Defining Auto Plan Features: Do You Speak the Language of Defined Contribution Auto Plan?

With auto plan features already surrounded by a perception of risk and liability, the Defined Contribution Institutional Investment Association (DCIIA) is looking to make one thing about auto plan features clear; specifically the terms used to describe auto plan features.

Citing research showing that many participants, sponsors and third parties often interchanged terms referring to auto plan features, the DCIIA has set out to make the auto feature lexicon more of a science than a colloquial art.

 

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The following was released by the DCIIA earlier this month:

The Defined Contribution Institutional Investment Association (DCIIA), a nonprofit association dedicated to enhancing the retirement security of American workers, today proposed a standardized lexicon for defined contribution (DC) retirement plans to promote further adoption of automatic features.

In a new whitepaper, “Building a Common Language to Promote Adoption of Auto Features in DC Plans,” produced by DCIIA’s Retirement Research Board and its Automation Task Force, the industry group encourages adoption of a standard set of terms to describe automatic features frequently used by defined contribution plans.

Joshua Dietch, head of retirement and institutional at Strategic Insight and co-chair of DCIIA’s Retirement Research Board, explains: “During the course of DCIIA’s 2014 Plan Sponsor Survey on Auto Features, the project team noticed that multiple terms are used to describe similar features, resulting in some confusion. This prompted further DCIIA research to identify how the industry uses common terms including automatic enrollment, sweeps, and re-enrollment.”

The paper, which is based on the team’s findings, provides a definitional framework with the objective of increasing the common understanding and usage of these practices.

Proposed definitional framework:

1.  Auto enrollment: Automatically enrolling new hires into a Qualified Default Investment Alternative (QDIA) within the DC plan, at a fixed contribution rate.
2. Auto enrollment sweep: Automatically enrolling existing eligible employees who aren’t participating in the plan into the plan’s QDIA at a fixed contribution rate, either as a one-time event or periodically.
3. Auto escalation: Increasing participant contribution rates at regular intervals, by a predetermined amount.
4. Fund-to-fund mapping: Re-directing an existing investment from one fund to a similar, or like, fund.
5. QDIA re-enrollment: Redirecting existing account balances and future participant contributions from existing investment allocations to a QDIA, unless participants opt out or make another election before assets are moved. Provided that the plan sponsor has satisfied the safe harbor requirements, it will be provided with relief under ERISA Section 404(c) for investment outcomes related to the QDIA.
6. Non-safe harbor re-enrollment: Redirecting existing account balances and/or participants’ future elections to a QDIA-eligible fund, without providing participants the opportunity to opt out or make another election prior to the assets being moved, or otherwise not satisfying the safe harbor requirements. In this instance, the plan sponsor will not be provided with relief under ERISA Section 404(c).