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Benefits August 1, 2025
What’s Driving the Small Plan Market?
Federal tax incentives and other state policy efforts have led to more retirement plans available for employees of small businesses.
Reported by Ed McCarthy
Art by Greg Clarke
Recent surveys have found that an increasing number of small businesses are establishing retirement plans for the first time.
David Curylo, head of workplace retirement solutions in MassMutual’s wealth management business area, notes that according to Bureau of Labor Statistics data, the percentage of employees working at businesses with fewer than 50 workers who have access to a defined contribution plan increased to 54% in 2024 from 47% in 2020. Among companies with 51 to 100 employees, 67% of workers had access to a defined contribution plan in 2024, compared with 66% in 2020.
Curylo and other sources cite three factors driving this increased adoption: tax incentives provided by the SECURE Act 2.0 of 2022; expanded enrollment in multiple employer plans and pooled employer plans; and the influence of state-run plans. Curylo notes that it is difficult to pinpoint a single factor, however, because the data still has “some catching up to do before we can say what exactly is driving that growth.”
SECURE’s Impact
The SECURE 2.0 tax incentives are successfully incentivizing employers to start new plans, according to Brian Williams, founder and president of Northshire Consulting, because of the credits available.
“For many of them, this is the first time a 401(k) has felt financially within reach,” Williams says.
Plan providers have seen increased new plan adoption following the effective dates of both the Setting Every Community Up for Retirement Enhancement Act of 2019 and the . Sean Jordan, vice president for retirement and income solutions at Principal, says the company has added approximately 9,000 startup plans since the original SECURE Act took effect in January 2020.
Marc Fowler, director of retirement education at Human Interest, cites the SECURE 2.0 Act’s January 2023 implementation date as a key milestone. Since that date, Human Interest has experienced a plan adoption rate among firms with 51 to 100 employees that is 1.7 times greater than the preceding period. Among companies with fewer than 50 employees, the adoption rate since 2023 has been three times the prior rate.
Challenges remain with installing new plans. Sponsors must comply with the regulatory requirements for new qualified retirement plans, as well as the additional SECURE 2.0 requirements, to receive the available tax credits. Another potential hurdle: Businesses must have at least one non–highly-compensated employee to qualify for the SECURE 2.0 tax credit for startup plans, a scenario that could affect some prospective plan sponsors, according to Fowler.
Pooled Plans
SECURE 2.0 retroactively clarified that joining an existing MEP or PEP qualifies as “establishing a plan” for tax credit purposes, regardless of how long the pooled arrangement existed, significantly good news for pooled plans. The Georgetown University Center for Retirement Initiatives estimates that PEP assets will approach $25 billion by year-end 2025, up from $17 billion in 2024 and $9.4 billion in 2023. The 2023 statistics from the U.S. Department of Labor’s EFAST 500 Database indicate that PEP participants are predominantly associated with smaller companies, with an average of 27 participants per employer and account balances of $8,885.
Other sources cite similar growth trends. Grace Peloquin, director of Fidelity Advantage 401(k), which is Fidelity’s PEP, reports that Fidelity’s PEP business saw year-over-year plan asset growth of approximately 117% from 2023 to 2024. Jordan says nearly 70% of the employers participating in Principal EASE, the company’s largest PEP by client count, are new to offering a retirement plan, and about three-quarters have 100 or fewer participants.
State Plans
According to the CRI, as of January 1, 20 states had enacted state-facilitated retirement savings programs for private employers that do not otherwise provide retirement benefits, and those plans—most of which have existed for fewer than five years—had accumulated slightly more than $2 billion in assets by May. That amount remains small compared to the estimated $12.2 trillion total in U.S. defined contribution plans; however, sources report that a state plan’s mere presence can lead more employers to offer their own retirement plan.
Most state-mandated plans, such as those offering an automatic individual retirement account, do not charge direct fees to employers, but employees can incur fixed account fees and asset-based fees. Account fees typically range from $50 to slightly more than $100 per year, and annualized asset-based fees generally range from about 0.20% to 0.50%. In contrast, Vanguard’s Balanced Index Fund Admiral Shares have an annual expense ratio of 0.07%.
Christian Stanley, a partner in Greenspring Advisors, serves on the American Retirement Association’s Legislative Relations Committee. Stanley observes that new 401(k) plan growth has proliferated in states that have launched or are launching state-run retirement plans. Greenspring Advisors is based in Maryland, and Stanley points to his firm’s experience with local businesses as an example of the influence the state-run MarylandSaves mandate’s has on employers’ thinking.
MarylandSaves, sponsored by the Maryland Small Business Retirement Savings Program, is an instrument of the state that offers participants a state-administered payroll deduction Roth IRA.
Because of the state mandate, each private Maryland employer was forced to consider their options for offering a retirement benefit, Stanley explains. They could join the no-cost (other than setup fees and contributions), no-fiduciary-liability MarylandSaves IRA program or design their own retirement plan. Tax incentives would reduce plan set-up costs, but the liability of sponsoring a retirement plan would remain.
“Faced with these options, the organizations’ decisions weren’t cut and dried,” says Stanley.
But Williams believes that some small businesses do not want to be seen as merely complying with their state’s mandate.
“It is tough to recruit and retain quality talent,” he notes. “If a small business is using the [SECURE 2.0 Act] tax credit to create a well-designed, low-cost, efficient plan, they know they have a competitive advantage against an employer using a high-fee, low-service, state-run IRA.”
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