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The retirement plan landscape continues to evolve rapidly, presenting unique challenges for small and mid-sized 401(k) plan sponsors. As we step into 2025, the stakes are higher than ever. Regulatory changes, market volatility and shifting participant expectations require sponsors to adapt and innovate. Here are the top five challenges plan sponsors are facing in 2025 and actionable ways to address them.

1. Dealing with regulatory compliance and enhanced oversight

The SECURE Act 2.0 and other regulatory updates have introduced new requirements, from mandatory automatic enrollment to updated contribution limits and student loan repayment matching. Staying compliant while managing operational complexities is a top concern.

How to address this:

• Engage experts: Partner with third-party administrators (TPAs), legal advisors or consultants to conduct regular compliance audits.

• Educate plan committees: Ensure all stakeholders understand new regulations through targeted training.

2. Increasing participation and contributions

While automatic enrollment has increased participation rates, many plans still face challenges boosting contributions and engaging non-participating employees, particularly in industries with high turnover.

How to address this:

• Enhance communication: Use targeted messaging that highlights the value of retirement savings and provides personalized retirement readiness projections.

• Offer financial wellness programs: Implement workshops or online tools to educate employees about budgeting, debt management and long-term planning.

• Review plan design: Consider adding automatic escalation or incentivizing participation with employer matching contributions.

3. Managing market volatility

Market uncertainty remains a major challenge for participants and sponsors alike. Sponsors must ensure investment menus balance growth potential with risk management to provide employees with confidence in their portfolios.

How to address this:

• Diversify investment options: Offer target-date funds, stable-value funds, and environmental, social and governance (ESG) options to meet diverse participant needs.

• Provide education: Host seminars or provide resources that teach participants about long-term investing principles and the importance of staying invested during market downturns.

• Engage advisors: Work with a fiduciary advisor to regularly review the plan’s investment lineup and monitor performance.

4. Balancing costs and value

Small and mid-sized businesses often struggle to balance the cost of offering a 401(k) plan with the need to provide a competitive benefit that retains and attracts talent.

How to address this:

• Benchmark fees: Regularly review fees to ensure they are competitive without sacrificing quality.

• Explore tax credits: Take advantage of tax incentives under SECURE 2.0, such as credits for starting new plans or adding auto-enrollment features.

5. Adapting to evolving participant expectations

Today’s workforce expects personalized and technology-driven retirement solutions. Younger employees in particular value mobile-friendly platforms, ESG investment options and holistic financial wellness.

How to address this:

• Upgrade technology: Offer mobile apps and online platforms that allow participants to easily track and manage their retirement savings.

• Introduce ESG options: Add sustainable investment funds to your lineup to appeal to employees interested in socially responsible investing.

• Personalize engagement: Use data analytics to deliver customized communication and support based on participants’ life stages and savings goals.

Looking ahead

401(k) plans remain a cornerstone of employee benefit packages, but plan sponsors must be proactive to meet the demands of 2025. By staying ahead of regulatory requirements, enhancing participant engagement and leveraging technology, sponsors of small and mid-sized plans can create programs that not only comply with the law but also empower employees to achieve their retirement goals.

Plan sponsors who embrace these challenges as opportunities will set themselves apart as employers of choice while helping their workforces secure brighter financial futures.

Are you facing any of these challenges or exploring solutions? Connect with an experienced financial advisor to discuss strategies that align with your organization’s goals.