Advisors expect revenue boost this year as Secure 2.0 provisions kick in

With millions of employers now required to automatically enrol employees into their workplace retirement plans, advisors that specialize in this area are expecting a boost to their revenues from this year.

The provisions of Secure 2.0 that came into effect at the start of this year means that many organizations that have started a new 401(k) or 403(b) plan since December 29, 2022, will have to ensure that employees are contributing at least 3% of their salary to the plan, unless they qualify for exemptions such as having fewer than 10 employees. Plan sponsors will be required to auto-escalate contributions.

According to a survey of advisors specializing in serving retirement plans who have at least 10 DC plan clients by Fuse Research Network, 59% of respondents are anticipating that the Secure 2.0 provisions will see their revenues rise by 1-5% (38% said so) or 5-10% (21%) by the end of this year. Just 9% expect an increase of 10% or more and a third expect no impact.  

“This is a very positive response from DC plan advisors, because the Secure 2.0 opportunity is helping establish small, new retirement plans — where the profit margins tend to be slim for relatively more work,” said Loren Fox, Fuse’s director of research. “Advisors also indicated that employers are rarely pushing back on DC plans or plan features, so we’re seeing more of a glass-half-full orientation to the law.”

Secure 2.0 legislation was passed in 2022 but the provisions were designed to be rolled out over time. Some, such as the creation of new Starter 401(k) plans in 2024 aimed at small businesses that do not currently offer a retirement plan. They offer a simplified, low-cost option for employers and employees.

Advisors have been working with employers since 2022 to ensure compliance with the auto-enrollment requirements and the research found that 79% of respondents are working with “small” DC plans with $1 million to $10 million in assets, 56% are working with ‘micro’ plans (less than $1 million) and 51% are working with mid-market plans ($10 million to $100 million). Those with more than $100 million in assets are typically already auto-enrolling employees.

While plan sponsors with fewer than 10 employees do not have to auto-enrol and auto-escalate employees, many advisors working with these clients are including these in their new plans with limited pushback on this from employers (just 9% of respondents reported this).  

“It’s a good sign to see so much hope from retirement plan advisors, who make a living setting up and counseling DC plans. This suggests Secure Act 2.0 could really kickstart a lot more 401(k) and 403(b) plans, and lift employee participation through auto-enrollment and growing contributions to the plans,” said Fox. “American workers need broader and easier access to retirement savings vehicles, and this is a step in the right direction.”