Re-enrollment has been a topic in the retirement savings universe since roughly 2011, but it seems to have increased in popularity post-pandemic. Back in 2019, less than 10% of plan sponsors suggested that they had considered re-enrollment of assets as an option in their plans, now more than 17% are.
This year we will be featuring a series on new plan designs for Plan Sponsors. In this article, we’ll tackle how some Plan Sponsors are building on the success of auto-enrollment features in their plans. Keep following our blog for future features on other innovative ways plan sponsors are using retirement benefits and plans to recruit, retain and expand employee engagement.
In the middle of the pandemic, Principal released results from their study on retirement security.[1] That study queried both consumers and plan sponsors about their impressions on retirement saving. One of the main takeaways from the study is that a whopping 87% of employers agreed that automated features have increased plan participation among their employees. It’s been such a success that versions of the federal Build Back Better bill included requirements that all plan sponsors include auto-enrollment in their retirement benefits.[2] On the state level, three states have laws that require auto-enrollment by employers and seven more have laws in progress.[3] The impact of auto-enrollment is impressive – many analysts suggest that auto-enrollment beefs up retirement plan participation from about 50% to close to 80% of all employees. And, with the passage of the SECURE Act in 2019, small employers can reap some relevant rewards for participating in auto-enrollment too.[4]
If auto-enrollment in the basics of a 401(k) plan is so successful, why not try other stumbling blocks to retirement readiness? The Principal study seems to suggest that many plan sponsors are considering just that. In addition to auto-enrolling any new hire, slightly more than 1/6th of all respondents are considering re-enrolling employees who opted out of the plan during the year. As one analyst suggested, “[j]ust as auto-enrollment sweeps newly eligible employees into the plan unless they opt out, re-enrollment targets those who may have previously opted out or never participated. It forces them to take stock of their future and, consider again, the benefit of their workplace retirement plan.”[5] Re-enrollment has been a topic in the retirement savings universe since roughly 2011, but it seems to have increased in popularity post-pandemic. Back in 2019, less than 10% of plan sponsors suggested that they had considered re-enrollment of assets as an option in their plans.[6]
In addition to noting a trend towards expanding the auto-enrollment feature towards re-enrollment, the study by Principal found a few other innovative uses of the auto-enrollment feature. They found that many plan sponsors are “…[I]nterested in enrolling a participant into an individual retirement account (IRA) once [the employee] has reached the IRS deferral limit (32%) and automatically enrolling Generation Z employees into financial literacy education (31%).” Generation Z (ages roughly 15 to 30) has the lowest financial literacy of any of the age cohorts (stumbling in at answering a sad 43% of financial literacy index questions correctly).[7] That lack of financial literacy has some significant impacts. In 2021, a survey by Barclays showed that GenZers of adult age (21 to 30) comprised a surprisingly large amount of scam victims.[8]
Other aspects of auto-enrollment that plan sponsors are innovating around include creating emergency savings accounts. There are two options some plan sponsors have been deploying, according to the Principal study. One is to auto-enroll plan participants into an emergency savings account if a participant requests a loan from their retirement account. The other is to auto-enroll plan participants into an emergency savings fund before those participants can begin contributing to their retirement plan. Both of those two options show the increasing acceptance of the role of emergency accounts by both the public and plan sponsors and a willingness among plan sponsors to continue to innovate for employees’ benefit.
[1] https://secure02.principal.com/publicvsupply/GetFile
[2] https://www.thestreet.com/retirement-daily/saving-investing-for-retirement/is-automatic-retirement-plan-enrollment-happening
[3] https://crr.bc.edu/special-projects/closing-the-coverage-gap
[4] https://www.asppa.org/news/irs-qas-tackle-auto-enrollment-credit-part-time-vesting-adoption
[5] https://www.edbergperry.com/Media/Articles/ArticleID/1367/The-Power-of-Re-Enrollment
[6] https://www.commonwealth.com/insights/retirement-plan-re-enrollment-a-fresh-start-for-401-k-participants
[7] https://phys.org/news/2021-10-gen-lowest-financial-literacy.html
[8] https://www.nerdwallet.com/uk/personal-finance/gen-z-financial-literacy
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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