Eligibility can be misunderstood
roadblock one
Three roadblocks preventing retirement plan participation
don't know if they are eligible.
of Gen Z don't know if they are eligible.
2
2
%
3
5
%
had more than one job in the past five years.
Roadblock One
Roadblock One
Roadblock Two
Roadblock Two
Roadblock Three
Of respondents:
It’s possible that uncertainty about eligibility could stem from employees having multiple jobs in the past and seeing different retirement plan provisions along the way. Employees may have been automatically enrolled (auto-enrolled) in a retirement plan at a past job and assume that’s how all plans work.
In all the information they receive about their employee benefits, it’s possible some employees don’t realize they need to take action to enroll.
roadblock TWO
Saving for retirement is confusing
The survey found that many non-participating employees actually thought they were saving for retirement through their workplace plans.
This misunderstanding has significant implications for these workers' futures, requiring them to play catch-up with their savings and giving them less time to build sufficient retirement savings. Feeling behind and not fully understanding how to enroll and save can prevent nonparticipants from taking action.
The consequences of this uncertainty are daunting; just 27% of all surveyed are confident they’ll be financially prepared to live comfortably in retirement.
actually thought they were saving for retirement.
5
9
%
Of these respondents:
49%
thought they were auto-enrolled.
41%
thought they signed up themselves.
77%
said they started saving as soon as they were eligible for the plan.
Ways to boost retirement plan participation among employees
Solutions
roadblocks
Carve out time to address enrollment
Time and attention might be the easiest and most cost-effective way to help more employees save.
Consider a focus on retirement plan enrollment during the annual benefits enrollment period.
retirement research and insights
Why are employees not
To better understand the reasons behind low participation, Principal surveyed1 people eligible for their workplace retirement plans but currently not contributing.
participating in their 401(k)s?
Engagement
Plan design
Engagement
Auto-enrollment
Auto-increase
Auto-enrollment is a powerful plan design feature because it works with human nature and can be even more beneficial when auto-increase is added. With auto-increase, employees are less likely to remain at the default percentage.
Non-participants are receptive to auto-enrollment:
plan design
Auto-enrollment
Based on our data3, plans of all sizes typically benefit from auto-enrollment.
Plan design
Auto-increase
Annual enrollment sweep
Incentivize participation
Match contributions
Plans not offering automatic enrollment
Plans offering automatic enrollment
$10M
and under
$10M -
$200M
$200M+
16%
35%
12%
54%
10%
68%
6
2
%
agree with auto-enrollment
at some level.
Including:
35%
who would stay enrolled at the default percentage
17%
who would increase it
Auto-enrollment
Auto-increase
Communication best practices
Consider the power of personalized communications to alert non-contributing employees that they’re not actively participating—especially when so many think they are.
Help find the balance between saving and debt
Balancing debt and saving for retirement are important for overall financial security.
The SECURE Act 2.0 offers some options that employers can consider, like matching student loan debt repayment and emergency savings provisions.
If adding these options, ensure that communication is extensive. Show how an initial low deferral rate of 1-2% can be a good start that allows them to also pay down debt.
Read more on SECURE 2.0
If employees are unsure of their eligibility for retirement benefits, they're not likely to enroll.
40%
Personalization
Personalize messages as much as possible.
Frequency
Communicate throughout the year with a variety of mediums.
Making it simple and actionable
Add automated nudges for those who don’t finish.
Optimize messages
Test messages to find what is more successful.
Annual enrollment sweep
Adding auto-enrollment doesn’t provide a solution for current employees who aren’t enrolled.
Annual enrollment
sweep
Helps existing non-participants
Re-enrolls those who stopped contributing but offers an opt-out
Alerts those who didn’t know they were eligible
Employer contribution matches incentivize participation
Employees respond to employer matches.
Incentivize participation
Principal data shows when companies match employee contributions, participation rates are higher.
8
3
%
of those surveyed said they'd start contributing if they received a match.
