If you participate in a 401(k), you may be surprised to learn that your employer could actually over-ride your investment choices if they think you’re not making appropriate decisions yourself. It’s called a “re-enrollment,” and employers say they are doing it for your own good. You might want to pay attention, though, because your employer’s choices may not be right for you – especially if you are older, female or have other unique circumstances.
Re-enrollment is different than “auto-enrollment.”Auto-enrollment is a fairly common practice, in which employers automatically enroll workers in a 401(k) plan and defer a certain percentage of their salary into qualified default investment accounts such as target-date funds. Rather than just pointing new hires in an appropriate direction for retirement saving, re-enrollment involves actually overriding the investment choices that current employees have made over time, unless they specifically opt out and make a new investment election.
Re-enrollments usually are put into effect when companies change their 401(k) record keepers or the available plans change. But this is not the only case, and default plans for re-enrollment also can be used as a means of pushing employees toward certain options in the interest of a diversified portfolio. Re-enrollment is currently not common policy, but according to a recent article in The Wall Street Journal (Employer Knows Best. Perhaps.), employers may be using this strategy, along with auto-enrollments, as the improving economy gives benefits departments more time to focus on their company’s 401(k) investment choices, and as traditional pension plans continue to fade away.
Why should you care? While default options, target-date funds, and diversification may be wise choices for many, your circumstances could warrant a unique investment strategy. If you are older and closer to retirement, female (and with a longer life expectancy), have significant investments outside of your 401(k), or have other unique circumstances, you may be well-advised take a different investment strategy.
You can still opt out of the default by selecting a different plan, but be aware that you will have to do this with every re-enrollment phase.
If you don’t know whether your employer uses re-enrollment, find out. Ask your plan administrator and review your plan statements. Your investments may not be allocated as you thought.
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