Cannie has not been born yet — for now she exists only in my imagination — but her future parents were recently engaged: Cannie is a concept waiting for the convergence of some rapidly evolving technologies. State and local retirement systems will need to consciously work together to bring her into their human world.
The backstory: Only 18 percent of state and local workers participate in a defined-contribution (DC) retirement plan that allows them to manage their mix of retirement investments. For most public workers, traditional defined-benefit (DB) pensions remain their primary or only retirement vehicle. But there should be no reason for anyone in today’s state and local government workforce to be sidelined from access to beneficial career-long financial advice and cost-efficient financial products. For that to happen, however, public system managers and leaders will need to lay out a strategic game plan now, instead of waiting for vendors to bring them hand-me-downs and second-class leftovers from the private sector.
Imagine a public-sector workplace-based investment and financial services platform with personalized advice eventually available to most of the 20 million state and local government workers (plus another million private-sector workers who participate in state-sponsored workplace savings plans) and puts workers’ interests and lower costs ahead of money management company profits.
Unlike other AI agents, Cannie — or whatever clever moniker she might go by — could provide guidance and expertise on a wide range of financial decisions that will never generate fees for money management firms, while reinforcing the value of pensions in public workers’ lifelong financial planning. She could provide free customized audio and video tutorials on a variety of financial and investment decisions. In various common life situations, Cannie would make disinterested and objective recommendations that may run counter to the short-term financial interests of asset-management companies whose fees subsidize most 401(k) record-keepers. What she won’t be is an economic forecaster, market guru or stock picker.
Here's how such a platform could come to be: Just as farmers long ago established co-op grain warehouses, electric utilities and financing firms to improve their marketplace power and get better service, public retirement systems of all kinds can operate collectively to drive innovation and superior economics rather than await it. As with farmers, such a co-op can allocate patronage dividends to everybody who participates, including sponsors, the consumer-employees and the DC industry: a win-win for all. Cannie will need to span across the investment, banking and insurance industries, which will require some extra regulatory licensing.
Converging Technologies
By 2028 or so, agentic AI technology is likely to be capable of delivering reliable top-grade personalized financial and investment advice for savers and investors, automatically rebalancing portfolios as users desire and — importantly — helping with numerous non-investment decisions. Those can include personal debt management; household budgeting and credit card discipline; college savings and scholarship opportunities for the kids; saving and borrowing for a car or home purchase; purchasing retirement income annuities; funding and finding retirement health care and elder care; home, auto and supplemental insurance needs; and simple estate planning that takes into account their pensions and employer-paid life insurance.
Cannie could emit flashing red lights before workers make unwise or inferior choices in their spending, borrowing, insurance and money management decisions. Conversely, for workers who’ve already vested in a guaranteed pension, she also might counsel the skittish ones that a heavier stock exposure in their 457 account is a better overall portfolio mix until they turn 60.
Too many of those in government work undervalue their pensions and fail to make complementary or advisable financial decisions elsewhere. When Cannie advises younger workers to first pay down credit card debt or eliminate private mortgage insurance with principal prepayments before tucking money away into a 457 plan, that would be a highly valuable service for their employers to facilitate. She could also show employees when the math might favor using 529 college savings plans rather than 457 savings, or if an employee’s low tax bracket favors a Roth IRA.
Cybersecurity would have to be a cornerstone, of course. The system itself would use privacy-protected synthetic data for its modeling. Employees looking for personalized advice would decide how much of their personal financial information they want to share inside their user account residing online, or choose to keep their financial data stored offline on an app running on their personal devices. As their co-op concessionaire, the public retirement community can require continuous rigorous oversight of Cannie’s privacy and security functions.
Benefits of a Common Utility
Given the industry structure of the private-sector 401(k) marketplace, it’s inevitable that the larger plan administrators and investment houses that cater mostly to that market will build similar independent proprietary systems. But nothing would prevent several firms in the governmental DC industry — preferably with active support from the public pension community — from underwriting Cannie’s pragmatic multivendor financial planning platform. Their investment would immediately magnify Cannie’s user base as well as the market reach of those companies electing to participate in the co-op network. Sharing a common utility is their most cost-effective way to penetrate and serve this market. With the involvement of governmental agencies acting cooperatively as sponsors, there would be far less risk of antitrust problems than those that would arise in a purely corporate market. These are unique differences and advantages in the state and local sector.
There’s already innovation underway in the private sector to build access portals to financial services networks that can provide the plumbing to support the Cannie business model, with the costs covered by the companies that win the employees’ business paying a referral or transaction fee. At least one firm is already piecing together the technology for a financial services marketplace, and another is working to bridge AI investment advice into other financial activities. Assembling a Cannie portal to provide accessible, customized, secure and confidential investment and financial advisory services for all employees is what makes this unique.
The Cannie consortium concept won’t spring forth from the private sector, but those folks will come along if it’s shown to be in companies’ interests without sacrificing their own core market share. A sliver of Cannie’s patronage dividends would help — as will the commercial value of new access to the mass of public workers outside their DC base. Liftoff would require the support, and hopefully the early proactive initiative, of the National Association of Government Defined Contribution Administrators and probably the two major national public pension associations.
If they are not fast enough and a private company quickly builds a viable prototype ahead of them, there is nothing to prevent the public plans from jump-shifting to license, adapt and customize that forefront product for their consortium’s widespread use. If competition from the Cannie project drives the financial industry to design even better functionality faster with lower prices, that’s all the better: There’s no point in building an Edsel if a superior vehicle can be retrofitted and supercharged for all public employees’ benefit.
Notably, there are already two sizable not-for-profit commercial enterprises operating in this public-sector market space, and both could be well positioned to contribute to the technology development. Their involvement in the co-op model could be transformative. So would a few of the larger state pension plans and associations, because Cannie could be trained to explain to employees the special importance and the financial role of their guaranteed, inflation-protected pension payouts in a worker’s comprehensive financial plan.
Working together, these various entities could achieve critical mass and a distinctive business model unique to public service by incorporating their systems’ pension formulas and projections into each employee’s comprehensive financial planning and investment guidance.
In a time when public service has become an insecure occupation that’s kicked around by critics of all things governmental, anything that can be done to wisely strengthen the personal balance sheets and long-term financial security of all public employees deserves a serious effort.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management. Nothing herein should be construed as investment advice. “Cannie” is a hypothetical name for a futuristic concept only and is not intended to describe a specific brand, service or product, or to interfere with any known trademark.
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