Easier Enrollment Leads to Better Participation

The paper, “Simplifying the Path to Financial Wellness: Four Strategies to Help Increase 401(k) Participation,” finds 60% of employees who participated the firm’s recent Employee Workplace Benefits Report Survey are finding it difficult to reach their retirement savings goals. The authors of the paper believe that these employees are often “not taking advantage of the easiest way to pursue retirement security,” which they say is by participating in a 401(k) retirement plan.

Simplifying the enrollment process is one of the most cost-effective steps plan officials can take to help their employees save for retirement and achieve greater financial wellness, according to the paper. Too many choices can overwhelm employees and discourage them from participating in their retirement plan, the authors explain. 

Plan officials should consider reducing the number of upfront decisions that employees are required to make during enrollment, the paper says. They should also present employees with a limited number of contribution rate choices and investment funds to further simplify decision making.

The paper identifies three other strategies to help plans improve participation, which include:

• Automatic enrollment plan features. Such features can get employees onto the path of saving as soon as they are eligible to participate in their plan. Plan sponsors should look at implementing automatic enrollment and applying it to both new and eligible, nonparticipating employees. They should also consider adding an automatic contribution escalation feature. 

• Encouraging enrollment throughout the year. Plan sponsors should target nonparticipating employees on a regular basis, communicating the importance of saving for retirement and the value of benefits offered. Frequently reinforcing the message may improve retirement planning priorities. Plan sponsors should also remind employees of where to find readily available information on enrolling and making changes to their selections.

• Integrate enrollment events. The paper also recommends that plan sponsors consider linking 401(k) enrollment with similar events, such as open enrollment for health care benefits, to take advantage of employees being in an “enrollment mindset.” Plan sponsors can provide access to retirement plan offerings through their health care enrollment portal or provide a link from the health care site to the 401(k) enrollment site.

The authors of the paper conclude, “Savvy employers recognize that they are part of the solution. By automating and streamlining the enrollment process, increasing awareness of the benefits offered, and encouraging employees to participate at every opportunity, plan sponsors can help lead employees to make positive 401(k) plan choices that help drive better outcomes.”

The paper was released by Bank of America Merrill Lynch’s Retirement and Benefit Plan Services division as part of its Workplace Insights series and can be downloaded in full here.