401k enrollment forms

[austin3515]

I have this "theory" that people who WANT to defer take their forms home and never get around to filling it out because it is a lot of information to stew, particularly with respect to selecting an investment.

So my theory is this: Send out enrollment forms, pre-filled with names and all other indicative information. The deferral election section will indicate that unless "I have decided to make alternate elections to invest in one of the other investment options in section 2, I have affirmatively elected to be invested in the Balanced Model" or soemthing to that affect.

I just think that this one little thing (i.e., all I need to do is say how much I want to contribute, and sign) would be enough to break the resistance enough to increase participation.

Any thoughts on whether this constitutes an investment election eligible for 404© (i.e., and avoid the QDIA rules)?

[GMK]

or could you amend the plan to add automatic enrollment with default elections for those who do not submit their election choices?

or am I missing something?

[austin3515]

I am strongly opposed to auto enrollment. Most of my clients will totally louse that up and wind up with lots of liability. I have a handful who have a sophisticated HR DEPARTMENT where they do this and can handle it. The rest are small (or even relatively large) employers who just don't have the resources to implement such a complicated endeavor.

[Guest Sieve]

austin --

Is it really any easier for these small HR departments to send out partially-completed enrollment forms than it is to send out auto enrollment notices & auto enroll employees? Seems to me that if you can remember to do one, you can remember to do the other. The correction for failure to offer enrollment is probably not significantly more expensive than correction of a failure to enroll an auto enrollee.

[austin3515]

I see a major difference between handing someone a form and waiting for them return it, as opposed to handing someone a form, waiting a few weeks, and then setting up a payroll deduction for them if they don't respond. I know it doesn't sound like much, but if you worked with small employers you would know that this is totally unrealistic.

[GMK]

just don't have the resources to implement such a complicated endeavor.

So they only do the mindless tasks like approving the list of funds available for investment?

I'm glad I'm not in those plans. Just saying.

Since the participant has to sign and date the form you propose in the OP, it's an election. Don't know if you would want to also include a similar statement about the deferral rate.

[austin3515]

So they only do the mindless tasks like approving the list of funds available for investment?

They have financial advisros for that.

Believe me, I thought about the default percentage too, 3%, something easy to commit to, just to get them in the door.

[Guest Sieve]

Of course, if the providers met individually with new enrollees, the chances of obtaining enrollments significantly increases. That may be all that's missing with your small employers. Leaving it up to employees to enroll on their own, without any consultative advise/explanations, always provides the lowest of enrollment percentages.

[GMK]

I see a major difference between handing someone a form and waiting for them return it, as opposed to handing someone a form, waiting a few weeks, and then setting up a payroll deduction for them if they don't respond. I know it doesn't sound like much, but if you worked with small employers you would know that this is totally unrealistic.

Not in all cases. We work with a small plan (<100 employees) with automatic enrollment. The plan has 98% participation. The other steps in your summary above are to sit down with the employee and explain what happens if they do not make an election, and then if they do not make an election, tell them what deferral rate and fund(s) you enrolled them in.

And financial advisors or not, the plan sponsor is responsible for the fund selections.

But you gotta deal with the people in your plans.

[austin3515]

Of course, if the providers met individually with new enrollees, the chances of obtaining enrollments significantly increases. That may be all that's missing with your small employers. Leaving it up to employees to enroll on their own, without any consultative advise/explanations, always provides the lowest of enrollment percentages.

Nope, we do that. They need to go home and think about which investment to choose, and then we never hear from them again. I want them to be comfortable signing the form before they walk out the door.

And GMK, I'm not sure the fact that you have "a small plan" (i.e., one) who can handle it, doesn't really discredit my conclusion. What about your other small plans?

[Bill Presson]

Austin,

For this very reason, we have the deferral election and investment election as two forms. When completed, the deferral election form goes to the payroll department (or office manager) and the investment election form comes to us. We maintain the investment elections in our recordkeeping system, but the deferral election is irrelevant to us.

Also, most of the investment advisors have chosen a QDIA.

So, it isn't uncommon for a participant to complete the deferral election form and turn it in at the enrollment meeting. They then take all the investment "stuff" home. If they return it by the due date, we set it up on the system. If they, don't the money goes into the default. They can always then go online and make changes to existing money or future elections.

It's worked pretty well for us.

[Guest Sieve]

austin --

If you discuss enrollment & investments at the same one-on-one meeting, there usually is nothing left to decide--especially if the employer has a history of strong participation, in which case the employee may already have gotten over the intial scepticism.

In any event, you apparently have formulated something that works for your clients. I have a provider client who meets individually with new enrollees and has a great success rate signing them up.

Bill -- Your 2-form approach is a good one.

[austin3515]

Bill -

I LOVE IT!!!

Thanks,

[GMK]

Austin - Sorry to be unclear. I should have said that we administer our small 401(k) and an ESOP.

For us, automatic enrollment is no more complicated than non-automatic enrollment. I think it's easier to administer, because we don't have to wait (forever?) for the employee will respond.

And to use Bill's two-form procedure for non-responders, you need the plan to define a default investment.

I appreciate that some sponsors may not provide adequate administrative support for their qualified plan for whatever reason. And I can understand that it's no picnic having to deal with them.

[austin3515]

I'm not throwing my clients under the bus by any means. Most of them are quite brilliant at what they do. It's just that what they do is not administering 401k plans. It's ubuilding homes, installing windows, treating patients, and on and on.

[Kevin C]

I think those of us in the small plan market have about the same experiences with clients. Some are very sharp and very involved in the administration of the plan. Others are busy earning a living and view the plan as something they hired us to take care of. The rest fall somewhere in between.

[austin3515]

Amen.

[GMK]

After further review, I see how you will take care of defining a 'default' fund without having it in the Plan Document.

On the deferral election form (of Bill's 2 forms) is a sentence over the employee's signature that basically says, "Subject to changes that I may make to my investment elections, I hereby elect to invest my Plan account in the Wonderful Balanced Fund."

Not bad, Austin.

[four01kman]

I have been using the 2 form approach for over 15 years. Only recently though has the "subject to further election(s)" been added to the investment election form.

[austin3515]

Jim, are you saying that you are using language like this:

"Subject to changes that I may make to my investment elections, I hereby elect to invest my Plan account in the Wonderful Balanced Fund."

[GMK]

Now, for the employee that doesn't sign the deferral form at the meeting, but decides to talk it over at home, you may be waiting a while.

But if people won't turn in the forms, you can't stop them. (~Y. Berra)

[austin3515]

If 10 people come to a meeting, the way we do it now perhaps 2 return the forms.

If we can get that up 3 or 4, then it was worth it. I'm not shooting for the stars here, just a notable improvement...

[GMK]

I'm not shooting for the stars here, just a notable improvement...

No question, you get a "Right On!" for that (with apologies for using a prehistoric phrase of encouragement).

and thanks for the interesting discussion on a grey Friday afternoon.