The “butterfly effect” created by MIT meteorologist Edward Lorenz postulates that small events that are part of an integrated ecosystem could have large effects. He contends that the flap of a butterfly’s wings in Brazil could set off a chain of atmospheric changes that eventually cause a tornado in Texas weeks later.
Similarly, the advent of state mandates requiring employers to offer a retirement plan has sparked an explosion in plan formation, causing tremendous change within the defined contribution industry.
According to the Georgetown Center for Retirement Initiatives, since 2012, 49 states and the District of Columbia have acted to implement a new program, study program options, or consider legislation to establish state-facilitated retirement savings programs.
As of June 1, 2026, 22 states had enacted new programs for private-sector workers. Recent Pew Research reports that state-facilitated savings programs continue to complement the private retirement plan market and do not inhibit or compete with private plan formation, even years after a program goes online. Cerulli predicts that DC plans will top 1 million by 2029, with plan growth double the past five years and 92% in plans with less than $5 million.
The effect of state plans will exponentially increase if there is a federal mandate causing fundamental changes, which have far-reaching effects for advisors, distributors, providers and asset managers alike.
Beyond more plans, there will be more participants, employers, providers and advisory firms touching 401(k) plans. Broker/dealers have been trying for decades to get their wealth advisors to leverage relationships with business owners and executives whose companies offer a 401(k) plan. With more wealth clients asking for help and the growing ability to find new wealth clients, more wealth advisors are leaning into DC plans.
Though building the bridge is hard, as explained in a recent Cerulli white paper commissioned by Morningstar, the 50,000+ wealth advisors who do are more profitable according to NMG Consulting. It is easier for a wealth advisor to do retirement than a retirement plan specialist to do wealth, especially with the aid of their home office and TPAs. Because DC plans are rules-based, relying on data, they are ripe for innovation and efficiency through tech and artificial intelligence.
There are simply not enough advisors ready, willing and able to serve all these new plans. Wealth advisors, who outnumber RPAs by 25x, that cut their teeth on smaller plans will continue to move up market, competing with specialists able to offer lower plan fees because they are leveraging participants, which can be enabled by tech and AI. Relationships trump knowledge and experience.
There are almost 1.4 million insurance agents, brokers and service employees at insurance marketing organizations as of 2024, many of whom are interested in working with small business owners and offering annuities to retirees, with individual sales breaking records. Many of these agents, whether independent or with larger firms, act as employee benefit brokers and work with many employers. Other than benefit firms that have bought RPAs, no one has focused on DC plans to date.
Provider business models will need to change as well. Just as TPAs helped advisors 25 years ago sell and service 401(k) plans, they will be key partners for wealth advisors, a sgement that will only grow with the explosion of plan formation, resulting in PE firms intensely interested in acquiring TPAs. Traditional record keepers are growing their TPA partnerships as they look to outsource and lower service costs, epitomized by Fidelity’s entry in 2024.
Similarly, traditional record keepers whose tech and business model have made it difficult to make money with start-ups and smaller plans within the first three to five years, when many of these employers either sell or fail, need to either upgrade tech and change their business model or partner like Manulife John Hancock has done with Vestwell. Who would have ever thought that there would be a new crop of record keepers formed, but fintechs led by Vestwell, Human Interest, 401Go, Gusto (formerly Guideline), and now Basic Capital have raised billions in capital and are picking up where traditional record keepers have left off.
PEPs are starting to take off, and it only makes sense that many smaller plans will join group plans, especially as firms like Paychex, Transamerica, Voya and The Standard sell aggressively.
The butterfly effect of state mandates may not be good for many asset managers as PEPs, fintechs and payroll providers tend to use index funds, tending to use name brands. The move to 3(38) will only accelerate and could increase the use of 3(16) services for those that do not join a PEP.
Overall, more people will be investing in the stock market and become more aware of what investing means—more will have access to advisors, advice, tools and technology at work overseen by at least one and maybe two fiduciaries they would otherwise not have.
Just look at the effect of Robinhood, which has 28.6 million customers and a market valuation of almost $89 billion, with under $5 billion in 2025 revenue, which was a 52% increase from 2024. That should get the attention of advisors and providers who complain about low margins.
