Breaking the 401(k) Hierarchy Trap: How Plan Reforms and Advocacy Are Leveling the Retirement Playing Field

The 401(k) “Hierarchy Trap” refers to systemic inequities embedded in traditional retirement plan designs that disproportionately favor full-time, high-earning employees while leaving part-time workers, younger generations, and those nearing retirement with inadequate support. As of 2025, the SECURE 2.0 Act and evolving participant advocacy are pushing employers to rethink how plans are structured, aiming to dismantle this trap. For investors, understanding these shifts is critical to identifying companies positioned to thrive—or falter—in a more equitable retirement landscape.

The Anatomy of the Hierarchy Trap

Historically, 401(k) plans have favored stability over inclusivity. Automatic enrollment was optional, eligibility thresholds excluded part-time workers, and contribution limits disproportionately benefited older, higher-earning employees. This created a two-tiered system: full-time employees with steady savings trajectories and part-time or younger workers left scrambling. The result? A widening retirement savings gap that now averages over $200,000 between top and bottom earners, per 2024 data.

But SECURE 2.0's reforms are forcing a reckoning.

Key Reforms: A Blueprint for Equity

1. Automatic Enrollment (AE) Mandates:
   New plans must auto-enroll employees at 3–10% contribution rates, escalating annually. This eliminates inertia for low- and moderate-income workers, who are often underrepresented in voluntary enrollment. Early adopters like Microsoft and Salesforce saw participation rates jump by 15–20% post-AE implementation.

1. Expanded Part-Time Eligibility:
   Reducing the eligibility period for part-time workers from three to two years under SECURE 2.0 opens retirement access to millions in roles like retail, healthcare, and education. Companies with large part-time workforces—such as Walmart (WMT) or Starbucks (SBUX)—now face pressure to modernize plans. Those lagging risk losing talent to competitors offering better benefits.

2. Catch-Up Contributions for Older Workers:
   The $11,250 catch-up limit for 60–63-year-olds addresses late-career savings gaps, but the 2026 Rothification rule for high earners (> $145K) creates complexity. Employers must now manage dual contribution types, a hurdle for smaller firms lacking robust financial infrastructure.

Participant Trends: A New Era of Demand

Participants are no longer passive savers. Recent data reveals:
- 64% of workers cite employer support (e.g., 401(k) matches, financial wellness programs) as critical to financial stability (Schwab 2024).
- 19% of men vs. 12% of women are investing HSA funds for long-term growth, highlighting a need for gender-targeted education.
- Loan defaults fell by 8% in 2024 as balanced portfolios recovered, but hardship distributions rose 3%—a sign of persistent economic anxiety.

These trends signal a shift toward demand for participant-centric plans, not just compliance. Employers failing to address these needs risk disengagement and reputational damage.

Investment Implications: Where to Look

1. Financial Services Firms:
   Companies like Fidelity National Financial (FNF) and Vanguard Group (VGI), which manage retirement plans, stand to gain from increased enrollment and complexity in plan administration. Their stock performance since 2022 (see visual above) reflects early market confidence.

1. Employers with Strong Benefits:
   Firms investing in flexible work options (e.g., Zoom (ZM)) or enhanced 401(k) matches (e.g., Patagonia) may attract top talent and reduce turnover costs.

2. Tech-Driven Solutions:
   Platforms like Betterment or Personal Capital, which offer personalized retirement advice, could see demand surge as participants seek tools to navigate new contribution rules.

Risks to Monitor

• Regulatory Delays: The delayed Rothification rule for 2026 and lingering uncertainty around MHPAEA compliance could strain smaller employers' budgets.
• Participation Gaps: Even with reforms, low-income workers may struggle to save meaningfully at 3–10% rates without employer matches.

The Bottom Line: Equity as a Growth Engine

The 401(k) Hierarchy Trap is not just a moral issue—it's a financial one. Plans that exclude large portions of the workforce risk underfunded retirements, higher loan defaults, and disengaged employees. For investors, backing companies that proactively address these challenges—through better plan design, education, and technology—will be key to capitalizing on a more equitable retirement future.

Investment advice: Consider overweighting in financial services firms with 401(k) administration expertise and employers demonstrating leadership in participant-centric reforms. Avoid companies clinging to outdated, exclusionary plan structures.