Artificial intelligence (AI) is transforming how technology is integrated into retirement plans and is helping to address the retirement savings crisis. Many workers have inadequate savings for retirement because they lack the financial knowledge to make informed decisions, struggle to understand the complexities of their retirement plans, or do not have the time to research their options. AI tools can be used to encourage participant engagement, enhance personalization, create efficiencies in administrative tasks, and improve financial outcomes. Plan sponsors and participants can leverage these tools to make smarter, more informed financial decisions.
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AI is changing the way participants think about their personal investment strategy. Rather than selecting a traditional target date fund based on projected retirement year, AI has the capability to analyze participants’ income, spending patterns, contribution rates, and debt levels while taking into account changes in their career, health, and lifestyle. AI is able to predict income needs, health care expenses, and market volatility. Target date funds are traditionally based on age and risk tolerance while promoting a “set it and forget it” mindset. This one-size-fits-all investment approach is being replaced by a more adaptive and personalized approach. It also helps participants who might lack financial knowledge or who do not have time to research multiple funds. AI can also recommend the best time to rebalance portfolios based on current market conditions.
Encourage Participation
Similar to ChatGPT and Alexa, chatbots and virtual assistants can make retirement plans more accessible by simplifying complex information. These tools can answer questions about plan provisions in plain language, guide participants through plan enrollment, and provide personalized explanations. AI assistants can also support multiple languages, ensuring that participants who are not fluent in English can still understand their options and make informed financial decisions. AI can reduce the friction caused by complicated plan provisions and can encourage plan participation without requiring advanced financial literacy.
Personalized Nudging Systems
AI tools can act as personalized nudging systems to encourage participant engagement by sending timely prompts to participants. For example, when an employee receives a salary increase, AI can automatically alert them to consider raising their contribution rate. This would increase employee savings without making a noticeable difference in take-home pay. Similarly, AI can identify participants who are not taking full advantage of available employer matching contributions and send targeted reminders to participants. These AI tools leverage payroll data and can result in increased retirement savings.
Fiduciary Support
AI can also be a valuable tool for plan sponsors in providing support for their fiduciary responsibilities. AI can aid plan sponsors in designing plan provisions that are suited to the needs of their work force by analyzing employee demographics and behaviors. During onboarding, AI can streamline processes and summarize complex plan documents. In addition, AI can aid in monitoring investment options for performance, ensuring that funds remain suitable and cost-effective. Plan sponsors can use AI to flag potential issues and aid with compliance requirements.
Proceed with Caution
As with any new technology, plan sponsors and plan participants should proceed with caution. AI is an emerging technology that is continuously being developed and enhanced; therefore, it is important to understand its limitations, including potential inaccuracies. AI should supplement, not replace, the professional advice and consultant from investment advisors, attorneys, and accountants. Additionally, since AI tools rely on sensitive personal and financial data, plan sponsors should implement appropriate cybersecurity and data privacy measures.
Plan sponsors should not use AI as a substitute for their fiduciary responsibilities. Plan sponsors should continue to maintain documentation around the monitoring of the plan and support for decisions made, even if accomplished with the aid of AI.
AI provides the capabilities to ingest large amounts of data and synthesize it in ways that are useful to plan sponsors and plan participants. It can create efficiencies with administrative tasks and encourage participant engagement. In these ways, AI can improve financial wellness and combat the retirement savings crisis.
Citrin Cooperman’s dedicated Employee Benefit Plan Practice, in collaboration with the Digital and Cloud Services Practice, helps plan sponsors adopt and implement technologies to optimize efficiency and maximize financial outcomes. For more information, reach out to Lauren A. Florio.
“Citrin Cooperman” is the brand name under which Citrin Cooperman Advisors LLC and Citrin Cooperman & Company, LLP, independently owned entities, provide professional services in an alternative practice structure in accordance with applicable professional standards.
Lauren A. Florio is an audit director with over 15 years of experience specializing in the not-for-profit, employee benefit plan, and healthcare industries. Her not-for-profit clients include schools, membership organizations, health and human service organizations, and healthcare clients including skilled nursing facilities, assisted living facilities, home healthcare agencies, and adult day centers.
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