The small and micro 401(k) plan segments are expected to surge over the next five years as incentives from SECURE 2.0 and new state mandates expand retirement coverage to millions of additional American workers, according to Cerulli Associates’ latest Cerulli Edge—U.S. Retirement Edition. 

Cerulli projects that the total number of 401(k) plans will exceed one million by 2029—a 36% increase from current levels. Much of this expansion will come from the micro plan segment, which is on track to represent 92% of all plans by the end of the decade, driven by new plan formation among small businesses. From 2018 to 2023, roughly 150,000 new 401(k) plans came online, with nearly two-thirds of those added in 2021 and 2023 alone. 

“Micro plan sponsors are more cost-sensitive than larger employers and place more emphasis on brand,” said Chris Bailey, Director, Retirement at Cerulli. “Retirement income options and financial wellness are lower priorities when considering which recordkeeper to work with.” 

As this micro market expands, recordkeepers will need to refine their strategies to serve cost-conscious, time-strapped small business owners. Digital-first recordkeepers are already gaining share with streamlined onboarding, efficient technology platforms, and competitive pricing—an advantage for addressing the top priorities of small plan sponsors: affordability, simplicity, and ease of implementation. 

Wealth advisors are also expected to play a growing role in driving micro plan adoption. Many advisors, encouraged by their home offices, see small business retirement plans as an opportunity to deepen client relationships and grow assets under management. “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,” Bailey noted. “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.” 

Cerulli expects the competitive landscape to evolve significantly, with providers investing in small business data to identify and target employers who still lack a retirement plan. With SECURE 2.0 and expanding state-run IRA programs accelerating plan formation, the race is on for recordkeepers, digital platforms, and wealth managers to capture this large and underserved market.