The Why and How of Conducting an Annual Reenrollment
According to recent research,1 55% of plan sponsors have considered reenrollment, and more than a quarter (26%) have already conducted or are planning to conduct a reenrollment in the next 18 months, up from just 7% in 2019. Here are four reasons to consider conducting an annual reenrollment:
- Boost participation It helps employees who may have previously opted out or never enrolled reconsider their participation, thus increasing overall plan engagement and improving retirement readiness.
- Reduce decision inertia. Some employees may procrastinate or delay An automatic reenrollment sweep addresses this by requiring less effort on their part.
- Take advantage of employer Employees may miss out on valuable employer matching contributions if they don’t participate. The sweep ensures they’re not leaving “free money” on the table.
- Plan sponsor fiduciary responsibility. By actively encouraging participation and increasing plan effectiveness, plan sponsors help meet their fiduciary responsibilities to act in the best interest of employees.
Best Practices for Plan Sponsors
Here are some best practices that can help support a successful reenrollment:
Communicate clearly and regularly. Send clear and frequent notifications to employees before, during and after the reenrollment to inform them of their options and the benefits of enrolling; highlight important details such as the contribution rate, employer match and investment options.
Offer default investment options. Provide well-balanced, low-cost default investment options, like target-date funds, for employees who are automatically enrolled but do not select their own investment preferences.
Set a reasonable default contribution rate. A default contribution rate (e.g., 3%–6% of salary) should be set, with the option for employees to adjust their rate higher or lower based on their financial needs.
Include auto-escalation. To help employees save more over time, offer an automatic escalation feature that gradually increases their contribution rate annually, unless they opt out.
Consider a timing strategy. Conducting the sweep right after the performance review season could provide a
well-timed opportunity to save if an employee is receiving a raise at that time.
Provide financial education and support. Offer access to retirement planning resources, financial literacy programs or one-on-one consultations to help employees understand the importance of retirement savings.
Comply with regulations. Ensure the sweep complies with regulatory requirements, including the Employee Retirement Income Security Act and U.S. Department of Labor (DOL) guidelines. Automated processes must meet safe harbor provisions to protect the sponsor from liability.
