According to a recent Aon Hewitt report, 52% of their clients use auto-enrollment up from 39% in 2013. For plans with less than 90% participation rate, auto-enrollment is a no-brainer. But if auto-enrolling is good for new hires, what about existing employees who never joined the company’s retirement plan? And what about the people in the plan who might benefit from a reallocation of investments?
In a seminal piece by noted ERISA attorneys Fred Reish and Bruce Ashton, the process of safely re-enrolling current employees is explained and made simple. A SSGA article covers how and why to reallocate current employees that might not have the right investment. DHL saw that many employees had money in cash, the plans old default option, and never moved it. So they re-enrolled them in the plans QDIA (qualified default investment alternative) which was a TDF. The 2006 Pension Protection Act (PPA) gave employers sponsoring a defined contribution (DC) plan like a 401(k) safe harbor to use a balanced fund like a TDF as their QDIA for good reason.
Some employers are reluctant to institute re-enrollment or so-called “back-sweeping” because of costs. If a company has a match, more participants means more costs. But before you react too quickly, do the math and see what the actual dollar amount might be. Also consider the cost of older workers not able to retire including healthcare, disability, absenteeism and higher salaries.
Some employers don’t want to appear to be overly paternalistic reasoning that the employees not in the plan have made a decision. Wrong! Most people are plagued by inertia. Let them decide to opt out and see what happens. Even then, keep re-enrolling them in succeeding yours. They will thank you especially when they see their balances growing.
