How to Increase 401(k) Engagement and Improve Retirement Readiness

Offering a 401(k) plan is a great first step — but simply having a plan doesn’t guarantee employees are using it.

Many business owners are surprised to learn that low participation rates, low contribution levels, and disengaged employees can significantly reduce the effectiveness of their retirement benefit.

If your employees aren’t contributing — or are only contributing minimally — your 401(k) plan may not be working as intended.

At Top 401(k) Providers, we help employers design retirement plans that drive real engagement and long-term participation.

Here’s what may be hurting your plan — and how to fix it.

Why 401(k) Participation Matters

Higher participation benefits everyone:

  • Employees build stronger retirement savings

  • Employers improve retention

  • Plans are more likely to pass nondiscrimination testing

  • Owners can maximize their own contributions

Low participation, especially among non-highly compensated employees, can restrict how much business owners are allowed to contribute.

Signs Your 401(k) Participation Is Too Low

You may have an engagement problem if:

  • Participation is below 70%

  • Average employee contribution is under 5%

  • Employees are only contributing enough to get the match

  • You frequently struggle with nondiscrimination testing

  • Employees don’t understand how the plan works

Many companies assume their plan is “fine” — until testing results or workforce feedback suggest otherwise.

Common Reasons Employees Don’t Participate

No Automatic Enrollment

If employees must opt in manually, participation rates typically drop.

Automatic enrollment dramatically increases engagement by enrolling employees at a default contribution rate unless they opt out.

-Match Formula Isn’t Incentivizing

A weak or confusing employer match may discourage participation.

For example:

  • A 25% match up to 4% may not feel meaningful.

  • A stronger 100% match up to 3% may encourage higher engagement.

-Employees Don’t Understand the Benefit

Many employees don’t fully understand:

  • Tax advantages

  • Compounding growth

  • Employer matching

  • Roth vs. traditional contributions

Without education, participation suffers.

-High Fees or Poor Investment Options

If your plan has:

  • High expense ratios

  • Limited fund choices

  • Underperforming investments

Employees may lose confidence in contributing.

No Auto-Escalation Feature

Auto-escalation gradually increases employee contribution percentages annually, helping them save more without feeling the impact immediately.

Without it, employees often stay stuck at low contribution levels for years.

Strategies to Increase 401(k) Participation

-Implement Automatic Enrollment

Many plans now default employees into:

  • 3%–6% contribution rates

Participation often increases dramatically with this feature.

-Add Automatic Escalation

Gradually increase contributions by 1% annually up to a target rate (e.g., 10%).

This improves long-term retirement readiness.

-Improve Employee Education

Host:

  • Annual retirement planning sessions

  • Onboarding education

  • Open enrollment refreshers

When employees understand the benefit, they’re more likely to use it.

-Reevaluate Your Match Formula

Sometimes a small structural change in your match formula can increase contributions without significantly increasing cost.

-Benchmark Your Plan

Regular benchmarking ensures:

  • Competitive fee structure

  • Appropriate investment lineup

  • Plan competitiveness in your industry

How Participation Impacts Business Owners

Low employee participation can:

  • Limit owner contribution amounts

  • Cause nondiscrimination testing failures

  • Increase administrative burdens

Strategically improving engagement benefits both leadership and staff.

The Competitive Advantage of a Strong 401(k)

In today’s hiring environment, retirement benefits matter.

A well-designed 401(k) plan can:

  • Attract higher-quality candidates

  • Reduce turnover

  • Improve employee satisfaction

  • Enhance company culture

It’s not just a benefit — it’s a strategic tool.

When to Review Your 401(k) Plan

If your company is:

  • Growing

  • Experiencing testing challenges

  • Facing low participation

  • Unsure about fee competitiveness

  • Unsure how your plan compares to industry benchmarks

It may be time for a professional plan review.

Final Thoughts

If your 401(k) participation rates are low, the issue likely isn’t your employees — it may be your plan design.

With the right structure, education, and features, participation can improve significantly.

At Top 401(k) Providers, we help businesses:

  • Increase engagement

  • Improve compliance

  • Optimize match structures

  • Benchmark fees

  • Strengthen retirement outcomes

If you’d like a complimentary 401(k) participation review, we’re here to help.

Your retirement plan should work for your employees — and your business.

Schedule Today!