Investment refresh is an optional extension to automatic enrollment whereby participants would be notified that, as of a certain date, their current investment allocation will be transferred to the plan’s qualified default investment alternative (“QDIA”) investment. The QDIA is frequently an age/risk appropriate target date fund (“TDF”). Any participant may opt out of this action prior to or at any time after the transfer date.
The premise underlying investment refresh is that participants do not always make prudent investment decisions. We frequently find that, although the vast majority of participants are deferring into the plan’s TDF, their prior assets often do not get transferred. This is an interesting but contradictory fact that can be attributed to a conscious act, simple neglect, or potential loss aversion, but the reality is, that it may be detrimental to the participant’s actual intent or their best interest. In addition, we also know that there is often a mismatch between the level of risk participants tell us they are comfortable with and the risk level in the actual portfolio they have constructed.
Clearly, many participants would benefit from additional assistance. Our experience tells us that a refresh could provide significant help.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.