PLANSPONSOR - December 2017/January 2018 - 43

savings, etc., can be made more personal
for different employee demographics.
The broad array of data points
available can be overwhelming for plan
sponsors to weed through, especially to
make sense of what information can be
leveraged to achieve certain targets. For
this reason we drilled down to offer key
examples of how data mining can help
plan sponsors implement strategies that
seek to optimize plan success and drive
desired participant outcomes.
Auto-Enrollment
Automatic enrollment is touted as the first
of the automatic plan design features-
allowing a plan sponsor to take advantage
of participant inertia. The practice can be
a good first step to building a plan design
that improves plan outcomes, but because
it generally applies only to new hires, it
lacks the dramatic influence of some
other plan design features.
Data points to consider: The number
of new employees annually, to determine
how many people will be affected;
matching formula and default deferral
rate, to determine what the employer
cost of auto-enrollment will likely be; the
annual turnover of employees, to determine
what percentage of auto-enrolled
employees will be leaving small balances
behind that then must be cashed out,
rolled over or otherwise addressed.
Auto-Escalation
Plan sponsors are examining deferral
rates, as the industry adopts a best practice
of trying to get annual participant
contributions of between 10% and 15% of
salary into the plan-including company
contributions. With average deferral rates
hovering around 6%, automatic escalation
is a plan design option that can
move the average higher, and closer to
the intended goal. However, there are
cost considerations, as increasing participant
deferrals may increase company
matching contributions.
Data points to consider: The number
of employees saving below the optimal
deferral rate, to determine how many
people will be affected; matching formula
and default deferral rate, to determine
what the cost of the increased matching
contribution will be.
Re-enrollment
The term re-enrollment is used for a
number of plan design strategies, which
target employees/participants for various
reasons.
Participation. The most basic type of
re-enrollment is enrolling all employees
not currently participating in the plan. This
is the same as automatically enrolling all
employees-including those who may
have been hired before the plan adopted
auto-enrollment and those who opted out
of participating being were auto-enrolled.
Data points to consider: The number
of employees not in the plan, to determine
how many people will be affected;
the matching formula and default
deferral rate, to determine what the cost
of the additional matching contribution
will be.
Deferral Rates. A second version of
re-enrollment is to increase the number
of participants saving under the default
auto-enrollment figure, say 6%, and/or
move nonparticipants in the auto-escalation
program into the savings program
up to the maximum, say 10%.
Data points to consider: The number
of employees not saving at the intended
deferral rate, to determine how many
people will be affected; the matching
formula and default deferral rate, to
determine what the cost of the increased
matching contribution will be once participants
are swept into a new savings rate.
Investment Diversification. Another
version of re-enrollment involves relocating
participant dollars into the
qualified default investment alternative
(QDIA). This is a way to ensure that
participants are adequately diversified
and that a single decision made years
ago-e.g., to invest all in stable value or
emerging markets-is not still operative,
out of participant inertia, and having
unintended consequences.
Data points to consider: The number
of employees not fully invested in the
plan QDIA investment, to determine
how many people will be affected; what
investment holdings will see movement,
so plan sponsors can determine whether
additional notices will be required and
whether there will be an overall change
to expenses or revenue sharing.
Rollover to an IRA or
Auto-Cashout
Many retirement plans have a number of
small accounts left by former employees.
If such an account is under $5,000 in
plan assets, the plan sponsor has the
option of moving it into a safe harbor
individual retirement account (IRA)
or, if it is under $1,000, cashing it out.
This can ease plan administration and
the difficulty of contacting hard-to-find
ex-employees; additionally, it can help
improve plan pricing, as average account
balances increase once small balances
are eliminated.
Data points to consider: The number
of plan participants who are no longer
active employees and who have $5,000
or less still in the plan, to determine
how many people will be affected and
how plan assets will change; what investment
holdings will see movement, so
plan sponsors can determine whether
additional notices will be required and
whether there will be an overall change
to expenses or revenue sharing. -PS
KEY POINTS
* A wide array of data points
are available to plan sponsors
via their recordkeeper, but
these are valuable only if used
effectively.
* For each plan design feature
considered, plan sponsors
should look at specific data
elements.
* The data elements chosen to
analyze will inform the outcome
of the plan design change
considered.
PLANSPONSOR.com December 2017-January 2018 43
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