How to increase your 401(k) participation

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

401(k) participation, accounting, audit, employee benefit plansLike most people who work in the accounting field, I am a stickler when it comes to spending. I am also a strong believer in the concept of living below your means and that saving early for retirement can go a long way. But I know that everyone is not like me. When I saw how low participation rates were for retirement plans, it was disheartening. As of March 2017, only 54% of the civilian workforce was participating in a retirement program, according to the U.S. Bureau of Labor Statistics.

401(k) participation, accounting, audit

That led me to research ways employers can increase their 401(k) participation rate:

  1. Initiate auto enrollment in your retirement plan. As someone who audits 401(k) plans, it is important to have proper controls and communication in place for the administrative aspects of a plan with auto enrollment, but research shows that participation is higher for plans with auto enrollment. A Merrill Lynch report found that plans with auto enrollment had 32% more participants than plans without auto enrollment. A Journal of Accountancy article stated that automatic enrollment plans could increase participation by reducing the number of eligible workers who choose not to participate.
  2. Add a company match. A company match can be a huge benefit for an employee who understands the consequences of missing out on it. It was drilled into me at a young age that you always want to participate in your plan at a deferral rate that will maximize your company match. If your company can afford to add a match to your retirement plan, this would provide a strong incentive for an employee to enroll in the plan and defer an amount that would maximize the employer match. By doing so, the employee is essentially receiving “free money” and it’s hard to say no to that!
  3. Reduce eligibility requirements. Some retirement plans have a requirement where you need one year-of-service before you can enroll. Others have shorter waiting periods, but may have quarterly entry dates which delay the enrollment date for the employee. If you shorten or eliminate the waiting period to enroll, you are more apt to get employees to enroll during orientation when you have an employee’s full attention and time to fill out any paperwork.
  4. Illustrate retirement savings. Saving for your retirement can be stressful and a lot of numbers can be thrown at a newly eligible employee. An employee might just think it’s too much and it’s just not worth it. There are countless websites (and generally your 401(k) service provider is one of them) that provide graphs and calculators to illustrate what your retirement savings could look like 20…30…40 years from now with compounded earnings if you started saving for retirement today. Sometimes seeing IS believing!


Let’s imagine that your retirement goal is $1 million and that your 401(k) includes an index fund with an average annual return of 7% compounded annually. Your target retirement age is 65.

If you start savings at age:You'll need to contribute (monthly):Which is this much annually:


John Caillouette, CPA