A new survey explores a strange subset of American workers: Workers who aren’t enrolled in a 401(k) but think they are.
In a Retirement Security Survey released this month, Major Financial Group found that nearly 6 in 10 non-savers, 59%, mistakenly believed they were contributing to a 401(k) retirement plan.
The survey of non-savers reached 1,110 workers of various ages, races and incomes, linked by one common trait: None of them participated in a 401(k) offered by their employer.
They thought they were contributing to a 401(k). They weren’t.
Asked how much they were saving, most non-savers gave surprisingly specific numbers: They were putting away 5%, or 8%, or 10% of their income in a 401(k). Some workers said they were saving more than that.
Not surprisingly, the finding suggests some of those workers will struggle to reach their retirement savings goals.
Retirement experts say the survey also shows the need for employers to communicate more clearly with employees about retirement savings.
“We have a very complex system,” said Chris Littlefield, president of retirement and income solutions at Principal Financial. “People change jobs and every plan at every employer is different.”
Barely half of American households have retirement accounts, according to the 2022 Federal Survey of Consumer Finances.
Wealthier Americans are more likely to participate in retirement plans. And the wealthy reap most of the benefits from a program that provides a tax break for retirement savings.
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Most employees enroll in a 401(k) when given the option
Research has shown, however, that workers do a better job of saving for retirement when an employer puts a 401(k) within reach.
Roughly 80% of workers enroll in a 401(k) when given the option, according to Anqi Chen, a senior research economist at the Center for Retirement Research at Boston College.
The new survey from Principal Financial, the nation’s third-largest 401(k) administrator, began as a quest to learn why some workers choose not to participate in retirement plans.
And then, the pollsters collected some strange answers.
“We were asking questions like, ‘Why aren’t you participating?’ And we got the answer, ‘We’re participating,’ Littlefield said.
The survey then targeted non-savers, specifically asking if they were participating in their company’s 401(k). Of that group, roughly half mistakenly believed they were automatically enrolled in a 401(k). Two-fifths thought they had registered themselves.
Why were the workers so confused? The survey researchers came up with several theories.
Many workers were enrolled in 401(k) plans at previous jobs. Some of them, perhaps, simply forgot to sign up for a new plan when they changed jobs. Some workers were automatically enrolled in a 401(k) at a previous job. Perhaps they assumed they would be automatically enrolled in the new one.
‘I have no idea what I’m doing’
The survey asked for feedback from employees. The comments revealed confusion.
“I have no idea what I’m doing with any of the retirement stuff,” said one Gen-Z male.
“It wasn’t explained to me,” said another.
One Gen-X woman said, “I really have no idea how to start investing.”
How can employers clear up 401(k) confusion?
Employers looking to make retirement plans less confusing can consider automatic enrollment, leaving it up to the employee to choose.
Vanguard, the investment management company, found that workers with automatic enrollment 401(k) plans participated at a rate of 93% in 2022, compared to 70% enrollment in voluntary plans.
“It still gives people the same two options: You’re on a plan, or you’re not,” Chen said. “It just helps people start saving.”
Starting in 2025, most new 401(k) plans must automatically enroll employees. The mandate is part of the SECURE 2.0 Act, which passed in 2022.
Employers can clear up some of the confusion about 401(k) participation, experts said, by simply telling employees if they’re participating.
“It seems like a communication issue, from employer to employee,” said Kai Walker, managing director of retirement research and insights at Bank of America.
Companies with 401(k) plans should run an “ongoing campaign,” Walker said, sending personalized messages to employees telling them if they’re enrolled and how much they’re contributing.
Employers can go even further by sending regular reminders to workers who aren’t saving for retirement and encouraging 401(k) participants to save 10% or more of their income.
Employees can help their retirement savings cause by educating themselves on their company’s 401(k) plan.
One problem with digital finance is that workers don’t often see a breakdown of their wages. The humble payslip, a detailed table of wages and deductions, no longer comes in the mail to most of us.
“It should be really simple for people to check their paychecks,” Littlefield said. “But people don’t control their paychecks anymore.”
One way to know if you’re saving for retirement is to check your annual W-2 form: 401(k) deductions are listed in Box 12.
Or, pick up the phone and call HR.
“If you’re not sure whether or not you’re contributing to your retirement, double check with your employer,” said Sophoan Prak, a financial advisor at Vanguard. “Remember, it’s better to contribute something, even if it’s a small amount.”
