Trends

How Ultrasmall Employers Are Embracing Retirement Plans

Chris Magno

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Ultrasmall businesses are adopting 401(k) plans and offering retirement benefits more than ever before. Discover what's behind this trend and how your business may benefit from an introductory benefit plan.

Ultrasmall businesses with one to nine employees represent the fastest-growing segment of retirement plan sponsors today.

According to a recent article by the Plan Sponsor Council of America, nearly 150,000 new 401(k) plans launched between 2018 and 2023, with two-thirds added in 2021 and 2023 alone. By 2029, micro plans are projected to account for 92% of all 401(k) plans.

What's driving this growth?

Legislative changes have helped ease start-up costs and ongoing expenses, while also making plans easier to manage.

Tax incentives: SECURE 2.0 legislation provides a tax credit to cover 100% of start-up administrative costs for the first three years of a new plan for eligible employers with 50 or fewer employees. It also provides tax credits for offering an employer matching contribution and for automatic enrollment. Plus, participants who make pre-tax 401(k) deferrals lower their taxable income and may be eligible for a tax credit.

Pooled employer plans (PEPs): Under SECURE 2.0, PEPs now qualify for tax incentives when established as a new plan. This collective plan structure is a great option for smaller companies to reduce costs, simplify management and minimize fiduciary risks.

State mandates: More than 50% of U.S. states have proposed or active legislation in place, mandating that certain private-sector businesses participate in state-facilitated programs or sponsor a private plan. This is prompting many employers to establish competitive private plans that better suit their needs and goals.

Retirement plans have a big impact on small employers

Retirement plans deliver significant value to ultrasmall businesses competing for talent by providing high-value benefits such as those listed below:

Recruiting and retention

A retirement plan serves as a powerful tool to attract and retain motivated employees with the financial benefits they want and need.

Employee engagement

Retirement benefits can increase overall employee engagement, productivity and satisfaction by helping to ease financial worries.

Simplified administration

From embedded payroll integration to automatic enrollment, today's retirement solutions offer the technology to manage and maintain plans with confidence, reduce errors and meet employees' goals.

Financial wellness

Providing a retirement plan helps employees work toward overall financial wellness, showing employees that their employers care about their retirement readiness and financial security.

Retirement benefits made simple

For ultrasmall employers ready to offer a plan, ADP offers a smart, affordable solution. ADP Starter-k Complete delivers competitive retirement benefits without the complexity of a traditional 401(k) plan:

• Automatic enrollment: Employees must be enrolled at a 3% deferral rate with required annual increases, making it easy for them to start saving.
• Built-in fiduciary protection: Embedded 3(16) administrative and 3(38) investment management services handle complex fiduciary responsibilities.
• Employee flexibility: Roth contribution options provide tax diversification, while loan and hardship distribution features give employees access to funds when life's challenges arise.
• No employer match and lower employee contribution limits: Exempting you from annual compliance tests applicable to traditional 401(k) plans.

Getting started with ADP

There's never been a better time for ultrasmall employers to add a retirement plan to their benefit offerings.

ADP's Starter-k Complete plans offer straightforward, transparent pricing:

• 0-4 employees: $100/month and $0 per participant fees
• 5+ employees: $100/month + $5 per participant

To learn more about ADP Starter-k Complete, contact an ADP retirement services specialist or call (800) 432-401K.

^{* ADP Strategic Plan Services, LLC (SPS) may speak to any investment management or advisory services provided by SPS or any third party in connection with such ADP retirement products. SPS is an SEC Registered Investment Adviser. Registration does not imply a certain level of skill or services. A 3(38) fee is the fee for an SPS professional investment manager to take full legal responsibility and discretionary control over the investment decisions within your retirement plan.}

^{ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.}

^{M-862029-2026-01-09}

^{Plan Sponsor Council of America, Micro 401(k) Plan Market Growth to Increase Rapidly, 2025}