The past decade has been exceptionally favorable for US defined contribution (DC) retirement plans. The retirement solutions providers—also known as retirement recordkeepers—that administer DC plans on behalf of various employers have experienced consistent revenue growth over this period, as plans have become more accessible and equity market performance has been strong.
Now, things are changing. The retirement industry is approaching a tipping point due to demographic shifts, industry developments, and increased competition—all of which are hitting retirement recordkeepers’ profitability and reshaping how they do business.
DC plans, which were designed for hyperefficient wealth accumulation, are now in a decumulation phase: As baby boomers retire and their withdrawals outpace younger savers’ contributions, the DC system is showing net outflows—a trend that’s expected to intensify as the number of people turning 65 is projected to peak in 2026–27.
Moreover, the industry’s entire business model has shifted. Retirement recordkeepers’ revenues from administration fees have been declining as they have substantially reduced these fees to win new business. At the same time, cross-subsidized business models have become more common, as some retirement solutions providers view the recordkeeping part of their business as a way to generate additional revenue streams, such as those from wealth and asset management. The retirement and wealth management industries have been converging quickly, with retirement solutions providers moving to diversify their revenues with ancillary products such as brokerage accounts and services such as financial advice, for assets within employer-sponsored plans and outside these plans.
However, while the size of the DC market shows a consistent upward trend, the underlying economics of the system has undergone a significant transformation below the surface. Total revenues generated from the DC system—including investment products and recordkeeping—grew by $11 billion between 2013 and 2023, from $28 billion to $39 billion. Over the same period, the DC system created $45 billion in new revenues from retail wealth management. These figures underscore the industry’s shift from product-centric to participant-centric strategies (Exhibit 1). Retail wealth includes rollovers into individual retirement accounts (IRAs) and crossover sales to plan participants of products such as brokerage accounts, both of which we explore in more detail later in this article. In contrast to the significant growth in retail wealth, the industry’s revenues from both recordkeeping and investment products have increased about 3 percent a year, on average—but this was largely due to market appreciation, as fees in both areas declined because of various factors.
In this article, we first explore the trends that have shaped the retirement solutions sector. Next, we turn to the challenges facing the industry, including changes in the revenue and profitability mix and steadily rising costs. Finally, we lay out the key steps providers can take to achieve success in both the core recordkeeping business and new sources of growth.
Trends affecting the retirement industry
The United States has the most retirement market assets in the world, estimated at roughly $36 trillion as of 2024—including assets in corporate, governmental, and not-for-profit DC plans, as well as corporate and public defined benefit plans and IRAs—up from about $20 trillion in 2013. Approximately 67 percent of US private-industry workers have access to a DC plan, and about 49 percent participate, according to the US Bureau of Labor Statistics (BLS). In a DC plan, employees contribute money to be saved and invested in various investment vehicles, with employers often matching those funds up to a certain percentage of employees’ salaries (see sidebar, “What is the defined contribution system?”)
Access to—and use of—DC plans has grown in recent years, partly thanks to plan features such as automatic enrollment and automatic escalation, which periodically increases employee contributions, and to legislation designed to boost retirement savings, including the SECURE Act and the SECURE Act 2.0 (which became effective in 2020 and 2023, respectively). Assets under administration (AUA) and participation in DC plans have also grown meaningfully, thanks to strong equity returns during the past decade, helping to accelerate revenue growth for DC recordkeepers. Between 2013 and 2023, AUA in DC plans rose 74 percent, while total revenues grew 39 percent.
Demographic shifts are now putting pressure on the retirement industry’s growth potential and profitability. About 11,200 Americans turn 65 every day, which adds up to more than 4.1 million people annually in the years from 2024 to 2027. At the same time, more of them keep working, partly to afford retirement. According to the BLS, roughly 11.1 million Americans over 65 were employed in January 2025, up from about 9.9 million in January 2019, illustrating the importance of retirement readiness and retirement solutions providers’ role in this pivotal process. Because of baby boomer retirements, the DC system is set to remain in net outflows until 2030, meaning that DC asset growth during this period will be driven primarily by market performance.
