It’s hard to do business if you don’t know the language—even
when the other players are using familiar-sounding terms. According to an
industrywide study by the Defined Contribution Institutional Investment
Association (DCIIA), retirement plan sponsors, advisers and recordkeepers may
have entirely different strategies in mind when discussing “re-enrollment,”
“auto-enrollment sweep” or some other automatic plan feature.
The issue was so pervasive, DCIIA found, that it developed a
lexicon to standardize the most troublesome terms. After two membership surveys
and much research and discussion, the nonprofit released its definitions in an
industry white paper, this fall.
DCIIA President Lew Minsky says the inconsistencies are more
than just a nuisance. He and DCIIA believe they have actually stalled
proliferation of auto-features, as meetings bog down over the conflicting
terminology. DCIIA is suggesting a language reboot, of sorts. The clarified
terms together create a definitional framework that, Minsky says, can help plan
sponsors build auto-features into their plan—and effect a needed leap in
participation and outcomes.
The most confusing term was re-enrollment. DCIIA’s first
survey confirmed at least five strategies known by that term—and, contrary to
many advisers’ and their clients’ understanding, not all of those meet safe
harbor requirements, notes Josh Dietch, vice chair of DCIIA’s retirement
research board, and head of retirement and institutional with Strategic
The inconsistencies date to the explosion in automatic
features with passage of the Pension Protection Act (PPA). Recordkeeper
companies hurried to bring out products, coining terms as they went.
“Re-enrollment” was one that stuck, with companies writing their own variation
into communications and educational materials, says project task force member
Cathy Peterson, managing director, global head of Insights programs at J.P.
Morgan Asset Management. The new definitions clarify where traditional 404(c)
protection is provided and where it is not, she says. —Karen Wittwer
definitions are as follows:
Auto-enrollment: Automatically enrolling new hires into a
qualified default investment alternative (QDIA) within the DC plan, at a fixed
Auto-enrollment sweep: Automatically enrolling existing
eligible employees not participating in the DC plan into its QDIA at a fixed
contribution rate, either as a one-time event or periodically.
Auto-escalation: Increasing participant contribution rates
at regular intervals, by a predetermined amount.
Fund-to-fund mapping: Redirecting an existing investment
from one fund to a similar, or like, fund.
QDIA re-enrollment: Redirecting existing account
balances and future participant contributions from existing investment
allocations to a QDIA, unless participants opt out or make another election
before assets are moved. Provided that the sponsor has satisfied the safe harbor
requirements, it will have relief under Employee Retirement Income Security Act
(ERISA) Section 404(c) for investment outcomes related to the QDIA.