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Retirement Plan Eligibility Determination: The Four Biggest Challenges

By Mark Cummings, SVP-Business Development, North America, Sapiens

Mark Cummings, SVP-Business Development, North America, Sapiens

Assessing retirement plan eligibility seems like it should be simple – either the established conditions are met or they aren’t, right? The BridgePoint Group, a management consulting firm focused on the financial services industry, found that nearly 30 percent of retirement services providers have room to improve in optimizing the process to assess eligibility for their plans.

“There are tools and platforms available to retirement services providers that can help, but many come with their own challenges”

And more than 20 percent of the 66 retirement industry service providers in the U.S. that BridgePoint analyzed are not even offering eligibility determination, particularly in the small-to-mid-size markets.

More Than Meets the Eye

Attempts to increase participation have yielded complicated products and convoluted rules governing not only simple factors – such as age, hours worked or elapsed time – but also more ambiguous variables, such as multiple sources, rehire status, multi-plan participation and projected time. What might seem like a simple, binary assessment can actually become a daunting challenge.

Three main factors that can significantly impact a provider’s ability to cost-effectively assess eligibility for a plan include: the types and sizes of plans, the complexity of the plans and the platform used by the provider. Plan complexity is most commonly associated with mid-market and large market plans, as well as governmental 457 and 403(b) plans across all market segments. Approximately 25 percent of providers analyzed by BridgePoint have 403(b) books of business with more than 1,000 plans, while 18 percent of providers find that 457 plans comprise more than 10 percent of their total plan count.

Unfortunately, the ramifications of inefficient or erroneous eligibility processing can be significant and can result in a wide range of issues for the provider, from a loss of assets to extensive costs incurred for error correction. The damage to the provider’s reputation is also an issue in today’s social media culture.

Today’s Platforms/Tools are Not Ideal

There are tools and platforms available to retirement services providers that can help, but many come with their own challenges. In some instances, providers have developed proprietary tools that meet their immediate needs. Too often though, these tools are inflexible and not designed to support plans outside the individual provider’s sphere of operations.

One alternative has been to procure a tool from a third-party, but this often leads to coding customizations, resulting in multiple instances (as the provider may have a separate instance for each client). “Solving” this problem requires a risky enhancement/upgrade process, because propagating common changes across multiple client environments can be both errors prone and expensive. The situation is exacerbated when the impetus for changes are regulatory based and must be implemented by a certain date.

Providers who rely on a combination of proprietary and procured solutions face an exponentially more complicated task, as they strive to apply consistency across disparate systems with different rules and technologies.

Four of the Biggest Eligibility Determination Challenges

Four of the main eligibility determination challenges are:

1. Inconsistent Source Definition 

Eligibility is determined by source, so an employer with multiple locations and eligibility schedules requires additional sources. Complexity increases because source definitions are often inconsistent across platforms (clients/plans). This lack of consistency often impacts the ability to display source level balances and can require custom programming to consolidate “like” sources for presentation

2. The “Work Status” Issue

Eligibility by work status is most common across larger plans, which often offer management versus hourly-type eligibility. This category creates difficulties for providers who manage transient workforces (retail, etc.). Eligibility determination becomes cumbersome after an employee is hired and rehired 2-3 times. As a result, these providers encourage the employer to assume responsibility for eligibility on its own, ceding control.

3. Large Government Plans  

For providers with large government plans, including states with multiple locations and data sources, the eligibility calculation is often manual, report-driven, static and reactive. Due to an inability to accurately store full history, even when the employer is sourcing the employment history, rehires must be manually reviewed to determine eligibility.

4. Different Types of Institutions

457 and 403(b) providers often manage books with business across all different institutional types (educational institutions, hospitals, etc.). Eligibility is subject to design and governance review prior to acceptance – an inability to apply eligibility rules in a timely (and cost-effective) manner can prevent pursuit and acquisition.

Traditional Versus Modern Approach

To overcome these common challenges, providers have traditionally managed eligibility on a manual basis, or for only a portion of their business; or outsourced eligibility assessment and/or provided eligibility solely on an exception basis, for certain products or market segments. All too often, these approaches have made things worse.

The complexity of eligibility assessment is the perfect opportunity for configurable, rules-based technology. While many record keepers are using legacy systems combined with a high degree of manual intervention (especially for corrections), today’s evolved systems can assess the accuracy and completeness of payroll data, repurposed for eligibility assessment. These newer systems are also able to apply the complex and constantly changing rules to determine eligibility.

Rules-based technology will enable providers to apply source definitions consistently, solve the work status issue and successfully manage all types of plans, including large government and educational institution plans.

The past few years have ushered in tremendous advancements in technology for retirement services, with configuration replacing coding. This enables flexible rules to be defined and applied separately to different plans, while also allowing regulatory changes to be quickly and consistently applied across the enterprise.

A modern, rules-based system is the best answer for addressing record keepers’ biggest stumbling blocks. Simplifying today’s unnecessarily complicated process will increase efficiency, lower administrative costs and free recordkeeping organizations to focus on their core business.

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