Big Rewards Come in Tiny Packages: Why Small Retirement Plans Offer a Huge Opportunity for Plan Providers, Sponsors, and Advisors

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20 August 2015


The size, enormity of needs, and sketchy coverage that characterize the small plan 401(k) market make it something of a greenfield opportunity for entrants, particularly as regulatory reform puts pressure on traditional compensation and fee structures. Nimble and digitally focused firms are staking claims to this lucrative and fragmented market.

In the report Big Rewards Come in Tiny Packages: Why Small Retirement Plans Offer a Huge Opportunity for Plan Providers, Sponsors, and Advisors, Celent explores the ways a new generation of plan providers is making 401(k) administration less painful and costly for companies with fewer than 100 employees, providing them access to services previously reserved for much larger firms.

Small companies employ a third of the American workforce today, but their 401(k) plans, where they exist at all, are expensive, cumbersome to operate, and skewed toward expensive funds. Firms like ForUsAll, Honest Dollar, DreamForward Financial, Capital One Investing ShareBuilder 401k, Employee Fiduciary, and Ubiquity (formerly The Online 401k) have responded to the dearth of adequate infrastructure in the small plan space by rolling out automated platforms that streamline processes and eliminate back office paperwork. Most crucially, they are driving down costs to the benefit of the participant and the small business sponsor, who can now afford to access the flexibility (in terms of plan design and contribution levels) and tax benefits intrinsic to the 401(k).

Looking ahead, small providers will get a tailwind from the imposition by the Department of Labor of a uniform fiduciary standard, with the fee transparency that entails. The entrance into the workforce of the millennial generation, whose self-directed but advice-friendly mindset aligns closely with the technology-driven model propagated by the new generation of providers, represents another potential inflection point.

“Once participants realize the extent to which they are being dunned of their retirement savings, some may change jobs; others will spur their employers to explore new provider options. The voices of these participants will echo loudest at the small end of the market,” says William Trout, senior analyst and author of the report.