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

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.

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.