Second Chance: Why Not?



Automatically enrolling participants in employer sponsored retirement accounts has turned out to be a great step toward ensuring more workers save up. Experts remind plan sponsors to give those who opt out a second chance to opt in. Afterall, life’s circumstances are ever evolving and often employees just need another nudge.


Re-Enrollment Explained

There’s lots of data illustrating how automatic enrollment in retirement plans has driven engagement up. Using the same essential principle (making opting in easier then opting out), re-enrollment is gaining use in plan design—and having an impact too. Todd Kading at the National Association of Retirement Plan Advisors (NAPA) points out:


Automatic enrollment has long been shown to transform the negative influence of inertia of participant behaviors into a positive force for retirement plan participation and, in the process, helping to make dramatic improvements in retirement security. Implementing re-enrollment typically boosts 401(k) plan participation rates from two-thirds or three-quarters of eligible workers to levels generally over 90%. The remaining one in ten…take the time and effort to “opt-out” of participation for various reasons…But circumstances change—and that’s where a process called “re-enrollment” can play an influential role. Re-enrollment provides a second chance….Let’s face it, just because circumstances weren’t right for joining the plan a year ago doesn’t mean they should be overlooked forever….If at first you don’t “succeed” in enrolling them in the plan, this presents another opportunity….The increase in participation rates proves the success.


In addition to jump starting the action of saving for retirement, auto enrollment has had the further benefit of ensuring most retirement plan participants opt for a qualified default investment alternative (QDIA), such as a target-date fund or managed account. This has advantages for both savers and fiduciaries, as experts explain:


Professional investment management is essential for participants, even those who have (or think they have) a certain investment acumen but generally lack the time (or expertise) to keep up with their investments, mainly when markets are volatile. Let’s be honest; most individuals buy high and sell low because they react emotionally. But what about the participants who do take it upon themselves to make those investment choices? How do you, as a plan advisor or a plan sponsor, feel about their ability to make, monitor and update those choices—to keep up with the markets and to rebalance those investments at the appropriate time? And did you know that, outside specific 404(c) provisions in ERISA, the Labor Department considers many advisors and all plan sponsors, as plan fiduciary, responsible for those?  


Given the benefits of professionally managed funds, it makes good sense to use auto re-enrollment to ensure more participants take advantage—and, as Kading notes: “Plan sponsors have seen a 49% to 97% increase in the adoption rate of the plan’s QDIA when a re-enrollment is conducted.” Here is advice for implementation:


You can do this by automatically re-enrolling those who are not already invested in the plan’s QDIA into that investment. Like automatic enrollment, nothing says this can only happen once and at the point of initial enrollment—though you may find it easier to implement during open enrollment, at the beginning of the plan year, or coincident with a change in the fund menu.  Whether borne of legal concerns, an appreciation for the relative lack of investment acumen of your participants, or—your comfort and familiarity with the qualified default investment alternative you and/or your investment committee have prudently chosen—re-enrollment is an effective way to help your participants take advantage of professional money management for their retirement savings—and for you to better fulfill your fiduciary obligations as well.


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