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For New 401(K)S, Small Is Beautiful


Special Report (Enterprise) IN BOX

FOR NEW 401(k)s, SMALL IS BEAUTIFUL

Small companies are embracing retirement plans like never before, opening up the last frontier for 401(k) providers along the way. Last year, a new Internal Revenue Service report shows, the number of workers with 401(k) plans leaped by a record 5.9 million people--a nearly tenfold increase over the previous year's growth. Industry experts believe small business accounted for most of the surge.

"This is a brand-new phenomenon," says David Wray, president of Profit Sharing/401(k) Council of America, an association of retirement-plan sponsors. He sees two major reasons: Small businesses are realizing that a plan can help lure talent, and many of those making decisions about benefits are now baby boomers who are generally suspicious of Social Security. Also, growing education about retirement plans and a tight labor market have combined to make employees more aware of 401(k)s and less tolerant of jobs that don't offer them.

"These factors are coming to a unique juncture and causing an explosion in retirement plans," says Wray.

Now, more than 22 million people are covered by those plans, but that's still only a quarter of the potential, according to Access Research Inc. With huge companies tapped out, it's no wonder brokers are tailoring new plans for small businesses.

Dreyfus Corp. is targeting companies with 50 to 150 employees. Charles Schwab Corp. debuted in the 401(k) market in April with a bundled plan that offers smaller employers choices once reserved for the big guys. The broker has designated 23 salespeople to pitch the virtues of helping workers build nest eggs. The question Schwab Executive Vice-President John Philip Coghlan hears most often: "Where have you been?"EDITED BY I. JEANNE DUGANReturn to top

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