In this blog we discuss to how encourage 401(k) plan employee participation.

7 ways to encourage employee participation in your 401(k) plan

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As an employer, you would think it’s enough to just set up a 401(k) for your employees and call it a day. They should be happy you’re providing them with a company sponsored-retirement plan option, right? In reality, it takes a lot more effort to create a welcoming environment that encourages 401(k) plan employee participation. Here are seven tips we’ve found to be effective for businesses who want to use their 401(k) plans to retain and satisfy their employees.

A positive 401(k) plan experience matters

The struggle to save money is an epidemic in America. For many people, their 401(k) is the single largest source of their retirement savings. Here’s how a 401(k) plan is potentially a great benefit to your workers:

  • Many people are intimidated by the idea of setting up an account with a brokerage firm and wouldn’t establish an investment account otherwise.
  • As many plans are set up with auto-enrollment, employees can be given the opportunity to save money without having to go through a long and complicated account set up process.
  • The funds are debited automatically into a participant’s 401k account, relieving them of the burden of having to transfer money on a periodic basis.

When a 401(k) plan is run well, it can be seen as a tremendously kind gesture on the part of the employer. But you have to get your workers to use it – which is why it’s so important to set up a 401k that your employees will love.

So how do you get there?

401(k) plans and employee participation – you’ll have to work at it

“Great idea!” you say. “Let’s set up a 401(k) for my business.”

You go through the 401(k) set-up process, find a recordkeeper and plan administrator, ensure 401(k) compliance, etc. You tie a bow on it and proudly present it to your team.


The participation rate averages a measly 2% the first year.

What happened?

When 401(k) plans aren’t popular with employees, there are typically a few reasons why. It is usually because the 401k plan wasn’t set up to optimize employee engagement.

#1 Easy online access

Large corporations tend to have robust 401k portals, but for medium to smaller companies, the technology can be lacking, leading to a frustrating employee experience. Take a test drive through your company’s 401k portal as if you were the employee.

  • Is it intuitive?
  • Is it easy to access from a phone, web browser, etc.?
  • How clear have you made the details about how to log on?
  • How easy is it to navigate?
  • Is there any easy way to reset the password if it is lost?
  • How secure is the site?

It only takes one negative experience with technology for someone to abandon it altogether. You don’t want your employees to feel frustrated, so take the time to ensure that navigating the 401(k) online portal isn’t a major hassle.

#2 Motivating communication with the team

Money is very emotional for people. Fear and shame are not uncommon for people to feel when thinking about their paycheck and/or savings. As a result, the process of enrolling people into a plan and motivating them to participate can be met with subconscious, or even intentional, resistance. Your communication style does make a difference when it comes to getting people to participate in your company’s 401(k) plan.

Ask yourself these questions after your 401k plan team meetings:

  • Did I make enough effort to ensure that people attended the meeting?
  • Did I offer a replay of the meeting in case people missed it?
  • If I were sitting there in the meeting instead of my employees, what would I think of how the information is being presented to me?
  • Did I use technical terms that people wouldn’t be familiar with unless they have a background in the space, or was my language easy to grasp?
  • Did I summarize key information and make it clear what actions people need to take?
  • How much of what we discussed will really be retained?
  • Did I follow up sufficiently after the meeting to deliver to my team what I said I would?
  • How approachable was I for questions? Was there a support contact that people could reach out to if they had questions?

It’s not a one-time deal after you set up the 401k plan; on an ongoing basis it’s important to stay in touch, educate, and remind your employees about the benefits of participation.

#3 Include attractive investment options

Make sure the investments are worthwhile so that your employees can feel it’s a benefit to invest in their 401(k) as opposed to doing it on their own.

  • Make sure there are enough investment options. The minimum amount is three, but there should be more – at least 10 – across the spectrum of investment type.
  • There should be low fee options in your 401(k), meaning mutual funds or ETFS with an expense ratio of less than 0.20%.
  • Offer a variety of types of vehicles offered by the plan, from mutual funds to ETFs, Target Date Funds, and company stock if you have it.
  • Provide diversity in the type of investment style: large cap, mid cap, small cap, international, value vs. growth etc.

#4 Consistent contributions on the part of employer

In order to maintain compliance with 401(k) nondiscrimination rules, the employer has to make a certain level of contribution to the plan for themselves and their employees on an annual basis. We’ve seen employers mess this up royally, making their contributions on a random basis. This doesn’t instill a high degree of trust and is likely to discourage employee participation in your 401(k) plan.

If you’re going to uphold a consistent contribution schedule, you have to make sure you are paying yourself consistently first. Any changes in business structure should be well-planned out in advance to avoid you having to scramble. When employees see you’re committed to matching their contributions on a frequent basis, it’s likely they’ll be more willing to participate in your 401(k) plan.

#5 Provide a good match

Employer matching contributions are viewed as free money by employees. The higher you can go, the more generous you’ll be perceived as. Most commonly, employers match 50% of what the employee puts in for up to 6% of their salary. This is the Basic Match.

There are other match options such as Enhanced Match or Nonelective Contribution Match. This is where it gets a bit complicated, so you may want to talk to a financial advisor who is well-versed in the ins and outs of how to arrange a 401(k) matching program.

When you set up your 401k plan for your employees, devote a good amount of thought to how you structure your 401k match. This really matters to people!

#6 Minimize fees

401(k) plans charge administrative fees that are passed on to the participant. Try to keep these as low as you can while still being able to provide a quality experience. You can even consider paying these expenses through the company to keep down the cost to the employees.

When selecting vendors for the plan, such as a third-party administrator (TPA), recordkeeper, custodian, and investment advisor, make sure you have absolute clarity on what their fee levels are in advance so that you can estimate what will be passed on to the employees in cost. Cost is a big part of any 401k plan set up.

#7 Shorten the vesting and waiting period

Help your employees get started on saving earlier by shortening or eliminating the waiting period before they can start to participate in the 401(k).  If you are offering matching, employees will be glad to participate as early as they can!

Also consider offering a quicker opportunity to become vested. What good is a company match if you have to wait forever, longer than you’ll probably be at the company, to actually see the contributions become vested? The shorter you can go, the better.

Did you learn anything about how to set up a 401k plan for your employees?

Getting more employees to participate in your 401(k) plan is a great way to encourage them to stay with you, because in addition to offering them an opportunity to improve their wealthy, you are showing them your generosity and care for their wellbeing. Well-cared for employees are happy ones, and those are the kind that stick around!

If your employee 401(k) participation rate isn’t what you want it to be, it may be a good idea to speak with someone familiar with how 401(k) plans can be optimized for a positive employee experience.  

We’re financial advisors in Morristown, NJ serving businesses across the country and are happy to offer any insights; please contact us.


U.S. Bureau of Economic Analysis, Personal Saving Rate [PSAVERT], retrieved from FRED, Federal Reserve Bank of St. Louis;, April 13, 2022.

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