401(k) and 403(b) Education: How to Set Up Employees for Success

December 8, 2017 by Alex Goldberg

When it comes to educating participants, plan sponsors running ERISA retirement plans must, at a minimum, notify employees annually that they have the right to participate in the plan, or to make changes. But there is a lot more plan sponsors should do to help employees save for retirement besides sending a “heads up” email. Your communication as a sponsor is a great opportunity to educate employees not only about how your plan works, but also on the importance of savings for retirement in general.

After all, it’s in the best interest of everyone for employees to not only participate, but to maximize tax deferred retirement savings. While getting your highly compensated employees (HCEs) to participate may be automatic, better employee education programs can help you pass compliance tests like the IRS Actual Contribution Percentage (ACP), which requires you to get non-highly compensated employees (NHCEs) to make meaningful contributions as well.

When it comes to participating and contributing to their retirement plan, non-profit employees are trailing their for-profit counterparts. According to a survey of 2015 plans, 79% of eligible 403(b) plan employees had an account balance in the plan. That’s compared to 88% of eligible 401(k) employees. While the contribution rates were similar, non-profits lagged for-profits 6.2% vs. 6.8%, according to a Plan Sponsor Council of America survey.

But with Americans so reliant on their retirement plans, and no indication that such plans will become less important, why isn’t the participation rate above 90%?

Most might assume that employees are too stretched for cash to do anything that diverts money from their take home pay. Yet our research at ForUsAll suggests otherwise. When our virtual advisor, DAVE,  asked employees why they had not joined the retirement plan, only a minority blamed stretched finances for their decision. About 40% said they were “too busy” and 19% said signing up was “too much hassle.” That means there’s room for better, participant-focused 401(k) education efforts to move the needle.


Five ways to better educate employees about the retirement plan (and make the benefit as impactful as possible!)


Rule #1: Make sure your retirement plan is easy to join

In our above example, 59% of those not enrolled in the plan might very well have joined if signing up was understandable and convenient. And when it comes to “understandable” the glossiness of the brochures has nothing to do with their value to employees. In a plan participant survey, 67% gave the industry a grade of “C, D or F” for how it explains saving and investing. In fact, 30% said they delayed investing because it was too confusing, according to a participant survey conducted by Charles Schwab.

And when it comes to onsite seminars, it may be more productive to spend that time researching fantasy football. Humans are great at becoming motivated, but often are quick to lose steam. Behavioral research has shown that almost everyone claims they will make a positive change after attending a workplace seminar. In reality, only 14% actually do, according to two University of Chicago researchers’ working paper “Preaching to the Converted and Converting Those Taught: Financial Education in the Workplace”.


Rule #2: Avoid information overload

Traditional retirement plan enrollment involves a stack of forms and a number to call with questions. If there is an online platform to sign up, the password might be weeks-deep in the employee’s email in-box. Once the employee gets around to navigating through the forms, they are  asked to come up with an asset allocation, and then asked to select the funds to satisfy these risk vs. return preferences.

All this paperwork, all these choices, and with much of this information being unfamiliar, can result in the employee freezing up and doing nothing. Or perhaps, seeing that enrollment is going to take a while, it will be postponed for another day, perhaps one that never comes. Instead, consider a more interactive onboarding experience like ForUsAll’s virtual advisor, DAVE, which we discuss in more detail below.


Rule #3: Make enrollment automatic

A sure way to get employees enrolled in your for-profit or non-profit retirement plan is to enroll them automatically. Those who truly have no interest in joining the plan can exit the plan at their discretion. But because they must proactively opt out, good old inertia will likely keep them in the plan and get them saving for retirement.

Because auto-enrollment works, more plans are including this feature. But here the for-profit world is miles ahead of the non-profits. In 2015, 58% of 401(k) plans included an auto-enroll feature. That compares to just 19% of 403(b)s. Smaller 403(b) plans offering auto enrollment were particularly rare:


Percentage of All 403(b) Plans with Auto-Enroll
Employees Percent of Plans
0-49 9%
50-199 17%
200-999 25%
>1000 31%
All 19%
Source: PSCA 2015 Survey


Rule #4: Make it easy to save more than the default rate

If you are going to enroll employees automatically, you have to decide how much of their salary will automatically be diverted into the plan. Here’s where many plan sponsors don’t follow through on the best practices for auto-enroll. Too many sponsors choose a low deferral rate, often as low as 2%. Even if the plan includes automatic escalations, it can take years for the annual bumps to result in meaningful salary deferrals. At ForUsAll we recommend a 6% initial deferral rate with auto-escalation.


Share of 403(b) Plans by Auto Enroll Default Deferral Percentage

Default Percentage Percentage of Plans Using that Default
1% 9.6%
2% 30.1%
3% 34.9%
4% 7.2%
5% 9.6%
6% 4.8%
Source: PSCA 2015 Survey


Rule #5: Re-think both enrollment and ongoing plan communications

A 6% deferral rate with auto escalations is a great first step to increasing your employees’ odds of a successful retirement. With 1% annual increases, that 6% deferral will turn into 10% in just a few years. And with any increase in salary, your employees won’t even notice the extra dollars being invested in their retirement account. But engaging communications and making it easy to adjust deferrals can result in even more savings.


An example of 401(k) education best practice

Want to see a well-tested and optimized 401(k) and 403(b) employee comms strategy? Here at ForUsAll, this is our primary focus. Click below to see how our robo-advisor DAVE guides employees through the process of enrollment based on their individual feedback.

401k education virtual advisor DAVE

As you can see, the employee gets the information needed to make each decision but is not overwhelmed with information. We use behavioral science to the plan’s advantage by telling participants they are already a member of the plan. That means if they opt out they are losing something, a behavior humans typically avoid (loss aversion).

We also let them know that the default savings rate of 6% is a basic starting point – not the recommended savings level. In fact, we remind tell them 6% is below the average savings rate (leveraging a behavioral concept called “social proof”).

And best of all, employees can boost their contributions by merely pushing a button. This approach overcomes the tendency to avoid taking action when overwhelmed with information, or forcing them to make several decisions in unfamiliar territory.


When it comes to improving 401(k) and 403(b) plan education for your employees, we’d be happy to chat about best practices. Schedule a time to talk with ForUsAll expert today!


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Alex Goldberg
Alex is a behavioral economics buff and a firm believer in the power of smart default settings. He envisions a future in which Americans don't have to be proactive about saving for a comfortable retirement. As an early member of ForUsAll’s marketing team, Alex leads demand generation efforts, building awareness and enticing plan sponsors with the promise of lower fees, less work, and reduced liability. After graduating from UC Berkeley with a degree in economics, Alex joined an early-stage start up and built their marketing engine from scratch, helping the company grow from twenty or so employees to over a hundred. In his free time, Alex loves to play soccer, listen to podcasts, watch documentaries, try new crockpot recipes, and sample Japanese whiskey. He has no plans of ever retiring, but looks forward to having more time to travel the world.
Alex Goldberg

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