1) The document discusses how defined contribution plan re-enrollment can help guide all plan participants to better asset allocations by defaulting them into target date funds if they do not make active selections during the re-enrollment period. 2) It addresses some potential roadblocks to re-enrollment like beliefs about participant decision making and collective bargaining, and suggests overcommunicating the benefits of target date funds to help with implementation. 3) The case study describes how one plan re-enrollment resulted in 75% of participants being in age-appropriate allocations compared to 29% before, dramatically improving portfolio construction.

1. Russell Investments // Defined contribution plan re-enrollment: A fiduciary imperative? OCTOBER 2013
VIEWPOINT
Defined contribution plan
re-enrollment:
A fiduciary imperative?

2. Richard Davies is a member of the Americas
Institutional Management team and responsible
for the overall leadership and strategic direction
of Russell’s U.S. institutional defined
contribution business with a primary emphasis
of implementing better default investment
solutions for plan sponsors. He joined Russell in
2011 from Alliance Bernstein where, over a 15-
year career, he led the company’s institutional
defined contribution, retail retirement and
college savings businesses as well as served as
head of global marketing and product
management, and led several business lines
and distribution channels for the company’s
mutual funds group.
B.A., University of Wisconsin-Madison, 1979
M.B.A., Harvard Business School, 1983
Richard Davies
Managing Director,
Defined Contribution

3. Russell Investments // Defined contribution plan re-enrollment: A fiduciary imperative? OCTOBER 2013 / 1
Defined contribution plan re-enrollment:
A fiduciary imperative?
Richard Davies, Managing Director, Defined Contribution
Evidence is mounting that the self-directed, do-it-yourself approach to DC investing is resulting in poorly
constructed participant portfolios. While auto-enrollment directs new participants to a QDIA option such
as a Target Date fund, existing participants’ portfolios, often chosen years ago, remain misallocated.
This paper looks at:
1. The role a re-enrollment campaign can play in guiding all participants to an appropriate asset
allocation
2. Potential roadblocks to implementing re-enrollment and ways to overcome them
3. Key elements of successful implementation
It’s an all-too-common story: An investment committee
invests significant time and effort in improving its DC plan’s
investment lineup. Committee members reduce the tier-2
stand-alone menu to a core offering of key asset-class
funds. If it’s a large plan, they may decide to move from
retail mutual funds to lower-cost institutional vehicles, or
may create multi-manager white-label structures. Most
importantly, plan fiduciaries focus considerable attention on
selecting or building the most appropriate Qualified Default
Investment Alternative (QDIA) as is consistent with their
plan’s objectives and demographics. Most likely, these
QDIAs will be target date funds that the plan will use to
auto-enroll new employees.
Then, after investing this time and energy in crafting a
much-improved investment line-up, the plan fiduciaries
decide to leave the assets of existing participants exactly
where they were, maybe even letting participants keep their
existing retail funds instead of mapping their assets to the
new core institutional portfolios. Going forward, the new
target date funds will be the centerpiece of the plan –
essentially, embedded advice representing the investment
committee’s best thinking on age-appropriate asset
allocation. Yet, unless the sponsor takes action, legacy
employees will remain invested in their existing portfolios
which, if they are like those of most plans, will be light on
target date holdings and severely misallocated.
The problem: Poor portfolio construction
Unless you’ve already taken corrective action, chances are
that a great number of your plan participants have poorly
constructed portfolios. Today, most record keepers are able
to provide plan sponsors with data on each individual
participant’s allocation to equity and other growth assets.
Allocations are plotted against participant ages (Figure 1)
with each dot representing a single participant. The yellow
band represents the glide path of a plan’s target date funds,
plus/minus 10%1
. Given that target date funds typically
serve as a plan’s QDIAs – and we will assume that they
have been selected with appropriate due diligence, and
they represent the philosophy of plan fiduciaries – the
funds’ glide path represents a proper allocation frame of
reference for the plan. A participant in the band can be
considered to have an age-appropriate asset allocation.
So what do such displays typically tell us? Russell has
evaluated them for a number of clients. Graphically, they all
look the same – almost completely random. From Russell’s
experience, it would not be unusual for two-thirds of
participants to be “misallocated”: some retirees are found to
hold all-equity portfolios, while many 20-somethings have
invested all of their assets in bonds and cash equivalents.
Of course, some participants are “off-target” for good
reason. For example, they may be working with financial
advisors to incorporate outside taxable assets into an
overall asset allocation, only a portion of which is visible to
the plan. But unfortunately, this is the exception; the norm,
as we know it, is that most DC plan participants pick their
investment options on advice from, say, a brother-in-law
who is “good with money,” or a coworker who happened to
be sitting in the next cubicle when they first joined the
company 12 years ago. No doubt the funds with the best
recent performance were selected then, and it’s unlikely the
allocation has been touched since. Plan sponsors cannot
be blamed for this result. They simply followed the
regulations and accepted the conventional wisdom – a
foundational belief of the defined contribution retirement
plan system – that through education, each and every
participant could become an informed investor.

