Employer involvement in 401(k) drives employee engagement

Employers are realizing that employees really respond when they not only promote their company retirement plan, but contribute to it.

According to an Ascensus analysis of 401(k) plan behaviors from both employees and employers, more than half of employers funded a matching contribution in 2014, up from 52% in 2013.

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“As more plans fund a match, it signals a shift in employer dedication to enhancing benefit offerings. It also points to an improved confidence in the economy, as more companies can invest in their employees’ retirement,” Ascensus found.

Employees and employers are embracing automatic features. At the end of 2014, 18% of plans used automatic enrollment, which really helps drive employee participation in a workplace plan. Plans in which employees were automatically enrolled have participation rates that are 14 percentage points higher than those plans that don’t offer automatic enrollment, Ascensus said. If plans offer an automatic increase option along with automatic enrollment, the average participation rate is 23 percentage points higher than for plans that don’t offer automatic enrollment.

Model portfolios and target-date funds have risen in importance from 2011 to 2014, according to Ascensus. Employees tend to favor any approach where the decision making is taken out of their hands. In 2011, 17% of assets were invested in these types of guided solutions. In 2014, more than 26% invested in managed accounts or target-date funds.

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According to Morningstar’s year-end data, 80% of employees who were automatically enrolled in a managed account continued to use managed accounts after two years, and 86% of employees invested in managed accounts were properly diversified based on their age and risk tolerance.

Qualified Default Investment Alternatives, or QDIAs, have become very important in the retirement industry’s fight against worker inertia. Most workers set it and forget it. These types of accounts allow them to do just that and still reach their retirement goals in the long run.

“We continue to see the emergence of new approaches and tools in the retirement space leading to increased participation, but the ultimate goal remains to improve retirement readiness among savers,” says Geno Cufone, senior vice president of Retirement Administration at Ascensus. “Ascensus’ objective is to help people save for the future, and the current trends are supporting that collective goal. Automatic features, expanded employer match programs, and guided approaches from plan advisors will remain a differentiator for aspiring retirees.”  

Technology also plays an important role in helping workers achieve their retirement goals. Technological advances and more widespread access to digital features have created a new user experience for employees, according to Ascensus. About 85% of new enrollees sign up online and the majority of them are also taking advantage of online retirement tools, such as the Ascensus retirement calculator, to try and determine how much money they will need to support their current lifestyle in retirement.

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Nearly 18% of employees who used retirement calculators increased the amount of money they socked away in their retirement accounts and 37% of employees who were not saving in their company-sponsored retirement plan started contributing to it after using the calculator, Ascensus said.

Ascensus offers retirement and college savings services in the U.S., helping more than six million Americans save for the future.