Are your participants saving enough? Tracking deferral rates

What is a deferral rate?

A participant's deferral rate is the percentage of eligible compensation they elect to contribute to the plan.

Example: An employee earning $80,000 who contributes 6% defers $4,800 into their account over the year, not including any employer match.

The average deferral rate provides insight into how much employees are saving — not just whether they're participating.

Why does the deferral rate matter?

Even small differences in contribution rates have a significant impact over a career. An employee contributing 3% of pay may accumulate substantially less than someone contributing 8% or 10%, especially once investment growth is considered over several decades. Tracking average deferral rates helps sponsors evaluate whether employees are making meaningful progress toward retirement readiness.

What should you be monitoring?

Rather than focusing solely on the plan's average, consider reviewing several metrics:

• Average employee deferral rate
• Median deferral rate
• Percentage of participants contributing enough to receive the full match
• Percentage of participants at various levels (below 3%, 3–6%, above 10%, etc.)
• Deferral rates by age group, tenure, or employee classification

Looking beyond a single average helps identify groups who may benefit from additional education or plan enhancements.

Why might employees contribute too little?

Low deferral rates don't always indicate a lack of interest. Employees may contribute less because they:

• Believe they can't afford to save more
• Aren't aware of the employer match
• Started with a low contribution rate and never increased it
• Have competing financial priorities
• Don't understand how much they'll need in retirement

Understanding these barriers helps you tailor communication and education to encourage higher savings.

Promote the employer match

Many participants contribute enough to join the plan but not enough to receive the full match. Regular reminders about its value can encourage employees to increase their deferral.

Example: With a 100% match up to 5% of pay, an employee earning $70,000 who contributes only 3% receives $2,100 in match. Increasing to 5% earns the full $3,500 — an additional $1,400 in annual retirement savings.

Consider automatic escalation

Automatic escalation gradually increases participants' contribution rates over time, often by 1% each year. It lets employees save more as their income grows while minimizing the impact on take-home pay.

Provide ongoing education

Many employees simply don't know whether they're saving enough. Campaigns that explain contribution rates, retirement income goals, compound growth, and the benefits of increasing contributions can motivate action. Even encouraging a 1% increase can make a meaningful difference over a career.

Measuring success

Deferral rates should be reviewed regularly alongside other key metrics. As you evaluate your plan, consider:

• Are employees contributing enough to receive the full match?
• Have average deferral rates improved over the past few years?
• Which employee groups have the lowest contribution rates?
• Have education campaigns or design changes increased savings?

Tracking these trends helps measure effectiveness and identify opportunities for continuous improvement.

The bottom line

Participation is an important measure of success, but it's only part of the equation. Tracking deferral rates reveals whether employees are building sufficient savings and whether your plan is helping them achieve long-term security. From participant education to design enhancements like automatic escalation, we're here to help you build a plan that drives stronger outcomes.