Providers Aim for Small Businesses With Online 401(k) Plans

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The same promise of convenience and lower costs that has the online home banking market burgeoning is also causing a surge in financial services companies offering online 401(k) programs for businesses.


Goldk.com, Lexington, MA, is preparing to launch such a service next month that will eliminate the sales charges usually associated with retirement accounts sold by brokers.


"We anticipate that our program will be appealing to the start-up dot-com market," said Troy Shaver, Goldk's vice chairman. "These start-ups cannot afford the big cost of traditional 401(k) services associated with paper processing and heavy phone services."


Goldk enables companies of any size to design and administer their plans online. It can be purchased directly online or bought through a broker in Goldk's network.


Industry leader Fidelity Institutional Retirement Services was the first traditional provider to offer small businesses a retirement program sold and serviced exclusively through the Internet with the launch of e401k in October 1999. e401k is accessible to employers and employees through www.401k.com or www.fidelity.com.


Fidelity's program allows employers to compose an investment lineup from roughly 35 funds, including equity funds, fixed income and money market funds. Fidelity has sold the program to 130 firms with fewer than 100 employees.


Benefitstreet, San Ramon, CA, launched an online service in May called Benefitstreet.com that provides businesses with fewer than 1,000 employees online administration of retirement and health and welfare plans.


"By passing all administrative duties to Benefitstreet online, small businesses can reduce the time it takes to administer a plan inhouse and reduce costs of maintaining a benefits staff," said CEO Sean Callinan.


Benefitstreet's product is marketed through a link to financial adviser network Benefitstreet Pro, sold directly through a proprietary sales force and through online partnerships and affiliate marketing programs. The firm has alliances with small-business portals Onvia.com and Buyerzone.com and with business-to-business sites Inc.com, b2bstores.com and Planetwe.com.


Benefitstreet services 325 401(k) plans, representing 10,000 participants.


Principal Financial Group's Impact 401k.com, launched in March, targets businesses with fewer than 100 employees.


"In a highly competitive marketplace, these smaller employers need to offer a 401(k) plan to attract new talent," said Tom Donnelly, regional vice president of group pension sales at Principal Financial Group. "Larger companies have a larger need for local service representatives to conduct employee enrollment meetings and plan audits, which is not offered through this totally online-administered service."


Impact401k.com offers employers 40 options managed by Principal and affiliate fund families. From this lineup, Principal can recommend an investment lineup of up to 11 funds for the company based on a questionnaire about the plan that the employer fills out on its site.


"Generally, employers don't want to do the homework. They want experts to tell them what to do," Donnelly said.


Once the employer designs the plan, employees get the enrollment materials online and can access their accounts online.


While the number of online plans continues to grow, Ward Harris, managing director of McHenry Consulting Group, a San Francisco-based 401(k) services provider consultant, said start-ups will have a hard time overcoming the lack of brand awareness.


Traditional providers have the brand recognition and client base to expand into this market and can afford to take a loss investing in small-plan services, he said.
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