Many DC plans are going through dramatic changes that promise to greatly improve participant outcomes, with new features like auto-enrollment, auto-escalation and stretch matches. As a result, most participants are ending up in managed investments. But what about employees who may be stuck in outdated funds before the changes to the plan were made?
The answer is re-enrollment, and it may be an imperative — participants who were not part of the new plan design may be asking why they are ill-prepared for retirement while their colleagues have benefited from the new features and investments.
It’s clear that there is a sound fiduciary process to re-enroll current participants into a plan’s managed investment, which is usually a TDF. A recent white paper outlines some roadblocks and best practices, including:
• Roadblocks
— employers don’t want to be too paternalistic, think their participants are actively managing their portfolio or are restricted by collective bargaining agreements
— quandaries about moving participants invested in stable value or brokerage window
— expense
• Best practices
— over-communicate
— sell the benefit
— make it an event
One firm which created a retirement income option automatically enrolled current participants after analyzing which ones did nothing or next to nothing in managing their accounts.
If the auto-plan using managed investments makes sense for new employees, why not use it for current ones who are not actively engaged? For those who do act, they can always opt out.
