I´ve spent the past 16-months of my life talking to 401k participants (online & off) and I think I know at least a few of the reasons. Many people feel they´ve been duped and double-talked into buying a pig-in-a-poke. Illusions of fortunes waiting for them upon their retirement were created. A wall of words over 75% of them don´t understand was constructed to keep them at arms length from actually participating in the management and performance of their plan.
At the risk of making a grotesque generalization I will say that no one has really sat down with these people and been totally straight forward and honest about the specific role - in terms these people can understand - that a 401k should play in their retirement.
The first thing I would do is eliminate the words participant and contribution from any 401k literature, website or statement totally. A person with a 401k isn´t participating in anything. We´re not all joining hands for a walk in the woods here. The term contribution is even more curious. How is it that if I buy 1000 shares in a mutual fund it´s called an investment but if I put 6% of my salary in a 401k it´s a contribution? It´s the same damn thing so call it the same damn thing.
Tax-deferred is another term we need to define more honestly and clearly. The way this term is typically described to a room full of lay-people is this; "The amount of money you decide to "contribute" out of your salary is tax-deferred. This means the government doesn´t even count it as income. If you´re making $50,000 and you decide to "contribute" $5,000 of that into your 401k, as far as the government is concerned you only made $45,000." Well click my ruby slippers and send me to Kansas! Nonsense!
Why doesn´t someone tell people, "When you turn 60 and are living on a fixed-income and start to draw from your 401k Uncle Sam will be standing by the shuffleboard court with his hand out wanting his share?" Are we afraid that if we´re really honest with people and speak to them in a language they will understand they won´t participate? Frankly, I think just the opposite its true. It almost always is.
I believe when you have something that is basically a good, sound idea and you sit people down and draw the clearest picture possible for them - in terms they understand - then they will have a true and honest appreciation for the value of the idea. People embrace good things that they understand and abandon those that they don´t. It´s human nature and all the pie charts in the world won´t change it.
Right now we´re experiencing an epidemic of participant remorse. People are sorry they got involved in something they either don´t understand or were led to believe was something it wasn´t. It unfortunate but it´s not hopeless. The 401k is a very good idea and the clearer, more down-to-Earth and honest we are about it the easier it will be for people to understand and appreciate it´s value. And the epidemic of participants remorse will subside.