By Sarah Bishop, Senior Retirement Plan Advisor – Learn more about our Retirement Plan Consulting Services
When discussing goals and objectives for the company retirement plan with clients, one of the most common priorities is boosting employee participation. This goal is key not only in helping employees save for their futures but also in increasing employee satisfaction and overall retention.
Below are several strategies to consider for maximizing employee participation in your company 401(k) plan.
Strategies to Increase Participation
Automatic Enrollment
One of the most effective ways to boost employee participation is through automatic enrollment. By automatically enrolling new employees, you encourage them, especially those more inclined to inaction, to get started saving as soon as they become eligible for the retirement plan – with no effort on their part.
Employees can opt out if they choose, but many remain enrolled and continue saving. Adding an automatic savings increase feature to your plan keeps the momentum going, setting employees up for continued success in saving during their working years.
SECURE 2.0 provided additional tax credits for employers who add an automatic enrollment feature. Employers with less than 100 employees can claim a $500 annual tax credit for the first 3 years after adding the provision. [1][2]
SECURE 2.0 also requires all new plans established after December 29, 2022, to add an automatic enrollment provision no later than the 2025 plan year. [3] Employers adding the provision in 2025 to satisfy this requirement can still claim the 3-year credit.
Matching Contributions
Matching employees’ 401(k) contributions is another powerful incentive for increasing participation. Employees who receive a matching contribution are more likely to contribute. Employees often contribute up to the maximum needed to receive the full match offered by their employer, so employers should be mindful of their matching formulas.
Consider the following two formulas –
- 50% matched up to 6% of pay contributed
- 100% matched up to 3% of pay contributed
Both formulas offer employees a 3% match; however, formula #1 encourages employees to save up to 6%, while formula #2 only encourages saving up to 3%.
Offering a competitive match can also aid employers in attracting and retaining top talent.
Offering a Roth 401(k) Option
A Roth 401(k) option may appeal to employees who prefer to pay taxes on their contributions now rather than during retirement when they may be in a higher tax bracket or who simply prefer to have tax-free, rather than, tax-deferred growth on their investments.
A Roth 401(k) option allows employees who may otherwise not be able to make Roth contributions in an IRA due to income restrictions, the opportunity to make Roth contributions for retirement.
In 2025, single fliers are restricted from making Roth IRA contributions if their modified adjusted gross income (MAGI) is $165,000 and limited if their MAGI is between $150,000 and $165,000. Married couples filing jointly are restricted from making Roth IRA contributions if their modified adjusted gross income (MAGI) is $246,000 and limited if their MAGI is between $236,000 and $246,000. [4]
These income restrictions do not apply to Roth 401(k) contributions, allowing employees to make up to $23,500 in Roth 401(k) contributions ($31,000 if age 50 and $34,750 if between ages 60-63)[5] for 2025.
Education and Financial Wellness Support
Employee Education Sessions
Education sessions hosted by a financial professional can help employees understand the importance of saving for retirement and become familiar with how the 401(k) plan works. These sessions may include topics such as investment basics, plan provisions, and savings strategies. Generally, employees who are more comfortable with these topics are more likely to participate in the retirement plan.
Financial Wellness
Often pressing, immediate financial needs take priority over long-term retirement savings. Employees may need guidance on budgeting, managing debt, establishing emergency savings, tackling student loan obligations, or any number of other personal finance topics hindering their ability to save for retirement effectively. Behavioral finance can also play an important role in helping employees understand their feelings and motivations behind managing their money.
Financial wellness education can be incorporated into an existing 401(k) employee education program. Delivery of the education by a trusted advisor or consultant with whom employees are already familiar may lead to more engagement. Employees who feel financially secure in other areas of their lives will be more likely to participate in the retirement plan.
Incentives and Recognition
Financial Incentives
SECURE 2.0 made it possible for employers to begin offering small financial incentives[6] to encourage employees to enroll in their 401(k) plan. Consider offering a gift card to new enrollees who complete the enrollment process and choose to save for their future.
Recognition Programs
Recognizing employees who actively participate in the 401(k) plan may motivate their peers to join the plan as well. Consider recognition on your company intranet page, highlighting employees in company newsletters, or a brief mention during a team meeting to celebrate their commitment to saving for their retirement.
Maximizing employee participation often requires a combination of plan design strategies and efforts toward employee engagement. Consider utilizing some of these strategies in the coming year to maximize employee participation in your 401(k) plan and set your employees up for success!
Visit the Finerty Retirement Plan Team’s Wisdom and Wealth webpage to see how Moneta can help with financial wellness and retirement plan education. https://team.monetagroup.com/401k-financial-wellness/
[1] Consult your tax advisor for eligibility.
[2] Internal Revenue Service – https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
[3] Internal Revenue Service – https://www.irs.gov/pub/irs-drop/n-24-02.pdf
[4] Internal Revenue Service – https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000
[5] 401(k) contributions may be further subject to plan limits imposed by the employer or restricted for highly compensated employees due to non-discrimination testing.
[6] Guidance generally suggests that incentives should not exceed $250 per employee.
