Studies have shown that workers under age 35 have the lowest participation rate in 401(k) plans of any age group, and plan sponsors constantly struggle with the challenge of convincing younger employees to save for retirement. Because retirement seems so far in the future, young people tend to think of it only in abstract terms and without any urgency. I believe most participants in this age group have gone through a turbulent market over the last decade as they entered the workforce, and this has kept many of these employees from investing in their 401(k). It is hard for a young employee to visualize what their retirement is going to look like, and this has led participants to also procrastinate planning for retirement.

New research from the Center for Retirement Research at Boston College tested the premise that young people may be discouraged from saving for retirement because it's so distant for them. Several communication approaches were tested to see which ones could be effective in encouraging saving. Researchers theorized that combining abstract information about a secure retirement with a specific long-term savings goal could prove helpful to younger workers.

Individuals participating in the study viewed advertisements promoting saving for retirement. The ads varied from vague directions (for example, " may need to set up a retirement account...") to specific steps regarding how to enhance savings, such as set a 15%-of-pay goal and invest in one balanced fund. Tables indicating short-term and long-term targets, based on salary amount, were also shown. The results indicated that younger workers were more responsive to the advertisement that proposed the long-term savings goal (for example, a goal of $337,500 saved over 45 years by a person with a $50,000 salary).

But they also responded well to the ad with the short-term goal: a bi-weekly payroll deduction. I believe employers need to review how they are communicating with not only this age group, but also all employees to review the benefits the retirement plan has to offer. I do not think employees will do it alone. They need the encouragement and help to take the first step towards saving for retirement.

The researchers concluded that appealing to younger employees' abstract way of thinking will likely be effective in encouraging them to start saving or to save more. This approach, combined with describing a savings goal presented as a short-term target, such as the amount to save from each paycheck, may be even more effective. Vendors are also changing the way they communicate with participants by adding tools and resources for them to use and adding a retirement income feature to websites and statements to help employees make sense of it all.


What can employers do?

I think employers need to take the lead in helping this group of employees get involved in the plan early in their careers. Employers can work on ways to change their plan design to get employees engaged in the plan. Plan design techniques to help engage participants include the use of shorter waiting periods to get in the plan, adding auto enrollment and auto increase to the plan. Employers cannot do it alone and need employees to take more ownership in what will be an important benefit for themselves down the road.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

Ludwig, ChFC, AIF, CRPS, is a financial adviser with LHDretirement. Reach him at

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