Skip to main content

You are here

Advertisement

Try, Try Again — A Reenrollment Case Study

Looking for a way to improve participant portfolio diversification and fees? How about reenrollment?

A new report by Vanguard, “Reshaping Participant Outcomes Through Reenrollment,” examines the experience of a large DC plan (18,000 participants and $1.2 billion in assets) that transferred recordkeeping services to Vanguard in December 2014. Prior to conversion the plan offered 33 funds, mostly actively managed, and a suite of target-date funds.

After reenrollment 94% of participants held a position in the default TDF, which captured nearly three-quarters (74%) of plan assets.

Reenrollment into the lower-cost TDF default also translated into a decrease in fees paid by participants; the average expense ratio declined from 0.41% to 0.10% (0.37% and 0.07% at the median).

Opt Outs

Six months after reenrollment, only 16% of all participants fully or partially opted out of the default target-date fund (10% did so right away), though it was slightly higher (20%) among participants who were contributing to the plan.

While the report notes that those who opted out were older, wealthier males with a preference for more complex investment portfolios, Vanguard identified three distinct groups among this 20%:


  • “Status quo” investors (two-thirds of the group) who actively chose to maintain their existing portfolios.

  • “Cost conscious” investors (7% of the group) who also exhibited a preference for their existing portfolios, but who also reduced the number of funds held by an average of 2.5 funds and traded actively managed funds for index funds.

  • “Core satellite” investors (28% of the group) who reduced their number of fund holdings from 11 to 4, retaining the default TDF as a core portfolio holding.

Advertisement