servicing strategies | PLANADVISER September/October 2017


The case for re-enrollment to improve participant outcomes

By Judy Ward | September/October 2017
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Art by Tomi Um

Re-enrollment is a plan design strategy that improves employees’ retirement outcomes by increasing participation and deferral rates and/or improving investment allocations. And yet, 89.3% of sponsors surveyed for the 2016 PLANSPONSOR Defined Contribution (DC) Survey said they had not re-enrolled any employees or participants in the past 12 through 18 months. Among those that had, 1.9% re-enrolled participants not invested in the default investment, 4% re-enrolled participants saving below the default deferral rate, and 8.6% re-enrolled nonparticipating employees.

For many plan sponsors, re-enrollment remains a relatively new concept, says Lynda Abend, chief data officer at John Hancock Retirement Plan Services in Boston. “Automatic enrollment really started with the PPA [Pension Protection Act], so it’s about 10 years old. It took four or five years before employers got comfortable with it, and then most automatically enrolled new employees at 3%,” she says. “In the past five years, we’ve made good progress in working with plans that had auto-enrolled at 3%, [prompting them] to move to a higher initial deferral, and getting sponsors comfortable with auto-increases. Now, the next step in this evolution is re-enrollment.”

Re-enrollment really only resonates among proactive plan sponsors, says Jerry Patterson, senior vice president of retirement and income solutions at Principal Financial Group in Des Moines, Iowa. “If a plan sponsor cares about the financial well-being of its work force, [it] should care about this,” he says. “And if a plan sponsor cares about employees transitioning into retirement in an orderly way, [it] should care about this.”

Re-enrollment in its earliest form focused on reallocating the balances of a plan’s current participants to its qualified default investment alternative (QDIA), says Cynthia Pagliaro, senior research analyst at the Vanguard Center for Investor Research in Valley Forge, Pennsylvania.

In a paper Vanguard released in March, “Re-enrollment: One year later,” the firm presented a follow-up to a 2016 case study of a large-plan client’s investment-focused re-enrollment. Over that year, diversification improved considerably, with just 7% of participants still holding an “extreme” position of 0% or 100% equity. Eighty-one percent of plan assets remained in the default target-date funds (TDFs).

The original, February 2016 paper on the case study, “Reshaping Participant Outcomes Through Re-enrollment,” also showed how re-enrollment into a passive TDF family can lower participant fees substantially. The average expense ratio paid annually by the large plan’s participants decreased from 41 basis points (bps) to 10 basis points after re-enrollment.