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It’s Never Too Late to Keep a New Year’s Resolution

As a 401(k) or 403(b) plan sponsor, you have the opportunity to make a positive difference in the lives of your employees. With January behind us and New Year’s Resolutions fading fast, one resolution that employers can help employees keep alive is to progress along on the path toward financial security in retirement. An important step is making sure their retirement savings are properly invested.

What does proper investment mean and why is it important? Proper investment means having plan assets invested in a diversified portfolio that “makes sense” for each person’s situation, taking into account their projected retirement date, their age and anticipated longevity, financial resources they have in addition to their retirement plan savings, and their tolerance for investment volatility. With proper investing, participants increase the likelihood that they will achieve financial security in retirement.

“Re-enrollment” is a process that plan sponsors can employ to help participants achieve proper investment of their hard-earned savings. Here’s how it works.
Working with a knowledgeable retirement plan advisor, plan sponsors will want to consider whether undertaking a “re-enrollment” could benefit plan participants. That determination will be made by reviewing the way in which participants are invested, an analysis that plan sponsors should perform annually. The review is easily undertaken when plan sponsors have hired a recordkeeper whose services include providing plan reports that include information on the funds in which participants are invested by age band.

Investments in retirement plans can include managed model portfolios, target date funds, individual mutual funds, guaranteed insurance contracts, money market accounts and other options. Generally, a plan sponsor would want to see that most employees are taking advantage of diversified investment options, such as managed models or target date funds (please see my blog on the way in which managed model portfolios offer a better solution than target date funds). Also, a plan sponsor generally would want to see that younger employees are invested in more aggressive options and that few – if any – participants are invested in cash.

If it’s determined participants’ investment choices could be a better fit, then employers may decide to perform a “re-enrollment.” “Re-enrollment” will involve defaulting participants into a diversified investment option unless they make a new investment election during a time period set by the employer.

Plan sponsor decisions associated with the “re-enrollment” include determining whether all employees will be defaulted to the same investment or whether some criteria (such as age) will determine into which of multiple options each participant will be defaulted. This decision should be memorialized in the plan’s Investment Policy Statement. Plan sponsors will also want to set the date for the “re-enrollment,” allowing adequate time for the required 30-day participant notification and valuable employee education.

Working with the plan’s financial advisor, the employer should consider what kind of education associated with the “re-enrollment” will be most helpful to employees. The meeting (which can be held on-site or via webinar, depending upon the location of employees) can address best practice retirement investment strategies, the plan’s investment options, optimum savings levels to meet retirement income goals, and other topics based on the financial needs of the workforce.

Importantly, the plan’s financial advisor should be available to speak individually with participants about the investment choices they may wish to make instead of accepting the “re-investment” default. In that way, individual circumstances can be reviewed with the goal of providing the participant with the best possible investment fit.

National surveys repeatedly find that employees look to employers for guidance on their financial future. “Re-enrollment” creates an excellent opportunity not only to ensure employees’ retirement savings are properly invested but to help employees better understand important financial issues and empower them to make wise decisions. With research showing financial worry adversely affecting workplace productivity, “re-enrollment” can help increase employees’ confidence in their financial future.


This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA and providing employees with a better defined contribution retirement plan. Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan, and cannot be a guarantee against fiduciary breaches.

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