Retirement solutions providers also face intensifying competition, both within the industry and from other ecosystem providers—such as asset managers, insurers, and wealth managers—that are jockeying to serve retirees and people saving for retirement.
Two major challenges for recordkeepers have emerged amid these evolving dynamics:
- A shift in the revenue and profitability mix. Retirement solutions providers are earning less in administration fees from DC plans and are increasingly relying on revenue from ancillary products and services to maintain profitability. While total revenues generated from the DC system—including from investment products and plan administration—grew about 40 percent between 2013 and 2023, the underlying economics of the system experienced a significant transformation below the surface, with administration fees declining because of factors including increased competition among recordkeepers.
- Cost pressures. Rising expenses for support functions and technology, driven primarily by inflation, have prompted providers to restructure their spending to maximize profitability, while also looking at various options to lower costs, including digitization, offshoring, and outsourcing. At the same time, the overall average cost per participant has fallen due to greater economies of scale and the productivity focus of most recordkeepers over the past decade.
Other trends affecting the retirement industry include continued consolidation and private equity interest. Many retirement solutions providers have used acquisitions to achieve greater economies of scale and mitigate the effects of fee compression. Leading firms have expanded their market share: As of 2023, the top ten DC recordkeepers accounted for 78 percent of total industry assets, up from 56 percent in 2013.
Shifting revenue and profitability mix
Retirement solutions providers generate revenues from traditional recordkeeping, including administrative and other fees; investment products such as investment management fees for actively managed funds; and retail wealth management products, for example, brokerage accounts and cash sweep products.
Declining recordkeeping fees
The industry experienced notable compression in recordkeeping administrative fees, roughly 25 to 35 percent, between 2013 and 2023. The reasons for this trend include recordkeepers significantly lowering their fees to attract business in response to increased competition, tighter regulations that have led to the unbundling of retirement products and services, increased litigation over fees, and a greater prevalence of cross-subsidized economic models. In these models, a recordkeeper heavily discounts retirement plan administration fees to generate revenues from other sources, such as wealth and asset management—for example, by offering their own investment funds or through revenue-sharing deals with other providers.
Concentrated profitability in recordkeeping
Profits from traditional recordkeeping are concentrated, with more than 75 percent of industry profits in 2023 coming from three segments: small and micro 401(k) plans for corporate employees, 403(b) plans for not-for-profit employees, and 457(b) plans for state and local government employees (Exhibit 2). Mega and large 401(k) plans generated just 3 percent of profits because of rising costs and falling revenues.
Slight growth in investment product revenues despite massive market appreciation
Retirement solutions providers rely on three main sources of revenues from investment products: asset management, with fees typically based on assets under management (AUM); stable value funds, which are portfolios of bonds backed by a contract from a bank or insurer that protects against the loss of principal; and managed accounts, which provide participants with a personalized mix of investments.
Between 2013 and 2023, recordkeepers’ revenues from investment products within retirement plans, excluding managed accounts, grew 3 percent a year. However, this was primarily the result of market performance, as fees steadily declined (Exhibit 3).
Wealth management takes the spotlight
Retirement solutions providers’ ability to generate retail wealth management revenues has continued to grow rapidly, significantly outpacing growth in investment products and administrative fees (refer to Exhibit 1). Retail wealth revenues soared to $45 billion in 2023 from a negligible amount in 2013. Many retirement solutions providers are focusing on these alternative revenue sources, using the DC plan platform as a distribution channel for products and services, including brokerage accounts, cash sweep accounts, and robo and traditional advisory. Assets flow into retail wealth management accounts in two main ways: crossovers, where retirement plan participants open another account with their recordkeeper to manage out-of-plan assets, and rollovers. People who leave an employer can roll over their 401(k), either into a new employer’s 401(k) plan, if the plan allows, or into an individual retirement account (IRA). Retirement solutions providers make money from IRA rollovers through a combination of fees and opportunities to offer these participants other products and services.
