Active vs. Passive Enrollment

Art by Justin Klanke

The industry’s emphasis on automatic enrollment and default investments can mean fewer opportunities to engage with participants, as advisers may no longer host regular enrollment or ongoing education meetings. To keep participants, and non-participants, from forgetting about the retirement plan and their need to save, advisers have a yearly, probably unexplored, option: communicate about the plan during benefits open enrollment time.

By working with their clients’ benefits specialists, advisers can learn the client’s approach to open enrollment and how best to integrate a retirement component in the current process. This could involve site visits or just sending information to prompt participants to enroll or increase their deferral rate.

For the sponsor, the main decision will be whether plan enrollment will be active or passive.

“With an increasingly busy workforce, the human resources [HR] department is often fighting to stay on top of business initiatives, retention and recruitment, well-being, compliance and more,” says Chase Ambrosia, senior benefits consultant with OneDigital Health and Benefits in Minneapolis. This leads to an employer preference for passive enrollment. “Conducting a passive enrollment can almost completely eliminate one of the most significant and time-consuming annual tasks for HR professionals, [active open enrollment,] offering more time for other critical organizational goals.”

Further, some employees fail to respond to an active open enrollment, Ambrosia says. “With an active enrollment, there’s a greater chance of gaps in the benefits process,” he says. “There can be gaps in the enrollment and financial elements that can impact both employees and employers.” When retirement plans do not auto-enroll, this can delay employees’ entering the plan and qualifying to receive match dollars. Active enrollment can also be confusing for employees, leading to dissatisfaction with their benefits, he adds.

Yet, passive open enrollment has negatives, too. It works well only when no changes are being made to benefit programs—or to one’s retirement account, he warns. With passive open enrollment, participants basically just rubberstamp what they already have.

All this said, some benefits brokers and retirement plan advisers staunchly believe in the strengths of active enrollment. Most of Miracle Mile Advisors’ plan sponsor clients follow the practice, says Josh Sailar, a Certified Financial Planner (CFP) with the firm, who is based in Los Angeles.

“We show up and participate in the enrollment period to educate people to sign up for their retirement plan,” he says. “It’s an important opportunity for us to improve participation and contribution rates. In my experience, active enrollment yields better results in terms of overall plan health.”

Misty Guinn, director of benefits and wellness at Benefitfocus in Asheville, North Carolina, says sponsors can overcome some of the downsides of active enrollment by educating participants about their benefits throughout the year and taking a hybrid approach whereby core benefits such as the medical and retirement plans are handled actively and voluntary benefits, passively.

“I’m 100% in favor of active enrollment periods,” Guinn says. “I view them as really essential to my success as a director of benefits. This gives me an opportunity to engage with participants and support their total well-being.”

Throughout the year, Benefitfocus holds webinars to educate participants about their various benefits, she says. “Then, a week before open enrollment goes live, we hold an on-site—and for remote workers, a virtual—benefits fair to help participants become more knowledgeable.”