with just 7% of participants still holding an “extreme” position of 0% or 100% equity. Eighty-one percent of plan assets
remained in the default target-date funds (TDFs).
The original, February 2016 paper on the case study,
“Reshaping Participant Outcomes Through Re-enrollment,”
also showed how re-enrollment into a passive TDF family
can lower participant fees substantially. The average
expense ratio paid annually by the large plan’s participants
decreased from 41 basis points (bps) to 10 basis points after
The current paper shows that 80% of re-enrolled partici-
pants stuck with the default as their sole plan investment,
and 20% did not. Of that 20%, 12% of participants did a
partial opt-out—still holding the default but also moving
some money to one or more other plan investments—and
8% did a full opt-out from the default. Pagliaro characterizes
that opt-out pattern as typical for an investment-focused
re-enrollment. “Over time, we see a small percentage of
people leave the target-date funds altogether,” she says.
“And sometimes participants take a smaller position in a
target-date fund, where they are not 100% allocated to it.”
When re-enrolling current participants into a QDIA,
Pagliaro says, it is important to make clear that they can
opt out of the change. The opt-outs mostly fall into the
“do-it-yourself” group that feels more confident about
investing, she says. “They tend to be people who are older
and wealthier, and they have a preference for building their
own portfolio,” she says.
But the vast majority of participants do not want to
build their own portfolio, Pagliaro says. “They’d prefer that
investment professionals make those decisions,” she says.
“Through re-enrollment, you’re helping those folks to get a
better-diversified portfolio. The vast majority of re-enrolled
participants stick with it, to their benefit.”
Boosting Deferral Rates
Another approach to re-enrollment focuses on improving
deferrals. Sponsors sometimes re-enroll employees saving
below the default deferral rate, raising them to that rate,
or to the rate needed to collect the maximum match. To
determine whether taking this step makes sense, advisers
should perform a participant retirement readiness study for
the plan, recommends Tom Foster, assistant vice president,
strategic relationships at MassMutual Financial Group in
Enfield, Connecticut. The study can look at the percentage
of participants on track to retire at an appropriate age—say,
65% or 67%— with a sufficient percentage of their pre-retirement income—say, 75% or 80%, including Social Security.
Some employers do that study and find that their work
force saves sufficiently and does not need re-enrollment to
the plan’s default savings rate. “But, in many other cases,
many employees are woefully underprepared for retirement,” Foster says.
T. Rowe Price Retirement Plan Services often sees plans