It’s easy for inertia to take over when financial decisions have to be made, especially when it comes to investment choices in a 401(k) plan. In “Using Re-enrollment to Improve Participant Investing and Provide Fiduciary Protections,” a white paper prepared for JP Morgan Chase & Co., Fred Reish and Bruce Ashton discuss one solution — re-enrollment, or requiring participants to re-invest in the plan by making new decisions about how the funds in their retirement accounts are invested.
Re-enrollment, they write, is actually re-election. Participants can select different investments than those they chose earlier, or they can leave them “as is”; even if they do the latter, at least they have paid some attention to their accounts and are not flying completely on auto-pilot.
How participants use their opportunity to re-enroll can lower — or raise— the stakes for plan sponsors. Participants who do not make a re-election are defaulted into a QDIA, which is often a TDF. Those, in turn, offer plan sponsors some protection since they are investments made in a manner consistent with ERISA standards. But re-enrollment can be more complicated when it involves stable value funds, employer stock, managed accounts and brokerage accounts.
Ashton and Reish suggest that plan sponsors keep the following in mind regarding plan investments when re-enrollment is taking place:
- fiduciary obligation for plan investments;
- fiduciary safe harbors;
- investing participant accounts in professionally designed investments;
- the investment reset, default and re-enrollment approaches;
- the re-enrollment process; and
- re-enrollment scenarios.
Ashton and Reish warn that plan sponsors can fall victim to inertia too. That arises, they argue, from the assumption that they have fulfilled their fiduciary duties by offering participants investment options and education. But that’s not the case, they warn — they remain responsible for participants’ investments.
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