Small businesses across the country, from family farms to community sports clubs, are increasingly adding 401(k) plans for their workers, addressing a longstanding weakness in the US retirement system.
Access among employees at smaller firms has expanded significantly. Since 2019, nearly six million additional workers at small companies have gained entry to 401(k)-style retirement plans, according to a report released Saturday by Gusto, a payroll and benefits company.
Sherrell Martin, chief executive of Nitram Financial Solutions, is one of those employers. A few years ago, she introduced a 401(k) plan for her accounting and bookkeeping firm, which at the time had six employees and serves professional-service businesses and faith-based schools. Based in National Harbor, Maryland, the firm adopted the plan both to compete for talent and to improve retention. Martin also had personal reasons: after founding the company in 2012, she had postponed her own retirement savings.
“As an accountant, I always advise clients to invest and prepare for the future,” Martin said. “But I realized I wasn’t consistently doing that myself.” Initially, she hesitated because of concerns about employer matching costs and administrative expenses.
Historically, smaller employers have trailed larger companies in offering retirement benefits, largely because of the expense and complexity involved in setting them up. Recently, however, adoption has accelerated. A tight labor market, expanded federal tax credits, and state-level mandates requiring many businesses to provide a retirement savings option have all contributed to the shift.
Some owners who once viewed 401(k) plans as prohibitively expensive are reconsidering. Costs have declined in certain areas, partly due to enhanced tax incentives and the emergence of online providers that specialize in serving small firms—an audience that has traditionally faced higher fees than large corporations.
For years, lawmakers have explored ways to make workplace retirement plans more accessible to small employers, which collectively employ over 62 million Americans. Legislative changes and technological developments have made progress. Among them is the pooled employer plan, or PEP, created by Congress in 2019. These plans allow unrelated businesses to participate in a single retirement arrangement, sharing administrative responsibilities.
At the same time, federal law has begun nudging more workers into participation. Employers that established plans after the end of 2022 must automatically enroll employees, though individuals retain the right to opt out.
“We’re beginning to see real momentum in narrowing the access gap,” said Chris Bailey, who leads retirement research at Cerulli Associates in Boston.
Nitram Financial Solutions pays roughly $2,000 annually in administrative costs. The firm matches 100% of the first 3% of employee pay contributed to the plan and 50% of the next 2%. While several former employees participated and some current hires have expressed interest, Martin is presently the only active participant. She contributes the maximum allowed to her account.
Gusto’s data show that 21.2 million workers at companies with two to 99 employees now have access to a 401(k)-style plan, up from 15.6 million in 2019. By comparison, about 90% of firms with more than 500 employees offer retirement benefits, according to Cerulli, which analyzed Labor Department figures. That rate has remained largely unchanged since 2019.
Looking ahead, Cerulli projects nearly one million small 401(k) plans—those holding less than $5 million in assets—by 2030, a roughly 30% increase from about 772,000 today. Larger plans, those exceeding $5 million in assets, are expected to grow at a much slower pace, around 3%. As a result, small employers are emerging as the primary driver of expansion in the retirement-plan market.
The gains have been particularly notable among hourly workers, lower-income earners, and Black and Hispanic employees—groups that have historically had less access to workplace retirement savings. Andrew Chamberlain, Gusto’s chief economist, said the findings are based on anonymized payroll data from more than 400,000 client businesses nationwide.
Chamberlain pointed to state-level mandates as a key factor. More than 15 states now require businesses to provide a retirement savings option. In places such as Illinois, California, and New York, employers without a private plan must either establish one or enroll workers in a state-sponsored program.
Companies operating in states with such requirements are adopting retirement plans at higher rates than those in states without mandates, Chamberlain said.
For many small-business owners, the 401(k) remains attractive because of its higher contribution limits. In 2026, individuals can contribute up to $24,500 to a 401(k), compared with a $7,500 cap for Roth IRAs commonly used in state-run programs.
Interest in pooled employer plans continues to rise as well. By the end of 2024, there were 340 active pooled plans, according to Cerulli’s Bailey, and the figure is climbing quickly. Cerulli estimates that more than 51,000 employers had joined a pooled plan by late 2024, with roughly half offering a 401(k) for the first time.
Holly Verdeyen, U.S. defined contribution leader at Mercer, said pooled arrangements appeal to businesses of various sizes because they provide professional oversight and the ability to negotiate lower fees. Mercer sponsors a pooled plan that now includes 31 participating companies, up from 19 the previous year.
Together, these developments suggest that while large corporations have long dominated the retirement-plan landscape, smaller firms are increasingly shaping its future.
