Strategies for Boosting Employee Participation in 401(k) Plans


We frequently write in this space about the benefits of offering your employees a 401(k) plan — if we didn’t believe in it so strongly, we wouldn’t have started a company that helps small and medium-sized businesses sponsor 401(k) plans for themselves and their employees. But just because we know it’s a great idea doesn’t mean all your employees know it — and if they don’t know it, they may elect not to participate.

Since the more participants you have, the better your plan works, we want to go over with you some ways in which you — or your financial advisor — can encourage and successfully convince employees to participate in your 401(k) plan.

Why Should Employers Care About Participation Levels?

At the most basic level, the best reason to care about whether your employees participate in the 401(k) plan you sponsor is because you want them to make good, sound financial decisions for themselves, and you know that saving for the future is a critical aspect of this decision.

However, even at a small business, you may very well not be aware of some of your employees’ personal hardships. They may be struggling under a mountain of debt from medical bills or college tuition. They may need every dollar to help care for elderly relatives or disabled children. They or a family member may be fighting a drug or gambling addiction. All these scenarios can result in an employee deciding to forego saving for their future.

But even if you think it’s not your place to get involved in your workers’ financial decisions, there’s another important reason for upping employee participation in your 401(k) plan — the more participants you have, the more you and other highly compensated employees can contribute to your own nest egg, due to federal regulations regarding the ratio of contributions from each group.

Why Aren’t Employees Contributing?

Reasons workers who aren’t contributing to a 401(k) give for not doing so besides wrestling with debt include giving priority to building an emergency fund (which is more accessible than funds in a retirement account), not having enough income to sufficiently cover daily expenses and preferring to delay 401(k) contributions in favor of funneling income toward purchases such as cars, vacations, electronics, etc.

And although employees often don’t mention it, another big reason they don’t contribute to an available 401(k) plan is that they don’t understand the benefits, which brings us to our first strategy for boosting 401(k) participation: education.

1.       Educate Employees on the Benefits of Contributing to a 401(k)

Many companies provide little in the way of education around investments and 401(k) plans, and some provide none. If you are a small-business owner or a financial advisor working for a small-business owner, you may be in the latter category. We get it — your priority is running and growing your business, not holding your employees’ hands. But if you’re reading this, you have likely already decided that sponsoring a 401(k) plan makes good business sense, so you might as well take the next step and commit to putting some effort into boosting participation in the plan you took the time to choose.

You could email, snail mail or hand out some generic investment advice to your employees, and this may be helpful for boosting participation, but if it’s not, we have some insight into why.

a.       People tend not to read unsolicited mail, even (or especially) from their employer.

b.       The text may be too complicated or technical for some of your employees to understand.

c.       They may want to read it and intend to read it, but never actually read it.

Studies show the best way to get more employees to participate in your 401(k) plan is to hold individual meetings with them. Yes, that takes time, and time is money, but if you do your research and get a handle on why this problem may exist at your company in your area of the country, you can craft a presentation that hits on the major pain points and use it over and over for each employee, leaving a couple minutes at the end of each meeting for questions.

Even if you aren’t that concerned with your personal contribution level and that of your highly compensated employees, you will still benefit as an employer who is invested in their workforce’s 401(k). With an optimal vesting schedule, employees will be more loyal to your company, and they will spend less work time worrying about their financial situation.

If for some reason individual meetings are truly not possible, consider making a video (or having your financial advisor do it) that hits on the major points you want to make, and show it at a mandatory meeting. While some employees may zone out, this method is still better than sending them mail they may never open.

2.       Make Participation Automatic

Today, many companies are choosing to make participation in the company 401(k) automatic. Whenever a new employee is onboarded, they are automatically enrolled in the 401(k) plan. Since participation in a 401(k) plan cannot be made mandatory, employees are allowed to opt out. But most won’t. That’s because one major reason employees don’t join their company-sponsored 401(k) plan is because they never get around to it. Procrastination is real, and it costs people money. 

Imagine if, instead of taxes being taken weekly out of workers’ paychecks, that they were instead tasked with setting aside the money and paying it themselves each year. Mandatory enrollment results in higher enrollment.

Plus, a tax credit is available to companies that start a plan with an auto-enrollment feature. This makes it a win for employees and employers.

3.       Offer an Employer Match

A matching employer contribution can make a big difference in the level of employee participation in your 401(k) plan. When an employer matches employee contributions, the employee feels more as though the employer is invested in their financial well-being. The employee feels more valued and the employer-employee relationship is strengthened.

Additionally, since so many employers offer matching contributions, if you don’t, your employees may be saving their money to invest at their next job — where the employer matches employee contributions.

Start Planning Your Strategy Today

Whether you are a small-business owner or a financial advisor, encouraging workers to invest in their retirement is good not just for them and you, but for the country as a whole. Financially secure people are happier, more productive and sometimes even healthier. They’re in a better position to help those who are struggling, so everyone wins.

If you’re thinking of launching a 401(k) program at your small business, 401GO is the provider to work with. You can get your plan up and running in as little as 15 minutes, at minimal cost to you. If you already sponsor a 401(k) plan, try implementing our strategies to boost participation, and see how your efforts can improve life for everyone at your company.

Learn more about our 401(k) options optimized for small and medium sized businesses.


Barb Maglio
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Learn more about our 401(k) options optimized for small and medium sized businesses.