Capital Ideas

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Plan Design
3 steps to a successful investment re-enrollment
  • Re-enrollment can improve participants’ investment mix.
  • Planning, fund evaluation and communication are the keys to success.
  • Better participant allocations could lead to better retirement outcomes.

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.

1. Have a goal in mind.

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.

2. Evaluate your target date.

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:

  • How is the glide path constructed? Does the investment mix offer meaningful appreciation opportunities early on and enough growth potential and/or retirement income to support participants’ needs after they retire?
  • Who manages the series? Allocation specialists or a committee of portfolio managers? How much oversight is provided?
  • What are the underlying funds? Are they quality underlying funds? Are they diversified between equities and fixed income, as well as the types of equity and fixed income, such as dividend-paying stocks and high-yield bonds?
  • How much do participants pay? How do the expenses compare to other target date series? Do investors receive value in terms of management supervision for what they pay?
  • What are the results? How has the series done in the last 1, 3 and 5 years against similar funds? How have the series and its underlying funds done over longer periods?

3. Communicate for impact.

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:

  • Explain the benefit. A clear statement of what the investment re-enrollment is trying to accomplish — such as an improvement in participants’ investment allocations — can energize participants around the process.
  • Announce early and repeat often. Make a “coming soon” announcement 60 to 90 days in advance. Then make sure the actual 30-day notice clearly states that participants have the opportunity to confirm their current investments or use those selected by the plan. Follow up with emails as the re-enrollment period nears its end.
  • Manage the contact list. Verify current addresses, especially for former employees and beneficiaries. Have a process in place to track undeliverable mail.
  • Go beyond emails and signs. Use newsletters, texts, calls — even on-site meetings — to encourage participant engagement.
  • Consider making other plan changes at the same time. Implement other plan improvements, like updating the investment menu, while you have participants’ attention. How have the series and its underlying funds done over longer periods?

Why investment re-enrollment increases the odds for retirement success

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.

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