Financial Wellness

Advances in Auto-Services: Reenrollment

Ongoing Optimization of Savings and Investment Behavior

Patrick Delaney, Vice President, Retirement Insights

Plan sponsors will always be forced to divide their attention among competing topics and issues affecting the retirement industry—be they legislative, political, or economic in nature.

While these issues deserve attention in the short term, sponsors should remain steadfast in the purpose and objectives of their retirement plan: to help American workers save enough and invest appropriately in order to have the freedom and flexibility to retire on their own terms. With that in mind, it’s important to revisit and build upon a group of plan design features that 20+ years ago revolutionized participant savings and investment behavior: auto-solutions.

Auto-solutions began gaining steady traction with plan sponsors in the early 2000s, ushering the defined contribution industry into an era of innovation and improvement. Adoption increased exponentially with the passing of the Pension Protection Act in 2006.

Despite that progress, the first wave of auto-services had one inherent flaw: They were only implemented on newly hired, or newly eligible, employees. From a benefits perspective, plan sponsors were still viewing retirement plan participation/enrollment as a point-in-time decision. Auto-enrollment, for all its inherent advantages, still forced an employee to make a decision to participate at the point of eligibility—either upon being hired or shortly thereafter.

Several new and more effective auto-services are being discussed by advisors and implemented by plan sponsors. Two of these new services can be used to help optimize employee savings and investment behavior periodically after the point of eligibility:

  1. Automatic (QDIA) reset

  2. Auto-reenrollment

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Advances in Auto-Savings

It’s important to revisit and build upon a group of plan design features that 20+ years ago revolutionized participant savings and investment behavior: auto-solutions.

1T. Rowe Price Retirement Plan Services, based on active 401(k) plans that outsource deferrals to T. Rowe Price only, 12/31/2005.

Important Information

This article has been prepared by T. Rowe Price for general education and informational purposes only. This material does not provide fiduciary recommendations concerning investment or investment management. T. Rowe Price (including T. Rowe Price Retirement Plan Services, Inc., its affiliates, and its associates) does not provide legal or tax advice. Any tax-related discussion contained in this article, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this article.

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