Cerulli finds that only 24% of active 401(k) participants say they are very confident they will be able to maintain their current standard of living in retirement. The lack of retirement confidence among average Americans comes as the plethora of tools, products, and solutions aimed at improving defined contribution (DC) participants’ financial wellness nears oversaturation, according to The Cerulli Report—U.S. Retirement End-Investor 2024.

Cerulli’s research finds that more than 90% of DC recordkeeper offer financial wellness services to clients and 71% of 401(k) plan sponsors have adopted a financial wellness program. Financial wellness programs are well poised to translate the confusing retirement savings environment to DC participants by providing valuable knowledge and actionable recommendations, but currently these programs are either not effective or not widely used by participants—even if widely adopted by DC plan sponsors. In addition, financial education is often mistakenly conflated with financial wellness. There is some confusion in the industry between products and solutions that address financial literacy versus financial wellness. The incorrect use of terminology inhibits true financial wellness and hinders the right products and solutions from reaching the right audience.

According to Cerulli’s survey of 401(k) participants, most financial wellness tools and services see usage rates of less than 20%. 41% of 401(k) participants rate the tool or service they used as very helpful, but most (57%) are more neutral about the experience. As such, Cerulli finds the top reason 401(k) plan sponsors choose not to offer a financial wellness program is concern their participants will not take advantage of the program.

While most financial wellness programs contain the basic building blocks to lower their financial stress and increase retirement preparedness, these programs are often not constructed in ways that drive action on behalf of the participant. Financial wellness programs that personalize easy and actionable recommendations to users will foster better long-term outcomes.

“When the user is compelled to act on their own and feels like they have made their own decision, it is more likely that the user will continue to make more positive financial decisions,” says Elizabeth Chiffer, analyst. “It is important, however, that these actionable recommendations are not paternalistic prescriptions, but helpful tips. Providers must convert participants to thinking about saving for retirement as a net positive—right now about 40% of active 401(k) participants view contributing to their retirement savings as a sacrifice.”

Ultimately, the most effective financial wellness programs include some form of guidance, financial planning, or financial coaching, and consider each 401(k) participant’s entire financial situation. “A key feature of personalized financial wellness programs, in general, is their ability to effectively account for key life events in the investor’s life. Participant communications that integrate new, relevant information about participants’ financial lives in a timely manner are more effective at driving positive financial actions,” says Chiffer. “In turn, effective financial wellness programs can offer return on investment for recordkeepers by bringing in richer participant data, building potential retail relationships, and winning and retaining plan sponsor clients,” she concludes.