One of Vanguard’s largest plan sponsor recordkeeping clients, a company with nearly 18,000 participants and more than $1.2 billion in assets, did a reenrollment to get more of its employees invested in an age-appropriate target-date fund (TDF). A key change in the investment menu was the replacement of actively managed TDFs as the plan’s qualified default investment alternative (QDIA) with a passively managed, significantly lower-cost TDF suite.
Following the reenrollment, 94% of participants held an age-appropriate allocation in the TDFs, representing 74% of plan assets. That was a marked improvement from holdings prior to the reenrollment, when only 25% of participants held a TDF, representing 5% of plan assets. In addition, the percentage of participants holding an extreme equity allocation (i.e. more than 90% or less than 20%) decreased from 23% to 7%.
Six months after the reenrollment, only 16% of participants fully or partially opted out of the default TDF, and only 6% of participants opted out into a portfolio without any target-date holding. The opt-out rate for inactive participants was only 4%.
As a result of the change in the QDIA to lower-cost funds, participants now pay only 10 basis points in investment fees, a 75% decrease from the 40 basis points they paid previously.
Vanguard notes that reenrollment is another tool at advisers’ and sponsors’ disposal to improve participant outcomes, and that it is particularly helpful for older investors who may not have been automatically enrolled into their plan following the Pension Protection Act of 2006.
“We’ve seen sponsors initiate vast improvements in retirement savings behaviors with widespread adoption of automatic features and the choice of target-date funds as the default option,” says Martha King, managing director of Vanguard’s institutional investor group. “Reenrollment is the next logical step on the path to improving Americans’ retirement readiness.”
« New Name and New Thinking at ‘Empower Institutional’