Re-Enrollment: Know The Risks. Retirement plan sponsors are embracing re-enrollment as a way to help ensure participants have sufficient asset allocations and deferral rates. More than 22% of plan sponsors did a re-enrollment as of 2016, according to Callan Associates. But before you embark on a re-enrollment, it’s important to be aware of the risks.
In a re-enrollment, participants’ assets and future plan contributions are defaulted into the plan’s default investment option, like a target date fund. Sponsors typically opt for re-enrollments when participants’ asset allocations aren’t there they should be. The objective is to get a majority of participants to remain in the default fund, where their assets are likely to be allocated appropriately.
According to Callan, most sponsors choose to do a re-enrollment when they make changes to the plan’s investment fund lineup, start to work with a new record keeper, or again, to help improve participants’ investment allocations.
However, here are some things to keep in mind and check on before doing a re-enrollment:
- Make sure the plan document gives you the right to do a re-enrollment. If not, amend it before moving forward.
- Give participants the chance to opt out of the re-enrollment. One way to do this is to require plan participants to restate their asset allocations. If they don’t do so within a certain amount of time (which must be clearly communicated in advance of the re-enrollment), then their assets can be mapped to the default option.
- Communication early and often. Make sure participants understand what the re-enrollment means to them and the steps they must take to participate or opt out. An effective approach might be a phased communication over a set amount of time — say 2 months before the re-enrollment begins — where you communicate this information to participants and give them plenty of time to make an informed decision. Consider separate communications — one for participants who actively selected funds, and one for automatic enrollees.
- Make sure your provider is knowledgeable. It’s important that your recordkeeper and/or retirement plan advisor if you work with one, knows the rules about re-enrollments and does them by the book to protect you from any fiduciary liability.
Some experts say a good rule of thumb is to conduct a re-enrollment every five years to ensure participants’ asset allocations remain on track. It may seem like a lot of work and responsibility, but when it comes to helping improve participants’ overall retirement readiness, it’s worth it.
