Academic journal article ABA Banking Journal

Banks Could Benefit from Web-Based 401(k)s

Academic journal article ABA Banking Journal

Banks Could Benefit from Web-Based 401(k)s

Article excerpt

New research in the trust area shows that web-based programs are emerging as a significant disrupter to the $2.5 trillion defined contribution industry--much as online brokerage trading did before it.

In a study just released, TowerGroup, Needham, Mass., speculated that by 2005, 65% of U.S. companies with less than 500 employees will sponsor 401(k) plans, up from 35% in 2000. The advent of electronic 401(k) initiatives will account for the growth.

"The technology will bring 401(k) plans to the previously underserved micro segment of the market," says Dennis Geru, director of online brokerage and investing services at TowerGroup. Although the study didn't focus on bank involvement, Geru clearly sees opportunity there. "It's a way for banks to cement relationships with their small business customers. Clearly, companies are clamoring for it."

TowerGroup expects that the market will produce either full-service 401(k) providers; new third-party outsourcers for recordkeeping and administration; or creators of new market channels. The latter would function as a kind of virtual "supermarket" for 401(k) programs--funneling assets to money managers and matching plan sponsers to plan providers. It's that channel role that Gem belives is the sweet spot for banks.

"Today, servicing the small business [with 50 or less employees] isn't a profitable market for banks," observes Ceru. …

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