Micro-401(k) Plan Market Ripe for Non-Specialist Adviser Growth

The market for 401(k) plans with less than $5 million in assets is poised to hit 1 million plans by the end of the decade, with wealth advisers poised to capitalize, according to Cerulli.

Cerulli Associates sees the micro-plan 401(k) market—those with less than $5 million in assets—will rise to more than 1 million plans by about 2029, driven in part by state mandates and federal tax incentives, according to a retirement markets report it released Thursday.

That figure would be growth of 66% from more than 600,000 plans at the end of 2023, according to the Boston-based consultancy’s retirement analysts. Non-specialist wealth advisers, in particular, may particularly benefit because they will “capitalize on existing relationships with small business owners to sell retirement plans to these clients,” according to the consultancy.

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According to Cerulli’s surveying of defined contribution recordkeepers, 83% see the percentage of non-specialist retirement plan advisers who sell plans with their firm as likely to increase over the next three years. Once those plans are booked, the advisers may then have a chance for new wealth management clients from the participant pool.

“The growth of the micro 401(k) market will further the ongoing convergence of the wealth management and DC plan markets,” Cerulli research analyst Elizabeth Chiffer said in the report.

Small businesses in numerous U.S. states have to offer a retirement plan to employees or face fines. Others may want to take advantage of tax incentives created by the SECURE 2.0 Act of 2022.

But even without those factors, 72% of employers surveyed by Cerulli strongly agreed or agreed that retirement benefits are an “effective employee recruitment and retention tool.” Another 75% strongly agreed or agreed that they use the plan offering as a recruiting tool when trying to hire top talent.

Rollover Competition

Beyond the micro-plans, Cerulli sees plan advisers of all types continuing to drive retirement plan business to recordkeepers.

But the relationship can be a double-edged sword, with advisers who bring them business later seeking to manage 401(k) rollovers from the participant pools that DC recordkeepers may hope to manage themselves.

About half (48%) of DC recordkeepers indicated that they share only “some” rollover business and participant service offerings with advisers, and 29% retain all rollover business and services.

Rollovers are another area poised for continued growth as the wave of Baby Boomers continue to reach retirement and consider options for their workplace savings.

“We expect that recordkeepers will continue to develop clearer lines of separation with advisers and execute agreements about data sharing, financial wellness, and rollover business to help navigate this potentially competitive environment,” Chiffer said.

Retirement Income

Beyond driving overall plan growth, plan advisers and even non-specialists will also play a role in what types of retirement income solutions are made available via plans. There has been a boom in new types of guaranteed income investments for DC plans in recent years, particularly those that include annuitization options.

According to Cerulli’s surveying, many of these new products are gaining traction among DC recordkeepers.

As of the surveying from late 2024, 46% of recordkeepers offer an investment product with an annuitization component. A larger 70% offer a management account with a decumulation function—which may often include an annuity—and 43% offer a “dynamic” investment that flips a participant from a target-date fund into a managed account later in their career.

That said, there are non-annuity options with significant market share: 65% of recordkeepers offer a TDF with a retirement income vintage not including an annuity.

Cerulli did its own research with plan sponsors and advisers over different periods of time, and its DC recordkeeper information was done in partnership with the Society of Professional Asset-Managers and Record Keepers Institute, a retirement sector advocacy organization.

Alts Manager Ares Raises $2.3B for Life Insurance and Annuity Division

Ares is seeking to capture demand for retirement solutions through its insurer, Aspida Holdings Ltd.

Ares Management Corp. announced Thursday that the alternative investment manager had raised $2.3 billion in commitments from investors to support its life insurance and annuity business, Aspida Holdings Ltd.

Ares launched Aspida in 2019 as an expansion of Ares Insurance Solutions, the firm’s insurance platform. As of September 30, 2024, Aspida had more than $19 billion in assets under management. The subsidiary also includes Aspida Re, which provides reinsurance.

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The $2.3 billion fundraising is in addition to $700 million from Aspida, bringing total financing to $3 billion. The insurer has more than $1.5 billion in dry powder and is “well-positioned to meet the growing demand for retirement income and solutions,” Ares said in a statement, noting that the available resources could support more than $15 billion in new business.

“Propelled by secular tailwinds, including increased life expectancy, rising health care costs and elevated expenses, retirement planners have turned to annuities to offer enhanced after-tax returns,” said David Reilly and Ryan Myrick, partners and co-heads of Ares Insurance Solutions, in a joint statement. “We believe Aspida is well-positioned to capitalize on these trends and drive continued growth and value creation for its clients and investors.”

Alternative investment managers are increasingly seeking to take a portion of the growing retirement products market. According to the Investment Company Institute, retirement assets in the U.S. totaled $42.4 trillion in the third quarter of 2024, up 3.6% from the prior quarter. The assets included $15.2 trillion in individual retirement accounts, $12.5 trillion in defined contribution plan assets, $8.8 trillion in federal, state and local government defined benefit plans, $3.4 trillion in private sector DB plans and $2.5 billion in annuity reserves outside of retirement accounts.

In November 2023, KKR & Co. Inc. completed the full acquisition of insurance company Global Atlantic Financial Group. The private equity giant had acquired stakes in the insurer since 2021. Apollo Global Management Inc. acquired insurer Athene Holding Ltd. In 2021. Global Atlantic and Athene manage $158 billion and $355 billion, respectively.

According to McKinsey & Co., insurers backed by private-capital firms have gathered nearly $700 billion in AUM through 2023 and now command a 13% stake in the insurance industry, up from 1% in 2012.

Ares manages $464 billion in assets, including approximately $69.2 billion for 240 insurance clients.

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