Auto-enrollment and automatic contribution increases have proven to be effective retirement plan design features that get more people to save for retirement. Receiving less attention is a plan design feature known as “re-enrollment.” It’s a strategy that you may want to consider to not only help encourage better employee retirement outcomes, but also reduce your fiduciary risk as a plan sponsor.
What is Re-enrollment?
The re-enrollment process automatically sweeps retirement plan participants who are not already invested in the plan’s Qualified Default Investment Alternative (QDIA) into that investment. Typically, the QDIA is a professionally managed target-date fund (TDF), balanced fund or a managed account solution. They offer participants access to a diversified investment mix that considers key elements like age or risk tolerance (and sometimes both).
The re-enrollment process begins by sending participants a notification that their existing assets, as well as future contributions, will be directed to the QDIA on a specified date, unless they choose to opt out. While it is often done when there is a change in recordkeeper, a re-enrollment can be incorporated easily at any time and typically occurs on an annual basis.
What are the benefits of re-enrollment for employees?
Choosing a mix of investments can be overwhelming for many employees who don’t have the time or knowledge to invest wisely and closely monitor their investments over their entire working career. An investment re-enrollment can help employees invest better in two key ways:
Those who still feel they want to make their own investment decisions are at least encouraged to re-examine and confirm their choices.
Those who are uncomfortable making proactive investment selections are moved to the QDIA, such as an age-appropriate target date series. A QDIA introduces a professionally managed “do it for me” approach that automatically rebalances over time and considers their retirement path objectively.
What are the benefits of re-enrollment for employers?
Offering re-enrollment through your plan can provide plan sponsors with a number of benefits, including:
A formal opportunity to realign participant portfolios to more age, risk or goal-appropriate investment options. For example, through auto-enrollment a participant may have been defaulted into an investment strategy that is too conservative, too aggressive, not adequately diversified, or that may no longer be aligned with their current age and circumstances.
Safe harbor protection for assets that are invested in the QDIA, reducing your fiduciary risk.
When offered alongside other auto features, an opportunity to provide a better workplace experience for your employees, which can improve your ability to attract and retain quality employees and improve overall morale.
How to communicate re-enrollment to employees
Here are some communication tips to support a successful re-enrollment:
Explain what you’re doing and why. Send employees a clear, jargon-free communication of what the investment re-enrollment is trying to accomplish. Examples include “helping to improve their investment strategy” or “now offering a ‘do it for me’ investment management option to make life simpler for them.”
Make a “coming soon” announcement 60 to 90 days in advance. In addition, you are legally required to send participants a 30-day notice regarding the re-enrollment. Make sure it 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.
Use All Available Communication Channels.Use company newsletters, texts and on-site meetings to build awareness of the upcoming re-enrollment and encourage participant engagement.
Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).