Early last year, Vanguard examined the impact of a re-enrollment event within a large defined contribution (DC) plan, analyzing participant behavior immediately after the re-enrollment began and on its completion, six months later. It extended its analysis to study the behavior of the same participant cohort again, after a full year, in June 2016.
The re-enrollment began in December 2014 during the transfer of a large DC plan’s recordkeeping services to Vanguard. Because of the presence of a stable value investment fund, which required advance notification to the insurer, the full re-enrollment was not completed until June 2015. After one year, the plan menu remained consistent in terms of the styles and number of funds offered; however, the bond funds and one stable value offering were changed.
Immediately after phase one, at the end of December 2014, 10% of participants partially or fully opted out of the default fund and elected their own portfolios. After phase two, this percentage increased slightly. A year later, 20% of participants were no longer solely invested in the default fund. However, Vanguard found most of the increase was among participants who moved part
of their portfolio out of the target-date default, and the percentage of participants who fully opted out remained low over the entire one-year period.
Vanguard notes that after the two phases were complete, the trajectory of the median equity allocation aligned more closely to the target-date series. The distribution or variation around the glide path, representing individuals who chose to deviate from the single target-date default fund, grew wider as participant age increased. This widening of the distribution reflected later-than-normal retirement ages anticipated by some older investors, Vanguard found.
Six months after the re-enrollment, 94% of participants and 74% of plan assets were in target-date funds (TDFs). One year later, 92% of participants and 81% of plan assets were in TDFs.
Vanguard concludes, “Over time, investment defaults remain ‘sticky.’ This reinforces our findings that re-enrollment is an effective strategy to improve portfolio diversification.”