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For millions of Americans, the thought of retirement planning is a source of anxiety, confusion and frustration. Even having it neatly packaged in an employer’s 401(k) offering that includes personalized education and support doesn’t seem to provide comfort for many employees. 

To help improve outcomes, many plan sponsors have added auto-enrollment features to their plans. According to the Plan Sponsor Council of America, 50.2 percent of all plans are utilizing this feature. While plans using auto-enrollment are achieving participation rates up to 10 percent higher than others, many of these plans’ participants still behave in ways counterproductive to achieving financial success. A great example is the reluctance of auto-enrolled employees to increase their deferral rate above the default percentage established by their employer, which is typically three percent. Why do average employees, auto-enrolled or not, still appear extremely apathetic when it comes to taking action to improve their retirement outcomes? 

Leading researchers in the emerging field of financial psychology believe the answer lies within our human psyche. Deep-seeded financial beliefs create behaviors that cause individuals to deviate from achieving their monetary goals.  

With more than 25 years of experience in the retirement industry, I’ve seen these behavioral issues play out time and time again. Early in my career as a 401(k) enrollment specialist, I conducted thousands of group meetings and countless employee one-on-ones, with limited success.  While working as head of marketing for a large 401(k) provider, I signed off on millions of dollars for creative campaigns, personalized and segmented flyers, mailers, enrollment books, and interactive emails and websites; all with minimal effects on driving employee action to improve retirement outcomes.   

Fortunately, I now work for an organization that shares my passion to crack this code. Our vision ties in seamlessly with retirement savings: For every customer…a financial future imagined, planned and secured.  

Our aha moment

In our pursuit for a solution, we surveyed hundreds of employees who have access to an employer-sponsored 401(k) plan. We asked them a simple, open-ended question, “What can you tell us about your 401(k) plan?”  As you can imagine, the responses ran the gamut. But as we delved deeper, a pattern emerged. We identified three main categories of employees:

  1. Those who were interested in the concept of “retirement readiness” and therefore actively engaged in their 401(k) plan.
  2. Those who were passively engaged in their 401(k) plan but had little to no interest in the concept of “retirement readiness.”
  3. Those who were completely unengaged and therefore not enrolled in their 401(k) plan at all.  

The proper definition of these three types, in the context of “retirement readiness,” is vital. 

Engaged does not mean the employee is micro-managing his account, but rather the employee is willing to build a well-thought-out retirement plan, designed to maximize his retirement outcome. The engaged employee is saving with a purpose and has a deep-rooted interest in ensuring a successful retirement. 

On the contrary, the employee who is passively engaged in her 401(k) plan has no clear goal or purpose regarding her retirement outcome. This employee is enrolled and contributing to her plan, but has no reason why, other than she heard it’s a “good idea,” or she was auto-enrolled by her employer. In some instances, auto-enrolled employees didn’t even know they were contributing to a plan. 

As a result, the passively engaged employee is not motivated to understand their 401(k) plan. Without a basic understanding, it is easy for these employees to succumb to poor retirement planning. Some examples of poor retirement decisions include:

  • Not increasing contribution rates above the low auto-enroll default
  • Taking loans from the plan to make large purchases, like buying a new car
  • Taking full withdrawals from their plan when changing jobs 

It also becomes simple for the passively engaged employee to rationalize transferring his investment in the plan’s qualified default investment alternative (QDIA) during a market correction, especially if the concept of investment time horizon or the QDIA’s volatility profile was never fully understood.  

Finally, the unengaged employee is one who is not contributing to a 401(k) plan and has the greatest risk of not achieving an adequate retirement outcome. There are many pitfalls to being either passively engaged or unengaged. At the top of the list is a lack of emotional connection to one’s retirement future. Without an emotional connection, there’s no desire to learn how to improve one’s situation. 

Since I love analogies, imagine trying to save money for one of two home improvement projects: either replacing an old roof that isn’t leaking yet but will eventually, or saving for a new home theater system including 7.1 virtual surround sound and a bezel-less curved television with state-of-the-art Quantum dot display.   It doesn’t take a rocket scientist to know which home improvement will garner the most time researching and funding. 

How do you convert the passively engaged or unengaged employee, which we estimate to be 75 percent to 80 percent of the employee population based on our survey, to become an actively engaged employee? Maybe we should interject a little “home-theater-like” excitement into one’s retirement? 

Our field study 

Currently, we’re in the middle of an innovative, clinical research study to measure the behavioral change of passively engaged and unengaged employees regarding their participation in a 401(k) plan. This research is based on financial psychology interventions. The purpose of this study is to measure the effectiveness of different interventional strategies based on segmented financial behavior personas, to unlock intrinsic motivation within employees; thus, facilitating the shift to an actively engaged 401(k) participant.  


Plan Sponsor Council of America (2014). 57th Annual Survey of Profit Sharing and 401(k) Plans. www.psca.org/57thAS_Report