How 401(k) Participant Engagement Matters — a Lot

A new study finds that engaged 401(k) plan participants are saving at significantly higher rates than that of unengaged participants, demonstrating that getting people involved in their retirement planning is a key component of driving better outcomes. 

According to Empower’s second annual research study, "Empowering America’s Financial Journey — How People Save, Invest and Get Advice," engaged participant savings rates are 56% higher than rates for unengaged participants. In addition, savings rates for engaged and contributing participants with eligibility of less than one year are 73% higher than for unengaged participants. 

Engaged participants are also more likely to take full advantage of their plan’s employer match, as 48% of unengaged participants are not making full use of the employer match versus 22% of those who are engaged, the research shows.  

Empower’s study is based on an analysis of approximately 4.3 million active (primarily corporate) defined contribution (DC) participants, as well as a nationally representative survey conducted in August 2022 among 2,505 working Americans with access to a DC plan to better understand their savings habits and levels of involvement with retirement planning. The firm defines “engagement” as any interaction with its website, app or customer care center, or with an Empower advisor, over the last 12 months.

Accordingly, they found that people who leverage educational content, seek out advice or guidance, or link or consolidate external accounts to create a comprehensive financial view have higher savings rates than people who are not engaged.

For instance, participants aggregating accounts — those who link multiple financial accounts in one place to create a consolidated view — were found to have savings rates approaching 11%, almost double the savings rate of unengaged participants. What’s more, 44% of survey respondents feel more confident if they had a full picture of their financial situation and were able to see their financial account balances, debt and assets in one place.

Advice and Guidance

Meanwhile, the study also found that fewer workers with a retirement plan feel comfortable making investment decisions than a year ago, down to 40% from 48%. 

Additional findings show that:

• Baby Boomers have a higher preference for engaging with a financial professional than do Gen Xers and Millennials; and
• managed account users have higher savings rates (22% higher) than participants invested in target date funds (TDFs).

Changing Priorities

And despite the economic environment, Americans remain resilient — as more than 6 in 10 (63%) are confident they are financially on track for retirement. That said, inflationary pressure and market declines are taking a toll on retirement savers as they are forced to prioritize short-term financial challenges over longer-term goals. In this regard, findings from the study show that:

• The portion of Americans who say retirement is a top financial goal dropped from 67% to 53%.
• Making ends meet is now a top financial goal for 26% of Americans with a retirement plan.
• Fewer Americans are prioritizing building an emergency savings fund or saving for a major expense.
• More than 9 in 10 survey respondents consider inflation a top concern.

Consequently, these pressures have caused most Americans to take action to counter the effects of inflation on their personal finances. 

In addition, the number of participants taking out loans increased by 13% over the past 12 months and hardship withdrawals jumped by 24%. More than a quarter of surveyed respondents say they are very or somewhat likely to take a loan or hardship withdrawal in the next six months.

“Through this year’s study, we found that nearly half of Americans have cut back on daily expenses, created a budget or cut back on entertainment, and one in five Baby Boomers and Gen Xers postponed retirement,” observes Luis Fleites, director of Thought Leadership for Empower. “I think this illustrates that while we are shifting our focus on short-term spending and planning for now, most savers are still trying to remain long-term focused.