Although many employees take advantage of their employer's 401(k) plan offerings, some do not. In a 2019 report, Pew Research cited the following reasons for lack of participation: more pressing financial needs, problems with eligibility, or saving for children's tuition or the down payment on a home.
While you might not be able to remove all the obstacles preventing your employees from participating in your 401(k) plan, there are things you can do to boost their odds of joining in. Below are four suggestions.
1. Improve your communication efforts.
- Are you fully informing your employees about your 401(k) plan, rather than just giving them the bare minimum as required by law?
- Are you explaining to your employees how a 401(k) plan can make them more financially secure?
- Do your employees know exactly what, if anything, they need to do in order to enroll in your 401(k) plan?
- Do you make it easy for employees to make changes to their 401(k) account?
- Are you educating employees about their 401(k) options in simple language?
All of these are essential to boosting 401(k) plan participation. For example, the federal government requires that you give employees certain 401(k) disclosure documents. Rather than relying on those documents to educate employees about your 401(k) plan, consider offering a more personalized experience that will allow them to ask questions, compare their options and make better financial choices.
2. Engage in targeted communications.
According to an article published by the Society for Human Resource Management, 401(k) savings deferral rates increased sharply when employers sent customized messages to specific participants. This includes new hires and employees approaching retirement or a certain age.
Additionally, Pew Research reported that millennials have the lowest rates of 401(k) participation. You can encourage participation among this demographic by recognizing their financial constraints — such as student loans and down payments on a home — and offering to assist if possible.
3. Automatically enroll all eligible employees.
The Pension Protection Act of 2006 enables employers to enhance their 401(k) plans through automatic enrollment. According to the International Foundation of Employee Benefit Plans, "automatic enrollment has been praised as one of the success stories from the PPA." This feature ensures that everyone eligible to join the plan is enrolled by default. Those who do not wish to participate may opt-out. With automatic enrollment, there's a higher probability of participation.
4. Step up your matching game.
Matching 401(k) contributions gives employees a compelling reason to participate in the plan — and the higher the match, the more likely they are to join. According to Pew Research, when a match is provided, participation surges by 15 to 15.5 percentage points in all age groups.