Micro 401(k) boom places advisors at the center of retirement plan growth

A surge in micro 401(k) plans is poised to reshape the US retirement landscape, with advisors expected to play a pivotal role in guiding small businesses through a period of rapid expansion.

According to new research from Cerulli Associates, the number of 401(k) plans is projected to rise by more than one-third over the next five years, surpassing one million plans by the end of the decade. By 2029, micro plans – those serving the smallest employers – are expected to account for more than nine-tenths of all 401(k) plans, marking a nearly forty percent increase from 2022.

This anticipated growth is being driven by a combination of federal incentives, such as those introduced in SECURE 2.0, and a wave of new state mandates requiring businesses to offer retirement savings vehicles.

For advisors, the implications are significant: as more small employers look to establish plans, the demand for guidance and support is set to rise.

Cerulli’s research highlights that most wealth advisors have traditionally focused on wealth management, with retirement plans making up a small fraction of their business.

In fact, more than three-quarters of advisors are classified as nonproducers, meaning less than 15% of their practice assets are in DC plans. Another 15% were counted as dabblers, with up to half of their assets in such plans. Only a small minority – about four percent – were deemed full-fledged specialists with a primary focus on retirement plans.

Despite this, the tide is shifting. Nearly four out of five recordkeepers tell Cerulli they expect the number of plans sold by wealth advisors on their platforms to increase in the next three years.

Large wealth firms are responding by launching programs to help advisors enter the retirement plan market, including partnerships with digital recordkeepers such as Vestwell. For example, JPMorgan expanded its partnership with Vestwell in 2024 to give advisors the ability to act as investment fiduciaries for plan lineups, while Morgan Stanley participated in a $70 million funding round for Vestwell.

“Recordkeepers seeking to win over these advisors and find success in the micro plan market should, if they have not already, be investing in resources to lower the barriers for wealth advisors,” said Chris Bailey, director, retirement at Cerulli Associates.

“Given the large number of wealth advisors, firms will need to develop scalable sales and recordkeeping solutions designed to help advisors who have little knowledge of the ins and outs of retirement plans,” he added.

Home-office programs are also providing more support, with about one-third of advisors in independent broker/dealer and national or regional broker/dealer channels reporting access to sales ideas and tools to help grow their defined contribution business. However, only nineteen percent of wirehouse advisors say they have similar resources.

The opportunity for advisors is not limited to plan setup. Cerulli’s data shows that one-quarter of participants with a financial advisor found that relationship through their retirement plan, underscoring the potential for advisors to build new wealth management relationships as they expand their presence in the micro 401(k) space.

Another recent study from Cerulli found 31% of unadvised 401(k) plan participants with $250,000 to $2 million in assets plan to hire an advisor as they near retirement. All in all, it found 38% of plan participants with $250,000 to $500,000 in investable assets didn't have an advisor, same as 40% of those with $500,000 to $2 million.