Many employees who skip their employer’s retirement plan do so for a simple reason: they don’t understand how it works. Recent surveys point to a knowledge gap, not disinterest, as the main driver of nonparticipation. Even with automatic features in place, a share of employees still opt out, which means plan design alone won’t close the gap. Clear communication and hands-on enrollment support do.
Don’t automatic features solve this already?
They help, but they don’t finish the job. SECURE 2.0 requires 401(k) plans established on or after December 29, 2022 to automatically enroll employees at 3 to 10% of pay, with annual 1% escalations up to 10 to 15%. (Businesses with 10 or fewer employees, or those operating for less than three years, are exempt until they cross those thresholds.) Even so, a Vanguard study found that within plans offering automatic features, around 7% of employees still decline participation.
Why do eligible employees opt out?
The data points to understanding, not affordability alone. An Ascensus survey found that 30% of nonparticipants don’t know how a plan works, and 23% view retirement savings as unaffordable. That first number is the one a plan sponsor can act on directly, because a knowledge gap is fixable with the right communication.
What does this mean operationally?
It means your enrollment process and participant communications are doing more work than your plan design. If the only touchpoint an employee gets is an enrollment packet, the ones who don’t understand the plan will quietly stay out. The fix lives in how, when, and how often you communicate.
What can a plan sponsor do about it?
A few practical steps close the gap:
- Communicate clearly, simply, and often, not just at onboarding.
- Offer enrollment assistance across multiple channels, so employees can get help the way that works for them.
- Lean on your advisor to help employees understand the value of the plan and how participation maps to their goals.
The takeaway
Automatic features get employees in the door, but they don’t explain the plan. When nonparticipation is driven by a knowledge gap, the most effective tools you have are clear communication and accessible enrollment support. Those are operational levers a plan sponsor controls directly.
To review your enrollment process, participant communications, or auto-enrollment setup, let’s talk. You can also reach Advo(k)ate Advisors at 866-608-8650.