Sponsors may be hesitant to re-enroll employees for similar reasons to their concern over auto-escalation: budget concerns and unease over potential backlash from employees. But unlike auto-escalation, re-enrollment allows employees to opt out.
It is clear now that many plan sponsors have embraced auto-enrollment for their new hires. The results are positive: employees are happy, plan numbers increase. But this love affair with auto-enrollment may be leaving one group in the cold: current employees who have unenrolled. Re-enrollment may be a trend coming to a benefits plan near you. Here is what to know.
The statistics for auto-enrollment show those efforts are hitting the mark. An A+ mark that is. “95% of those who were automatically enrolled were satisfied.”[1] Many plans have also opted for the efforts to escalate the amount of retirement savings, called auto-escalating. Those efforts are also receiving shining results: 89% of those who were automatically escalated were satisfied. Even with the remarkable popularity of auto-escalation, the majority of plan sponsors have opted-out of deploying this tool.[2]
Studies have shown that these programs have been “highly effective in increasing plan participation rates and helping participants gradually step up saving rates to more appropriate levels than many might have elected on their own.”[3]That may be why half of plan sponsors recently surveyed have indicated they offer automatic enrollment. Helped by the SECURE Act 2.0, that rate has increased significantly in the last decade. Tagging along with this success parade have been employer matches. In fact, employer matches have been so well received that many sponsors are expanding their matches over the near term.
One trend that emerged from recent research and studies on the expansion of auto-enrollment has been re-enrollment. Statistics show that some sponsors periodically enroll non-participating employees (15%) while others have reviewed their records and found those non-participating employees to re-enroll them (22%).[4] Those numbers show a significant rise in re-enrollment. As of 2022, only 10% of plan sponsors re-enrolled non-participating employees. The reasons plan sponsors may be holding off from auto-enrollment, according to studies by JP Morgan, show concerns among sponsors over budget or a sense of being an overbearing, or bossy, employer
According to experts, re-enrollment can help plan sponsors in a variety of ways. It helps employers make sure all employees, even those who have fallen through the cracks, benefit from their defined contribution plans. Many commentators suggest the one-time sweep noted above. They suggest sleuthing through employee databases for three kinds of employees: 1) those who opted out of auto-enrollment initially; those who stopped contributing but have not opted to re-enroll; and those who defer less than the plan’s default rate. Sponsors may be hesitant to re-enroll employees for similar reasons to their concern over auto-escalation: budget concerns and unease over potential backlash from employees. But unlike auto-escalation, re-enrollment allows employees to opt out.[5]
One word of caution, however, re-enrollment is often thought of as the process of changing a participants investment mix, a so called “wonder drug” for plan sponsors. Based on research that showed many participants fail to optimize their choice in investment portfolios in the absence of target date funds, some plans have re-enrolled participants in them.[6] Re-enrollment in TDFs can also be done with an option to opt-out.
[2] https://www.capitalgroup.com/advisor/insights/articles/plans-sponsors-top-concerns-2023.html
[5] https://www.principal.com/businesses/trends-insights/embracing-401k-auto-enrollment-budget-mind
[6] https://mesirow.com/fiduciary-solutions/re-enrollment
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.
get xpress proposal
