By Mark Olsen, Managing Director at PlanPILOT
Every plan committee has had this conversation. Enrollment numbers come in low, deferral rates stall out at 3%, and half the workforce hasn’t touched their beneficiary designation in years. Someone on the committee chalks it up to apathy. “People just don’t care about their retirement.”
That explanation is comfortable, but it’s wrong. In our experience, participant behavior isn’t random, and it isn’t apathy either. It follows patterns that are well documented, highly predictable, and (this is the important part) responsive to plan design.
If your workforce isn’t engaging with the retirement plan or the broader benefits package the way you’d expect, the problem usually isn’t the people, it’s the environment they’re navigating.
Behavior Follows Predictable Rules
Decades of behavioral economics research point to a handful of forces that shape how people interact with retirement plans, and none of them have much to do with how much someone values their financial future.
Inertia is the biggest force. Left alone, most people stick with whatever default they were handed, whether that’s a 3% deferral rate, a plan’s original investment lineup, or a beneficiary form filled out on their first day. Changing course takes effort, and effort competes with everything else on an average day.
Choice overload plays a similar role. A benefits packet with a dozen elections, a fund lineup with 30 options, and a login portal that requires three separate passwords doesn’t come off as a high priority to a new hire; it reads as a task to postpone.
Present bias further compounds friction. Retirement is decades away for a lot of employees, and people are wired to prioritize this month’s paycheck over a benefit that pays off decades later. Combine that with limited financial literacy, and it isn’t hard to see why so many participants typically do nothing at all.
This is just how human cognition operates, and it shows up the same way across income levels, education levels, and industries. A finance director with an MBA is just as likely to leave a beneficiary form untouched for a decade as a first-year employee on the warehouse floor. The obstacle isn’t knowledge, it’s friction.
That’s an important distinction for how committees respond. Blaming apathy leads to more emails, more brochures, and more “financial wellness” webinars that draw the same handful of already-engaged attendees. Addressing friction leads to a somewhat different focus: to the plan document, the enrollment process, and the defaults themselves, which are likely the true source of the problem.
Why This Should Concern Plan Sponsors
Under ERISA, plan sponsors owe participants a fiduciary duty that extends beyond maintaining a compliant plan document. There is a practical dimension to that duty as well; a benefit nobody uses actually fails to fulfill its purpose, no matter how well designed on paper.
For plan sponsors, low participation and inadequate deferral rates also directly threaten regulatory compliance. When highly compensated employees (HCEs) participate at significantly higher rates than non-highly compensated employees (NHCEs), the plan risks failing annual ADP/ACP nondiscrimination tests. This gap can lead to costly corrective measures or forced refunds to HCEs, turning engagement into a core governance issue rather than just a communication challenge.
The same dynamic shows up outside the retirement plan. HSAs may go unfunded, even when the employer contributes to them. Life insurance beneficiary and other elections get skipped during open enrollment and never revisited. Wellness benefits and disability coverage sit unused, not because employees don’t value protection, but because the decision to enroll seemed too complicated to act upon. Employers spend real money on benefits that a large share of the workforce never experiences, and that discrepancy between what’s offered and what’s actually used should concern a committee as much as fund performance does.
What Actually Moves the Behavior Needle
If inertia and complexity are the primary obstacles, the fix isn’t a better brochure. It’s redesigning the environment participants operate within the plan. Here are several considerations:
- Make the default the optimal choice: Implement automatic enrollment and automatic escalation to shift the path of least resistance from opting-in to enrolling and remaining enrolled. Target escalation caps (e.g., auto-escalating up to 10%–15%) helps participants steadily build retirement readiness. This assists in overcoming stagnant inertia.
- Minimize decision fatigue: Streamline fund lineups, utilize Qualified Default Investment Alternatives (QDIAs) (such as Target-Date Funds) as genuine hands-off options and shorten enrollment forms to eliminate cognitive friction.
- Align timing with key decision windows: Deliver communications during onboarding, open enrollment, or annual raise cycles when employees are actively evaluating their financial choices, rather than relying on routine quarterly newsletters.
- Segment targeted messaging: Tailor content by career stage, highlighting compound growth and low-barrier entry for early-career hires, while focusing pre-retirees on catch-up contributions and retirement distribution planning where such topics are more relevant and useful.
- Track behavioral metrics alongside performance: Evaluate participation rates, average deferral rates, and default-fund utilization in committee meetings right next to investment performance benchmarks. If nobody tracks engagement, nobody is accountable for it.
- Integrate cross-benefit experiences: Provide a unified enrollment experience across 401(k), 403(b), HSA, life insurance, and wellness offerings to prevent siloed friction points across different platforms.
Building a Plan That Works With Human Nature
None of this requires overhauling the plan or adding significant cost. It does require committees to stop treating low engagement as a mystery and start treating it as a design problem with possible solutions.
Plans seeing real participation gains don’t always have the flashiest communications. They’re the ones structured around how people actually behave, not how a committee wishes they would.
Is Your Plan Designed for How Participants Actually Behave?
We’re creating the standard for client experience. Independent and impartial by design, we apply our skill to every facet of plan development, governance, and implementation to help you enjoy real results for your organization and its participants. Our client partnerships are built on trust, communication, and responsibility, the cornerstones of a healthy, prosperous relationship. We’re committed to objective guidance, informed innovation, and an integrated approach tailored to your unique objectives.
PlanPILOT’s team of seasoned professionals upholds high professional standards, so every strategy we recommend supports both your organization and the participants who depend on it.
To learn more about how we can help improve participant behavior and the effectiveness of your benefits program, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.
