SECURE 2.0 is here: Rip and replace legacy technology systems, or modernize them?

Late last year, Congress passed the SECURE Act 2.0, a sweeping bill that introduced new protocols to improve retirement savings. Since then, we’ve seen employers and retirement providers try to take proper measures to ensure they can comply with government-mandated provisions. Some organizations have taken a leap into digital transformation, while others still operating on outdated software find themselves scrambling.

The question then arises: How can companies navigate this transformative journey, and what provisions of SECURE 2.0 will be most affected/?

In the last 10 months, we’ve already seen some of SECURE 2.0’s 92 provisions go into effect. In addition to the required minimum contributions, there’s been an increase in catch-up contribution limits for employees 50 and older who participate in certain retirement plans.

That being said, most of the provisions don’t kick in for providers until January 2024 and beyond – meaning the work of providers has only just begun. For provisions like ones that include retirement fund access without penalty, millions of Americans need, and expect, their retirement providers to meet these guidelines without any hiccups. It’s crucial these providers put themselves in the best position possible to meet the needs of their policyholders.

Why innovation is the way forward

As it currently stands, the insurance and retirement industries are resource-constrained and stuck using legacy models like Excel. And while Excel has certainly been a mostly reliable software for over three decades for many organizations, it simply can’t provide the essential features demanded by the stringent requirements of SECURE 2.0, like the ability to be efficiently updated. At least not on its own. Companies relying on Excel and similar legacy software find themselves at a crossroads, needing to reconcile with the reality that these systems are ill-equipped to handle the complexities of SECURE 2.0’s ever-evolving guidelines.

So, what exactly must companies do to move away from these legacy systems? Well, the answer is not to move away from them at all – but to modernize them. Everyone’s first instinct would be to immediately kick the current software to the curb and start over, but a dramatic operational shift like this must happen gradually in highly secure, volatile industries like insurance and retirement.

While many think AI is the end-all-be-all solution to replacing or modernizing legacy software, that kind of technology still presents blatant security and data concerns that come with its implementation, which can put millions of Americans’ retirement funds at risk. There are, however, new technologies that work adjacently with Excel that can make the software much more secure and allow it to operate at a faster, more efficient rate.

Current systems operate like open heart surgery – there are a million steps, and one minor misstep can cause a catastrophe. In the case of SECURE 2.0, someone who could have received student loan relief through an employer-provided retirement plan is no longer receiving it. Or someone might have to amend their tax return because their employer couldn’t process their Roth IRA in time. Emerging technology that works in tandem with legacy software mitigates these catastrophes and turns a major heart surgery into one tiny adjustment of an artery. It makes things easier and, more importantly, ensures millions of people aren’t left without the essential retirement funds they need at the fault of their employers.

Related: Your 401(k) plan re-imagined: How tech plays a role (now that SECURE 2.0 has passed)

For as great as Excel has been for many years, it is certainly not without its limitations. Integrating cutting-edge to work in tandem with Excel can revolutionize its performance – optimizing speed, efficiently tracking any changes made to company documents, and streamlining internal processes to update company files. This dynamic synergy not only accelerates Excel’s functionality but also ensures that companies can embrace technology without overhauling their current operations.

Insurance and retirement providers must understand that when it comes to innovation, we’re currently in an “adapt or fold” environment. Software that works in tandem with Excel has the potential to revolutionize the way insurance companies operate, similar to what the steam engine did for the industry revolution or what the internet did for companies in the early 2000s. While it seems frightening in the short term, companies that embrace new technology and step out of their comfort zone will find long-term success.

Bruce Corcoran is Head of Life and Retirement at Coherent.