Re-enrollments Remain a Poorly Leveraged Plan Booster

Only 7% of plan sponsors answering a J.P. Morgan survey have previously conducted a re-enrollment.

Plan sponsors cite a variety of reasons when asked why they have not conducted a re-enrollment, according to newly released J.P. Morgan research, but much of the hesitancy results from poor understanding of how to plan and enact the re-enrollment effort.

More than one-quarter (28%) of the 750-plus respondents to J.P. Morgan Asset Management’s 2015 Defined Contribution Plan Sponsor Survey said they have considered a re-enrollment but did not pull the trigger—often based on a basic level of satisfaction with their plan’s overall asset allocation. The research finds this plan-level satisfaction with the way assets are being directed is probably higher than it should be, as 53% of sponsors in the same sample worry about their individual participants’ ability to make sound asset-allocation decisions.

Discussing the research results with PLANADVISER, Catherine Peterson, global head of insights programs, said there are both positive and negative elements in the data. She suggested a greater understanding of the mechanics of re-enrollments would go a long way to convince more plan sponsors to use the helpful option, which would in turn boost outcomes for large groups of at-risk participants.

First, she said, re-enrollments drive retirement investors into a plan’s qualified default investment alternative (QDIA), which Peterson believes is generally the best place for non-professional investors to direct their money. Second, participants tend to move to a more appropriate deferral percentage under a re-enrollment, especially when plan sponsors set this as a specific goal in the re-enrollment effort. Beyond these benefits, Peterson noted, re-enrollments tend to see far less participant push back than many plan sponsors expect—a testament to the thirst for guidance and support across the wider retirement planning marketplace.

She said sponsors should feel confident enough in their QDIA designation decision that seeing a majority of the plan’s assets and future contributions move into the option won’t cause concern—and the selection and ongoing monitoring processes must be carefully documented. Sponsors should also set a default deferral rate they would be comfortable seeing much or all of their plan population take up. When all these elements come together, a re-enrollment can completely reinvigorate a struggling plan, Peterson said, driving participant rates up to 80% or 90% in many cases.

NEXT: What’s holding sponsors back?

“Misalignment still appears to exist between the retirement outcomes plan sponsors want to help employees achieve and the relative importance they assign to different plan goals and success criteria,” Peterson explained. “While many plan sponsors have taken steps to strengthen their plans, our data shows there is still room for improvement.”

Twelve percent of plan sponsors said they have considered but skipped a re-enrollment because the strategy is “too risky from a fiduciary perspective.” This is despite the fact that the Department of Labor (DOL) has established a safe harbor under the Employee Retirement Income Security Act (ERISA) specifically for sponsors directing participant dollars into a properly constructed QDIA.

“It’s disappointing to see this group hesitating because of perceived fiduciary risk,” Peterson said. “At the same time, it’s not surprising, given 53% of respondents are not aware of the potential to receive fiduciary protection for conducting a re-enrollment, under the DOL safe harbor.”

Also holding plan sponsors back from doing more could be the strong focus on participant choice versus plan sponsor direction, Peterson said. Less than half (44%) of respondents describe their philosophy on driving participant decisions as “proactively placing participants on a strong savings and investing path.’

“We hear from plan sponsors every day that they encourage participants to save and invest wisely, but the reality is participants just aren’t doing it themselves,” Peterson warned. “Plan sponsors have an opportunity to set participants up for a higher likelihood of success by implementing strategies that proactively place participants on the right path.”

To access the full whitepaper and to explore the findings by plan size and theme, click here.