Retirement Roadblocks: Why Are Many Employees Not Participating In Their 401(K)S?

In the last two years, participation rates among private sector employees fell below 50%, according to a new Principal survey, “Why are employees not participating in their 401(k)s?”

Participation rates increase as salary increases and as age increases, however, there are three roadblocks to participation, says Principal.

Retirement roadblock #1: Employees are not sure if they’re eligible

With 40% of employees changing jobs in the past five years, workers are not always aware of new benefits or if they are eligible for retirement benefits with a new employer. According to the survey, 22% of all employees don’t know if they are eligible, while 35% of Gen Z, in particular, don’t know if they are eligible.

With automatic enrollment now a growing feature with employer-sponsored retirement plans, it’s possible some employees who were auto-enrolled in a previous job may assume that’s how all 401(k) plans work. As a result, they are now aware they need to take action to enroll in a plan.

Retirement roadblock #2: Employees say saving for retirement is confusing

Many (59%) non-participating employees actually thought they were saving for retirement through their employer. Of these employees, 49% thought they were auto-enrolled, 41% thought they were signed up and 77% said they started saving as soon as they were eligible. What is particularly alarming is that 64% of them are Gen Xers, the generation closest to retirement age aside from baby boomers.

While choosing investments is not something most employees (70%) feel comfortable with, they are barriers to getting started with retirement savings. Employees need help from employers in four key areas: determining how much to contribute per paycheck, balancing debt with saving for retirement, creating a saving goal and selecting investments within the retirement plan.

Retirement roadblock #3: Employees say saving for retirement is confusing

Now is not the right time to save for retirement, say many employees surveyed. Why? Employees say monthly expenses are too high, they’re paying off debt and their income is too low. White almost half (42%) say debt is the main reason they are not participating in their workplace retirement plans, the type of debt varies by generation:

  • Gen X: Has the most credit card debt at 59%
  • Millennials: Have the most student loan debt at 39%
  • All generations (except Gen Z): Have medical debt

Since employees generally go along with most plan provisions, according to Principal, adding plan design features like auto-enrollment, auto-increase and deferral matches are some of the fastest ways to help boost participation rates.

How employers can boost retirement plan participation

With employees surveyed citing their plan provider (50%) and employer (46%) as trusted sources of financial education, they need to provide employees with much needed advice, according to the Principal survey, in the following ways:

  • Carve out time to focus on retirement plan enrollment during performance reviews. Almost half of those surveyed (46%) said they would be interested in hearing about enrollment during performance review time.
  • Send personalized communications, based on plan information in addition to individual employees’ motivations. Employers might add frequent automated nudges for those employees who start the enrollment process but don’t finish. In addition, employers might include an employee’s first name on the communication, since there is a 17% increase in email click-through rates when the first name is added to the subject line, according to Principal.


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