Closing the financial literacy gap to unlock better retirement outcomes

Advisors and plan sponsors have a growing opportunity to improve retirement outcomes by moving beyond basic oversight and into more intentional plan design and engagement strategies. Pulling from our latest Top DC Trends and Developments, there is a clear shift toward offering more comprehensive benefits, enhanced plan features, and expanded financial wellness resources. However, as plans continue to evolve, a critical challenge has emerged: The effectiveness of these benefits depends entirely on whether participants understand them.

More benefits in today’s plans – but also more complexity

Today’s defined contribution (DC) plans are more robust than ever, offering higher employer contributions, additional savings vehicles, and access to broader financial tools. Yet many participants fail to take full advantage of these opportunities—not because they lack access, but because they lack clarity.

Recent findings from Alight’s 15th Annual Employee Mindset Study reinforce this disconnect. While 85% of workers report having access to at least one wellbeing program, average utilization remains low, hovering around 30%–35%.¹ This gap highlights a growing reality: Offering more benefits does not necessarily lead to better outcomes if engagement and understanding remain limited.

Financial literacy and participant education therefore remain key barriers to success. A more thoughtful and intentional approach is needed: one in which communication is not only more frequent, but also targeted, personalized, and aligned to the specific needs of different participant demographics and life stages. In fact, the same Alight research found that 65% of workers want personalized communications based on their health or financial data, suggesting that participants recognize the need for more relevant and tailored engagement.³

Lack of plan awareness is a top cause of inaction

Recent participant research brings this challenge into even sharper focus. Findings from Ascensus show that lack of plan awareness and understanding drive 60% of inaction, compared to 23% who cite affordability as the primary barrier. In addition, 30% of “eligible but not participating employees” say they do not know how the plan works or how to get started.³

These findings underscore a fundamental disconnect between plan design and participant experience: Even well-constructed plans cannot deliver results if participants do not understand how to engage with them.

The consequences of this education gap are both measurable and meaningful. According to the National Bureau of Economic Research, couples often fail to coordinate their workplace retirement savings strategies, resulting in missed employer match contributions that can total approximately $14,000 over a lifetime, with significantly higher losses in some cases.⁴ A meaningful portion of these missed opportunities stems from simple misunderstandings rather than deliberate choices, emphasizing how gaps in financial literacy can directly reduce long-term retirement savings.

Financial literacy translates into broader employee engagement

The impact of education extends beyond financial outcomes and into broader workforce engagement. The Alight study shows that employees with higher levels of benefits knowledge exhibit behaviors that employers value: 62% say they plan to stay with their current employer, compared to just 51% of those with lower understanding.⁵

Similarly, 77% of employees with strong benefits knowledge feel connected to their employer’s purpose or mission, versus only 39% of those with limited knowledge.⁶ These findings suggest that effective education does more than improve savings behavior; it also strengthens employee engagement, retention, and overall satisfaction.

Moving beyond a one-size-fits-all approach

The importance of meeting participants where they are is illustrated clearly in the experience of Dawn Foods. In this case, a significant portion of the workforce did not have consistent access to traditional communication channels such as email during the workday.

Recognizing this limitation, the plan sponsor partnered with its recordkeeper to rethink its engagement strategy. Instead of relying solely on standard communications, they introduced more accessible tools, including mobile-friendly resources, workplace messaging, and QR codes placed throughout physical locations to connect participants directly to plan information.

This targeted approach led to meaningful improvements in engagement and participation, demonstrating that effective participant education depends not only on the message itself, but on how—and whether—it reaches the intended audience. It also highlights a broader industry trend: Successful engagement strategies are increasingly built around the realities of the workforce, rather than one-size-fits-all communication models.

A coordinated effort to drive better retirement outcomes

Taken together, these insights point to a clear conclusion: Improving retirement outcomes requires a shift from simply offering more benefits to ensuring those benefits are understood and utilized.

Traditional approaches—such as generic communications or one-time enrollment education—are often insufficient in today’s increasingly complex environment. Participants at different life stages face unique challenges, from early-career employees navigating enrollment for the first time, to mid-career savers balancing competing priorities, to pre-retirees making critical income decisions. Retirement plan education strategies must evolve to reflect these differences and deliver relevant, actionable guidance.

Addressing this challenge requires a coordinated effort across the retirement ecosystem. Plan sponsors must continuously evaluate whether their communication strategies are truly reaching their workforce and driving meaningful action. Recordkeepers play a key role by leveraging participant data and analytics to identify engagement gaps and support more personalized outreach. Advisors can help translate complexity into clarity, providing the context participants need to make informed financial decisions.

By aligning these efforts, plan sponsors, recordkeepers, and advisors can move beyond simply offering a menu of benefits to ensuring those benefits are accessible, understood, and effectively used. This means simplifying communication, tailoring education to specific participant needs, and continuously refining engagement strategies based on real-world behaviors. In doing so, they can help close the financial literacy gap, improve participant decision-making, and ultimately drive better retirement outcomes—both for individuals and for the organizations that support them.