Sponsors sometimes feel apprehensive about the cost if nonparticipating employees get re-enrolled or low-saving employees get re-enrolled at a higher deferral rate, Warye says. “The employer wants to know, ‘How much will that cost us in additional match dollars? How will it impact the plan’s administrative fees? And will it impact our internal administrative costs to work on the re-enrollment?”
RJF Financial Services probably spends more time talking about cost implications with sponsors considering a re-enrollment than the firm does any other concern, McQuillan says. So, how should an adviser handle the issue? “By this stage, you’re talking to a sponsor that has bought the idea that it wants to improve participant outcomes. When [you] get to that point, there’s no sugar-coating it: There is a cost to doing re-enrollment, and the cost is determinable. You just have to take the cost issue head-on.Story Continued Below
“Then it becomes a matter of data analysis: What will likely happen if the plan does a re-enrollment, and what will it cost the employer?” he says. “To do that analysis, we can either use industry data on re-enrollment results, or, if the plan already has auto-enrollment, we can use that data.” Of course, sponsors also have the option of a stretch match, which could keep their matching dollars from increasing.
After cost, employers considering re-enrollment most often worry about a potential backlash from employees who feel forced into participating or who are unhappy with the QDIA. “In that case, some employers send out an employee survey, ahead of deciding to do a re-enrollment. That way, employers can get an initial sense from their employees whether they are in favor of it,” Lantz says. “It does not need to be a complex survey: It can be just two brief questions. The first is, ‘If we increase your automatic enrollment to X%, would you be in favor of it?’ And the second is, ‘If we take this initiative, do you feel we would be forcing you to do something?’” Almost always, those employee surveys show widespread support, she says.
Advisers also can share results their other plan clients have seen with re-enrollment.
“We see a really strong participant ‘stick rate’ if the re-enrollment is done properly, with a match and good communication,” Warye says. “If the re-enrollment is done with no match, the stick rate is much lower. But if you can give them a little incentive and a little push, they will stick in the plan,” he says.
Lester says the re-enrollment stick rate generally ranges from 60% to 80%—however, she adds, employees deciding to opt out of a default investment is not necessarily a bad thing. “If people choose to take a look at their asset allocation and investment choices and make their own decision, we say, ‘Great.’ The material thing is to help participants engage and pay attention. That is really what you want.”