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Reenrollment into TDFs a Worthy Investment

Many 401(k) plan participants' accounts aren’t properly allocated to meet their changing needs. And while target date funds can remedy this problem, many sponsors are reluctant to implement large-scale changes, even if they result in stronger portfolios.

In an article in NAPA Net’s Participant Outcomes resource library, three execs at American Funds explain how advisors can guide sponsors toward a successful reenrollment. According to Toni Brown, John Doyle and Mark Steburg, more advisors and plan sponsors are looking to target date funds as a best practice for their QDIA, but in order for older plans to catch up, they have to reallocate their current investments. They note that, while sponsors might worry about their employees’ reluctance to change allocations, many plan participants appreciate the benefits that TDFs provide.

The authors suggest that plan sponsors who wish to reenroll give their employees at least two months’ notice, and urge advisors to supplement any disclosures with onsite availability. Advisors and sponsors, they assert, must also make it clear to participants that any change in a QDIA is optional, and that they will still be empowered to opt out of the plan if they so wish.

While the authors make it clear that a reenrollment involves a lot of effort from all stakeholders, they are worth it, and are effective in getting participants to take a close look at their portfolios when they otherwise wouldn’t have. The authors also urge plan sponsors to utilize the interest generated in a reenrollment to implement other improvements, such as updating investment menus, while they have an attentive audience.

The Outcomes library is based on content published in the June special Outcomes issue of NAPA Net the Magazine. It features industry thought leaders including Sheri Fitts, PAi’s Michael Kiley, MFS Investments’ Ryan Mullen, Fiduciary Benchmarks’ Tom Kmak, Rocco DiBruno, BlackRock’s Chip Castille, Retirement Resources’ Jim Phillips and Patrick McGinn, Tom McKenna and Christopher Leone of Healthview Services, Richard Davies of AB Institutional Investments and executives from Neuberger Berman, Pentegra and Transamerica. You can browse content from the library in the “Focus: Participant Outcomes” section in the Industry Intel tab.

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