4. Russell Investments // Defined contribution plan re-enrollment: A fiduciary imperative? / 2
So confronted with these realities, what is a plan fiduciary to
do? More importantly, with knowledge of the poor portfolio
allocation decisions made by many – possibly the majority –
of your participants, are you compelled to act? Even if your
legal counsel says you are under no obligation to do so, if
other plans in your industry take action, will you risk
potential litigation for not having kept current with prevailing
best practices?
A solution: plan re-enrollment
Over the past few years, complete plan re-enrollment has
gone from a provocative to a more broadly accepted
concept. (“Re-enrollment” is really a misnomer – more
accurately, participants are simply given the chance to re-
select their investment options.) No other single action
provides as dramatic an opportunity to transform the
investment experience of plan participants as a plan re-
enrollment. And when it is done correctly, fiduciaries are
provided safe harbor protections through provisions of the
Pension Protection Act of 2006 (PPA).
Here’s how re-enrollment works.
Plan participants are asked to re-select their investment
options, typically via a special website established by the
plan’s record keeper, only if they want to maintain their
current elections or chose entirely new options. This
process often takes place during a change in the overall
investment menu or a change of record keeper, but it
doesn’t have to.
PPA SAFE HARBOR PROTECTIONS
Whenever participants are provided an
opportunity through an adequate notice period to
make an investment decision and they fail to act,
their assets may be defaulted into the plan’s
Qualified Default Investment Alternative (QDIA).
Communications materials inform participants that if they
fail to act after a reasonable notice period, all existing
balances and future contributions will be mapped to the
QDIA, usually an age-appropriate target date fund. These
materials also explain the benefits of the professional
management of target date portfolios. This could also be an
excellent time to auto-enroll all current employees who for
any number of reasons have not yet joined the plan.
The process sounds quite straightforward. So other than
lack of awareness of the PPA safe harbor protections
provided to fiduciaries who take this course of action
correctly, what’s holding plan sponsors back?
Figure 1: Participant allocation to growth assets by age
Shown for illustrative purposes only. Source: Undisclosed Russell Investments client
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20 30 40 50 60 70 80

5. Russell Investments // Defined contribution plan re-enrollment: A fiduciary imperative? / 3
The roadblocks
Several issues confront plan fiduciaries considering
a re-enrollment:
Implicit employer beliefs – An employer’s social contract
with its workers is probably the major factor influencing
action. Some sponsors, who may be highly paternalistic,
are willing to nudge participants toward potentially better
retirement outcomes, especially if a proposed plan comes
from a defined benefit heritage. Others may be much more
libertarian in philosophy, offering choice and education to
employees but otherwise avoiding any proactive steps to
influence defined contribution plan participation. It’s
important to emphasize to participants that they are not
required to re-enroll, and that by taking no action they are
choosing the QDIA. This process is not unlike the health
care enrollment process that takes place annually in many
companies, except that the default for inaction is not last
year’s choice, but instead professionally managed target
date funds selected by plan fiduciaries.
Mistaken beliefs about participant decision making
– Another obstacle is often found in the composition of plan
fiduciary committees, typically financial executives with
relatively sophisticated investment knowledge and HR
professionals who are heavily invested in the efficacy of
their company’s participant investment education materials.
Both groups often truly believe that participants study the
plan communications and then make informed investment
decisions, just as they themselves (maybe) do. Many
fiduciaries are unfamiliar with the growing body of research
documenting the irrational decision-making processes of
many participants, as well as the fact that many participants
strongly prefer their employers to be much more involved in
guiding them to appropriate investment decisions.2
Collective bargaining – Despite the clear potential
benefits to participants from a re-enrollment, the process
may be subject to collective bargaining for a plan with a
unionized workforce. While any proposal from management
may initially be viewed as a “take away,” this initial
skepticism usually can be overcome by thoughtfully laying
out to union decision-makers the benefits of professionally
managed asset allocation portfolios.
Stable-value, self-directed brokerage and company
stock – While large holdings of such assets will complicate
a re-enrollment, the challenges are manageable. For
sponsors not wanting to reduce participant holdings of
company stock during a re-enrollment, these assets can be
excluded from the process. Stable-value holdings may be
mapped in a two-step process – held out of the initial re-
enrollment until the market/book value is positive and after
the required redemption notification period has passed. In
addition, self-directed brokerage assets would typically not
be re-enrolled.
Expense – Depending on the record keeper, expenses
may be incurred in setting up a special website and
generally administering the process. Companies will incur
expenses for the creation of targeted communications
materials that announce the process and its benefits to
participants. For this reason, a re-enrollment is often done
in conjunction with other significant changes in the defined
contribution plan or overall benefit structure so that
communications and implementation expenses can be
shared across initiatives.
SAFE HARBOR TESTED IN COURT CASE
In Bidwell v. University Medical Center, the 6th
Circuit ruled in June 2012 that plaintiffs, having
received proper notice under QDIA requirements,
failed to exercise investment direction and were
properly moved into the plan’s default vehicle.
Successful implementation
Here are three suggestions for an effective re-
enrollment implementation:
1. Overcommunicate – Take the time and invest the
energy to clearly communicate the process and avoid
unnecessary confusion. Provide an adequate notice period
to comply with QDIA regulations and maintain safe harbor
protections. Documentation of the notice process is critical
for legal protection. There will always be a few vocal critics
of any plan change, but effective communication can limit
their number.
2. Sell the benefit – Strike a positive tone. No apologies
are required – re-enrollment is a great opportunity and
benefit! The focus of participant communications is
changing from attempting to convince employees to take
action to explaining the value of the steps taken by their
employers on their behalf. Promote the benefit of
professional management via target date funds or other
QDIAs. Point out the challenges participants encounter in
building, monitoring and rebalancing their own portfolios.
3. Make re-enrollment an event – A record keeper
change, plan merger or major redesign of an investment
lineup may suggest a natural time for re-enrollment. But you
don’t need to wait. A plan re-enrollment is enough of an
event on its own. Promote and celebrate it.

