Investment re-enrollment is a powerful way to give a fresh start to a retirement plan’s participants. This often-overlooked strategy converts their investments quickly and automatically into ones built on sound investment principles – for any participant who needs it.
For the plan sponsor, investment re-enrollment is a simple two-step process. First, give notice to all participants that they have 30 days to reaffirm their plan investment selections or be invested in the plan’s default investment. Second, instruct the plan recordkeeper to reinvest all current balances and future contributions of those who haven’t made a selection into the plan’s default investment (usually a target date series) as of the date specified.
Although re-enrollment can’t wipe the slate clean of past investing mistakes, it allows participants to correct knotty legacies like investing counter to their goals or age, defaulting into a money market fund or not revisiting the original investments since they were selected. This short video shows the benefits of investment re-enrollment in terms of improved participant allocations.
Here are three things to look for when designing an investment re-enrollment with an advisor and recordkeeper. These will help the process go smoother and build a strong foundation for future participant satisfaction.
Does the company want to improve participant investment allocations? Are accounts over-invested in money markets or any single investment option? Do individual allocations and the risk associated with them appear misaligned with employee’s best interests? Read case studies of four companies that focused on a set of re-enrollment goals to help measure the success of the strategy.
Although investment re-enrollment can be made into any qualified default investment alternative (QDIA), most plans use target date funds for this purpose. Each target date fund represents a fully diversified portfolio that can be assigned to participants based on their age. As retirement approaches, the fund automatically adjusts its asset allocation to protect retirement income.
Here are some questions to ask when evaluating a target date series:
Plan communications don’t have to be dry, legalistic documents. The investment re-enrollment notice can grab participants’ attention to make a positive impression. Here are some guidelines:
Choosing a mix of investments can be overwhelming. Many participants don’t have the time or knowledge to invest wisely. Thus, if left to their own devices, they often make investment selections that aren’t aligned with their goals. An investment re-enrollment can help participants invest better. Those who want to make their own investment decisions are encouraged to re-examine and confirm their choices, and those who do not proactively make investment selections for their assets are moved to the QDIA, usually an age-appropriate target date series.
Investment re-enrollment is one of the five keys to retirement success. It can be surprisingly easy for plan sponsors to use it to help participants open the door to financial security in retirement.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.