DEFINED CONTRIBUTION

Help participants succeed with an investment re-enrollment

Help participants succeed with an investment re-enrollment

Target date funds (TDFs) have grown rapidly since The Pension Protection Act allowed plan sponsors to automatically enroll participants in a default option. The problem? Not all participants have benefited. Many plan sponsors have enrolled new hires in TDFs – but not employees who joined the plan before the act took effect. To help them, plan sponsors can do an “investment re-enrollment” by moving all plan participants‘ assets into age-appropriate TDFs unless they opt out.

Investment re-enrollment in action

The two charts below show how re-enrollment can result in a more age-appropriate equity allocation for participants who are not yet enrolled in a target date fund.

Case studies

These case studies spotlight two plan sponsors that said their investment re-enrollment efforts were successful.

CASE STUDY A

Global car manufacturer based in U.S.

Re-enrollment date
March 1, 2013

Total plan assets
$4.5 billion

Prior participant assets
Included 26% in money market funds, which was reduced to 10%

Default option
Custom TDF or managed account

After re-enrollment
Approximately 60% in default option

“All in all, for such a big change, surprisingly it wasn’t that difficult … [It] actually turned out to be quite doable, and we are very happy with the results.”

Head of risk management and investment operations,
as told to Pensions & Investments (2013)

CASE STUDY B

Auto parts small business

Re-enrollment date
April 5, 2019

Total plan assets
$15 million

Prior participant assets
30% of participants in stable value, remaining 70% in other non-TDF options

Default option
TDF (added concurrently with re-enrollment)

After re-enrollment
83% of participants enrolled in TDFs

“The sponsor’s focus on communication made the re-enrollment successful. In addition to the required communications, the sponsor sent reminder emails, issued flyers and used other means to make sure participants were aware of the re-enrollment.”

The plan’s retirement plan advisor,
as told to Capital Group (2019)

Re-enrollment is easier than you might think

COMMON OBJECTIONS
REALITY
 

It will increase fiduciary risk.

  • Re-enrollment may lower fiduciary risk. Investment re-enrollment usually involves transferring account balances into the plan’s qualified default investment alternative (QDIA).
  • If certain conditions are met, default investments in QDlAs are covered by an ERISA safe harbor that provides relief from liability for investment outcomes.

Participants will react negatively.

  • Real-world examples and our own experience have shown little negative reaction.1
  • Participants may appreciate the opportunity to review their current choices. 
  • Well-timed and effective communications can help address the problem.

The administrative burden may be too high.

  • The workload can be within the normal range of what a sponsor would do to maintain and promote a retirement plan.
  • The plan‘s consultant or recordkeeper may be able to help prepare communications, conduct meetings, collect paperwork and process online elections.2
COMMON OBJECTIONS VS. REALITY

It will increase fiduciary risk.

REALITY
  • Re-enrollment may lower fiduciary risk. Investment re-enrollment usually involves transferring account balances into the plan’s qualified default investment alternative (QDIA).
  • If certain conditions are met, default investments in QDIAs are covered by an ERISA safe harbor that provides relief from liability for investment outcomes.

Participants will react negatively.

REALITY
  • Real-world examples and our own experience have shown little negative reaction.1
  • Participants may appreciate the opportunity to review their current choices.
  • Well-timed and effective communications can help address the problem.

The administrative burden may be too high.

REALITY
  • The workload can be within the normal range of what a sponsor would do to maintain and promote a retirement plan.
  • The plan’s consultant or recordkeeper may be able to help prepare communications, conduct meetings, collect paperwork and process online elections.

Tips for success

Tips for success

  • Clarify the intent. Refer to the process as a “confirmation of investments” or “selection confirmation” so participants understand the goal.
  • Go beyond emails and signs. Use newsletters, texts and telephone calls.
  • Announce early and repeat often. Announce the event 60 to 90 days in advance and explain the benefits with on-site meetings.
  • Tell participants they have choices. Investment selections can and should be revisited regularly.
  • Consider making other plan changes at the same time. For example, update the plan menu while you have your participants‘ attention.
  • Be mindful of existing investment options. Plans need to consider how to effectively handle assets based on potential restrictions, such as stable value, company stock, managed accounts and/or brokerage accounts.

Clarify the intent.

Refer to the process as a “confirmation of investments” or “selection confirmation” so participants understand the goal.

Go beyond emails and signs.

Use newsletters, texts and telephone calls.

Announce early and repeat often.

Announce the event 60 to 90 days in advance and explain the benefits with on-site meetings.

Tell participants they have choices.

Investment selections can and should be revisited regularly.

Consider making other plan changes at the same time.

For example, update the plan menu while you have your participants’ attention.

Be mindful of existing investment options.

Plans need to consider how to effectively handle assets based on potential restrictions, such as stable value, company stock, managed accounts and/or brokerage accounts.

1 Defined Contribution Institutional Investment Association, “DCIIA plan sponsor survey on automatic plan features: Responses to selected webcast Q&A,” September 2015.
2 Qualified Plan Advisors White Paper Series, “Investment Refresh: Improving Participant Outcomes Through Re-enrollment.” Accessed January 3, 2020 at https://qualifiedplanadvisors.com/whitepapers/

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