Annual rollover contributions to IRAs steadily increased between 2013 and 2022, more than doubling over that period to about $770 billion before declining in 2023 because of various macroeconomic factors. Rollovers to IRAs generated $4.5 billion in revenues for retirement recordkeepers in 2023, presenting a continued opportunity for growth given the overall trajectory of this segment.
According to the 2024 McKinsey US Plan Participant Survey, the top five reasons for rolling over assets from employer-sponsored retirement plans into IRAs are as follows:
- a job change
- consolidation of retirement accounts from several jobs into one IRA
- a recommendation from a financial advisor
- retirement
- improved investment options
Demographic trends are likely to create more opportunities for retirement recordkeepers to generate revenues from rollovers. Job changes and account consolidations remain the primary reasons participants roll over their assets, a trend that’s likely to persist as younger workers, who more frequently change jobs, increasingly consolidate their employee 401(k) accounts. The wave of baby boomer retirements is also likely to result in more rollovers into IRAs, which can offer broader investment options and portfolio diversification than simply keeping the funds in a 401(k). According to the 2024 McKinsey US Plan Participant Survey, only about 50 percent of retirees who roll over their assets from an employer-sponsored plan to another account do so with their current retirement plan provider, indicating room for growth for recordkeepers to keep more of these assets. To improve their chances of capturing annual rollover contributions to IRAs, recordkeepers can take steps such as reducing bottlenecks in the fund transfer process and making rollovers more intuitive and seamless for plan participants.
Retirement solutions providers are also benefiting from crossovers, seeing rapid increases in assets within retail accounts, largely driven by the increasing share of plan participants opening retail accounts with them. The 2024 plan participant survey showed that 13 percent of respondents had retail accounts with their recordkeepers. In 2023, recordkeepers generated $7 billion in revenues from retail crossovers, according to our estimates.
The share of participants with retail accounts is growing for two main reasons. First, from a supply perspective, retirement solutions providers are proactively offering retail products when participants open employer-sponsored accounts. According to the 2024 plan participant survey, about 55 percent of respondents said the recordkeeper offered other products when they opened an employer-sponsored account. Nearly one-third of participants opened a second investment account with the same recordkeeper; of those, 47 percent did so in the initial application or on the same day.
Second, from a demand perspective, more than 60 percent of survey respondents said they were open to receiving financial advice from the recordkeeper running their employer-sponsored retirement plan. Unfortunately for retirement solutions providers, most participants in employer-sponsored plans can’t name the provider running them. This leaves a lot of room for growth for providers to engage with plan participants and create a more memorable impression, with an excellent customer experience—including digital and self-service options—being a key differentiator.
Transforming cost structures
Retirement solutions providers’ average costs per participant decreased 1 percent a year between 2013 and 2023; however, costs related to technology and support functions such as finance, HR, and legal have increased largely due to inflation, prompting a restructuring of expenditures to boost profitability (Exhibit 4).
The cost per participant is an important measure of how unit costs within the retirement ecosystem have shifted over the past decade. The following drivers are noteworthy:
- Sales is the largest cost category, driven by the high external commissions paid to financial professionals who help bring in new business. However, this cost category has decreased 2 percent per year, on average, as the industry has shifted from solely commission-based advisors to a mix of commission-based and fee-based advisors.
- Technology support, including both in-house and outsourced services, represents the second-largest cost category. Although many retirement solutions providers have shifted from in-house to outsourced tech support, this move hasn’t resulted in notable efficiency gains, given ongoing quality and customer experience concerns. Per participant, in-house tech costs have slightly decreased, while third-party vendor costs have risen, reflecting the shift toward outsourcing services.
- The cost categories that experienced the largest increases were support functions, rising 5 percent a year, and other indirect costs, including operational, administrative, and facility costs, growing 1 percent a year. This growth has been primarily driven by market inflation and increased spending due to regulatory requirements.
