trendspotting | PLANADVISER November/December 2016

DCIIA Standardizes ‘Auto’ Terms

Understanding of plan design terms has been all over the map

By Karen Wittwer | November/December 2016

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 Insight.

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

DCIIA’S definitions are as follows:
Auto-enrollment: Automatically enrolling new hires into a qualified default investment alternative (QDIA) within the DC plan, at a fixed contribution rate.

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.