A new 401k default? Moving money into target funds.

It’s called the Automatic 401k re-enrollment. The WSJ reports:

In a bid to help employees get their retirement savings on track, more 401(k)-plan sponsors are shifting workers’ 401(k) dollars out of their current investment allocations and into the plan’s default option—usually a target-date fund.

It’s called re-enrolling. Employees have the options of sticking with their current investment selection, if it’s still offered, or choosing another mix. But in a re-enrollment, unless the participant specifically opts out, his or her 401(k) will be re-allocated to the company’s chosen default investment.

As with automatic enrollment, opt-out rates are low.

Mr. Reish and his colleagues, who represent several major 401(k) providers, were initially worried about potential push-back from employees. However, only one worker complained, saying a target-date fund would be too conservative, he says. Others opted out with no gripes about the process.

All told, about half of the employees re-elected their prior investment selection or selected some other investment strategy.

Employees who opt out are more likely to be better educated, older and more affluent than those who accept the default, says Mr. Utkus.

Reish & Reicher’s opt-out rate was higher than most companies that undergo a re-enrollment.

Indeed, for companies moving their 401(k) plans to T. Rowe Price Group, the acceptance rate is much higher and has increased in recent years, says Carol Waddell, director of product development for the company’s retirement-plan-services unit. Among employers that shifted their 401(k) plans to T. Rowe Price and conducted a plan “reset,” roughly 87% of all participants remain in the target-date fund 18 months after the conversion, she says. Ms. Waddell adds that 57% of plans transferred to T. Rowe Price in 2009 conducted plan resets for their employees, compared with 14% in 2005.

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  • fran

    i found deloitte’s study on retirement readiness really interesting reading. in the study, they found that employees who were offered the option to re-enroll actually stepped down their contribution or opted out of the plan altogether. be interested in your thoughts here. i wrote about it on my blog — and linked to the study: http://bit.ly/hKzhvb

    fran melmed