How Education Can Transform Auto-Enrollment & 401(k) Participation
Education is critical for companies when it comes to benefits like 401(k) plans and auto-enrollment because it empowers employees to make informed decisions about their financial future. According to a report from Fidelity, although many contribute enough to receive the full employer match (around 78%), confusion still exists about how these plans function. Additionally, RetireGuide (2023) highlights that nearly 28% of non-retired individuals report having no retirement savings at all, indicating a broader issue with financial literacy and planning. Many workers, especially those in entry-level positions or younger employees, may not fully understand the long-term benefits of participating in a retirement plan. Without proper education, employees may opt out of auto-enrollment or contribute minimally, not realizing the value of compounding interest, employer matching, or the tax advantages a 401(k) offers. By providing clear, engaging, and tailored information, companies can help employees see the immediate and long-term benefits of saving for retirement, leading to better participation rates and overall satisfaction with their benefits package.
Additionally, education fosters a culture of financial wellness, which can directly impact employee retention and productivity. When employees feel confident about their retirement savings and other benefits, they are more likely to stay with the company, knowing that their employer is invested in their financial security. This sense of security reduces stress and enables employees to focus on their work without financial distractions. In the case of auto-enrollment, ongoing education ensures that employees understand why automatic contributions are beneficial and how they can adjust their contributions over time to meet their financial goals. This not only benefits employees but also helps companies meet participation benchmarks, ensuring the success of the retirement plan overall.
At the conclusion of a TPSU Program held on the campus of UC Irvine, Fred Barstein spoke with Megan Kelly, an HR Director at a company with 35 to 100 employees, about their experience with automatic enrollment for their 401(k) plan. Megan shared that while auto enrollment was introduced in 2018 to help with plan testing, many of their entry-level employees, primarily younger workers, opt out or reduce their contributions to 1%. As a result, the intended benefits of auto enrollment hadn’t materialized.
Megan explains that more targeted education might help younger employees see the long-term value of the 401(k) and other benefits like their HSA plan. She also notes a suggestion from the session to conduct annual re-enrollments, which she plans to take back to her organization to try and re-engage employees in the 401(k) plan over time.
Read the Full Transcript Here:
Fred Barstein:
Fred Barstein with 401k TV. Just completed a TPSU program here on campus at UC Irvine. And I am here with Megan. Welcome, Megan.
Megan Kelly:
Thank you.
Fred Barstein:
Okay if we ask you a few questions?
Megan Kelly:
Sure.
Fred Barstein:
So today we talk about auto enrollment and most of the time it’s working, it’s great and for most… But we always like to hear about some of the issues that people have with it. And before I do that, let’s hear a little bit about you and your size of your organization and your role.
Megan Kelly:
Okay. Well, my name is Megan Kelly. I am an HR director. Our employee headcount is about 35 employees, some seasonal employees, it goes up to about a 100. So 35 to a 100 employees.
Fred Barstein:
Great. So let’s talk a little bit about the issues you had with automatic enrollment. What were some of them?
Megan Kelly:
So I started with the company just last year in 2018, and 2018 was the first year we actually did auto enrollment. And so our struggle has been so far, it has worked in some regard, but at the same time, a large majority of employees that are new coming in are more entry-level positions, and they’re choosing to opt out instead of that auto enroll. So they obviously have a choice to opt out of auto enrollment and they’re going in and doing that. The few that are keeping it are lowering it to like 1%.
Fred Barstein:
1%.
Megan Kelly:
Yeah. So we did auto enrollment to help with our testing, to pass plan testing. And so-
Fred Barstein:
It’s not working.
Megan Kelly:
It’s not working yet. So yes.
Fred Barstein:
So you said you had some ideas about how you could maybe make it work, that you heard today?
Megan Kelly:
Yeah, so today some stuff was mentioned that other people had been trying, so they wanted to give us some thought and see if it would work for us. I think really it’s about more education in a way that resonates with that group of people; because most of them, they are the younger generation, and so getting them to see that bigger picture. I do also want to really include the HSA because we do offer HSA benefit plan for employees as another option for employees in another way. So maybe giving them more ideas of what all you can actually do with 401k and showing them a bigger picture; and maybe they’ll see the need for it more so than just, “Oh, they’re taking 6% of my pay.”
Fred Barstein:
Final question, a couple of things you learned here or heard here that you want to try to take back?
Megan Kelly:
Well, actually with the auto enrollment, it was suggested, basically yourself actually, you suggested that the plan was to do the re-enrollment, so annually do a re-enrollment for that. I think that would be a good idea for us to really try to get those people maybe in the next year especially because since a lot of these people are more inter-level positions, they may not see themselves here in a year or two or so. But we have kept those people and so if we could implement that re-enrollment, that would hopefully get some of those people back into the play-in.
Fred Barstein:
Good, good. Well, thanks for your time today.
Megan Kelly:
Of course.
Fred Barstein:
And thank you for watching 401k TV. Please stay tuned.