The passage of SECURE 2.0 in 2022 brought in expanded opportunities for the smaller plan market, including increased tax credits, the starter 401(k) provision, mandated automatic features, and more.
But, as the retirement plan industry grows, how can plan advisors take advantage of this development? And, if it fails, where do plan advisors go from there? “The Big(ger) Opportunities in the Small(er) Market: What Providers Wish Advisors Knew,” at the NAPA 401(k) Summit this week covered these questions and offered views of potential U.S. government involvement.
Speaking on the overall opportunity for retirement plans, Aaron Schumm, founder and CEO of Vestwell, mentioned the increased savings earnings SECURE 2.0 offers to underserved communities—one being small-plan employees. “When you factor in the volume of businesses in the country, over 90% have less than 100 employees,” he said. “That’s where the majority of the underserved exist.”
Yet, even with the passage of SECURE 2.0, the small market is still likelier to have reduced features, matches, and participation rates, along with sub-optimal designs, added panelists. This could potentially stretch the savings gap at a higher rate. As a result, plan advisors should consider additional features.
“We think there is a way to democratize retirement savings,” said David Musto, president and chief executive officer of Ascensus. “This is where the growth is, and this is where the margin is for many organizations. The leading advisor practices and firms are creating comparable levels of scaled liquidity—using smart models of the way they’re organizing themselves, more effectively than they have in the past.”
Panelists emphasized on the current opportunities SECURE 2.0 brings to close the coverage gap in the private sector. If the gap doesn’t shrink, it’s possible the U.S. government could intervene. “In the private sector, we have the opportunity to close this coverage gap,” said Mike Griffin, head of Workplace Wealth Solutions Sales and Relationship Management at UBS. “And if we don’t, then we’ll have SECURE 3.0.”
But before that, advisors should be empowered to work with the small market and small-plan employees to bridge the gap. It might not necessarily begin with retirement savings, but it doesn’t have to. These opportunities to save and bring down debt, whether its emergency savings or student loan debt repayment, will eventually connect individuals to retirement planning, said Schumm in a post-session interview with 401(k) Specialist.
“How do you first get the eyeball, and then step into a process that feels very natural and is not intimidating?” He urged advisors to think about. “Take a step back and just ask, ‘how do we get you engaged?’ Once they’re engaged and they see that they can do this, then they’re hooked. The you start saving more and more.”
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