What it means
When an employer sets up a retirement plan, not everyone automatically becomes a member. A person becomes a participant once they meet the eligibility rules and enrol, or are enrolled automatically.
From that point, they have rights under the plan, including rights to information and to the benefits they have earned. The word covers more than people who are currently working.
Former employees who left money in the plan are still participants, and so are retired members receiving payments. In some definitions, beneficiaries, who are people named to receive benefits after a member's death, are covered by the plan's rules too.
Participants have rights and responsibilities. They are entitled to a summary of the plan, statements showing their balance, notice of changes and a way to make claims.
In plans where members choose investments, they must also decide how their money is invested and how much they contribute. The number of participants matters to the employer.
It affects costs, administration, legal testing and the amount of employer contributions. The participation rate, the percentage of eligible employees who join, is also a sign of how well a plan is working.
For an employer, a low participation rate may suggest that employees do not understand the plan or cannot afford to contribute. Features such as automatic enrolment, clear communication and matching contributions often raise participation.
A high rate usually means better retirement outcomes for staff. Participants should look after their records.
They should keep statements, update their contact details and name beneficiaries correctly. Small errors in these records can cause delays and disputes years later.
In practice
Real-world examples.
Example
A new graduate joins a design agency and is enrolled automatically in its retirement plan after three months. She chooses a contribution of 5% of her salary and picks a simple investment fund. She is now a plan participant with the right to see her statements and her employer's matching contributions.
Example
A man leaves a manufacturing company after ten years but leaves his retirement balance in the plan. He receives annual statements and can still choose how his money is invested. He remains a participant until he transfers or withdraws the funds, which could be many years later.
Example
A widow of a former member is named as the beneficiary of his plan. She contacts the administrator and receives the benefit after providing the required documents. The plan's records show who is entitled and how much, which avoids a dispute with other relatives.
Formula
Calculation
Participation rate = number of participants / number of eligible employees
A company has 240 employees who are eligible for its retirement plan. Of these, 180 have joined, so the participation rate is 180 / 240 = 0.75, or 75%.
If the company introduces automatic enrolment and 36 more employees are enrolled, the participants rise to 180 + 36 = 216. The new participation rate is 216 / 240 = 90%, an increase of 15 percentage points.Case study
Seen in the real world.
Oakhaven Retail is a fictional chain of shops, and this case is illustrative. Only 55% of its 1,000 eligible employees had joined its retirement plan, which worried the HR director.
She introduced automatic enrolment at 4% of salary, with employees free to opt out, and began a short training session for new starters. Within a year, the participation rate rose to 88%, which meant 880 participants instead of 550, an increase of 330 people. Most of the new members stayed at the default level, and a small number chose to increase their contribution.
The cost to the company in employer contributions rose, because it matched part of what members paid, and the extra annual cost was about $60,000. But staff surveys showed higher satisfaction, and fewer employees left in the following year. The illustrative lesson is that participation can be improved by making enrolment the default and explaining the benefits.
Watch out
Common mistakes.
- Assuming only current employees are participants, when former employees with benefits and retired members remain in the plan.
- Not keeping beneficiary details up to date, which can send benefits to a former partner or delay payment to the right person.
- Counting eligible employees as participants, even though some have not enrolled and so are not building any benefit.
Questions
People also ask.
Who counts as a plan participant?
Employees who have enrolled, former employees with balances and retirees receiving benefits are generally included, although the exact definition depends on the plan and the law.
What rights does a participant have?
They can usually receive plan information, statements, notice of changes and a way to claim benefits, and to appeal if a claim is refused.
How is the participation rate calculated?
It is the number of participants divided by the number of eligible employees.
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