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:
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:
How to communicate re-enrollment to employees
Here are some communication tips to support a successful re-enrollment:
Sources:
“3 Steps to a Successful Investment Re-enrollment” (Capital Group, October 21, 2022).
“Plan Re-enrollment: The “Wonder Drug” For Your Company’s Retirement Plan” (Employee Fiduciary, December 29, 2022)
“Re-enrollment: Doing Well by Doing Good,” by Fred Reish (Faegre Drinker Biddle & Reath LLP; July 2022)
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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).