The retirement industry is starting to adopt AI into certain defined contribution (DC) plans and gauging how new functionality can be integrated in the coming years, according to the latest Cerulli Edge—U.S. Retirement Edition report.
Some forms of the technology are already integrated into at least one area of DC plan management and can potentially ease back-office operations, Cerulli said Tuesday.
According to its survey of defined contribution investment-only (DCIO) asset managers, 16% said they expected AI’s impact on legal document summaries will be “significantly positive,” with 23% expecting it to be “moderately positive” and another 23% expecting it to be “slightly positive.”
“Focusing on more day-to-day functionality enhancements, asset managers and recordkeepers have much to gain from implementing AI tools into their back-office operations,” according to Adam Barnett, Cerulli Senior Analyst.
Meanwhile, “in the same realm as legal document summaries, beneficiary designations would greatly benefit from AI enhancement,” Barnett said.
He added, “Until recently, beneficiary forms were exclusively paper-based, meaning recordkeepers have decades worth of designations, many of which may have been superseded by newer submissions, marriages, divorces, etc.”
However, at the same time, AI has not yet made inroads into other areas of DC plan management, Cerulli said.
According to the report, 73% of target-date managers said AI won’t be incorporated into asset allocation selection, glidepath personalization (at the participant or plan level) or glidepath design. Also, 67% said AI algorithms won’t be used in risk management.
DCIO asset managers confirmed the findings of Cerulli’s target-date survey, with 59% saying AI will have no material impact on managing target-date products in the next year.
Looking into the future, questions linger about AI’s efficacy and how it may fit into the retirement sector, Cerulli said, noting that “The DC business is hampered by inertia, with technology and tools that are often outdated and inflexible, which is one reason many providers are turning to third parties to manage their tech stacks.”
“Establishing partnerships with such firms will be essential for recordkeepers looking to differentiate their financial wellness and engagement capabilities in the next five to 10 years,” according to Barnett.
“Partnering with third-party AI providers will enable recordkeepers to focus on their technology and more on being retirement experts,” he said, adding: “Efforts undertaken now to explore efficiencies will ensure a smooth transition to AI-powered retirement tools of the future.”
Among the report’s specific findings, Cerulli said, large asset managers are starting to review the cost savings of AI implementation. For example, J.P. Morgan estimated in September that $2 billion was saved by deploying AI resources throughout the company.
Also, only a small percentage of plan sponsors actively sought to retain retired or separated participant assets, Cerulli said. Data showed that larger firms were focused more on retention, suggesting DC asset managers should prioritize those clients.
Almost half of DC consultants (48%) reported that the main reason for retaining retiree assets was to improve their employee benefit offerings.
Meanwhile, retaining assets can also enhance negotiating power with recordkeepers, according to Cerulli, noting that about two-thirds of plan sponsors said the top reason for not retaining retiree assets was their unwillingness to maintain Employee Retirement Income Security Act (ERISA) fiduciary responsibilities for retired participants.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jeff.berman@wealthsolutionsreport.com.
