Re-enrollment Case Study: Accounting Firm | American Funds

  • Forms & Literature
  • CLIENT ACCOUNTS
  • INVESTMENTS
  • PRODUCTS & SOLUTIONS
  • INSIGHTS
  • TOOLS & PRACTICE MANAGEMENT
  • SERVICE CENTER

Defined Contribution Investment Perspectives

Re-enrollment Case Study: Accounting Firm in Connecticut

A professional firm with $3 million and 20 participants in its 401(k) plan was seeking better service from its recordkeeper, including better investment options for plan participants. After conducting a plan audit, the partners also decided to pursue a plan with lower fees. “The expense ratios we had been paying were higher than the market norm,” explains one of the firm’s principals.

In addition to changing providers, the firm’s financial advisor recommended replacing the balanced fund QDIA with a target date fund (TDF) series. “We explained that TDFs may be a better QDIA than a balanced fund because they are age-appropriate investments that suit each employee’s investment timeframe,” the financial advisor explains.

“As fiduciaries, it is our objective to make sure all of the investments in the plan are appropriate investments,” the advisor says. “But as financial advisors, we really pride ourselves on helping people achieve good retirement outcomes.”

Challenges

Initially, some participants — particularly those who were very risk averse — were reluctant to invest in anything that might subject them to market risk. But in the end, only a few of them opted out of the QDIA during the re-enrollment.

“Although people — myself included — may be apprehensive with any change, the participants felt pretty confident that this was a change for the better,” explains the principal.

The key, he says, was good participant communications. The advisor conducted several meetings and also met with individuals one-on-one. The plan also emailed pertinent information so that participants could review the material on their own. This helped with reaching retired employees and those not in the office on a day-to-day basis.

More than 75% of the participants, including the partners, invested in the QDIA, and they have been satisfied with the results.

“TDFs strip out a lot of the emotion, allowing people to feel comfortable that their investments are being professionally managed with retirement and life goals in mind,” observes the principal.

What Did Sponsors Gain?

The sponsor realized benefits almost immediately: 

  • Plan expenses declined, with the savings passed on to participants.
  • Participation remained steady at close to 100%.
  • Investments became more age-appropriate.
  • The overall competitiveness and attractiveness of the benefit plan improved.

“We take a lot of pride in our employees, because they’re the reason we are successful. We want the best for them, and we want them to achieve the results they need to plan their own lives,”

— Principal of the accounting firm

Don’t Delay Plan Review

“We postponed critiquing the plan for too long. My advice is don’t do that — you need to be more proactive about monitoring your plan,” offers the principal.

Conclusion

Re-enrollment into the QDIA benefited the plan and created a better alignment between participants’ asset allocations and their retirement goals. This may improve the likelihood that participants will achieve greater financial security in retirement. The experience of other plans may differ.

Note that re-enrollment is not available in all plans.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

This material is intended for use by financial professionals or in conjunction with the advice of a financial professional.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.