6 in 10 Employees Think They're Contributing To A 401(k), But Aren't Saving At All – Are You One Of Them?

A June 2024 survey by Principal Financial Group revealed a surprising misconception among American workers regarding their retirement savings. According to the study, six in 10, or 59% of employees not enrolled in a 401(k) plan mistakenly believe they're actively contributing to one.

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This disconnect could have serious implications for millions of workers’ financial futures. The survey, which included 1,110 employees from various backgrounds who weren't participating in their employer’s 401(k) program, found that many non-savers confidently reported contributing up to 10% of their income.

But why the confusion?

Researchers have a few ideas about why this confusion is so widespread:

• Previous Job Experiences: Many workers had 401(k) plans at past jobs and might have forgotten to enroll in a new plan when they switched employers.
• Assumption of Auto-enrollment: Some employees who were automatically enrolled in a 401(k) at a previous job might think the same thing would happen at their new workplace.
• Lack of Clear Communication: Comments from survey participants highlight a significant lack of understanding. One Gen-Z male summed it up well: “I have no clue what I’m doing with any of the retirement stuff.”

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This gap between perception and reality could significantly impact workers’ retirement plans. Without regular contributions to a 401(k) or similar retirement account, they miss out on benefits like compound interest growth, potential employer matching contributions, and valuable tax perks associated with traditional 401(k) plans.

If you're curious about whether you're enrolled in your employer’s 401(k) plan, here are some easy steps to find out:

1. Check Your Pay Stubs: Check your pay stubs for deductions labeled “401(k)” or “retirement contributions.” This is usually the quickest way to see if you're contributing.
2. Log Into the Plan’s Online Portal: Most 401(k) plans have an online portal to check your enrollment status, contribution levels, and account balance. If you're unsure how to access it, just contact your HR department for help.
3. Contact Human Resources: Don't hesitate to contact your HR department or benefits administrator. They can confirm your enrollment status and provide any necessary documentation.
4. Review Quarterly Statements: If you're enrolled, you should receive quarterly statements from the plan administrator that detail your contributions, investment performance, and account balance.
5. Use Your Annual W-2 Forms: At the end of the year, your W-2 form will show any contributions to your 401(k). This can serve as a reliable confirmation of your enrollment.

Automatic enrollment could be a game changer for employers looking to simplify retirement plans. This approach allows employees to opt-out if they choose not to participate. Research from Vanguard shows that in 2022, participation rates for workers in auto-enrollment 401(k) plans hit 93%, compared to just 70% for those in voluntary plans.

Thanks to the SECURE Act 2.0, which was enacted in 2022, most new 401(k) plans will be required to automatically enroll employees starting in 2025. Experts point out that employers can also reduce confusion about 401(k) participation by clearly communicating with employees about their enrollment status. 

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