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5 Ways to Increase Retirement Plan Participation

Chris Magno

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A retirement plan is only as effective as the number of employees who are actively participating in it. Consider integrating these plan design features to boost your plan participation.

Participation rates are one of the first things retirement plan sponsors should look at when evaluating the health of their plan. When numbers are low, employees miss out on the financial security they need for the years ahead, and plan sponsors may even face added compliance challenges.

As a retirement plan sponsor, providing the right combination of plan design features and administrative strategies can help ensure that more people are benefitting from your retirement plan, and ultimately, securing their financial future. Let your retirement plan design do the heavy lifting

Fortunately, there are powerful tools at your disposal. Here's how to put them to work:

1. Automatic enrollment

This automation feature enrolls employees as they become eligible at a predetermined contribution rate unless they choose to opt out. And thanks to the SECURE 2.0 Act, it’s now a federal requirement for new 401(k) and 403(b) plans established after January 1, 2025. If your plan predates this requirement, it may be a good time think about if it’s the right move for your plan.

Q. If we add automatic enrollment, won't most employees just opt out?

A. The data says otherwise. Participation rates in opt-in plans typically hover around 70%, while plans with automatic enrollment typically reach around 90%.1 The same behavioral inertia that keeps employees from signing up in the first place tends to keep them enrolled once they're in. The path of least resistance becomes saving, not opting out.

2. Automatic escalation

As salaries grow, employee contributions should also increase. But too many don’t update their initial deferral rate to reflect their current financial situation. With automatic escalation in place, contribution rates steadily increase over time, helping employees build their savings without having to take action.

Q. Won't employees just opt out of automatic escalation increases when they see their paychecks change?

A. Most don't. The reason is largely behavioral: contribution changes happen quietly in the background, and employees tend to adjust to small annual increases without noticing a meaningful impact on their take-home pay.

3. Eligibility requirements

Sometimes the biggest barrier to participation is the plan's own eligibility rules. Requiring employees to meet minimum hours thresholds before they can enroll can discourage them from ever getting started. Easing your requirements can help expand access to your plan.

Q: Is it difficult to change our plan's eligibility requirements?

A. It's more a matter of process than difficulty. Plan documents must be formally amended when plan sponsors wish to change eligibility provisions. The general deadline is the last day of the plan year in which the change is to take effect. Working with your plan administrator or a retirement plan advisor early in the process will help you navigate the steps and stay on the right side of the deadlines.

4. Employer match

A company match is an attractive incentive for employees to enroll in your plan. You’ll help them save more by contributing a percentage of what they save on their behalf. Plus, the tax advantages associated with a match make it a mutual benefit for your business.

Q. How much does an employer match typically cost—and is it worth it?

A. Match structures vary widely, but a common approach is matching 50% of contributions up to 6% of salary. Your business gets a tax deduction on those contributions, and a well-structured match can pay dividends in retention and engagement — making it a strategic investment as much as a line-item benefit expense.

5. Employee education

When it comes to saving for retirement, the more informed your people are, the better. As a starting point, you may provide straightforward, accessible materials that explain the benefits of a retirement plan. And to really empower financial wellness, you may pair that with personalized financial assessments and support tools to address their most pressing financial challenges.

Q. Why is financial wellness education for employees so important?

A. For plan sponsors, the issue extends beyond simply employee productivity. People who are overwhelmed by debt, stretched by day-to-day expenses or simply unsure how their finances work are unlikely to prioritize retirement contributions — no matter how well your plan is designed. Financial wellness education helps bridge that gap, giving employees the context and confidence to make better decisions (including the decision to start saving).

A retirement plan built for your business’s needs

Increasing participation is only half of the challenge of successful retirement plan sponsorship. You need the right plan administration infrastructure to maintain it. Learn how ADP Retirement Services can help you build a plan with higher participation and better savings outcomes for your people.

1.Congress.gov, Defined Contribution Retirement Plans: Automatic Enrollment, 2024

ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan’s provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.

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