Wide Open Futures.

I’ve spent most of my working career crafting purpose-built financial services platforms.  One of the key attributes for the success of these efforts has been flexibility.  I’ve followed guidelines of this type for these large-scale endeavors:

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• Don’t enter the planning effort with a preconceived solution

• Listen to what your customers are trying to solve, and then consider the how

• Don’t assume that the solution you initially launch will be the final solution

• Understand that you will need to adapt to future challenges

These tenets were vitally important when I led product development for Ascensus’s Astro platform supporting the launch of OregonSaves in 2017.  Our firm brought solid ideas on designing certain aspects of the platform based on 401k and 529 administration experience, but we also held important in-depth discussions with Oregon Treasury to reach better solutions for our initial launch.  At that point – after maybe a brief 24 hours to celebrate our launch -- our flexible approach really needed to kick in.  During the pilot program our small business customers told us they were befuddled by the enrollment process and truly challenged when they attempted to upload payroll spreadsheets.  We immediately queued up multiple iterations of fixes to bring improvement.

Now I recognize that most of you reading this newsletter are not platform architects.  So why am I taking you all down this technical rabbit hole?  It’s because many of you – regardless of your official titles -- are program architects, and the same key attribute of flexibility should apply to the retirement programs that you are currently administering, planning, or advising.

So please humor me for a moment by going back a few paragraphs to the bulleted list of guidelines and re-reading them from a program standpoint.  Go ahead.  I’ll wait here for you.

OK, are you back now?  Great! 

Now -- why am I stressing the importance of program flexibility in this emerging area of state-facilitated auto-enrollment retirement programs?  Because I’ve seen this movie before in the 529 College Savings space.  I joined a great startup effort in this area in 2002, just as awareness and excitement began to build for college savings programs.  But in those early days, no one could have predicted that 529 plans in 2022 would have features such as employer match contributions, newborn grant programs, or friends and family gifting. The 529 programs and platforms that were flexible enough to incorporate these changes gained the benefits of additional contributions, leading to more savings success for families in certain states.  Other programs missed out and have spent years scrambling to get on par with the status quo.

So what might the future hold?

Bringing the discussion back to state retirement programs, we’re looking at a product that is just now in the “toddler” stage, with eldest child OregonSaves turning 5 years old next year.  So – with crystal ball firmly in front of us -- what types of new features do we need to stay flexible for in the future?  Recognizing that the oracle business is a hit or miss proposition, here are my thoughts:

• Employer Contributions to State Auto-IRAs – The 401k-blessed employees of corporate America recognize that there is no better deal than dollar-for-dollar matching of their contributions.  The prospect of earning “free money” (outside of investment returns) has proven to be a real key to driving high retirement savings levels.  Unfortunately for auto-IRA programs, ERISA compliance stands as a current barrier.  But as these programs gain in prominence and assets, this likely becomes item #1 on the lobbying wish list.
  

• Sidecar Savings – Many of us are well aware of the money challenges that these employees within this retirement savings segment face.  A 2022 Bankrate survey found that only 44 percent of Americans can cover a $1,000 unplanned expense from savings.  So even though retirement savings is an important goal, it sits behind short-term needs.  As such, I give kudos to the early auto-IRA programs in Oregon, Illinois, and California for recognizing this deficit, and ensuring that the first dollars placed into their programs do not suffer a loss.  Yes, these dollars (sitting within a Roth IRA) could be withdrawn if necessary, but this process results in tax forms and uncertainty amongst the population.  The UK’s NEST has pursued a different path with their Sidecar Savings pilot, to a certain amount of success.  It seems only a matter of time until this feature becomes commonplace within these retirement programs.
  

• Social Savings Programs – This is potentially the biggest (and certainly the cloudiest) possibility to emerge from my crystal ball.  I’d define these features as “third-party contributions to an individual retirement account” and note that these contributions could come from family, government, corporations, or non-profits.  I’m quite hopeful that programs of this type will emerge, and there are already examples within the 529 savings industry that portend their arrival in retirement savings:  matching grant programs, free funding for newborns, and child development accounts.  There are also numerous groups, such as Earn to Learn actively securing 529 funding for low-to-moderate income students from foundations and corporate donors.
  
  If we extrapolate that activity to retirement savings, are any of the following out of the realm of possibility sometime within the next 15 years?

• Direct State Matches of Retirement Contributions – States with foresight recognize the long-term benefit of financially stable retirees, with many dollars saved later in support programs if savings could be increased today.  Would some match contributions for at least a subset of state program participants?

• Corporate/Foundation Funding to Retirement Accounts –Would Proctor and Gamble help fund retirements for mothers who use their products?  Would a large foundation support a similar effort for stay-at-home moms? 

• Peer to Peer Retirement Transfers – Personally I like this one because we could tag a cool techie “P2P” acronym to it.  An idea like this gets its genesis from the huge $70 Trillion generational wealth transfer that is going to be happening through 2042 via the boomer generation’s savings.  I would suspect a carveout could allow it in a similar way that IRA Charitable Rollovers became permanent in 2015.   Would you transfer a small sum from your retirement nest egg to your favorite hairdresser, artisan cheese shop owner or craft brewer?  What about to a disadvantaged person who earns very little?
  I’d like to think that given a chance to “do good” with a large retirement nest egg, that many Boomers would rise to the occasion and share the wealth with others.

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Stay creative! – Scott

Guest Columnist Scott Morrison is the founder of 4k Consulting LLC, based in Massachusetts. Scott has spent the bulk of his career creating innovative recordkeeping platforms for savings programs, including 401(k), 529, and state facilitated retirement.  In April 2022, he'll head into the Eastern woods to hike the 2,000+ mile Appalachian Trail. Connect with Scott on LinkedIn or follow his epic journey through rocks, roots, and mud on his thru-hiker blog at The Trek.  

This piece was featured in the March 24, 2022, edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.