.

The report, “Navigating Through Turbulence: Reinventing Retirement Recordkeeping,” identifies the acceleration of industry consolidation, as recordkeepers struggle to maintain profitability. Over the past decade, about half of the 20 largest DC recordkeepers by assets under administration have been acquired by other firms. Accenture predicts that within the next 10 years, the five largest recordkeepers could manage more than 75% of total market assets. More than 25% of today’s 20 largest recordkeepers may exit the industry altogether.

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Just last month, TIAA announced a multi-year deal in which Accenture will support parts of TIAA’s recordkeeping operations. Meanwhile, TIAA will maintain control of the retirement plans, recordkeeping services, plan data and “all aspects of relationships” with plan sponsors, participants and plan advisers.

Tim Hoying, strategy lead for Accenture’s retirement practice in North America, says Accenture has relationships with many recordkeepers across the industry that have informed their insights; his team works with recordkeepers to help with their most critical business needs.

“Sometimes that is helping with core strategic growth opportunities, and sometimes it means helping drive greater efficiencies in their operations to create competitive advantage,” he says. “We will continue to serve our clients in the ways that help them thrive in the industry.”

On Wednesday, in a further sign of the need for scale and services among recordkeepers, Voya announced the acquisition of OneAmerica’s retirement plan business. Responding to the question of whether the Voya acquisition shows further strain on recordkeepers’ ability to stay viable, Hoying says it actually is not a question of viability.

“It’s really a question of optimizing the strengths of the business and finding the right way to deploy capital,” he says. “The Voya acquisition reflects a broader industry focus on core capabilities and growth opportunities. We expect to see more deals of this nature as firms look for ways to stay competitive. Accenture’s research outlines the strategic models we believe will drive the greatest returns in the coming decade.”

Keeping Up

The Accenture report stated that to remain competitive, recordkeepers must follow one of two strategies. The first option is achieving scale, in which recordkeepers enhance operational efficiencies through automation and investment in advanced technology. This approach could enable firms to offer more competitive pricing and expand their range of financial services to a larger participant base.

Alternatively, recordkeepers can specialize in market segments, focusing on distinct sectors such as jumbo plans or small businesses, and offer tailored products and services. By catering to niche audiences, firms can build expertise, offer customized solutions and foster strong relationships with specific plan sponsors and participants.

The report also outlined three critical operational priorities for recordkeepers aiming to stay competitive. First, firms need to create a competitive cost structure by transforming non-core functions, adopting emerging technologies like generative artificial intelligence and streamlining legacy systems. Strategic partnerships could help reduce costs and improve scalability.

Second, recordkeepers should transform revenue streams by exploring new opportunities such as offering in-plan financial advice or combining wealth management with retirement solutions. Expanding products and services could create additional income sources.

Voya, for example, noted in the announcement of its OneAmerica acquisition that the deal will add employee stock ownership programs to its roster of services.

Lastly, Accenture noted that engaging stakeholders “purposefully” is essential for forming strong partnerships and identifying growth opportunities within the broader retirement ecosystem. Understanding the needs of plan sponsors, intermediaries and regulators is key to that success.

Accenture’s report also highlighted the role of generative AI in the future of the retirement industry. AI has the potential to help recordkeepers reduce costs, strengthen relationships with participants through personalized financial advice and unlock new revenue opportunities, according to the technology firm.

Accenture and TIAA are working toward their partnership for the remainder of this year. The deal has led to about 1,500 TIAA employees in the U.S. and India being offered jobs at Accenture.

Accenture’s report drew information from Cerulli Associates’ U.S. retirement market reports, Cerulli Associates’ defined contribution market sizing data analysis from year-end 2012 through year-end 2022, and Brightscope/ICI defined contribution plan profile annual data. It compared DC market trends from 2012 through 2022 and examined fees from 58,000 401(k) plans based on Form 5500 reports from 2009, 2015 and 2020.

Data & Research September 11, 2024

Social Security Cost-of-Living Adjustment Forecasted at 2.5% for 2025

The Senior Citizens League projects next year’s cost-of-living adjustment on a day when the Consumer Price Index rose 2.5% over the last year.

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Based on consumer price data that was lower than last year, the Senior Citizens League, a nonprofit advocacy group, is projecting that the Social Security cost-of-living adjustment for 2025 will be 2.5%.

The Bureau of Labor Statistics reported on Wednesday that the Consumer Price Index rose 2.5% over the last year through August. A COLA of 2.5% would raise the average monthly benefit for retired workers by $48 to $1,968, according to the Senior Citizens League.

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The Social Security Administration is expected to officially announce the COLA for 2025 in mid-October.

The projection is less than this year’s COLA, which was 3.2%. However, the Senior Citizens League argued that this would not be far from the historical norm, as the annual COLA has averaged about 2.6% over the last 20 years.

The COLA is calculated by taking the average inflation from the third quarter of the current year and comparing it with the average inflation from the third quarter of the previous year. The inflation measure used for the COLA is the Consumer Price Index for Wage Earners and Clerical Workers.

Due to a higher cost of living, the Senior Citizens League has expressed concerns that retirees are using more and more of their income each month just to get by. For example, in the nonprofit’s 2024 Retirement Survey, 65% of seniors reported monthly expenses of at least $2,000, up from 55% in 2023.

In addition, the survey found that 80% of senior households reported that their monthly budget for essential items like food, housing and prescription drugs had increased over the last 12 months.

“Ensuring that seniors have enough to feed and house themselves with dignity is a major reason why we advocate for a minimum COLA of 3%,” said Shannon Benton, TSCL’s executive director. “TSCL research shows that approximately two-thirds of seniors rely on Social Security for more than half of their monthly income, and 28% depend on it entirely.”

Meanwhile, the Social Security Old Age and Survivor Insurance Trust Fund is expected to become insolvent by 2033, according to a projection from the Social Security Administration’s board of trustees, which is unchanged from last year’s projection. The SSA projects that in 2033, the fund’s reserves will become depleted, and continuing program income will be sufficient to pay 79% of scheduled benefits.

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