6. Russell Investments // Defined contribution plan re-enrollment: A fiduciary imperative? / 4
What does the future hold?
Total plan re-enrollment has moved from the fringes and
into the mainstream in a very short period of time for
private-sector, and even public, defined contribution plans.
There may not be a legal or regulatory imperative to re-
enroll plan participants at the present time, but that may
change. Evidence is building that the self-directed, do-it-
yourself approach to DC investing is resulting in poorly
constructed participant portfolios, and fiduciaries may
increasingly feel compelled to act for moral if not legal
reasons. Aside from taking steps to increase overall plan
participation and contribution rates, no other single action
offers plan sponsors as great an opportunity for positive
impact on retirement outcomes as does guiding participants
into properly constructed portfolios via a re-enrollment.
1
Note that Russell’s standard glide path is used in this example;
your plan should use the glide path of its own target date funds
for this exercise.
2
For an excellent general primer on behavioral economics and
individual decision making on a range of financial matters, see
“Nudge: Improving Decisions About Health, Wealth, and
Happiness” by Richard Thaler and Cass Sunstein (Yale
University Press, 2008), – arguably required reading for any
defined contribution plan fiduciary.
A CASE STUDY
Two large 401k plans were merging as a result of a corporate acquisition. One
plan, from a company with a defined benefit heritage, used a number of
institutional vehicles in its defined contribution menu. The other plan, from a
successful start-up, used mutual funds. The new joint investment committee
worked on an integrated investment menu and decided on a pure institutional,
white-label, multi-manager structure utilizing, where appropriate, a common set of
managers for both DC and legacy DB plans. These white-label funds also served
as building blocks for a new set of custom target date funds. This new and very
different investment menu would need to be presented to participants – the ideal
opportunity for a re-enrollment.
In total, after excluding some stable-value and self-directed brokerage holdings,
90% of plan assets were eligible for re-enrollment. During the re-enrollment
period, only 8% of participants made active investment selections; 86% of eligible
assets were mapped to the new target date portfolios. Within a few weeks, target
date portfolios stabilized at about 82% of eligible re-enrollment assets. From our
experience, the 80% result appears to be a magic number in the re-enrollment
world, and we believe 70% to 80% should be a reasonable expectation for any
plan contemplating this process.
The re-enrollment dramatically improved overall portfolio construction for the plan
(Figure 2). Before this initiative, 29% of participants had self-directed portfolios
within the plus/minus 10% glide path band discussed previously. Following re-
enrollment, 75% were on target – a dramatic change, which offered the potential
for enhanced retirement outcomes for a majority of the company’s workforce.
Pure equity and fixed income/cash portfolios were virtually eliminated. Throughout
the process, participant questions and complaints were minimal. Overall, re-
enrollment was a great success in moving participants in the right direction while
preserving the voluntary nature of plan participation.
Figure 2: Participant portfolios before and after
PARTICIPANTS BEFORE AFTER
“On target” in +/- 10% band 29% 75%
Invested 0% in equities 18% 3%
Invested 100% in equities 14% 1%

7. Russell Investments // Defined contribution plan re-enrollment: A fiduciary imperative? / 5
Important information
Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the
appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon
without obtaining specific legal, tax, and investment advice from a licensed professional.
Russell Investments is a trade name and registered trademark of Frank Russell Company, a Washington USA corporation, which operates
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The Russell logo is a trademark and service mark of Russell Investments.
Copyright © Russell Investments 2013. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in
any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty.
First used: October 2013 (Disclosure revision: December 2014)
USI-17733-10-16

8. Russell Investments // Defined contribution plan re-enrollment: A fiduciary imperative? / 6
ABOUT RUSSELL INVESTMENTS
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knowledge to help clients navigate the complex world of defined contribution (DC) plans. Our objective institutional-
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