While those outcomes may seem obvious, it’s often a challenge for employees to participate fully in retirement plans. While two-thirds of Americans have access to an employer-sponsored retirement plan,¹ only a little more than half of private sector workers participate in workplace retirement plan.²

Here are seven steps that retirement plan sponsors can take to help employees increase participation and engagement with their retirement plan.

1. Allow employees to enroll as soon as possible. The sooner employees are in the plan, the sooner they can start saving. It’s also easier to get them to enroll if you do it right away — at orientation, if possible — when new employees tend to be more eager to take advantage of company benefits.

2. Consider automatic enrollment at a default contribution level of 6%. Automatic enrollment, which enrolls employees in a retirement plan unless they decided to opt out, has shown to increase retirement plan participation and engagement. In addition, a 6% default contribution rate can help employees get the most out of the retirement plan.

3. Auto-escalate contributions. Automatically increasing contributions by 1% of an employee’s salary each year can help participants prepare for retirement. Although some employees might find auto-escalation restrictive, it sets them up for long-term financial security, while they can always choose to opt out.

4. Provide matching contributions. Matching contributions are effective in encouraging employees to save more. Matches are typically a 50% match for every dollar contributed up to 6% of salary, or a 100% match on the first 3% of salary contributed plus 50% on the subsequent 2%. In doing so, employees see a larger and more immediate return on their contributions, which encourages them to continue participation.

5. Educate participants from the beginning. Employee education is essential and should include financial education that takes a broad approach to financial wellness.
   
   Start with the assumption that employees may have little or no knowledge of retirement plans, the need to save and financial wellness in general. Employees who are less educated on finances are less likely to participate in a retirement plan. It’s incumbent upon plan sponsors to provide the necessary education to increase engagement.

6. Provide 10 to 15 investment options. Faced with too many choices, people often don’t make a choice at all. Retirement plans need to offer choice and diversification in their investment options, which can be achieved with roughly a dozen diverse investment offerings, whether they are actively managed or index funds, target-date funds or other types of investments. Consider providing participants with 10 to 15 varied choices.

7. Select an appropriate default investment. The advent of target-date funds, and their use as a qualified default investment alternative (QDIA) in many plans has made a tremendous impact on retirement readiness. They are straightforward and target a mix of investments that gradually becomes less exposed to risk as the participant nears retirement age.*
   
   Also take care in choosing an appropriate qualified default investment alternative. As part of the QDIA, consider including managed accounts, in which a professional money management service selects funds for a plan participant, based on his or her needs. Managed accounts are popular with employees nearing retirement and can help increase overall engagement with a retirement plan.

Contact HUB to speak to a retirement specialist and learn more about HUB Retirement Services.

* An investment in a target date fund is not guaranteed at any time, including on or after the target date, the approximate date when an investor in the fund would retire and leave the workforce. Target date funds gradually shift their emphasis from more aggressive investments to more conservative ones based on the target date.

This content is for general information only and is not intended to provide investment, tax or legal advice or recommendations for any particular situation or type of retirement plan. Please consult with a financial, tax or legal advisor on your own particular circumstances.

HUB Retirement and Private Wealth employees are Registered Representatives of and offer Securities and Advisory services through various Broker Dealers and Registered Investment Advisers, which may or may not be affiliated with HUB International. Insurance services are offered through HUB International, an affiliate.

¹ U.S. Bureau of Labor Statistics, “67 percent of private industry workers had access to retirement plans in 2020,” March 1, 2021.

² Pension Rights Center, “How many American workers participate in workplace retirement plans?” July 15, 2019.