Small Business “Bullishness” Helping to Drive 401(k) Growth

ADP Inc., Guideline Inc., and Human Interest were among the top recordkeepers in adding defined contribution retirement plans in 2023, with all three pointing toward continued growth in 2024, according to the 2024 PLANSPONSOR Recordkeeper Survey and executive interviews.

Recordkeepers overall showed a strong year of DC plan additions—either via startups or by converting from another provider—in 2023, as compared with the prior year. Tailwinds including employer talent attraction and retention needs, SECURE 2.0 Act of 2022 tax incentives and state mandates are all driving new plan growth, according to firm executives, with signs they may outdo themselves again by the end of 2024.

“We’re continuing to track really well,” says Jeff Rosenberger, chief operating officer for Guideline. “I think we are seeing some evidence overall of small businesses starting to do better and feeling more bullish. … They are looking to hire more employees, and part of that focus is providing a competitive benefits package.”

According to the most recent surveying by the U.S. Chamber of Commerce, 73% of small businesses say they expect revenue to increase in the next year, the highest reading since the start of surveying in Q2 2017. 

Rosenberger, who in his role at Guideline is active in policymaking to expand qualified retirement plan access and participation, notes that bullishness comes from expectations of a drop in interest rates, along with federal incentives and state mandates for DC plans.

PLANSPONSOR, a sister publication of PLANADVISER, gathered information from many of the country’s top recordkeepers in the survey, though not all participated. ADP ranked first with 39,224 new plans in 2023. Guideline came in second at 12,795 plans and Human Interest Inc., the BlackRock-backed 401(k) provider, came in third at 8,617 plans. That firm announced Wednesday that, with the help of some new fundraising, it is positioning itself for an initial public offering “when the time is right.”

High-Value Benefit

“These achievements are correlated to ADP’s ability to provide high-value workplace benefits solutions for small-to-enterprise-sized employers, along with outstanding sales growth and client retention,” says Chris Magno, senior vice president and general manager for ADP’s retirement services, via email. “ADP Retirement Services has extensive experience supporting this market with low-cost, easy-to-administer solutions with knowledgeable client service teams.”

Magno says ADP supports legislation such as state mandates and the SECURE 2.0 Act to help make saving for retirement accessible for employees and provide incentives for employers to offer a plan.

Paychex provided data separately from the survey that included both individual plan adds and adopting employers into its pooled employer plan. By that count, the firm added more than 22,000 plans in 2023.

“Drivers of growth continue to be an increased need for small businesses to offer a retirement plan to attract and retain highly qualified employees,” says Scott Buffington, vice president and general manager of retirement services at Paychex, via email.

He also notes legislation’s role in plan growth, pointing to tax incentives, state mandates and enhancements in pooled employer plans introduced in the original Setting Every Community Up for Retirement Enhancement Act of 2019, which he says addressed issues of plans being too costly and complex to administer.

Challenges to plan growth, he notes, are small employers’ “general lack of knowledge of PEP and tax credits.” Paychex, he says, is working to educate business owners and industry professionals on the current retirement plan programs and incentives.

“We believe all Americans deserve the right to a secure financial future, and we show that through our products and services, financial advisor and accountant partnership programs, and lobbying in Washington, D.C.” Buffington says, noting a recent example of Paychex helping to introduce the RISE Act, which expands plan startup tax credits available to businesses with fewer than 10 employees. 

Explosion of Plans

Human Interest’s Rakesh Mahajan, chief revenue officer, says the firm will have invested about $150 million by the end of the year toward developing its retirement plan platform for small and medium-sizes businesses; the firm has also brought on more than 200 people for in-house customer support based in Lindon, Utah, which he notes won a customer satisfaction award in 2023.

“The laser focus on offering the highest-rated 401(k) product and customer service remains the core reason we are growing at the pace that we are,” he says. “In fact we are continuing to accelerate that growth and expect to continue to see on average 1,000 new customers joining Human Interest each month,” leading to a forecast of 10,000 new plans by the end of 2024.

About 75% of Human Interest’s customers are offering a 401(k) for the first time, he notes.

Guideline’s Rosenberger says the firm has been seeing an “absolute explosion” of converting plans and new plans, with the firm seeing more conversion plans over the last two years in the higher interest rate environment. That he believes stems from many businesses looking for ways to reduce costs, and to get plans before the CalSavers mandate deadline of June 30, 2022 for employers with five to 50 employees having plans.

He notes that the firm is often poaching from the largest payroll providers; Guideline’s three largest payroll partners are Gusto, Intuit and Rippling, though it has integrations with many others in the market. Rosenberger notes that the firm builds direct integrations with payroll partners through application programming interfaces, not third-parties, which the firm believes “leads to a superior customer experience and reduces costs.”

Another growth driver has been Guideline’s Starter 401(k) program, which builds off SECURE 2.0 legislation that allows for a plan startup with fewer compliance needs from employers, according to Rosenberger. About 15% to 20% of the firm’s new plan signings are coming via that program, he says.

Guideline also ranked in the top 10 for overall DC plans covered in the market in PLANSPONSOR surveying, coming in seventh. ADP, Ascensus, Empower, Capital Group, Principal Financial Group and Voya were the largest recordkeepers for overall DC plan coverage.