Reenrollment Readiness
The Why and How of Conducting an Annual Reenrollment
According to recent research, 55% of plan sponsors have considered reenrollment, and more than a quarter (26%) have already conducted or are planning to conduct a reenrollment in the next 18 months, up from just 7% in 2019. Here are four reasons to consider conducting an annual reenrollment:
- Boost participation rates. It helps employees who may have previously opted out or never enrolled reconsider their participation, thus increasing overall plan engagement and improving retirement readiness.
- Reduce decision inertia. Some employees may procrastinate or delay enrolling. An automatic reenrollment sweep addresses this by requiring less effort on their part.
- Take advantage of employer match. Employees may miss out on valuable employer matching contributions if they don’t participate. The sweep ensures they’re not leaving “free money” on the table.
- Plan sponsor fiduciary responsibility. By actively encouraging participation and increasing plan effectiveness, plan sponsors help meet their fiduciary responsibilities to act in the best interest of employees.
Best Practices for Plan Sponsors
Here are some best practices that can help support a successful reenrollment:
- Communicate clearly and regularly. Send clear and frequent notifications to employees before, during and after the reenrollment to inform them of their options and the benefits of enrolling; highlight important details such as the contribution rate, employer match and investment options.
- Offer default investment options. Provide well-balanced, low-cost default investment options, like target-date funds, for employees who are automatically enrolled but do not select their own investment preferences.
- Set a reasonable default contribution rate. A default contribution rate (e.g., 3%–6% of salary) should be set,with the option for employees to adjust their rate higher or lower based on their financial needs.
- Include auto-escalation. To help employees save more over time, offer an automatic escalation feature that gradually increases their contribution rate annually, unless they opt out.
- Consider a timing strategy. Conducting the sweep right after the performance review season could provide a well-timed opportunity to save if an employee is receiving a raise at that time.
- Provide financial education and support. Offer access to retirement planning resources, financial literacy programs or one-on-one consultations to help employees understand the importance of retirement savings.
- Comply with regulations. Ensure the sweep complies with regulatory requirements, including the Employee Retirement Income Security Act and U.S. Department of Labor (DOL) guidelines. Automated processes must meet safe harbor provisions to protect the sponsor from liability.
Informational Resources: Pew Trust Magazine: “Four Plan Features Can Boost ‘Retirement Readiness’ ” (April 12, 2024); Vanguard’s How America Saves 2024 Report.
Working it Out
Tips for Supporting Retirement-Age Employees
According to the U.S. Bureau of Labor Statistics, the aging population has reshaped the workforce, with about one in four employees having reached age 65 or older. Older adults are one of the few age groups that are expected to increase their workforce participation rate over the decade. The bureau projects that 21% of older adults will be in the labor force in 2032, up from 19% in 2022. Whether retirement-age employees may continue to work by choice or due to financial necessity, here are some things to consider to help support their unique needs.
Financial Education and Counseling
- Retirement planning workshops. Offer educational sessions to help employees understand their retirement benefits, including Social Security, Medicare and their pension or 401(k) plans.
- Access to financial advisors. Provide access to professional financial advisors who can help employees navigate retirement options and create tailored plans.
- Digital tools. Offer digital calculators or software that help employees estimate their retirement income, health care costs and long-term financial needs and goals.
Simplified Retirement Processes
- Clear communication. Ensure that retirement benefits, procedures and deadlines are clearly communicated, making the process easier for employees to navigate.
- Streamlined application. Offer online portals or one-on-one assistance to simplify the retirement application process.
Phased Retirement Programs
- Flexible work schedules. Allow employees to reduce their hours or transition to part-time work while earning benefits. This flexibility helps them adjust to life without a full-time income.
- Consultancy roles. Retain valuable skills and institutional knowledge that allow employees to work as consultants after retirement.
Ongoing Engagement
- Alumni connection opportunities. Create opportunities for retirees to stay connected with the organization. This connection can foster a sense of community and encourage them to serve as mentors or part-time consultants.
Informational Sources: Employee Benefit News: “How Employers Can Support Retirement-Age Employees” (June 27, 2024); HPPY: “How to Support Staff Who Are Approaching Their Retirement” (July 8, 2024).
