The Real Drivers Behind Retirement Plan Participation

From automation to education to plan design, there's more than one way to strengthen your retirement plan's participation rate. Here's where to start.

Key takeaways

Auto-enrollment removes the biggest barrier to retirement plan participation by making saving the default choice, not an opt-in decision employees have to seek out.
Auto-escalation keeps contribution rates from stalling by increasing them gradually, allowing savings to grow alongside salary over time.
Education works best when it's accessible and ongoing, through mobile tools, personalized insights and resources employees can engage with on their own schedule.
Plan design matters, so review contribution defaults, matching formulas and investment options regularly to keep the plan from working against your own participation efforts.

Participation rates are often the first thing retirement plan sponsors check when evaluating the health of their plan, and for good reason. When participation is low, employees miss out on the financial security they'll need down the road, and sponsors can face additional compliance challenges along the way.

The right combination of plan design, automation and education can make saving the easier choice for employees, and participation numbers tend to follow.

Auto-enrollment: Because getting started is the hardest part

The IRS defines automatic enrollment (or auto-enrollment) as a process in which an employer automatically deducts a set percentage of an employee’s paycheck and contributes it to their retirement account unless they choose a different option. Rather than waiting for employees to sign up on their own, auto-enrollment automatically enrolls eligible workers into the plan at a set contribution rate.

Making participation automatic pays off in two ways. Participation increases, and sponsors spend less time chasing enrollment forms. It also shows employees that the company is genuinely invested in their financial future, not just checking a box.

For example, an automatic enrollment solution will send eligible employees a welcome notice well ahead of their plan entry date. And unless they actively opt out, they're enrolled automatically, with contributions beginning after they meet the plan's eligibility requirements.

Auto-escalation: Keeping retirement plan contributions from stalling out

Enrollment is only the first step. Without a nudge, most employees remain stagnant at whatever rate they started with, even as their paychecks grow. Auto-escalation addresses that by increasing contributions on a set schedule, typically a percentage point a year, until hitting a cap you define. And because each increase is modest, it generally has little impact on someone's paycheck.

Educational support: Meeting employees where they already are

Plan design can only do so much if employees don't understand or engage with the tools available to them.

Accessible, well-timed education resources can help close that gap, delivered through the channels employees are already using rather than a once-a-year packet they'll set aside.

These resources may include:

Ongoing webinars, podcasts and an online resource library, so employees can learn at their own pace instead of trying to absorb everything in one sitting
Mobile access that lets employees enroll, check balances and make changes at their convenience
Calculators and readiness tools that translate abstract savings goals into a concrete number, like a specific monthly contribution or a readiness score employees can track over time
Personalized, data-informed insights that help employees make confident decisions based on how comparable savers are approaching similar choices
Bilingual support, including Spanish-language communications and education materials, to reach a wider participant base

Retirement plan design decisions influence everything else

Reviewing your matching formula, default contribution rates, investment lineup and eligibility rules on a regular basis helps ensure the plan itself isn't sabotaging plan participation. A well-designed auto-enrollment and auto-escalation program can still underperform if it's layered onto a plan structure that hasn't been revisited in years.

FAQs: What retirement plan sponsors want to know

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

Rarely. Opting out takes a deliberate step that most employees don't make, which is why automatic enrollment tends to outperform an opt-in approach.

Will auto-escalation increases hurt take-home pay enough for employees to notice?

Not usually. The typical pace, about 1% a year, is small enough to have little impact on the pay for most employees. And since sponsors control both the pace and the cap, the schedule can be tuned to fit your workforce.

How do we know if our education efforts are actually working?

Look beyond enrollment numbers alone. Deferral rate increases, engagement with digital tools and completion of readiness assessments are all signals that employees are engaging, not just enrolling.

Where should we start if we want to improve participation?

Start with a plan design review. Understanding where your current defaults, match structure and investment lineup stand against best practices will help make it clear whether automation, education or plan design changes will have the biggest impact.

From retirement plan design to participation

A well-designed retirement plan benefits your employees, while contributing to the overall stability and success of your business. Choosing the right plan features is one of the most important decisions an organization can make.

At ADP Retirement Services, we can help you build a plan to increase engagement and create a stronger employee experience overall. Connect with an ADP retirement planning specialist to discuss ADP’s retirement plan solutions or call (800) 432-401K.

_{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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