78% of these specific respondents work for organizations that do offer a match3, highlighting the need for more and better communication.
How matching contributions can be more cost-effective
Stretching the match can be an expense-neutral option for plan sponsors.
For example, a 100% match of a participant’s first 4% of deferral contribution costs the same as 50% match on the first 8% of deferral, but the stretched match can incentivize the participant to contribute more.
Match contributions
These expenses can be offset by tax deductions; employers of any size can deduct matching contributions up to a maximum limit from their company tax returns.
8%
total
contribution
4% Employee
4% Employer
8% Employee
4% Employer
12%
total
contribution
roadblock three
Debt, salary, and expenses
Many employees feel now isn’t the right time to save for retirement. People across all generations, salary ranges, and account balances offered similar reasons:
Roadblock Three
1. Monthly expenses: 39%
$104,215
average consumer household debt2
2. Paying off debt: 36%
3. Income is too low: 34%
Helping employees get started and suggesting small action steps can help people move from feeling stuck to being empowered.
Roadblock Two
roadblock Three
Debt, salary, and expenses
Many employees feel now isn’t the right time to save for retirement. People across all generations, salary ranges, and account balances offered similar reasons:
Roadblock Three
2
2
%
don't know if they are eligible.
3
5
%
of Gen Z don't know if they are eligible.
had more than one job in the past five years.
solutions
Ways to boost retirement plan participation among employees
Plan design
Engagement
Plan design
Auto-enrollment
Auto-enrollment
Auto-increase
Annual enrollment sweep
Incentivize participation
Match contributions
Based on our data, plans of all sizes typically benefit from auto-enrollment.
Auto-increase
Auto-enrollment is a powerful plan design feature because it works with human nature and can be even more beneficial when auto-increase is added. With auto-increase, employees are less likely to remain at the default percentage.
Non-participants are receptive to auto-enrollment:
Auto-enrollment
plan design
plan design
Auto-increase
Communication Best Practices
Consider the power of personalized communications to alert non-contributing employees that they’re not actively participating—especially when so many think they are.
Personalization
Personalize messages as much as possible.
Frequency
Communicate throughout the year with a variety of mediums.
Making it simple and actionable
Add automated nudges for those who don’t finish.
Optimize messages
Test messages to find what is more successful.
Help find the balance between saving and debt
Balancing debt and saving for retirement are important for overall financial security.
The SECURE Act 2.0 offers some options that employers can consider, like matching student loan debt repayment and emergency savings provisions.
If adding these options, ensure that communication is extensive. Show how an initial low deferral rate of 1-2% can be a good start that allows them to also pay down debt.
Engagement
To better understand the reasons behind low participation, Principal surveyed people eligible for their workplace retirement plans but currently not contributing.
1
2
average consumer household debt
Percentage of plans with participation rates of 90% or greater by plan size
Comparing plans with and without automatic enrollment
Percentage of plans with participation rates of 90% or greater by plan size
Comparing plans with and without automatic enrollment
$10M
and under
$10M - $200M
$200M+
plan design
Annual enrollment sweep
Adding auto-enrollment doesn’t provide a solution for current employees who aren’t enrolled. An annual enrollment sweep:
Annual enrollment sweep
An annual enrollment sweep:
plan design
Employer contribution matches incentive participation
Employees respond to employer matches.
Incentivize participation
Principal data shows when companies match employee contributions, participation rates are higher.
plan design
How matching contributions can be more cost-effective
Stretching the match can be an expense-neutral option for plan sponsors.
For example, a 100% match of a participant’s first 4% of deferral contribution costs the same as 50% match on the first 8% of deferral, but the stretched match can incentivize the participant to contribute more.
These expenses can be offset by tax deductions; employers of any size can deduct matching contributions up to a maximum limit from their company tax returns.
Match contributions
An annual enrollment sweep:
2 Experian, Feburary 2024
1 Principal Retirement Security Survey—Nonparticipants, December 2023. All statistics are from survey unless noted.