When employees don’t use your 401(k), what can you do?

So, you've built a great benefits package, including a 401(k) retirement plan. But when open enrollment closes, half your employees don’t sign up for it. Sound familiar? 

This is one of the most frustrating problems in HR today. You invest real money and time into a benefits program thoughtfully designed to support your workforce, yet participation stays flat, and employees miss out on offerings that could genuinely help them. 

The truth is, for a lot of your people, a 401(k) might not even be on their radar when they think about financial well-being. PwC's latest survey found that 59% of workers say they're stressed about their finances right now. For most of them, the question isn't how to get the most out of a retirement account. It's how to make it through the month. More than half have less than $5,000 set aside for an emergency, and almost a third have less than $1,000. 

Employees often bring that stress to work. According to a SoFi at Work survey, workers spend 14 hours a week dealing with financial issues, and more than half of that time happens on the job. With one in three employees saying these challenges affect their ability to focus, financial wellness is more than a retention strategy. It’s a productivity lever many employers are overlooking. 

Immediate financial concerns are far from the only barrier that hurts 401(k) participation. I recently sat down for a conversation on the problem with Jeanne Sutton, a certified financial planner and certified plan fiduciary advisor also affectionately known as “The 401(k) Lady.” We were joined by CEFEX-certified fiduciary Michael K. Smith, recognized as one of the top retirement plan advisors in the U.S.  

What we uncovered is that closing the participation gap means providing consistent, personalized education that precisely addresses the different needs of your workforce, not a one-size-fits-all approach. 

Why don't employees engage with their retirement plan? 

Jeanne put it simply: Employees are overwhelmed. 

"It's the same reason why people are hesitant to change a cellphone plan. It's too much,” she said. “They don't wake up every day and say, 'I'm going to learn about target date funds today.'" 

Given the complexity that comes with navigating their everyday finances, it isn’t realistic to expect someone to understand vesting schedules and fund lineups without thoughtful, personalized support.  

Michael agreed: "Employees aren't disengaged because they don't care. They're disengaged because the process feels overwhelming, and nobody's walking them through it in a way that makes sense for their life."  

Think about it from the employee's side. They're handed a menu of acronyms, a bunch of plan documents, and a deadline, often with little context for how any of it applies to their specific situation. A 25-year-old single employee and a 45-year-old parent of three have wildly different needs, but they're frequently given the same generic information to sort through on their own. 

That's a lot to ask of someone who isn't a benefits expert. The result: default elections, skipped enrollment windows, and a lot of unused value sitting on the table. 

The fix isn't more information. It's better delivery. As Jeanne told me, education needs to be: 

• Frequent, not annual. Ditch the once-a-year, hour-long break room meeting in favor of short, consistent touchpoints, two or three times a month. 
• Conveyed at a level everyone can access. Jeanne compares it to the evening news, written at a fifth-grade reading level. You're not trying to impress anyone. You're trying to help them. 
• Delivered where employees already are. Fold education into the payroll app or HCM system employees already use instead of asking them to log into yet another tool.

Does a good 401(k) retain employees?

Many companies tout their 401(k) as a retention tool, so I asked Jeanne directly: Does the plan itself keep them on board? 

"It's whether they understand it and feel good about it,” she said. “[A 401(k) alone] doesn't keep anyone. The biggest mistake the industry made was thinking a vesting schedule was going to help retention. It doesn't. Absolutely nobody knows if they're vested or not." 

Building trusted, long-term relationships, Jeanne explained, is one of the most effective ways to strengthen retention. When employees know whom to contact, whether it’s your internal benefits expert or 401(k) provider, and they can count on timely answers to questions both big and small, they start to feel genuinely supported. Over time, that dependable structure builds confidence, and the longer it's in place, the more comfortable your employees will feel. 

As Michael pointed out, financial wellness isn't just a nice-to-have benefit. It's a workforce strategy. When employees can't afford to retire, healthcare costs rise, compensation costs climb because tenured employees stay longer than planned, and succession and promotion paths get blocked. Retirement readiness touches nearly every part of your workforce planning, whether you've intentionally connected those dots or not. 

What should HR do to increase benefits participation? 

If you're wondering where to start, Jeanne's advice is refreshingly simple: Give employees access to a dedicated benefits education team, even if that’s a team of one, that meets them at their level instead of talking over their heads.  

Michael's advice for plan admins is just as direct: Get a practical assessment of your fiduciary governance and build a committee, even a small one, so the responsibility doesn't rest on a single person who might leave or lose track of it. 

Technology and features for auto-enrollment and regular contribution increases are powerful tools, but they're not replacements for real conversations. They actually require more engagement, not less, because employees need to understand what's happening to their paycheck and why. 

At the end of the day, your retirement plan is only as strong as your people's understanding of it. The plans, platforms, and compliance rules will keep evolving, but the work of helping employees feel confident about their financial future will always come down to real people building real trust. 

For my full conversation with Jeanne and Michael, including more on plan fees, state mandates, fiduciary responsibility, and where financial wellness is headed next, you can catch the entire discussion here.

Dr. Shari Simpson is host of the HR Mixtape podcast and Senior Manager of Thought Leadership at Paylocity, with 20+ years of strategic HR experience.