Technological advances also benefit record keepers at a time when the business is being squeezed by smaller margins and greater competition, said Robyn Credico, Alexandria, Va.-based defined contribution practice leader, North America, at Willis Towers Watson PLC.
"With their business model, record keepers' margins are so thin, using technology is the only way for them to make money," Ms. Credico said. "Ninety percent of all transactions go through record keepers' websites. When it comes to artificial intelligence, and especially just in defined contribution where we talk about financial well-being, a lot of providers use AI to try and simplify the whole process. (Record keepers) use whatever they know about the participant, like their investment preferences, to guide them through information on financial wellness. AI lets them guess how and what to talk to participants about, vs. giving them a 20-page questionnaire to fill out. That makes it much more user-friendly."
Mr. Blandford said TIAA applies "machine intelligence" — a combination of artificial intelligence and machine learning — to create a report card for plan sponsors on different dimensions of a defined contribution plan and to go deep into data to get specifics on where participants are investing.
"With the combination of AI and machine learning and natural language, a machine learns what the intent of a participant's question is, using common terms and also translating colloquialisms, and retains the context for future questions," Mr. Blandford said. "We look at this as a conversational user experience. The strategy is high tech and high touch."
Convenience is one way of looking at what is pushing advanced technology, but Northern Trust's Ms. Bailey said it's also being driven by a younger workforce.
"The generation entering the workforce has known nothing other than the smartphone era," Ms. Bailey said. "They know what they want and when they want it, and how to get it. Other financial services have done more to meet that demand, but the defined contribution industry has been slow in doing so. But that's what people are coming to expect, so the industry has to meet that demand."
Jana Steele, senior vice president, defined contribution consultant, Callan LLC, San Francisco, said the application of AI to participant behavior "goes back to digital delivery. The initial deployment of AI is in reaching out to participants and for plan sponsors to use analytics. That's the first bubble of AI. Next is basic administration of the plan, so vendors can plan for call center spikes and other traffic issues at certain times, like hardship filing spikes each August" when many participants withdraw assets to pay for children's college tuition."That allows record keepers and plan sponsors to plan for that."
Added Benjamin Taylor, senior vice president, defined contribution consultant at Callan, San Francisco: "A lot of core cost management has an ebb and flow that can be managed with machine learning. Their analogs use a different tool. Behavioral economics can determine methods of thinking, and AI can do the same thing in terms of identifying patterns of participant behavior."
Digital delivery is "a bit of a mixed bag," Mr. Taylor said. "It can help plan sponsors and record keepers save a lot of money and can link to things like open rates, different patterns of engagement, than they can with paper communications. You'll also see this used in Amazon and other retail websites to get the best price. It tests each method of engagement with responses in digital delivery of things like education materials."
While AI and digital delivery directly impact plan participants, the application of blockchain and cloud-based technology has a more indirect but no less important impact on DC plan efficiencies, said Broadridge's Mr. Slavin. But blockchain's potential, for one, has not yet been tested to the extent that it has been in settlements.
"Record keeping is a complicated process in our industry," Mr. Slavin said. "Blockchain has the potential to dramatically simplify very complicated tasks that can improve margins."