Key Takeaways
- Nearly six million employees at small businesses have gained access to 401(k) plans since 2019.
- The numbers have surged due to federal legislation reducing the financial barrier to launching a 401(k).
- Small businesses also want to stay competitive and are using 401(k) plans as a recruiting tool.
Small businesses are rapidly becoming some of the biggest new adopters of 401(k) plans, opening up retirement coverage to millions of workers who have historically had little or no access to employer-sponsored savings.
Gusto, a payroll and benefits provider that works with smaller employers, estimated in a report released on Saturday that the number of workers at small firms with access to 401(k) plans has jumped by nearly six million since 2019.
The report, viewed by The Wall Street Journal, estimated that 21.2 million employees at firms with two to 99 workers have access to a 401(k) account, up from 15.6 million in 2019. Small businesses employ roughly 62 million Americans.
In comparison, 90% of workers at firms with over 500 employees have a retirement plan, according to Department of Labor data. That percentage has stayed consistent since 2019.
Industry research suggests the “micro-plan” market, or plans sponsored by employers with only a handful of workers, is set for especially fast growth. Research and consulting firm Cerulli Associates predicts that there will be nearly one million smaller 401(k) plans by 2030, a 30% increase from an estimated 772,000 plans today. Ceruli states that small businesses will be the main growth driver, leading more employees to adopt retirement plans over the next five years.
Why 401(k) plans interest small businesses
Retirement plans are now showing up at places that traditionally offered only a paycheck: farms, fitness and sports clubs, small professional offices and other Main Street operations. The expansion is starting to close one of the biggest gaps in the U.S. retirement system, where workers at large corporations long enjoyed access to tax-advantaged savings while many small-business employees did not.
A key driver of growth is a generous package of federal tax incentives created by the original SECURE (Setting Every Community Up for Retirement Enhancement) Act, signed in 2019 and expanded by SECURE 2.0 in 2022. For example, for employers with up to 50 workers, SECURE 2.0 covers 100% of 401(k) startup costs through tax credits, up to $5,000 per year for the first three years. That effectively allows many small firms to launch a plan with little to no net out‑of‑pocket administrative expenses.
Competitive dynamics in the labor market are just as important. In a volatile hiring environment, small-business owners increasingly see a 401(k) as a necessary benefit rather than a luxury, per the WSJ.
Vanguard’s small‑plan data shows that assets in small-business retirement plans rose from an average of $2.9 million in 2022 to $3.9 million in 2024, reflecting both market gains and increased employee contributions. For a small firm trying to keep mid‑career workers from jumping to larger employers, being able to advertise a 401(k) with employer contributions can be a critical recruiting and retention tool, according to the WSJ.
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Key Takeaways
- Nearly six million employees at small businesses have gained access to 401(k) plans since 2019.
- The numbers have surged due to federal legislation reducing the financial barrier to launching a 401(k).
- Small businesses also want to stay competitive and are using 401(k) plans as a recruiting tool.
Small businesses are rapidly becoming some of the biggest new adopters of 401(k) plans, opening up retirement coverage to millions of workers who have historically had little or no access to employer-sponsored savings.
Gusto, a payroll and benefits provider that works with smaller employers, estimated in a report released on Saturday that the number of workers at small firms with access to 401(k) plans has jumped by nearly six million since 2019.