Financial Education and Counseling
Web Resources for Plan Sponsors
Internal Revenue Service, Retirement Plans
www.irs.gov/ep
U.S. Department of Labor, Employee Benefits Security Administration
www.dol.gov/ebsa
401(k) Help Center
www.401khelpcenter.com
PLANSPONSOR Magazine
www.plansponsor.com
BenefitsLink
www.benefitslink.com
Plan Sponsor Council of America
www.psca.org
Employee Benefit Research Institute
www.ebri.org
Plan Sponsors Ask…
Q: We’ve noticed that the average fund expense ratios for several options in our plan’s investment line-up continue to decrease on a fairly consistent basis. Is this part of an industry trend?
A: As a matter of fact, 401(k) plan participants have incurred substantially lower fees for holding mutual funds over the past two decades, according to recent research from the Investment Company Institute. The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2023, shows that from 2000 to 2023, the average equity mutual fund expense ratio paid by 401(k) investors dropped by more than half (60%), offering them potentially higher returns and balances in retirement. The average bond mutual fund expense ratio has dropped by 63%. In addition, from 2008 to 2023, average target date fund expense ratios have also dropped by more than half.
Q: Our advisor has been encouraging us to add a retirement income solution to our plan in 2025. We feel it’s important, but is there any recent data to help us with prioritizing this effort?
A: According to Black Rock’s 2024 Read on Retirement report, 60% of employees (across all generations) worry they will outlive their retirement savings. Of those, 80% say it is negatively impacting their mental health. Ninety-three percent say knowing they would have guaranteed retirement income would improve their mental health right now. The Black Rock survey also revealed that “adding investment options that provide the option for secure income” is the top single change plan sponsors said could improve future employee retirement outcomes. In addition, a retirement income planning tool is the top workplace benefit sponsors believe will
Q: Several of our older employees would like to get more education and guidance on Social Security benefits. Our recordkeeper has provided a few basic flyers, but we don’t have much else. Do you know of any industry resources we could pass along to them?
A: AARP has sponsored a 10-part video series on YouTube that answers the most common questions about Social Security. Each part is 2 – 3 minutes in length, covering such topics as “What’s The Best Age to Apply For Benefits?”, “How Do I Apply?” and “How Do Social Security and Medicare Work Together?” The video series can be accessed here.
Pension Plan Limitations for 2025
- 401(k) Maximum Elective Deferral $23,500 ($31,000 for those age 50 or older, $34,750 for those age 60-63 — if plan permits)*
- Defined Contribution Maximum Annual Addition $70,000
- Highly Compensated Employee Threshold $160,000
- Annual Compensation Limit $350,000
* Under a change made in SECURE ACT 2.0, a higher catch-up contribution limit applies for employees aged 60-63. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500, for a potential total contribution of $34,750.
Plan Sponsor’s Quarterly Calendar
Consult your plan’s financial, legal or tax advisor regarding these and other items that may apply to your plan.
APRIL
If a plan audit is required in connection with the Form 5500, make arrangements with an independent accountant/auditor for the audit to be completed before the Form 5500 due date (calendar-year plans).
Audit first quarter payroll and plan deposit dates to ensure compliance with the DOL’s rules regarding timely deposit of participant contributions and loan repayments.
Verify that employees who became eligible for the plan between January 1 and March 31 received and returned an enrollment form. Follow up on forms that were not returned.
MAY
Monitor the status of the completion of Form 5500, and, if required, conduct a plan audit (calendar-year plans).
Issue a reminder memo or email to all employees to encourage them to review and update, if necessary, their beneficiary designations for all benefit plans in which they are covered.
Perform a thorough annual review of the plan’s summary plan description and other enrollment and plan materials to verify that all information is accurate and current, and identify cases in which revisions are necessary.
JUNE
Begin planning an internal audit of participant loans granted during the first six months of the year. Check for delinquent payments and verify that repayment terms and amounts borrowed do not violate legal limits.
Confirm that Form 5500, and a plan audit if required, will be completed prior to the filing deadline or that an extension of time to file will be necessary (calendar-year plans).
Review plan operations to determine if any qualification failures or operational violations occurred during the first half of the calendar year. If a failure or violation is found, consider using an Internal Revenue Service or DOL self-correction program to resolve it.
Check for any Actual Deferral Percentage/Actual Contribution Percentage refunds due to highly compensated employees for eligible automatic contribution arrangement plans to avoid an employer excise tax.
Consult your plan’s financial, legal or tax advisor regarding these and other items that may apply to your plan.
Kmotion, Inc., 12336 SE Scherrer Street, Happy Valley, OR 97086; 877-306-5055; www.kmotion.com
©2025 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance, nor as the sole authority on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors should always consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.
This material is intended to provide general financial education and is not written or intended as tax or legal advice and may not be relied upon for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.
