One year after a re-enrollment event, most participants remain invested in the default fund, Vanguard found in a case study.
in 2016, Vanguard examined the impact of a re-enrollment event within a
large defined contribution (DC) plan, analyzing participant behavior
immediately after the event and then six months later. It extended its
analysis to study the behavior of the same participant cohort one year
after the event.
The original re-enrollment event occurred in two
phases, beginning in December 2014 during the transfer of a large DC
plan’s recordkeeping services to Vanguard. Because of the presence of a
stable value investment fund, which required advance notification to the
insurer, the full re-enrollment was not completed until June 2015.
After one year, the plan menu remained consistent in terms of the
styles and number of funds offered; however, the bond funds and one
stable value offering were changed.
Immediately after phase 1, at
the end of December 2014, 10% of participants partially or fully opted
out of the default fund and elected their own portfolios. After phase 2,
this percentage increased slightly. One year later, 20% of participants
were no longer solely invested in the default fund. However, Vanguard
finds most of the increase is observed among participants who moved part
of their portfolio out of the target-date default, and the percentage
of participants who fully opt out remains low over the entire one-year
Vanguard notes that after the two-phase re-enrollment
event, the trajectory of the median equity allocation aligned more
closely to the target-date series. The distribution or variation around
the glide path, representing individuals who chose to deviate from the
single target-date default fund, grew wider as participant age
increased. This widening of the distribution reflected later-than-normal
retirement ages anticipated by some older investors, Vanguard found.
months after the re-enrollment, 94% of participants and 74% of plan
assets were in target-date funds (TDF)s. One year later, 92% of
participants and 81% of plan assets were in TDFs.
concludes, “Over time, investment defaults remain ‘sticky.’ This
reinforces our findings that re-enrollment is an effective strategy to
improve portfolio diversification.”
A report about the case study can be found here.