Offering a 401(k) is an important part of building a competitive benefits package.
But offering the plan and getting employees to actually use it are two different things.
According to research from Ascensus and Newport, 98% of surveyed organizations offer a qualified retirement plan, yet only 58% believe their employees are taking full advantage of it.
That leaves a significant gap between access and action.
And for employers, understanding what is causing that gap may be just as important as offering the benefit itself.
The Barrier May Not Be What You Think
When an eligible employee is not contributing to the company retirement plan, it is easy to assume the reason is financial.
For some employees, affordability certainly plays a role. But research suggests another issue may be even more common: confusion.
Among eligible employees who were not contributing, 60% of the inaction identified in the research was associated with a lack of awareness or understanding of the plan and its features. By comparison, 23% cited perceived unaffordability.
Another 30% said they did not understand how the plan worked or how to get started.
That distinction matters.
If employees do not understand the benefit, simply making the plan available may not be enough.
They may need clearer answers to basic questions:
What does the company match mean?
How do I enroll?
How much should I contribute?
Where do I go to make changes?
What should I do first?
For someone who works with retirement plans every day, those questions may seem simple. For an employee enrolling for the first time, they can be enough to delay action indefinitely.
Waiting Can Become a Habit
Retirement saving is especially vulnerable to procrastination.
An employee may plan to enroll after the next raise, once a credit card is paid off, after the holidays, or when life feels a little less expensive.
But the longer that decision is delayed, the harder it may become to change the behavior.
Ascensus research found that after 24 months of eligibility, employees who had not enrolled were twice as unlikely to ever participate.
That makes the early employee experience especially important.
Clear onboarding, simple enrollment instructions, timely reminders, and an understandable explanation of the employer match can help make participation feel easier from the beginning.
The goal is not to turn employees into retirement plan experts.
It is to make the next step clear enough that they are comfortable taking it.
Automation Can Help Overcome Inertia
One way employers can reduce the number of decisions employees have to make is through automatic plan features.
Plans using both automatic enrollment and automatic contribution increases showed participation rates 13% higher than plans relying on voluntary enrollment alone in the research.
That is a meaningful difference.
Automatic enrollment can establish a starting point without requiring an employee to take the first step independently. Automatic escalation can then gradually increase contributions over time.
These features can reduce friction and help employees begin saving sooner.
But automation is not the entire solution.
Getting an employee into the plan is one thing.
Keeping that employee engaged is another.
Engagement Can Change the Outcome
Employees who actively engage with their retirement plan may be more likely to revisit contribution rates, understand the company match, use planning tools, ask questions, and make adjustments as their financial situation changes.
The research found that actively engaged employees saved 42% more per year than employees who remained passive.
Voluntarily engaged participants also accumulated nearly three times the average assets of automatically enrolled participants in the Ascensus analysis.
Those findings highlight an important distinction.
A successful retirement plan should not only focus on enrollment.
It should also create opportunities for employees to stay involved.
That may mean providing clearer communication, making educational resources easier to access, offering timely reminders, and helping employees understand the decisions available to them throughout their careers.
Look Beyond Whether the Plan Exists
For employers, one of the most useful questions may not be, "Do we offer a competitive 401(k)?"
A better review may ask:
Are eligible employees actually participating?
Do employees understand the company match?
Are new employees enrolling early?
Are contribution rates increasing over time?
Are automatic features being used effectively?
Is retirement plan communication clear and easy to act on?
Those questions provide a better picture of how effectively a retirement plan is serving employees.
Because a retirement plan can look strong on paper and still leave opportunities on the table if employees are not using it.
Access Is Only the Beginning
Employers invest significant time and resources into providing retirement benefits.
Making sure employees understand and engage with those benefits can help that investment have a greater impact.
Smart plan features can help.
Clear communication can help.
Ongoing education and engagement can help.
The strongest retirement plans bring those pieces together to help employees move from eligible, to enrolled, to engaged, and ultimately toward making meaningful progress toward retirement.
Offering a 401(k) is important.
Helping employees actually use it is where the real opportunity begins.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.