DCIIA Unveils a Lexicon for Automatic DC Plan Design

Exclusive to PLANSPONSOR: The clarified terms should make it easier to employ—and understand—‘auto’ plan features.

By Karen Wittwer | October 04, 2016
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In the context of automatic retirement plan design, which of the following defines the term “re-enrollment”?

a) A one-time procedure to enroll nonparticipating employees into the company defined contribution (DC) plan.

b) Reallocating active participants’ accounts to the plan’s default investment.

c) Mapping participants’ accounts to a new investment when the plan undergoes major change.

d) Periodic sweeps to enroll all employees into the company DC plan.

e) All of the above.

Far from academic, this question sums up a problem confronting the retirement industry regularly as people sit down to do business. A plan sponsor could be hearing a) as its adviser presents b), while the recordkeeper had c) in mind. All the above definitions are widely in use, bogging down planning discussions and the progress of “auto” feature adoption in general, says a milestone study by the Defined Contribution Institutional Investment Association (DCIIA), which it calls the “first of its kind.”

How widespread the confusion became clear in a series of town hall meetings DCIIA held in early 2015. Every few years, the nonprofit meets with its key members to learn what issues it might address, says its president, Lew Minsky. “The one issue people agreed on in those meetings was their disagreement on the terms.”

Even before the town halls, DCIIA knew there was a problem. It had made that discovery in surveying plan sponsors, asking why they were—or were not—adopting various auto-features, says Josh Dietch, now head of retirement and institutional research at Strategic Insight, PLANSPONSOR’s parent company, and  vice chair of DCIIA’s retirement research board.

The town halls became an occasion “to discuss as an industry what some of the barriers to adoption are from our understanding of what plan sponsors are telling us, to see if we can find a more effective way of communicating and encouraging adoption of these features,” Dietch says. 

DCIIA decided to take action. Eighteen months, two membership surveys and much consideration later, the organization is premiering its solution—a glossary of standardized definitions for the six most troublesome terms—re-enrollment included—used to articulate the features of automatic plan design. The clarified terms, together, create a definitional framework that, Minsky says, will help plan sponsors build “auto” features into their plan—and, DCIIA hopes, effect a needed leap in participation and outcomes.

It is presenting the definitions and rationale for why they are needed in a new white paper, which it plans to follow up with an industrywide campaign to build consensus for the terms, Minsky says.

DCIIA believes the issue is more than just a nuisance, that it has actually stalled proliferation of automatic features, as meeting time is lost while people sort out conflicting terminology. That time would be better spent on “robust dialogues that would allow plan sponsors to focus on the actions they can take,” the white paper says.

“We’re hopeful this will play a part in getting us unstuck,” Minsky says.

As further incentive for adopting standardized terms: In a day when industry professionals are increasingly scrutinized for how well they fulfill fiduciary roles, making wrong decisions due to misunderstood jargon could lead to fiduciary problems, says Robin Green, a member of DCIIA’s retirement research board, a consultant with Anne Schleck & Co. LLC, and a taker of the survey.

The Automatic Features Task Force began by surveying its membership. One hundred-forty of the 170 organizations responded—senior-level investment managers, recordkeepers, retirement plan advisers, and other types of consultants and service providers are typically the actual respondents, Minsky says.

The survey presented five scenarios representing the basic categories of auto-design—each followed by a checklist of 11 automatic plan-design terms. Respondents selected the one closest to how their company refers to that strategy—“even writing in terminology we hadn’t even thought of,” says Cathy Peterson, managing director, global head of Insights programs at J.P. Morgan Asset Management, one the task force’s core group.

Most (70%) respondents agreed on auto enrollment, but that was all. “Within each constituency, there were overlaps and no real pattern,” Minsky says. Re-enrollment was the worst.

NEXT: Defining the terms