As the industry’s recordkeeping administration fees continue to fall, being vigilant about expenses is critical to maintaining a competitive edge and creating capacity for investing into growth areas. In addition to the traditional outsourcing and offshoring levers that the industry has employed in the past decade, AI solutions, including gen AI and machine learning, offer new ways to improve productivity. Reimagining workflows from end to end in various back-office functions, such as call centers, operations, and technology, can help unlock greater productivity benefits and improve the experience for participants and sponsors.
From administration to new profit pools: Key considerations
Given the evolving industry dynamics, it is imperative for retirement solutions providers to optimize their core recordkeeping business and move into adjacent revenue streams to remain competitive and grow profitably. Generating additional revenue streams requires relationship building at the participant level, which has historically been challenging given the limited connection and general lack of awareness that plan participants typically have with their retirement solutions providers.
Retirement solutions providers can take various steps to capture value from their relationships with plan participants, boost participants’ satisfaction, and, consequently, improve their reputation and participant retention rates.
Within their core retirement business, recordkeepers can take the following actions:
- Assess plan-level profitability for the current book of business, focusing on segmentation by the plan sponsor’s industry and size, to outline future areas for growth. This type of planning is particularly important in an environment with net outflows from the DC ecosystem.
- Define a winning small business strategy that allows for growth by focusing on the highest-margin subsegments, while also maintaining an efficient cost structure through high automation and low customization.
- Simplify the IRA rollover process and lower barriers by offering personalized consultations and financial-planning services to review retirement plan options and streamline the fund transfer process. In our 2024 survey of plan participants, only 47 percent of respondents said they were satisfied with the rollover process. Participants were dissatisfied with rollovers primarily when reviewing retirement plan options and transferring funds.
- Use AI and other technology to offer features and services that are easy to use and enhance plan participants’ user experience. Across the industry, respondents to our survey were most dissatisfied with their retirement solutions providers’ website chat function, education and communications, and mobile app.
- Determine which services to outsource and which to keep in-house, weighing the need to balance cost savings and participant satisfaction, as well as considering tech tools that can significantly improve productivity, such as gen AI and machine learning solutions.
When it comes to building new sources of revenue, providers can consider these steps:
- To serve plan participants who wish to keep their assets within the plan through retirement, provide options such as in-plan annuities or technology-driven custom decumulation solutions (for example, options that allow retirees to create tailored withdrawal schedules based on their needs).
- To manage decumulation of assets and ensure retirement readiness, establish a retiree counseling service-to-sales team to proactively share options for keeping assets within the plan following retirement or transferring them to affiliated solutions, such as annuities or wealth management products.
- Pursue product innovation, such as developing retirement income solutions that are not tied to an employer-sponsored plan—including annuities, IRAs, and life insurance products—depending on the recordkeeper’s ownership structure (independent, insurer-owned, or owned by an asset or wealth manager).
- Use sophisticated marketing tools to build brand awareness and relationships with people saving for retirement, including sharing thought leadership and coaching on topics such as the implications of various savings options, saving and planning for important life events, regulatory changes, and required minimum distributions.
- Offer plan participants financial advice through an omnichannel strategy, based on participant wealth bands and preferences, for both rollover and crossover assets. This can include digital channels such as email, text, and social media, as well as personal interactions through employer-specific meetings, webinars, and trainings. Because more than half of plan participants said they would be comfortable receiving financial advice from their retirement solutions provider, this could be the first of many threads for retirement recordkeepers to follow as they seek to unlock new revenue sources.
The retirement industry is, and will continue to be, a critical component of the financial-services ecosystem and society more broadly. The industry’s gradual transformation will keep the challenges coming for incumbent business models, while also creating new opportunities for growth. The most successful retirement solutions providers will be those that seize the moment in an industry at a crossroads and benefit from shifts both within the core recordkeeping business and in adjacent markets with broader growth potential.
“Our firm is designed to operate as one—a single global partnership united by a strong set of values. We are equally committed to both sides of our mission: attracting and developing a talented and diverse group of colleagues and helping our clients create meaningful and lasting change.
From the C-suite to the front line, we partner with clients to help them innovate more sustainably, achieve lasting gains in performance, and build workforces that will thrive for this generation and the next.”
Please visit the firm link to site