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Aon Retirement and Investment Blog

Defined Contribution Plan Re-Enrollment: Responsible Redirection or Wrong Direction (An Investment Perspective)

DC plans are by their very nature participant directed, so the thought of overriding a participant’s own decisions may seem foolish. We disagree. In some cases, we believe that a “re-enrollment” or “re-booting” process may be just the right direction. 

What is it?  Re-enrollment involves informing plan participants that prior investment elections will become ineffective and their assets will be transferred to the Qualified Default Investment Alternative (“QDIA”) unless they opt-out. Most commonly, a plan sponsor and its fiduciary investment committee (“committee”) will choose to direct asset balances into the target date fund applicable to the participant based on their age.  (This blog entry discusses re-enrollment from an investment perspective. However, re-enrollment could also apply to noninvestment elections, such as participation and savings rates, and plan sponsors should consider this as well.)

When to consider it?  The most common use of re-enrollment is when there is a company action such as a merger of two or more of the company’s plans or changing third party plan administrators. Committees are also now considering re-enrolling after a major plan change such as conducting an extensive investment policy review that results in an implementation of a significantly revised investment lineup. Also, re-enrollment could be considered after changes to the sponsor’s retirement benefits that affect the contribution schedule for the DC plan.

Why consider it?  In situations in which the investment lineup is changing dramatically, the participants’ prior elections may not fit well.  As a result, requiring them to choose again (or be defaulted to the QDIA) may be a better way to honor their preferences than to try to map old elections into new funds.  In addition, reenrollment typically results in 60-90% of participants joining the QDIA, which is often a more diversified, age-appropriate, professionally managed investment strategy.  Recent research jointly done by Aon Hewitt and Financial Engines further supports the benefits of professionally managed investment strategies.  According to the research, participants who were assisted by such “help” (which includes those who selected a target date fund) on average earned a higher rate return from 2006 to 2010 by almost 300 bps.   Click here to see the full research report. 

What are the central Fiduciary touch points to examine?

  1. Rationale: Why a committee is considering such a move is important. In our opinion, as discussed earlier, it may be most suitable in instances of a significant investment lineup change such that many of the current investment options are no longer specifically available and mapping to a like fund is difficult.
  2. Degree of Paternalism: Re-enrollment can be thought of as more paternalistic than other actions a committee may take, such as activating auto-enrollment for new hires. Re-enrollment could imply that the committee will make more informed investment decisions than the participant. This presumption is something that a committee may or may not be comfortable with.
  3. Exclusions: Committees may be tempted to utilize a recordkeeper’s capability to exclude certain groups from the re-enrollment process. This can be done for groups such as older participants, those on military leave, those recently hired or those who have recently affirmed their elections. This type of action needs to be carefully evaluated and documented.
  4. Redemption Fees and Other Possible Restrictions:  A participant may encounter redemption fees or the inability to move back into an investment strategy before a specific time period at the moment that participants are mapped to the QDIA as part of a re-enrollment. We can help plan sponsors negotiate this and understand how to minimize participant impact.  Special attention must be paid to potential impacts on strategies such as stable value or company stock. 
  5. Caution:  On the other hand, plan sponsors should be wary of a recordkeeper’s eagerness to re-enroll. This is particularly true when working with a bundled provider who may encourage re-enrollment into their proprietary target date funds due to the incentive of higher fee sources.


“Re-setting” or “re-enrolling” a plan is increasingly attractive to many defined contribution plan sponsors, though committees should be well informed and document their fiduciary process clearly before pursuing such a bold course of action.

Elizabeth Hanig is an Associate Partner and works with many defined contribution plan sponsors. 

Kevin Vandolder is a Partner and the head of Hewitt EnnisKnupp’s defined contribution client practice. 

The information contained above should be regarded as general information only. That is, your personal objectives, needs or financial situation were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of acting on this information, particularly in the context of your own objectives, financial situation and needs.Nothing in this document should be treated as an authoritative statement of the law on any particular issue or specific case, nor should it be treated as investment advice. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal or investment advice. Please consult with your independent professional for any such advice. The blog content is intended for professional investors only.

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