As of June 30, 2024, there are 20 states that have set up new programs for private sector workers, and 17 of these states are auto-IRA program states.

Employers in auto-IRA states are free to simply provide their payroll to the state to participate in the IRA program, a process which may be simpler and cheaper than sponsoring a new retirement plan. However, increased numbers of employers choose to start a plan instead in response to the mandates, according to new research from Georgetown University's Center for Retirement Initiatives.

While the advisor-sold defined contribution market is already significant, advisor-sold plans will become even more prevalent due to the growth of the micro 401(k) market, according to Cerulli.

Most (57%) of DC recordkeepers indicate that 50%-99% of plans sold in 2023 were sold through advisors, according to Cerulli. Over the next decade, Cerulli projects that wealth advisors will increasingly be involved in selling this growth of plans.

However, changes at the federal and state level are also driving this increase in private sector retirement plan adoption. In 2024, a provision in the SECURE 2.0 legislation permits an employer that is not sponsoring a retirement plan to offer a Starter 401(k) Plan, which does not require an employer match, or safe harbor 403(b) plan to its employees that is exempt from certain nondiscrimination requirements.

In a Starter 401(k) Plan, all eligible employees must be automatically enrolled.  An employee will have automatic deferrals of between 3% and 15% of compensation unless they opt out or select a different contribution level.  Maximum contributions are limited to the lesser of 15% of compensation or $6,000 ($7,000 for those 50 or older), adjusted annually for inflation.

Also, beginning in 2025, another SECURE 2.0 provision mandates that all new retirement plans started in 2023 or later will be required to feature auto-enrollment with some minor exceptions, in an effort to accelerate participation and create earlier savings behaviors.

When retirement plan advisors (with less than 50% of their assets under advisement with employer-sponsored retirement plans) were asked in the Cerulli report where additional support would make them pursue more DC business, 46% of respondents said cultivating wealth management clients from the DC business, and 43% said sourcing plan sponsor clients.

In addition, advisors may seek to sell retirement plans to small businesses, viewing them as an opportunity to build relationships with potential new wealth management clients.

According to Cerulli’s 401(k) participant survey, 25% of 401(k) participants who work with a financial advisor found their advisor through their 401(k) plan provider or plan advisor. As such, 83% of DC recordkeepers say that the percentage of wealth advisors or non-specialist retirement plan advisors who sell plans with their firm will increase over the next three years.

“Recordkeepers and plan advisors have always had to collaborate to serve plan sponsor clients best,” said Chiffer. “For example, 83% of DC recordkeepers polled share participant data with advisors, 64% of DC recordkeepers allow advisors to leverage their financial wellness program, and 24% share all rollover and participant services with advisors. The growth of the micro 401(k) market will further the ongoing convergence of the wealth management and DC plan markets.”

At the same time, recordkeepers and plan advisors are also in competition to capture rollover assets. Nearly half (48%) of recordkeepers indicate that they share only some rollover business and participant services with plan advisors, and 29% retain all rollover business and participant services.

Related: Retirement savings is having a moment: New private and state 401(k) plans are on the rise

Some plans allow employees to keep their money in the plan regardless of the balance, and others force participants to move their money out of the plan. Plan sponsors have a choice in the cashout policy they adopt – they can allow balances of all sizes to remain in the plan, or rollover balances between $1,000 and $7,000 to an IRA and cashout balances less than $1,000.

“We expect that recordkeepers will continue to develop clearer lines of separation with advisors and execute agreements about data sharing, financial wellness, and rollover business to help navigate this potentially competitive environment,” concludes Chiffer.