Retirement Income
Investment re-enrollment is a powerful way to give a fresh start to a retirement plan’s participants. This often-overlooked strategy converts their investments quickly and automatically into ones built on sound investment principles – for any participant who needs it.
For the plan sponsor, investment re-enrollment is a simple process by which participants are notified that their current balances and future contributions will be invested in the plan’s default investment (which may be a target date fund). All participants’ assets are automatically moved into the plan's default investment on a certain date unless the participant makes a new investment election during a specified time period.
Although re-enrollment can’t wipe the slate clean of past investing mistakes, it allows participants to correct knotty legacies like investing counter to their goals or age, defaulting into a money market fund or not revisiting the original investments since they were selected.
Here are three things to look for when designing an investment re-enrollment with a financial professional and recordkeeper. These will help the process go smoother and build a strong foundation for future participant satisfaction.
Does the company want to improve participant investment allocations? Are accounts overinvested in money markets or any single investment option? Do individual allocations and the risk associated with them appear misaligned with employees' best interests?
Although investment re-enrollment can be made into any qualified default investment alternative (QDIA), most plans use target date funds for this purpose. Each target date fund represents a fully diversified portfolio that can be assigned to participants based on their age. As retirement approaches, the fund automatically adjusts its asset allocation to help protect retirement income.
Here are some questions to ask when evaluating a target date series:
Plan communications don’t have to be dry, legalistic documents. The investment re-enrollment notice can grab participants’ attention to make a positive impression. Here are some guidelines:
Choosing a mix of investments can be overwhelming. Many participants don’t have the time or knowledge to invest wisely. Thus, if left to their own devices, they often make investment selections that aren’t aligned with their goals. An investment re-enrollment can help participants invest better:
Investment re-enrollment is one of the five keys to retirement success. It can be surprisingly easy for plan sponsors to use it to help participants open the door to financial security in retirement.
Plan sponsor checklist:
Retirement Income
Retirement Income
Target Date
Practice Management
Participant Engagement
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