Why Participants aren’t using their 401(k)s?


If you are a Plan Sponsor, Owner, CFO, or HR Pro have you ever stopped to wonder why participants don’t use the 401(k) you so diligently work to provide? Even if you have great participation rates, there are always “those few” who never enroll, or your participation rates are low despite plan design efforts like matching. This begs the question, why don’t we worry about this more?

Imagine you have an employee who was offered health care through your company yet he declined. He did not have insurance through another employer or a spouse; he just didn’t “trust” the system or thought he couldn’t afford the change in take home pay. How would you react? Most likely, you would sit that employee down and thoroughly discuss the risk involved in trying to be self-insured. This is so important that the government requires your company to provide insurance for your employees due to the future financial risk. However, when it comes to the

401(k)s we seem to be less concerned when an employee turns down that benefit. To fully understand this, I believe we have to uncover what is at the heart of the issue by asking three self-reflective questions: 1) do we truly believe that employees who do not participate in the 401(k) plan do you not want the benefit? 2) are we concerned they do not understand the benefit? and 3) if the answer to 1) is no and the answer to 2) is yes, then what are we doing about it?

I believe if we get to the core of the matter, low participation rates stem from the following equation: 25% lack of knowledge of how the 401(k) works as a benefit and 75% lack of belief that they can get their personal financial situation in order to afford to participate in the 401(k). Not participating is not an act of defiance or stupidity, rather it is a cry for help on managing personal finances. If we care at all about actual employee outcomes in retirement, not just the checkbox required by the DOL, we have to address this.

Financial wellness has been a hot topic for the last few months and you may have seen my post on financially stressed employees http://motivatedmonday.grinkmeyerleonard.com/2016/05/26/5-signs-that-your-employees-are-financially-stressed/ .  Education programs built around the minutia of details on how 401(k)s work is not going to cut it. We have to start meeting the workforce where they are and discussing the three following areas as well as traditional 401(k) education.

1) Budgeting: I know what you’re thinking right now, “Caleb, no one uses a budget.” To which I respond, “that is not entirely true but I get your point.” Budgeting can be used as a way to raise awareness of where your money goes. I do not expect everyone in your company to start to follow a budget but unless you try to create a budget, you will not know if you can or can’t afford to participate in the 401(k). Offering budgeting classes or simply working with your employees to change fundamental beliefs about budgeting can enable employees to begin to move toward participation. To change this mindset means employees must develop an understanding that budgeting is not a restrictive tool but a planning tool and that it paints a pretty clear picture of what is prioritized.

2) Debt management: I get some pushback on this one from time to time as companies don’t want to seem too big brother-ish, but the fact is the average American household is spending more than 15% of their gross income on debt other than their housing payment. Can you imagine a workforce that could save 15% for retirement and not change their monthly budget at all? That is what getting rid of debt can do for a family. Putting together an education program designed to address the elephant in the room- that 96% of your workforce has too much consumer debt – shows that you care about employees’ security. Allowing them the opportunity to build a plan to eliminate that debt is also a great stress reliever.

3) Short term planning: retirement planning and 401(k) education is commonly associated with a long-term plan. While this type of planning is essential, helping your employees address common short-term goals and situations can have an incredible impact on their long-term plans. Techniques like having an emergency fund, preparing for expected and unexpected expenses, and addressing expectations which will most likely occur before retirement can prevent your employees from being derailed by common financial pitfalls.

The truth is, considering the thousands of employees I have spoken to in the last eight years, I have yet to meet one who said, “Oh gee, Caleb I didn’t know I was supposed to be using my 401(k).” Is there a fundamental flaw in our 401(k) education programs that reflects a belief that if employees just know more about the program and employers just keep enrolling, our employees will be convinced to use it? Your 401(k) is expensive and takes a lot to manage but it is a tremendous benefit to your workforce. One final question, if we can’t help employees reach the point where they feel they can actually use their plans; then what are we really providing?


calebCaleb Bagwell/Employee Education Specialist
John Maxwell Certified Leadership Coach
Grinkmeyer Leonard Financial
Toll-Free: 866.695.5162 / Office: 205.970.9088 
1950 Stonegate Drive / Suite 275 / Birmingham, AL 35242
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Securities and advisory services offered through Commonwealth Financial Network, Member www.FINRA.org/www.SIPC.org, a Registered Investment Adviser.  This communication strictly intended for individuals residing in the states of AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.

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