Avoiding Participant Lawsuits Over Re-enrollment

While re-enrollment programs have (of necessity) been around more or less since the invention of participant choice, a new BNY Mellon white paper points out, the first really massive wave of re-enrollments occurred in 2007-2008, when DOL published the QDIA regulation. That regulation provided that a sponsor/fiduciary can (where certain requirements are met) default a participant into a QDIA, and the participant will be treated as if he or she had affirmatively elected the default. Author Mike Barry of BNY Mellon Plan Advisory Services Group notes that the 2007-2008 re-enrollment wave was a "perfect storm" that’s unlikely to be repeated — the coincidence of a mass re-allocation from capital preservation vehicles to TDFs in connection with the QDIA regulation and an extraordinarily large drop in stock prices. Noting that participants’ failure to receive a QDIA notice is a basic ingredient in many lawsuits, Barry recommends that plan sponsors should document their notice process carefully and review (and, if necessary, revise) plan documents and communications to clarify that there is DOL authorization for the program. A second significant element in avoiding legal action is avoiding language in the plan document and in employee communications that may be construed as giving participants an unqualified right to invest assets as they choose. Finally, Barry recommends that plan sponsors considering a re-enrollment program should think about which asset classes (both QDIAs and non-QDIAs) are vulnerable to significant asset swings.